John Arnold

The number of robotics companies, there's over 100 now in China.

As I understand the process, each five-year plan, China specifies certain industries that are deemed strategic.

And then the head of the province gets evaluated on a number of factors.

Head of the province is selected and not voted on.

And so...

The evaluation is based on things like employment and GDP growth, but then also are the industries that are being created there aligned with the five-year plan?

There are also some subsidies coming down from top on those favored industries, and so robotics is certainly one of them.

So then each province takes a couple companies that it favors and gives them subsidies and supports to try to get the winner or one of the winners to be in their province and then get the supply chain to develop around them and then all the associated jobs and GDP.

So you get this massive competition that happens.

One of the end results is that most of these companies aren't very profitable anymore.

today because it's just intense competition and a lot of times overcapacity because of the province level subsidies and supports.

But it also creates this intense competition, which is the term evolution for it, also creates better technology.

If you're faced with that type of competition to be one of the winners, you have to be fantastic.

Now, I think the question that China has is, what do you do with those who are not the winners?

And do you have a process where the losers stay in the industry and keep everybody unprofitable with the overcapacity or are they closed?

So China has started this new process of anti-involution, of trying to support the winners, make sure that they can build up to be healthy, strong companies and be global competitors and not just brought down by this overcapacity in the domestic market.

I was struck by just how much the two countries have separated since 2019.

The number of flights between the two countries is down 70%.

I talked to a couple of expats in Shanghai who said that the number of Western expats was down 50 to 75%.

The number of American students studying there was down 90%.