Lessons - The CrowdStrike Co-Founder on How America Beats China Before It's Too Late | Dmitri Alperovitch - Author of World on the Brink

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In this lessons episode, discover why China's rise may be less inevitable than it appears, understand how economic stagnation, demographic decline, and policy choices could limit its power, explore why avoiding conflict over Taiwan is critical, and uncover how America's innovation, alliances, and military strength can preserve its global advantage.

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So it's obviously, when you start to pay attention to it, you start to realize how big an issue it is.

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And you sort of had a front row seat because you were dealing with companies that were on the receiving end of some of these attacks.

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So I've listened to a few of your thoughts on this.

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Ray Dalio believes that China will have an inevitable rise, and you disagree with that.

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And I'm curious about...

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If you disagree with Ray Dalio's view on China's inevitable rise, what do you believe can happen?

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A best-case scenario, what does us winning this Cold War look like?

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And what is the perfect set of geopolitical conditions that you hope to accomplish with awareness, with advocacy, with think tank, with policy influence, with...

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I guess I don't want it to just be doom and gloom.

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I want to have some sort of roadmap for where we can go, given that this is a real threat.

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Yeah, and my book, World on the Brink, How America Can Beat China in the Race of the 21st Century, is actually very optimistic, believe it or not, despite the title, because the first half of the book talks about the problem, the reason why Taiwan matters, the reason why we're on a path to conflict, but the second part of the book actually talks about solutions, and it argues that we have every strength

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over China.

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China is much weaker than we think that they are.

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We are much stronger.

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China, I think, is actually a weaker power than the Soviet Union ever was during the First Cold War.

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If we won that one, we can absolutely win this one.

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We have all the ingredients for victory.

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The only question is, are we willing to use them?

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Do we have the political will to do so?

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And look, the strategy for victory begins with keeping the Cold War cold, right?

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We managed to do that for the first Cold War.

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It was not easy, and there were these very tense moments, of course, particularly in the 1960s, where the conflict risked escalation.

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But if we managed to do that with China, if we managed to keep them from invading Taiwan,

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Their long-term trajectory is not great at all.

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I completely disagree with Ray Dalio.

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In fact, this was the common wisdom, you know, 10, even five years ago that China's rise and is inevitable, America's in decline.

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I never believed that.

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Nowadays, more people, I think, are moving over to my side of the equation rather than his.

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Because if you look at just economics and demographics,

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China is really screwed, right?

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So let's begin with their economy, which is now stagnating on a relative basis.

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The era of double-digit growth is gone.

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For the longest time, as they went on this historic growth path for 40 years,

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that double digit growth, people were asking the question, would it ever end one day?

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Well, we got the answer is yes, it would.

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And the cause of that was middle income trap, which most countries hit, right?

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You had Japan experience, Korea, Taiwan, all these countries that experienced rapid growth initially.

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Eventually, you hit about $10,000 per capita.

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and labor costs rise, productivity declines, and growth stagnates or becomes much, much lower on par with all the developed countries.

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China right now is at $13,000 per capita.

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And the problem for China is that they hit this middle income trap too early, right?

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When Japan did it, when Korea did it, they were already developed countries.

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Most of the population was the middle class.

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And that's not the case in China.

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You still have a huge amount of poverty in China.

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You still have huge rural populations that have not participated in this boom.

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And that is...

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Really, the challenge now for them, how to manage their slowing growth when you've got enormous economic challenges that still remain in the country.

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And on top of that, you've got incredible mismanagement of the economy that's been taking place under Xi Jinping, because this is a guy that doesn't really understand economics.

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He's a traditional Marxist-Leninist.

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very ideological and has driven away most of the bureaucrats that they've had for decades in power.

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They've now left the Politburo, have been kicked out, and he's replaced them with security man, with hardcore power people, because he's obsessed, of course, with population control, with security.

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to the exclusion of economy.

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He's driven a lot of businesses away by cracking down on both the domestic tech sector, Jack Ma, for example, as well as foreign companies.

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Many law firms, Western law firms, have left the country.

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And of course, if you're a Western business, you can't operate in a place if you don't have access to lawyers you can trust.

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So he's created a very unattractive environment there, which is why foreign direct investment in China has dropped 20% year over year and is likely to keep continuing going down over time.

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And you have a huge real estate bubble.

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Just to give you a sense of what it's like right now, at the height of 2008, at the time when we had our real estate bubble, real estate was about 10% of our GDP.

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Today in China, it is 30%.

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just unimaginable size.

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Now, it's a little different.

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They're not as leveraged as they are.

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The rest of their financial system is not as significant as it was for us in 2008 because guess how they're financing much of that real estate boom?

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They're financing it through the middle class because the way that development works in China, if you're a developer, you're getting huge deposits from people that want to buy apartments, and you're using those deposits to actually finance the construction on much of it.

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So as they're building all these ghost cities, as they have had this over capacity in real estate, it is not the banks mostly that are in trouble.

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It is the life savings of the middle class because in the middle class in China, where do you put your money that you've saved?

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You're not gonna put it in a bank, an estate-owned bank, you don't trust it.

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You're not gonna put it in a mattress because you know that it can be seized by the government.

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You're not gonna put it in the stock market because you believe it's rigged.

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In fact, it's remarkable that you've had this incredible growth in China the last 20 years

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The stock market has basically stayed flat.

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So that tells you that there's no new investment in equities in China.

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It's all gone into real estate for the most part.

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And those people are going to be wiped out.

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Now, Xi Jinping doesn't care about that because he's got such an incredible surveillance state and control of his population, but it's not great for your economic productivity to have the middle class lose all their life savings.

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And on top of all of those challenges, which are enough to give anyone a headache and seem daunting, you have the population collapse that has already started to take place, right?

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They are already starting to lose people every single year.

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The deaths exceed the birth rates.

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And it's escalating and is going to continue to escalate throughout the century.

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So they're going to go from about 1.4 billion people that they have today to, conservatively speaking, around 550 million by the end of the century.

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an incredible decline in population, which by the way is highly deflationary, highly likely to cause further stagnation, and is an economic headwind that I don't know how you escape.

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For all those reasons, I think over the long term, the

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Their economic prospects are not great.

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Their growth rate is about the same as ours today.

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And of course, the economy is 25% smaller.

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And at that growth rate, unless something dramatic changes here or in China, they're never going to eclipse us economically.

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So this idea that they're rising power with declining power, I just fundamentally disagree with.

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And we've got every strength, right?

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We've got an incredible innovation economy.

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Where is most of the AI innovation taking place?

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It is here in America, right?

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Where do you have incredible access to capital where companies like CrowdStrike is able to raise enormous money in the private markets and then later in the public markets?

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It's here in America.

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Where you have incredible single market, the largest in the world where selling a product

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in Alabama is exactly the same as it is selling in Seattle.

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That's not true anywhere else in the world.

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You go to Europe and it's a collection of, you know, almost 3,000 countries and with different languages, different cultures, different go-to-market strategies.

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It's a huge challenge to operate there, right?

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Unlike here in America.

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You have the greatest military in the world.

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You have the greatest alliance network, the world's biggest economy.

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We have enormous advantages.

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Probably our biggest disadvantage is our political system and the dysfunction that we have here in Washington, D.C.

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But aside from that, the strengths are enormous, and China has these huge, huge problems.

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So I argue that if we manage to avoid a war—

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which should be the defining priority for the United States foreign policy, if we manage to preserve Taiwan's de facto sovereignty and keep China contained in that region, we can wait them out, that they're going to experience more and more stagnation, their economic situation is going to cause them more and more problems, which is going to impact their ability to spend money on the military,

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and threaten war and so forth.

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And their influence already, economic influence in the world, is declining because the economy is not growing, so it's less attractive to invest in it.

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And they don't have extra cash to invest in projects like the Belt and Road Initiative.

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They wanted to spend about $8 trillion over a decade, decade and a half on Belt and Road.

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They spent less than $2 trillion.

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And it's basically stagnating as well because they're out of cash.

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So for all those reasons, I disagree with Ray Dalio.

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Thanks for tuning in.

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