The Transpacific Experiment With Matt Sheehan

In this podcast, I got to speak to Matt Sheehan. Matt is a fellow of the Paulson Institute in-house think-tank 'MarcoPolo', where he leads the team's work on the US-China Technology issues and specialises in Artificial Intelligence.

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MATT'S PUBLICATION:
The Transpacific Experiment: How China and California Collaborate and Compete for Our Future by Matt Sheehan

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Chapters

• 0:00 Introduction
• 1:11 Matt Sheehan Introduction
• 1:21 The Transpacific Experiment
• 1:33 A New Era of US-China Relations
• 2:46 Silicon Valley China Relationship
• 5:20 Great Firewall
• 6:19 Technological Prowess
• 8:00 Rote Learning
• 8:51 Chinese Market
• 11:31 Chinese Venture Capital Industry
• 13:42 Silicon Valley's China Paradox
• 16:05 A Technological War
• 19:31 Deep Learning
• 25:58 China's Ecosystem
• 27:44 www.inaom.io

Transcript

Ina O'Murchu: 0:00

You're very welcome to my podcast show'Technologies Impacting Society'. In Podcast 11, I got to speak to Matt Sheehan. Matt is a fellow of the Paulson Institute in-house think-tank'MarcoPolo', where he leads the team's work on the US-China Technology issues and specialises in Artificial Intelligence. Based in San Francisco in the Bay Area. He was formerly the China correspondent for The World Post. Then from 2010 to 2016, Matt lived and worked between the Chinese cities of Xian and Beijing. Then in 2016, he moved back to the Bay Area to work as an analyst, a consultant and writer on topics connecting China and California. In 2018, he was selected as a finalist for the'Young China Watcher Of The Year' award. In this podcast, Matt gets to the very heart of the current tensions in Technology between Silicon Valley and China. Its intermingled history and the tentative future ahead.

Matt Sheehan: 1:11

My name is Matt Sheehan, I am currently a Fellow at the Paulson Institute's Think Tank,'MacroPolo', where I focus on the US-China Technology relationship. And the book that I've written is called'The Transpacific Experiment- How China And California Collaborate And Compete For Our Future'. So it covers the sort of very rich and diverse connections between China and California. I grew up in California, and I spent about six years in China working as a reporter, and learning the language. It makes the argument that California is kind of ground zero for a new era of US-China relations. In certain sectors, particularly the Hollywood-China relationship, is the Silicon Valley China relationship, these connections will end up shaping not just US-China relations, but parts of the global community in very important ways, particularly when it comes to emerging technologies, global culture, and the like.

Ina O'Murchu: 2:05

How did the book come about?

Matt Sheehan: 2:06

I very much kind of stumbled into this. I grew up in Palo Alto. And as of 2008, I , if you asked me what I knew about China, I probably would have just said, you know, Malta, Dong, Tiananmen Square, factory in the world. By chance, I got a summer job there in 2008, I ended up in Beijing. And I was just completely fascinated with the country. So I moved back in 2010, and lived in work there for a few years. And I always want to be a journalist of China correspondent over there. But when I finally got that job, I had a lot of trouble getting a journalist fee. So the Chinese government doesn't always love giving out new journalists pieces. So I was a China correspondent, I'd been hired, but I was based in the Bay Area. And so I started looking for China stories in California and in the Bay Area. And I just found that there were really rich and diverse stories out So I started there. interviewing Chinese engineers, software engineers, who were working in Silicon Valley, interviewing former Chinese. Chinese people who have been working in places like Google and Facebook and have gone back to China to fund heir wn tartups, nd ust icking p hese torylines n a unch f ifferent ndustries, ith ech eing he ind f ichest a d d nse t. F r th p st ive or six ears, I'v bas cally bee foll wing th se s ori s bac and f rth across he p cific as a jour alist over here s nce omin ba k here nd wor ing at he Paulson Insti ute, ac oPol, as kind of a nal st of the echnology re at onsh p in m ny reas, b t lately, pa ticularl focu ing in on rtificial Int

Ina O'Murchu: 3:35

The timing seems to be pretty apt for the book, you know, you spoke there about Chinese communities just there. How strong is the Chinese community in San Francisco, in particular, in the Bay Area?

Matt Sheehan: 3:46

Very, very strong. I mean, here you have, it's kind of a nature and nurture thing, in the sense that there are deep historical roots that established a Chinese community in the Bay Area, San Francisco, Chinatown- is usually called the world's or the America's first Chinatown. And so you already have a kind of cultural underpinning in some ways. But then industries like Silicon Valley, have attracted tons and tons of what I call sort of new wave immigrants, folks who come here, maybe for grad school, and stay on to work in Silicon Valley. So, you know, I visit the Google campus sometimes. And if you're walking through the cafeteria, it feels like the first language is English, but a close second, the second language is Chinese in the cafeteria. And so that creates a very rich set of sort of human connections between the places, whereas the relationship used to be sort of more high level and abstract. My argument in the book is that it's very much been brought down to a human level with Chinese engineers working with American engineers, Chinese entrepreneurs go, you know, taking their experience here and going back to China, and sort of making a much freer flow of people and ideas between the places.

Ina O'Murchu: 4:57

So the development then with the engineers returning back to China creating the fast speed of the development out there. Why is that Matt?

Matt Sheehan: 5:08

Yeah, I mean, when it comes to the growth of the Chinese technology scene, there's a lot of factors that went into place, some of which were, you know, sort of well thought out, and some of which China very much sort of stumbled into. So I think one key ingredient was the Great Firewall and creating what is functionally sort of a semi-protected domestic market, such that as of 2000, you did not yet have Facebook, just kind of like washing over the Chinese market as the de-facto social media. Instead, you created a space where a lot of Chinese companies were able to grow their own business organically, and get to a sort of healthy level on their own, without being just kind of crushed in their, infancy, the way a lot of technology companies and other sort of smaller developing countries have been. First you have this sort of domestic you have a protective domestic market, you also have that domestic market being large enough to warrant major major investment, the fact that if you, as a Chinese company are able to capture the Chinese market to truly capture it, then you're already potentially one of the largest internet companies in the world. That draws in further investment that draws your sort of overseas engineers back and all that. Finally, you have a lot of kind of an agglomeration of resources, the Chinese government has always put a high priority on technological prowess. And so they put a lot of money into funding, say, incubators, into expanding higher education enrollment in China, some cases to attracting overseas Chinese engineers to come back and found their own startups, I think when you kind of put these different factors together a semi- protected domestic market, or in some cases, a fully protected domestic market, a very large domestic market, such that it has a real gravitational pull, and can make real money. And then sort of a just a, reaching a critical mass of domestic resources when it comes to financing, to talent, to compute, and to all these different factors....

Ina O'Murchu: 7:14

Because of the vast numbers that could come from China is that really, you know, with most people being so driven, I mean, obviously to do it's to do with the, you know, the history of their background history, some people come from, there's a lot of poverty in China. So they'll be a huge drive to succeed. It's instilled in their, in their culture, it's kind of a return on their investment with going back....

Matt Sheehan: 7:36

Yeah, I think you see the Chinese history, both in sort of the long view, you know, 1,000 years, 2,000 years. And also, in a short view of the last 30 years, 50 years, both of those are huge influences on the way that the Chinese technology scene has developed in one way or another. If you look, you know, very far back into history, basically, it's a culture with traditionally a huge emphasis on education. And so given the level of development in the country, there has they have sort of overachieved in terms of the number of university students, the number of those pursuing higher degrees, and the number of those that are studying and receiving advanced degrees abroad. Also, in sort of a historical sense, Chinese culture has more of an emphasis on obviously- on rote learning. And not such a not such a focus on originality or not such a focus that wouldn't does has to be different that sort of copying and, and learning from the past sages in traditional culture, but also in the current day, you know, learning from the best, and copying that and then tweaking it is seen as more acceptable probably than here where we've everything has to be kind of brand new, everything has to be a totally original idea. Those are kind of like maybe long term historical influences. In the more short term. I think that the rapid speed of growth in the last 30 years, and not just like the rapid speed of growth, but the weird drove this kind of bit of like a dog eat dog mentality, or a sense that you had to you had to jump on every new trend, you had to be early in anything because as the Chinese market for all markets, the real estate market was opening up, you know, if you were the first mover, if you really piled into an industry right at the start, you had a chance to get rich, so you have a very strong incentive to kind of move quickly and also to kind of pile into what's the new hot thing. So that formed a sort of a very cutthroat, competitive domestic internet industry. And I think you kind of put all these three factors together and they're they're all sort of double edged swords, with an emphasis on education, but maybe they lose something in terms of praxis, with an emphasis on imitation. Can probably get you a kind of Kickstarter, to bootstrap the technology industry, but then does it end up becoming a limiting factor and this tendency to kind of have to move quickly into pile into new industries that can sort of kickstart very rapid development. We saw this very much with like the on demand services economy over there, once Uber took off in the US, suddenly in China it was on demand, everything,- everything, everything, but most of those businesses failed and went broke. But it did kind of kickstart that kickstart that trend to just kind of spawn a lot of new business models. So all of these things are sort of double edged swords in some ways. But I think the cultural impact, going backwards is a very interesting force in China's technology development.

Ina O'Murchu: 10:33

So the competition is really a winner takes all mentality?

Matt Sheehan: 10:36

Often it is often it is, I mean, the you could say very much the same thing for US technology companies. And you know, especially when it comes to like network effects and the way that we compete here, but in China, you see, especially a willingness to throw tons and tons and tons of resources, specifically money at a new industry, in hopes of kind of crushing all the competitors becoming the leader, and, you know, jumping to the unicorn status and beyond. Whereas, I think there's a little bit more, a little bit more caution, a little bit less willingness to just throw money at a problem in the US, and people want to see a kind of a cleaner business model a cleaner route to profitability.

Ina O'Murchu: 11:19

Okay, so where does all the money comes from? The government?

Matt Sheehan: 11:23

No, most of the money I would say comes from the private sector, the Chinese venture capital industry is still very young, still very new. I think, as of 2009, 2010, it was really just all you had were sort of, you know, a handful of angel investors, and that then sort of move up the chain into different stages of venture capital investment. So when it comes to venture capital, definitely started as a private thing. And I think, in many ways, has remained largely a private industry. But the government has clearly gotten interested. And it has put resources in it in a couple of different ways. In some ways, they've found some sort of clever ways to do venture capital investment, where they will functionally seed venture capital funds such that if there's a lot of upside, the private sector, investors get to keep it. But if it fails, and there's downside, the government eats that downside, or cheers in that cost, at the very least. And so that has been a that has definitely had an effect, it boosted the venture capital ecosystem out here. But I wouldn't describe it as sort of a government led effort, where they have put a lot of money into it is in things that they're kind of better at the Chinese government is put a ton of a ton of experience building things as a ton of experience with real estate. And so when a new hot thing comes along, like the mobile internet, and they decide they want to support it, they will if this happened in the last decade or so they just put a ton of money into opening incubators around the country. Because that's a physical building. That's something that the Chinese government knows very well. And in many ways, those kinds of movements of building tons and tons of incubators were very sort of inefficient. In a local sense, a lot of them failed, a lot of them not really incubator, they're kind of more real estate schemes. But they are may have had the effect of helping sort of lever up the ecosystem, the Chinese government is always willing to kind of overspend to achieve a certain effect. And in this case, the other spending in these areas might be highly inefficient. But it can often still prove effective in running up the ecosystem and just kind of bringing together that critical mass of resources.

Ina O'Murchu: 13:33

Okay, with all the competition and the rush to be first, where does where does the collaboration come in?

Matt Sheehan: 13:42

So I think that the collaboration specifically between China and California, the most interesting period of this, in the technology space was basically the last seven or eight years sort of 2010-2017-2018 is a period of time, I refer to it as we got to put a label on it. I call it'Silicon Valley's China Paradox'. And I describe that paradox. As during this period of time, you had a very free and rich flow of people of money and of ideas between the two ecosystems. You had China's tech giants setting up research labs in Silicon Valley, you had Silicon Valley giants sitting up research labs in China, you had these engineers and entrepreneurs bouncing back and forth between the places, venture capital flowing both directions, and both ecosystem starting to kind of look to each other and learn from each other in certain ways. Whereas for decades, basically, it had been China looking to Silicon Valley for inspiration, beginning with the rise of things like WeChat, the rise of things like Bike sharing, suddenly you saw America, Silicon Valley, specifically and other countries around the globe, looking to China for inspiration in certain ways. So this period of time 2010 to 2017- 2018. You kn w th s ve y ric f ows t ort of the gra sroot l vel or the non-gover menta l vel at t e very lea t, b t hen t ame to co pan es and The Internet itself was sort of more divided than ever US companies were largely blocked in China or a few of them were sort of out competed. And Chinese companies were not really able to gain a foothold in the United States or in most of developed Europe. So that's sort of what I refer to as the paradox, the free flow of everything at the lower levels. And yet the companies can't cross these divides, the companies are functionally sort of walled off from each other. And that this was a very rich period for collaboration for sort of mutual inspiration for companies that started to have a foothold down in both places, at least in terms of research and development. And what we're seeing now in the US-China relationship is an attempt to kind of resolve this paradox by like pulling all these ties apart, by making it much harder on Chinese students or researchers to work in the US stopping Chinese money from getting into US and investing in the USBC scene. And also trying to sort of roll up ideas between the two places, limit research, limiting the ability to share research across national boundaries. And so that's kind of the phase that we're in right now with the technology relationship, and the US-China trade war, which I really see more as a technology conflict.

Ina O'Murchu: 16:15

I mean, you don't see it as being a technological war, I think this is what it's going to lead into. And then, you know, who do you think is going to win the war?

Matt Sheehan: 16:24

Yeah, I think that from, you know, the, because this has grown out of the Trump administration. And so it has a lot, that just kind of, of being a little bit of everything, and constantly gyrating and changing form and stuff like that. But I think if you look at what are sort of the more, what are some of the deeper underlying motivations, it's not necessarily just about trade, shipping goods and services back and forth across the border, it's much more focused on technological advantage between the two places,

Ina O'Murchu: 17:01

You know, that was always what led to winning wars in the past. I mean, when the Portuguese sail, they had better boats, you know, when they went to invade, they had better boats, better sails, whatever. So it's always been the the advantage. So why would it be any any difference?

Matt Sheehan: 17:16

So in this case, it's partly because the US, like, message new to the US-China relationship, because the United States didn't really take China seriously, as a technological power for a very long time. It wasn't until the last really five years, six years that you saw people in the US government, and people in the US private sector saying wow, like maybe Chinese technology companies, maybe Chinese researchers, could challenge us sort of supremacy in these areas. And that has been, it was something that happens slowly over time, and in reality on the ground. And I think in many ways, the US still has a clear advantage in many emerging technology sectors. But the sort of the pendulum has swung from thinking China can't compete at all, to thinking China's going to eat our lunch in so many of these sectors. And that has set off sort of alarm bells in the in the heads of so many US policymakers. And that's part of why we see such a reaction now to thinking, okay, we need to wall off the US Tech industry, we need to wall off Silicon Valley, we need to protect our advantage. And I think there are definitely sort of legitimate reasons and smart ways to do that, when it comes to stuff that relates to national security, specifically. But there's also a risk of handicapping some of the things that made Silicon Valley such a powerful engine for this stuff, when it comes to, you know, cutting off our own access to global AI, talent and the like. So it's a very tricky phase right now. And I hope that we're able to we're in the sort of industry in a policy where we used to call this decoupling. And my hope is that as we go through the process of decoupling these two ecosystems, we do it in a smart and relatively measured way.

Ina O'Murchu: 19:04

The number of AI engineers are graduating, I think every year someone was telling me when I when I was in Asia was like, it's like a football pitch of, of graduates every year in China in comparison to there's a certain number, but they've got the volume, whether the app whether the engineers are all of you know, you know, really, really high standard, but they have the volume. And I mean, is that is that what's going to count at the end of the day, the number of engineers?

Matt Sheehan: 19:31

Yeah, I think it really depends on what one thinks will be important in the field of AI, is this are we, you know, with Deep Learning, we just kind of level up to a new plateau. And now it's all about implementation. And so it's just all about having a bunch of sort of good engineers, maybe not top top-tier researchers, but good engineers to found the companies and sort of build out the apparatus of applying Deep Learning or is the most important stuff going to come from cutting edge research and depending on where you fall on that, probably in many ways determines how you view the US-China competition in, in the field of Artificial Intelligence. If you care the most about top-tier research, most quantitative studies of top-tier publications still show the United States having a very, very strong advantage in this area. If you look at conferences the overwhelming number of publications come from US institutions, over 50% of the sort of oral presentations that are has come from US institutions. So in that kind of realm of top tier research, while China is showing greater promise, the it's the the real work appears to be coming out of us, and in many cases, European institutions. But if you look more, if you think this is more about sort of applying the methods of Deep Learning all across our economy, and even you know, to the military and whatnot, then it might come down to not your top to your talent, but your sort of quantity of engineers that you're referring to. And that area is much more potentially up for grabs. I, I'm always hesitant to try to make statements on this without quantitative data to back it up. because like you said, the big question is, what's the real quality of the Chinese engineers? What's the real quality coming out of the average Chinese University? So I think we need good data on this. And we need more people to do research on it. But I think at the very least, you could say, if it's more about this application of current AI methods, Machine Learning methods, then that would tilt it more towards China, then top two research where the US and Europe still hold up very substantially.

Ina O'Murchu: 21:38

Because obviously, I mean, the best engineers would end up in not necessarily, because there's some really excellent universities in in China also. But a lot of the, you know, really, exception exceptional people would would leave Stanford, but then it'd be next exported back.So, you know, you know, there's I don't know what the percentage is, as you said, but they're, they're saying by 2030, I mean, AI is going to drive most things. At this rate, I mean, I don't know just from reading articles, and you think like, it's definitely heavily weighted in China's favor?

Matt Sheehan: 22:15

To me, the big question is yet what is going to matter? Is it going to be a cutting edge research? Or is it going to be more of just kind of, you know, is AI, if AI is quote, unquote, the new electricity meaning like we already have it, and fundamentally, we just need to apply it to a million things. We do, you know, the same way electricity was applied to appliances, to military technology, to communication, all that stuff. If it is in that, it does take on that mold that nature, then China yet has a lot of runway, there are so many industries, traditional industries in China that are still in many ways very sort of backwards. And the application of machine learning to these industries could lead to very large economic gains. But if the emphasis is much more on what comes out of the top two, your labs DeepMind, open AI, places like that, then those was really top two, your labs are largely still in the United States, they're still there are some really great ones coming out of places and picking you and Georgetown University. But the it would change my calculus greatly if I had, you know, if we had a definitive answer to that question of what's going to matter.

Ina O'Murchu: 23:24

Do you see the power shifting shifting to Asia to the east?

Matt Sheehan: 23:29

I think, certainly in relation to 20 years ago, you have to say that, you know, 20 years ago, what was China was probably a fifth of its current the size of its current economy. Japan was, I guess, in the throes of its recession at the time, Taiwan, you know, many of these countries that we later referred to, as you know, the Asian Tigers and whatnot, they were basically low wage, low value, add manufacturing economies, and their ability to sort of lever up in several ways, has has fundamentally changed sort of the balance of economic where the central economic gravity is. But yeah, we've still yet to see whether this will lead to a sort of absolute change in quote, unquote,"Leadership" and what even that would mean, you know, it doesn't even make sense to directly compare these kind of say, okay, who's better at technology? Who's stronger? And I it's, it's a question that needs to also be sort of very granular, as well as a very sort of macro level and how we view it. So Asia is certainly rising in a relative sense at how long that runway is, we'll have to see.

Ina O'Murchu: 24:39

A lot is determined by the quality of the entrepreneurs, how determined they are, how hungry they are, and I know they're hungry in the States, because the market is so large, and I mean, the only market to be in is really the Asian market. And when the market is so, so large. It's I mean, I'm not saying that about dismissing the US, market but I would see the drive and the Chinese entrepreneurs as being a little bit more determined...

Matt Sheehan: 25:08

I would say definitely the sort of, yeah, the work habits and the intensity with which they approach. The task of creating a technology company is almost unmatched. In some cases, it's very unmatched. But it's always a bit of a double edged sword having sort of worked in Chinese companies before and just spent a lot of time deciding over there, that the way to approach many problems is kind of to throw resources at it, to think that like working longer and longer and longer hours, will achieve better and better and better results, or even if you're not really doing something productive to just kind of be still working in some capacity. And the same thing is done with kind of the way that they do investments just like more and more money, as opposed to potentially a slightly more strategic approach to investing. So I would say that the determination has done them very well and kind of levering up to the, to the current status. And in some ways that has been very beneficial to them. And but if you listen to even how Chinese entrepreneurs, Chinese engineers, Chinese researchers talk about their own ecosystem, they often say; Yeah, but we're missing that something. And that's something you know, it depends on who you ask, it can be very different things. But they worry that, for example, the emphasis on short term gains, the emphasis on sort of winning a market very, very, very quickly means that there's not as much focus put onto like long term fundamental research, long term research that could pay off down the road. I mean, you have companies like Google that in, you know, in the late 2000s, were already looking ahead to self driving cars that were a decade or more away. And you don't yet have that many examples of Chinese companies or institutions having that kind of a long term vision on things. Because it's one of those things where the market has grown so quickly, that you, you don't really you don't have time to like step back and kind of look ahead to those next things. You're so focused on like, things could pivot and change so so quickly, in the next sort of fortune to be made, is going to be made in six months, not in 10 years. And in some ways that can kind of shift your focus in a way that might be sort of short term good, but long term, not necessarily. And but all this is changing on the fly. And there's like diversity within both ecosystems around this in terms of the way people approach it. But I'd say that would be one of the that would be my sort of cautionary note when we talk about the value of the kind of intensity of drive in Chinese companies and institution.

Ina O'Murchu: 27:44

Thanks for listening to my podcast, you'll find the podcast show'Technologies Impacting Society' over on Spotify or Apple, and you can check out the other episodes over my website www.inaom.io.