China Has Arrived: A Deep Dive Into China's Tech Surge and Increased Standard of Living with Chris Zhang, Partner & CIO of Interplay Family Office

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May 11, 2023

This week’s episode is a special one. I have a chat with my partner and CIO of the Interplay Family Office, Chris Zhang, to discuss China's remarkable advancements over the past few decades and what its current status looks like.

Chris is uniquely positioned to opine on this topic. He was born in China and spent the first 16 years of his life there, moving to the United States for high school. Since his move, he has visited China annually until Covid-19 halted all travel. After a three year hiatus, Chris visited this past April and was astounded at the progress he witnessed, including how built up his hometown of Zhengzhou had become (known as the iPhone city since they’ve produced most iPhones there).

That’s what inspired this episode. By challenging outdated perceptions and showcasing China's progress, this conversation is meant to highlight the need for a nuanced understanding of China's current status as a global powerhouse.

Here are some of the main topics covered:

  • Education and work ethic: Chris shares insights into his rigorous Chinese middle school experience, highlighting the dedication and discipline ingrained in the system.
  • China's private sector contributes over 50% to GDP more than 80% of employment opportunities, fostering a competitive landscape and driving innovation.
  • China's middle class has grown significantly, with the number of Chinese citizens enjoying a standard of living comparable to the US increasing steadily.
  • Chinese technology companies are making significant strides, particularly in the electric vehicle (EV) industry, with high-quality, affordable EVs gaining popularity globally.
  • China's infrastructure growth has been substantial, with the construction of entire cities and urbanization projects transforming landscapes previously dominated by farmlands and villages.
  • The Chinese currency, the yuan, is gaining prominence, as demonstrated by its surpassing of the US dollar in Chinese cross-border transactions.

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Transcript (this is an automated transcript):

MPD: Welcome everybody. I'm Mark Peter Davis, managing partner of Interplay. I'm on a mission to help entrepreneurs advance society in this podcast. As part of that effort today we're gonna have a very special conversation with my partner Chris Zhang, who's the CIO and head of the family office at Interplay.

Now, Chris's background is particularly unique, uh, in the topic we're cover, which is the rise of China because he is, was actually born and raised in China. Chris came over to the States when he was maybe 16 or 17 speaking literally no English. Uh, you'll hear more about his background as we kind of get into this conversation, but he breezed right through Penn, did a double major, graduated six months early, was one of the top performing derivatives traders at Morgan Stanley.

So when you hear what you're going to hear about the Chinese culture and discipline, you can hear it in the context of his relative. Success in America. Uh, Chris has been here for most of his life now. Uh, and he is, uh, very much culturally and integrated as an American. He's an American citizen. And so he's very much speaking from the perspective of an American who is going back to visit a homeland.

Now, the, the background for this story, which is gonna kind of lead into what you're gonna hear is Chris used to visit his family once a year going back from the states to China, uh, and then Covid hit. And so it's been for long years since he's gone back, and I think being away from the country for a longer period made the change that's happened in the interim more startling.

So he noticed a lot of change had happened in four years, and he was shocked by it. So he's gonna take us through what he experienced and the big headline, which I think Americans kind of know is coming at this point. We all know there's an if and when. China is at this, at kind of economic parody with the US and then may or may not surpass us.

Uh, the headline is, it's probably already happened. It's probably now. And so we need to, uh, one, understand that and throw away some of our, um, now dated stereotypes that China does, makes inferior technology or they're not operating at the same level. I think that's just the headline you're gonna hear from Chris is from his experience, that's no longer the case.

Part two is whether or not they're a little behind, a little ahead or a parody. It doesn't matter. We are now operating in a world where it's an oligopoly. America is no longer the leading and exclusive world power, uh, and we're sharing that seat with another organization. And so all of the ways we operate internally, think about international politics.

Everything has to adapt. There's pros and cons to all of this. But the goal of this isn't to make anyone afraid. Uh, it's more to make people aware. My great hope in all of this is there's a lot of sword rattling between the two countries right now. Just because another country has economic success doesn't mean we need to go to war with them.

There are a lot of differences in social policy and human rights and values. My hope is we can find more ways to reconcile and live together versus try to kill each other for really no productive end. So with that, I'd like to hand it over to a conversation with Chris Aang to get a very unique American perspective what's happening in China.

All right, Chris, we've got a big day today. I'm, I'm excited about this one. We've been talking about little snippets and bits and pieces of this story since you've been back from your trip. Uh, but to get it all woven together. And to share some of your insights and have a real deeper dialogue, I think is gonna be fascinating.

So, all right. Well take it away. Share your perspective on the latest news out of China.

Chris Zhang: Yeah, I'm looking forward to this one. Let me, um, let me start with my own disclaimers this time. Um, the first thing I will say to everyone is first, I, I'm American. Um, I share the vast majority of the poli political beliefs, the values here.

And, um, I've spent a big chunk of my life in China growing up there. Um, I have, I left at a young age, so I've really, uh, my political beliefs and my value sets are, are more western than, than let's say, uh, versus the ones in China. The second thing, the second thing I will say is I'm not a historian of China and my family does not have any sort of insider access to the government.

We're sort of the definition of upper middle class. And my goal today is really just to be as factual and as objective as possible, but, but know that there's going to be some level of, uh, subjectivity to things we'll be talking about, because I'll be sharing through my own experiences what I saw as an, as an observer having spent, like I said, half, half of my life effectively living in China.

Um, lastly, I do run an ria and the SCC rules are very strict. So know that if I do end up mentioning some companies, I'm simply using them to illustrate a point. And by no means I'm, I'm advocating for, uh, you know, that the audience should buy or sell the company securities. With that, um, let's, uh, let's start the chat.

That's

MPD: very clear. Um, and I, and helpful context because I think there's gonna be folks who hear some of this stuff and. Try to discredit it or just write it off as saying, well, he's from there, he is biased. And there's always that, but it's not, um, the context I think helps clarify that you, you're tending to, to communicate here.

Um, I I think it might be helpful for folks before we dive into your recent experiences in China, just to start with a little bit of your background. Yeah. So you can have that context and the lens through which you're looking.

Chris Zhang: Sounds good. Um, I spent the first 16 and a half years, um, I was born in China and I was raised there until I was 16 and a half afterwards.

I came here, I came to the states for education and, and, and later on became a, a US citizen. I've been a US citizen for, for over 10 years. I, um, in terms of my experience in China, I've given a lot of thought about, about this and I, I really trying to figure out the best way to deliver and describe what it was like, and it turns out.

I think the best possible way for me to do this is actually just through a snapshot of my middle school, let's say a day or a week, and what I was doing there, and I think that really encapsulates my whole experience. So if you don't mind, let me, uh, dive in and sort of describe to you, let's sort of from a first person perspective, what that was like.

Yeah, do it. Um, this is first of all a very special chapter in my life and perhaps this sort of, this is what this is when I was aged 13 to 16. Right. So this period, you know, thinking back is probably what shaped my understanding of sort of meaning and happiness in life. More, more than any other. Um, so I was in China at the time attending this so, so-called military Academy slash boarding school in Honan, my home province, which is about the size of the state of New York, but with 110 million people.

Uh, the school I attended was ranked first out of 5,500 secondary schools in the province. So, you know, smart kids, very competitive to get in. You get the idea. Uh, but at this point, you know, if you're picturing sort of, uh, fancy prep schools in Connecticut or up East side, let me, let me help you, uh, sort of destroy that in mental image a little bit.

The, the boarding school is situated about an hour and a half away from the city center where everyone lives every day. The, the wake up bell is at 6:00 AM sharp. Okay? Just, first of all, you have to really put yourself, think back maybe what you were doing back in when you're age 13 to 16. The wake up bell for me was 6:00 AM sharp.

We would then have exactly 15 minutes to fold our bedding into this perfect rectangular box, put on our clothes, clean up, run down, force, foot, floors, and sprint. Sprint, a quarter mile to this outdoor track area. All that in 15 minutes. What happens if you're late by a few seconds, you, you lose 10 points.

So what happens if you lose a hundred points? You get kicked out at school forever. Okay? That's, that's literally the system,

MPD: a hundred points in one year. So you correct. If you have 10 slipups by a few seconds, you're out.

Chris Zhang: You're out. That's, that's the deal. And after taking attendance, rain or shine, we would then do our one mile morning run every morning rain.

It doesn't matter what day of the year that is, uh, in military formation. And then we do breakfast and then classes. Okay? So every morning sessions like that, a classroom half, um, the size of, you know, a typical classroom. In the US we usually host about 70 to 80 kids. And class day, we run from 7:30 AM to 9:30 PM Okay?

Um, at 9:30 PM we would then usher back to our dorms, and then 10:00 PM 10:00 PM lights out. That's sort of a full day schedule. However, nine outta 10 days, the amount of sort of daily homework in middle school would be so overwhelming that we would have to basically continue doing them in bed wearing this so-called like, sort of like an l e d headland, sort of pictured, like coal miners.

Um, that's, that's sort of, uh, what was like, there was no hot water on campus, no showers, no air conditioning. We would have school just like that six days a week Sunday, 5:00 PM to Saturday, 6:00 PM and we'll exactly have 23 hours every week not in school, and usually seven or eight out out of the 23 hours that we spend at home is spent doing weekend homework.

So you might ask like, so how, you know you're a middle school kid, right? How does the school keep us, uh, on our toes economically? Well, uh, we would have those midterms, so monthly midterms across all subjects over 10 of 'em. And the school would then sort of total up your scores and rank all students from number one to the bottom one.

There are about 800 of us per class, uh, and publish that ranking to all students, all teachers, all parents, and sometime even local newspapers. So you would not have, you would then basically know exactly how your intelligence and potential quote unquote potential compares to everybody else at all times.

Okay. So it's, it's kind of forced you into this fixed mindset. Uh, mark, you're gonna say something. Yeah. So

MPD: you're describing a pretty militant childhood boarding school dynamic, but you also mentioned this was the number one school out of 5,500. Yep. Correct. Were the other 5,500 schools like this too, or was this the outlier?

Chris Zhang: Uh, I can tell you this is not the outlier, so we were the number one mostly because of sort of academic achievement. But in terms of the structure to the school and how you spend your day, the amount of homework, all that is the same. Uh, but you know, if I were in your position, I would ask myself, like, for instance, why would anyone want to send their kids there?

Or, or, you know, why would anyone want their kids to go through this kinda experience when they're

MPD: 13? Sounds a little too intense Exactly. In my American disposition,

Chris Zhang: right? So, um, well, in a country like China, this is really where I really wanna dive in. Education is life. We were part of this one child policy generation and better education.

Not only this means better life outcome for yourself, but also for your family. So for the vast majority of the population growing up, there's just simply no other way to succeed. That's what my experience was like in China and it really encapsulates the whole, all of it. And basically minimal childhood.

Uh, forget about out there and playing. You're just studying, you know, 12 hour, 13, 14 hours a day, starting from when you're 10 is the exam after exam and you're carrying your, your whole family on your, on your shoulders, right? So I think if you sort of see every, um, person in China through this lens, you kind of maybe have a better understanding of why they are who they are and, and what kind of value that they might carry.

Um, yeah, so that's, that was my experience. Sounds

MPD: pretty high stakes and like a lot of pressure is there. Yep. You know, it sounds superhuman. Did everyone rise up to this? Was there like a high suicide rate or did this, was it so, you know, something where this was so pervasive that. It was maybe nor quote unquote normal.

Chris Zhang: Um, this is, this is very normal. And I would say that from a very young age, this idea that, that your life is now your own. It's, it's your whole family. It's your whole community that you're living for is really drilled into you. So, frankly, a lot, I can tell you definitely a lot of mental health problems, uh, from all of that.

But suicide rates as far as, I don't have the numbers in front of me, but as far as I could remember and I could tell is very, very low. Cuz you're, you're just kind of happy to carry it through. This is what life is about and your parents went through this, why not you? Right? So that's the sort of the mentality that everyone had.

Um, yeah, that, that's my experience. And then from that to, to the US where I went to, to sort of, uh, Connecticut for a, a public school, high school, and then later on, um, to UPenn and, and Columbia for, for business school. I would say that the, the hardest period of my life was, was, was at the, you know, when I was in middle school, but also sort of, that's also the same period that, that really taught me a lot about, uh, what family means to me, what education means to me, and, and sort of reset my entire value set.

So that's my very own, my own subjective experience. I kind of maybe, uh, wanna talk about more objectively what China was like, uh, 25 years ago in numbers, in using statistics. Statistics. So, I, I, you know, I looked through, I did some research and here's, here are some numbers I wanna share. The first thing is China's GDP per capita p p P adjusted back in 1998.

Can you define P P P please? P PPP stands for purchasing power Parody. So GDP per capita is a, uh, I think everyone understands, but. You really have to adjust that number by P P P, which is really just a basket of goods that, um, uh, so, you know, in simple terms, it's sort of your living expenses is your actual living cost, right?

It's, it's not enough just to measure what you produce on a per, on a per capita level, but also what that means, uh, to a day-to-day life, right? How, how much an apple in China doesn't cost the same, uh, in, in the us and it could be one 10th the cost, but you, you ingest the amount of calorie, so you really have to adjust for that living expense.

The GDP per capita, P p P adjusted back in 1998 in China was $3,000. The world average for the same year was 7,300. So about 40% of the world average. And in the US for the same year was 30, $37,000, right? So China was, I don't know, uh, 1 13, 1 14 at the time. The next thing I would say is healthcare. So I'm just trying to give, you know, sort of a broad spectrum of, of numbers so people understand what, what was it like, and you can sort of, the prior

MPD: stats.

What, what year are you giving the data for? What, what is that?

Chris Zhang: 1998. So I picked a 25 years ago. That's exactly 25 years ago. I just thought that's a, that's a good accurate number. This is, by the way, um, for those of you who probably don't know Chinese history as much, 2001 is when China joined DW t o. And that's when really it's a, it's a turning point for Chinese economy world trade.

You know, China officially entered into center stage, so really anything before 2001, it's really a different era. So 1998 I thought was a pretty, pretty good year to pick in terms of healthcare. So I used H aq, which is Healthcare Access and Quality Index. This is in 1990. Close, you know, around the same time, uh, China had a score of 49.5 versus US of 73.7.

And just so people understand what this thing measures, it's basically a scale from zero to a hundred that's measuring effectively the death rates from 32 causes of death that are, that could be avoided by timely, effectively medical care, right? So it's a proxy for how good the healthcare SY system is.

China at the time was, was scored at 49 and half the US of 70, 74. So quite a bit of it. Again, um, that's the next thing I wanna talk about is education and literacy. So this is a, a pretty big shocker. So in 1982, China had the chin Chinese literacy rate was 65%. Okay? So 65% of the population or literacy, 79% for men, 51% for women.

The Chinese tertiary education or higher education rate at, in 1990 was 3.4%. Okay. So basically nobody, uh, went to, went to, went to sort of, uh, college or, or above. That was what the country's like. The country was mostly a farming state and, uh, with summit manufacturing capacity, not really self-sufficient, dependent on a lot of international partners.

Okay. This is the country, this is the sort of the China I lived in back in the eight nineties. That's really, you know, I, I wanna paint, paint a picture of what China was like, and that's, that's that. And I really wanna talk about, um, sort of the next big topic was what, what is China like now these days? Um, we can u we can maybe start with some of the same statistics I just mentioned and then pick a few sort of areas that I really, that really sort of shocked me when I recently visited.

Um, let's start with the numbers. So g d P per capita p p p adjusted same data in 2021. China stood at 19,500 with a little bit of rounding, uh, versus the world, which is that 18.6. So remember, China was 40% of the world average. Now, China has surpassed the world average. The US is at 69. So China on paper is still right around one third of what US, US is currently.

But this is the part where we had a chat internally about this. Um, this is not what I felt when I visited, when I visited, just so everyone know. Um, I couldn't visit the country during the pandemic. Um, the, the country expected shut this borders from all foreigners. Um, I couldn't even visit family. There's no such thing as a, as a family visit visa.

So there's, you know, before the pandemic I used to visit every year, so I would see these incremental improvements. But there was a gap this time, four, four years to be specific. And what I saw when I visited recently, uh, was shocking to me on multiple fronts. The standard living in a nutshell, the standard living has really, really improved.

So when I saw this number, this GDP per capita p p p adjusted, it didn't really make sense to me. It didn't feel like that, that you, that, you know, Chinese standard of living is about a third of us. In fact, to me it felt like pretty equal. So then I, I did some digging. Um, turns out P p P doesn't adjust for services, okay?

Adjusts for a basket of goods, which is really half of what our life expenses like. It does not just for healthcare and childcare, it does not adjust for, uh, transportation. It does not just for education. It does, it doesn't adjust for a number of things, which you can imagine are a huge component of, of, of life expenses in the us.

So I try my best and win in and adjust for that myself. Basically, I'm not gonna go through all the numbers here. I think that's, that's a bit, a bit more in nuance and detailed. But my conclusion was once I adjusted for just the headline services, childcare, healthcare, transportation, um, tax differential savings, the difference now comes down to less than 10% between China and us using this proxy for standard of living.

That would be more sense to me. So

MPD: the, the one third number we see is misleading because the cost of labor and, you know, in all different parts of their life is lower. Yes. And so the average person there, you're saying, is living a very comparable life at this point to an American? Yes. Right. So you're, you're in town and I'm sure it's not the same brand names, but people are jogging in Lululemon, taking their dogs, sitting at brunch.

It, it's the same story. Yes. It's no longer this agrarian. Yeah. There's not enough, you know, medical care situation that you left.

Chris Zhang: Yes. China, for instance, China has universal healthcare and you pay nothing effectively. You go go for a doctor, you pay on average. The average yearly expense in China for medical related and childcare is $300.

Us, the, the, the, the same figure in us is, is is more than 20 x that. Right? So that's just a simple example. And transportation is as a huge one. People commute to work here. That people com com, you know, pay for gases and pay for gas and, and, and trains and subways in China, all of that is, uh, subs subsidized by the government.

And you, you pay one R, one r and B, which is about 13, 14 cents us. And you can travel anywhere in the city, in a mega city. That's, you know, 10 x the size of Manhattan.

MPD: So a way to read this is these KPIs may not be indicative, but if you look at kind of the social advancement, the technological advancement, the quality of life advancement.

Yep. China is more or less in the zone of being on par with American standard of living.

Chris Zhang: Correct. But that's just standard. That's sort of just from a cost perspective. Right. I mean there are other areas considered, for instance, healthcare. I just mentioned previously the same index H AQ index in 2015. I couldn't find anything more recent than that.

But in 2015, which was almost a decade ago, China's has gone from 50, remember the score back in 1990 to 74.2 and the US has US, has stay at 84. So this is almost a decade ago. And China's already within striking distance in terms of quality of healthcare. Right. Um, some other statistics, crime rate. So that could be a huge part of standard living.

By world population review crime rate per a hundred thousand, right? This is all crime rate, violent or not, in China is 30.14. In the US it's 47.7. So according to this one statistic, China is safer. But of course, uh, you know, you can question the ability of the data, you know, how it's measured. All these things, according to this one statistic, China is safer and it frankly felt that way when I was there.

Ok, let's talk about infrastructure. This is the, this is the big one. I really felt the difference in the level of infrastructure when I was there this time, specifically when it comes to renewables. And so, you know, transportations, roads, subways, high speed bullet trains, airports in numbers US in 2022 spent.

Over a hundred billion in infrastructure. I try to really adjust, make it capital to apple. So it's by this metric US spent over a hundred billion in 2022, China spent over 2 trillion US dollars in infrastructure. Now, a lot of that was just so that they can boost the economy because of pandemic and all that, but that's a 20 x difference in infrastructure spending.

Right? And, and by the way, not a, not a lot of it didn't go to like the simple stuff like building new roads or a lot of it went to renewable energy. So solar, EVs, like you name it, right? All the sort of technologies that the big powers in, in the world are competing with each other against, right? It's not just the old technology, it's the new technology that's being built.

Related to this. I wanna mention private sector because this is one of the bigger misconceptions. I think, that people think that private sector doesn't exist in China or is small. That is not true. More than 50% of GDP from China came from private sector and more than 80% of the employment from China came from private sector and infrastructure alone, over 90% of it is outsourced to private sector.

Right. So there's a huge collaboration between the government and private sector, just like in the us. How,

MPD: how do those ratios compare to the states in terms of private

Chris Zhang: sector employment? Oh, of course the states is, is definitely way ahead, right? I mean, I can, you can, I don't know, I don't have the exact, cuz I couldn't find it, the apple, apple one, but I could, I, if you tell me that the states have over 95% GDP in private, private sector, I will believe that.

I think that's the reasonable assumption. But China is just as big in terms of private sector spending and contribution. Right. So that's the part I want to just adjust. Um, people with mindset on there is a huge and blossoming private sector in China. Right,

MPD: because it might be half, but the population's three or four times larger.

Yes,

Chris Zhang: yes. And the opportunity set as well. Right. That's, you know, when if you're, you know, an immigrant, uh, and you're trying to weigh in your head where to go and where to start a company, throw away everything else policy, right? Like in terms of the opportunity set, China is huge, right? So that's life in China now in numbers.

But maybe, you know, I think what, what we should go next is really pick a few specific sectors based on what I saw this time when I visited, and really just give you a sense, um, what the current lifestyle is like in China. So, as I mentioned, I've really, I just came back from China. In fact, I visited and my hometown is Jojo Hunan, which is sort of this.

In US newspapers, it's actually known as the iPhone city cuz that's where Foxcon has the biggest factory on planet, where over 70% of the world's iPhone is produced. Um, over 85 or 90% of the iPhones in the US are produced basically from there. Is there a comparable

MPD: city in America that you might relate it to in terms of it's not the biggest or not the smallest?

Like is there a parallel you could draw to help us understand what this is?

Chris Zhang: Uh, wow, that's a good question. I would say probably like the Detroit. Okay, so it's like

MPD: mid, mid-tier, proper urban

Chris Zhang: environment. Yes. It's very hard to draw parallels. Not top three

MPD: city, but a real, a legit

Chris Zhang: city. Yeah. It's, it's a capital city of, or like a, it's, it is a capital city of, of the hun province.

So this is really second secondary, second tier city, but it's historically important. Uh, a lot of manufacturing, a lot of farming, massive. It's hard to draw complete parallels because the concept of suburban, like a suburb, it doesn't really exist in China. It's either mega city or countryside. And countryside where it's super rural.

It's farmers stuck in, you know, 20 years ago, uh, in terms technology, lifestyle, but vast majority population, basically entire middle class, uh, and, and above live in the cities. Um, so I will show, I think I'll, I'll share the screen a bit about, you know, just to give, give sort of a sense of the scale and, and, and, and how it compares to US cities.

But, um, let me, let me maybe talk about sort of these specific sectors in that, that I want, I wanna mention there is a huge misconception, uh, I think I really wanna, uh, correct here, which is, and it definitely was true before, but I'm just saying it's not true now. Chinese technology is a carbon copy. Or a boot like version of US technology.

MPD: I hear this all the time. When this conversation comes up, everyone's saying, Hey, they're just copying us. Technology. And I, I can't pronounce the name of the company, Hawaii. Can you pronounce it for me please? Huawe?

Chris Zhang: Yep. Which stand by the US government. Yeah. Right.

MPD: Uh, you go on their website and it looks like a clone of Apple, right?

Yep. There's FaceTime. It's called Meet Time. The icons are almost identical. Yep. Right? Everything top to bottom, it's apple, uh, clone. Correct. And I'm assuming Apple came first. Pretty safe assumption. And it's not subtle. Yes. Even the, all the iconography, it's like slightly changed. They're not even trying to hide it.

Chris Zhang: Yes. Especially the design, like you mentioned. It's just so, so it does

MPD: reinforce this clone technology argument. The narrative we hear all the time when you g glance Yep. 10 seconds on the website. It's obvi