Hey @preston @HODL Listened to the Mastermind pod yesterday and on the subject of AI, really needed to send the following through. You can also read through my other Notes here for greater clarity. China isn’t just winning the AI war, its also increasingly likely that the war is already over. As a quick aside, too, China is doing to robotics what it did to EVs. Anyway, back to AI. It’s been six months since DeepSeek hit the world straight in the face. In that time – just six months! – there has been a rapid, iterative process of competitive Chinese model after model. Ten days ago, all the talk was on Kimi K2 and just yesterday Qwen announced a new model that has the LLM community in palpable shock. All open-source models . All applying lessons learned from competitors to aggressively iterate and improve. But that’s not the most significant achievement. All these models were able to hit their operational aims while hamstrung by compute. Unlike the closed American models that just piss away CAPX at Nvidia and AMD for chips, the Chinese required a work around. Brute force innovation combined with other very Chinese tactics solved the issue. And this was all achieved before the H20 was approved for sale into China once again. And what is it that litters the business media headlines? A war for talent where Zuch and Altman are going to the mattresses. Meta and OpenAI are the current day equivalent of America Online and Yahoo. Walled gardens run by leaders who don’t even know that the competition is at the gates and set to take over. This is akin to Mehmed the Conqueror taking Constantinople and ending the thousand-year reign of Rome. I know that America is fiscally boxed in, but it is quite worrisome that there remains this fixation on American AI models and a fervent belief that the likes of OpenAI or xAI will dominate the stack. Christ, just last week Altman called an audible to announced that their open-source alternative would be postponed indefinitely. That is going backwards. None of this should be construed as “praise of China”. I am a red-blooded American who just so happens to live in Shanghai. This is all just a slow motion train crash. Moreover, those commenting on China Shock 2.0 have neither the true understanding of just how impactful it will be AND the speed at which it is playing out. Shock 1.0 was a slow burn. Shock 2.0 will make the Palisade fires look like a backyard cook out.

Few things are better than providing much needed counter programming on CNBC. Have to give the Asia bureau props for continuing to have me on.

Fun fact. Robert Frost is often quoted with the line “the only way out is through.” But did you know there’s a second part of that quote? “Together” is such an important point to Frost’s overall them in that poem.

China Morning Missive Just a quick note to point out the obvious. The Chinese achieved all key objectives from their American counterparts during the Swiss meetings the other week. Contrary to the talking points, China is, once again, allowed access to high end chips and chip related technology. While there was Nvidia and AMD, expect more announcements from other companies (ASML, Tokyo Electron) in the coming week or two. This outcome demonstrates clearly just how dependent America is for access to rare earth minerals and battery technology. It should also be noted that this is but one, single area where China can apply pressure. The nuclear option, which now doesn’t look likely, is on the pharmaceutical front. There are a host of other areas as well. Perhaps a better way of summarizing the situation is as follows. America has decided that TikTok is more important that AI supremacy. While not yet publicly announced, it should expected that a deal for TikTok will take place in a matter of months, if not sooner. I’d also suspect that there is a slowly growing consensus that China, through its aggressive moves to build open-sourced AI models, will displace the various closed-sourced silos operating in the United States (OpenAI, Meta, et al). For myself, the key takeaway is the recognition of just how poorly American policy makers understand the process of engagement with China. I would add that this isn’t solely a Trump issue. The same was on display throughout the Biden administration as well.

Bloomberg.com

ASML Says Easing China AI Chip Controls Would Boost Demand

ASML Holding NV Chief Financial Officer Roger Dassen said it will be positive for chip demand if Washington lifts restrictions on the sale of some ...

China Morning Missive Mark Rutte is a genuine menace. We are, after all, speaking of the general secretary of the North Atlantic Treaty Organization. These comments are nothing more than blatant mission creep driven by abject fear. Last I looked, Brazil, India and China are nowhere near the North Atlantic. Comments such as these achieve only one goal. The further conviction of building systems and partnerships outside the traditional “rules based international order”. What is that great quote? “The more you tighten your grip, Tarkin, the more star systems will slip through your fingers.” All China needs to do is sit back and let the natural course of events play out. There is much to critique China for, but forcing its world view on others isn’t one. https://www.reuters.com/world/china/nato-says-brazil-china-india-could-be-hit-hard-by-sanctions-2025-07-15/

Watching this “number go up” technology in action is the purest of joy.

China Lunch Time Missive And here we go again. After the London meeting, the Trump team agreed to allow chip software companies to resume commercial activities with China. Today we have Nvidia receiving approval to restart China sales of its H20 chips. This chip, by the way, required the company to preannounced a $5.5billion write off. That revenue is now firmly back on the table. Clearly, rare earth access was vital to American interests. That said, the degree of back peddling on China by Trump is not at all surprising. For the longest time I’ve stressed that China is the party with the leverage in all negotiations. This is just more evidence in support of that point. There will be more to come be to be sure.

CNBC

Nvidia says it will resume H20 AI chip sales to China 'soon,' following U.S. government assurances

The U.S. government in April told Nvidia it would require a license to sell the chips to China, the company said in a filing, effectively halting ...

Again on the AI competitive front, someone really needs to tell Zuck and Altman that Walled Gardens in a digital world are impossible to sustain. The Chinese are going full bore on open source and iterating models at lightning speed. I give it 12 to 18 months before these American AI silos learn the lesson of America Online. Keep models closed and usage will inevitably gravitate to the Chinese open source models. Game. Set. Match. America needs to do better.

China Morning Missive For those following the pitched battle over AI, this update out of Meta is so very telling. After first deciding to prioritize an open architecture, it is now looking increasingly likely that the new team will shift to a closed model. Quote from the linked TechCrunch article sums it all up. “Top members of Meta’s new Superintelligence Lab discussed pivoting away from the company’s powerful open source AI model, Behemoth, and instead developing a closed model, reports the New York Times.” The reason for bringing this shift by Meta up is given other developments in the AI space. There’s been yet another open source model released out of China over the weekend – Kimi K2 – released by a group called Moonshot (perfect name!). From the commentary, it would appear as though Kimi K2 has leaned heavily on the DeepSeek model. This! This! And This! The key feature of open source, as we here all know, is that you take what it is that others have created and then make the models perform better. Competition in it rawest form. Demand and usage will only gravitate to the model that is iterative in the overall development. American AI platforms are seeking a walled garden and I am old enough to remember how that turned out of America Online (AOL) Chinese AI platforms see the threat posed by the American closed models and simply made the decision to commoditize the entire industry. Go big. Build strong. Make the American AI models obsolete in short order. There was evidence of this approach with the launch of DeepSeek. Today, however, the writing is clearly on the wall. So long as the American AI players work within corporate silos, the Chinese are destined to win the global AI race. That fact is now far more evident than ever.

TechCrunch

Meta built its AI reputation on openness -- that may be changing | TechCrunch

Top members of Meta’s new Superintelligence Lab discussed pivoting away from the company’s powerful open source AI model, Behemoth, and instead...

China Morning Missive While this news did hit my radar yesterday, the idea of #China even considering easing up on the current policy position isn’t - for me - in the realm of possible. That said, the populace remains overly keen on gaining access to crypto and specifically the King. Demand remains present from the calls I made yesterday. https://www.reuters.com/business/retail-consumer/major-shift-shanghai-regulator-mulls-policy-responses-stablecoins-2025-07-11/

GM from Shanghai. I never tire of this city. The contrast on display wherever you look always puts a smile on my face.

Vanguard will ultimately bend the knee. It is only a matter of time. And this here below is now 18 months old. https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/no-bitcoin-etfs-at-vanguard-heres-why.html

Here we have another “deflation is ravaging China’s economy” headline. Buried in the data has CPI actually rising slightly over the period. I’ll just comment once again that what it is you are seeing from the Chinese data is what you should expect when the world’s second largest economy makes the policy decisions to deleverage on a system wide basis. China’s producer prices see worst drop in nearly two years

CNBC

China’s producer prices fall 3.6% in June, biggest drop in nearly two years as deflation deepens

The deflation in producer prices came worse than the expected 3.2% drop in a Reuters poll, marking the biggest fall since July 2023, according to L...

What’s Next for TikTok? The Chinese aren’t just threading the needle, they are – to mix metaphors – finding a solution whereby they get their cake and eat it as well. A sale to a consortium of American investors will likely occur later this year. It is now rather clear that a host of parties are working diligently in the background to acquire the American TikTok platform. The operative work there is “American”. The sale will not be for the entire international TikTok platform, at least in my estimation. The ex-American platform is simply too valuable. Moreover, there is now credible evidence that Bytedance is working overtime to create a standalone app which tailored for the American market. Fun fact. This is exactly what China did itself with Douyin available in China and TikTok available in all other market. What should be expected though is that this new American-only app will end up dramatically underperforming. The “special sauce” that is the current TikTok algorithm will be fully ripped out. There will clearly be a period of integration and there won’t be much of a difference, again at the earliest of stages. Fast forward out a year after a deal is completed and TikTok America is live and I am expecting that overall user engagement will fall off a cliff. With a poor performing TikTok America platform, I then wonder if we will – once again – witness a deluge of “refuges” flooding back to RedNote. That would be the ironies of all ironies.

Los Angeles Times

TikTok reportedly prepping new app in the U.S. as potential sale looms

TikTok is planning to release a new app in the U.S., according to media reports. President Trump has said a deal is near.

China Morning Missive Will fully admit, China going full “visa on arrival” was something I never expected. Then again, it has been a brilliant move. Tourists from all over are making their way to the Mainland. Shanghai is essentially fully back to the pre-Covid days of foreigners roaming the streets. What has been interesting to watch are the reactions. So far this year I’ve had a half dozen friends and/or family travel through and each – to the man and woman – have left completely flabbergasted. The make the point of there being an obvious disconnect between what was expected and reality. Again, everyone made the point that China isn’t at all how it is presented in the American or European media. Most will also comment that China feels like living in the future. Suspect that is more a case of a massive lack of investment by American and Europe. None of this is a surprise to me, but I am very thankful that more and more people are making their way to China and getting a first hand look for themselves. Highly recommend a trip for all of you out there. And if you do make it to Shanghai, be sure to let me know.

AP News

Citizens of more than 70 countries can now visit China without a visa

China now allows citizens from 74 countries to enter visa-free for up to 30 days. This policy aims to boost tourism, the economy, and China's globa...

For the longest time, I’ve made the point that all critiques of #China are warranted. At the same time though, it has also been obvious that those critiques have been woefully incomplete. Selective in how they are presented. What has been far more evident to me is a G7 leadership that is increasingly feeling cornered. Debt is weighing down the system all over. If the only way out is through, then NATO sees that the only way through as WAR. As an act of screaming into the void here I am making the point that when the head of NATO publicly states that his outlook isn’t just for Russia to expand farther with its aggression and directly attack Europe but that this will be done at the behest of China. The quote below comes from Mark Rutte, the current head of NATO. “There’s an increasing realization, and let’s not be naive about this: If Xi Jinping would attack Taiwan, he would first make sure that he makes a call to his very junior partner in all of this, Vladimir Vladimirovich Putin, residing in Moscow, and telling him, ‘Hey, I’m going to do this, and I need you to keep them busy in Europe by attacking NATO territory,'” Rutte told the New York Times Again, this is the Secretary General of NATO going on the record expecting war. #madness.

NATO chief predicts how China could set off World War III: 'Let's not be naive about this' | New York Post