Sinéad O’Sullivan reverse-engineered F-16 fighter jets early in her career, trying to work out what China might have copied and how they might have built their own. That engineering lens—looking at systems, understanding how they actually work rather than how we assume they work—has shaped everything she’s done since.
These days, she applies the same approach to monetary policy, industrial strategy, and the widening gap between East and West. Her conclusions are uncomfortable: the West’s economic coordination mechanism broke in 2008 and was never fixed. China built a system that can tolerate instability precisely because it knows where to direct it. And Donald Trump, of all people, intuitively grasps what mainstream economists have missed—that someone needs to be coordinating the economy, and right now, no one is.
Sinéad isn’t a monetary policy expert, and she’ll tell you that straight away. But sometimes the outsider’s perspective reveals what specialists can’t see. In this conversation, she walks us through China’s bimodal currency system, the role of Hong Kong as a pressure absorber, why central bank independence is a recent Western invention we’ve turned into a moral imperative, and how quantitative easing replaced one broken coordination system with an even cruder one.
She also explains why US biotech PhDs are moving to China, why Meta is quietly building a compute trading desk, and why the real competition isn’t between currencies—it’s between coordination systems. One works. One doesn’t. And the gap between them is widening.
Nicolas: I’m Nicolas Colin. I’m with Marieke Flament on the newly launched Currency of Power podcast, and we welcome our first guest, Sinéad O’Sullivan. Welcome, Sinéad!
Sinéad: Thank you for having me. I’m delighted to discuss some meaty topics you’ve presented for today.
Nicolas: We have a lot to cover. We want to talk about China, about China’s central bank specifically, and then about the economy as a whole—distribution, coordination, how free money has made the economy difficult to handle for governments and the financial system. We’ll start with China in the first hour, then switch to the other topic in the second hour.
But before that, we wanted to know more about you. I discovered your work through an article in the Financial Times a few months ago about the space industry, titled In space, nobody can hear you budget—a clever reference to the Alien film, which I loved. I had to read it because I’m interested in deep tech these days, especially space tech.
Later, I discovered your Substack called But This Time It’s Different, which you write and produce as a podcast with Alex Chalmers. I have a connection with him as well! I don’t know Alex, but the same day a few months ago, we both published pieces on the French nuclear industry (see Alex’s and mine). Someone told me, “This guy just published the same day on the exact same topic. You should check him out.”
Sinéad: Alex and I started this podcast several months ago. We’re good friends and we talk about random topics. It’s called But This Time It’s Different because of how people keep saying, “This time it’s different, it will fail this time,” or “The system will collapse this time,” yet things don’t behave as commonly discussed. Alex and I aren’t great at podcasting—we don’t have the time to throw at it. We keep talking about going back and doing more, but I’ve taken over the Substack writing because it’s quick and easy to put down my thoughts. So our great podcast on geopolitics and technology has turned into this brain output I have every now and again on different topics, from China geopolitics to space to whatever enters my mind that week.
“A master at absolutely nothing”
Nicolas: Tell us more about you before we jump into the China topic. When I googled you, I saw you describe yourself as a strategist and an engineer involved in the space industry, but you also write about venture capital and the economy as a whole. I also read that you’re into wine and pastry.
Sinéad: Who isn’t into wine and pastry? I am what the technical term is: a master at absolutely nothing. I try doing everything. My background is engineering, complex systems engineering, mostly in defence and space industries. As I moved through my career, I ended up looking more at programme management, budget, finance, and large-scale projects for the government and private sector. This is where my work started mixing with industrial policy and how governments coordinate with technology and finance. This brought me into the complex world of capital markets—why do they act this way? If I am creating a programme for the Department of Defence to enact a new technology, what levers does the government have and what levers does the private capital market sector have? The more I got into this, the more I realised there are many unanswered questions. I ended up spending most of my time looking at the interaction of geopolitics, technology, and capital markets, particularly where the government can play and where the private sector should stay.
This ultimately led to me heading up interesting geopolitics projects at MIT and then moving to the Institute for Strategy and Competitiveness at Harvard Business School, looking at economic strategy. We were involved in the reconfiguration of a G10 economic strategy, looking at exports and imports as competitiveness tools. We did national security work and competitiveness through technologies, various things surrounding strategy and looking at what is the strategy in terms of the private and public sectors to create competitiveness. When I say competitiveness, most of this work vis-à-vis the government was in the US with China. Since day one of my work, even as an engineer, my work has been focused on what China is doing, what the US is doing, and what happens in that gap—who gets to own that technology, those capabilities. Most of the lens I have with China comes from a specific perspective: how does China compete, how does the US compete, and is everyone else flailing around in the middle?
I take a systems engineering lens to topics. I have to admit these are not my topics of expertise. These are topics I have taken a complex system lens to as an outsider and poked them, asking how does this actually work if I don’t know anything about it? I apply an engineering lens to it. What are the dynamics of monetary policy and what are the dynamics of money that create competitiveness?
Nicolas: Let’s jump right in. Marieke is more of the China expert among us. She used to live there and speaks the language.
Marieke: I appreciate the fact that you’re framing yourself as not an expert, but the way you’re proceeding is interesting, which is why we’re keen to look into it. China is something I had the opportunity to live in 20 years ago. I saw China evolve through different lenses and went back recently. I was impressed at the speed of change and the depth of technological adoption. I went there with my family—just a small anecdote before we go into it—I was with my six-year-old son and his conclusion is that when he grows up, he’s going to go to China to learn about all their technologies and bring them back to make Europe better. That’s the conclusion of a six-year-old after three weeks!
Sinéad: A smart six-year-old.
“Central banking independence equals good”
Marieke: He saw something impressive. I’m keen to know: you mentioned how you approached China and why you started looking at it. Is there a key moment that started you looking more in depth at China and in particular the Chinese monetary system? What was the impetus for that?
Sinéad: This conversation for me is biased towards that specific lens. I grew up career-wise in this area. I’m from Ireland, which is militarily neutral. Being a space and defence engineer growing up through the US military system, I had a different perspective. Most of my work was looking at China as the enemy. My first job out of college was reverse engineering an F-16 fighter jet to figure out what they could reverse engineer from it, so we could understand, using that data, how they might have engineered their jet so we could reverse engineer theirs. This is the kind of thing I spent many years thinking about: what is China doing and specifically what have they taken from the US that they are now using in their own technology? There was this strong idea of China mimicking, copying, and building on US capabilities to use as adversarial technology against the US.
This has changed drastically, as your six-year-old has picked up on. As I moved through this idea of China as the sworn enemy, we’ve moved into a political and competitive domain unlike the 20, 30, 40 years before it, particularly regarding the ways the West now views the East in terms of competitiveness. In the last week or two, we have seen multiple European leaders over in China meeting with Xi Jinping, saying things I would never have thought of before. We had Micheál Martin from Ireland meeting with Xi and coming out saying, “This is fantastic. We need to create this direct flight from Dublin to Shanghai.” This is in the context of a weakened US.
For my own personal biases, what changed for me is watching the US system weaken substantially and be weaponised against its own system. Also, spending more time in Europe and gradually moving my work out of the direct militarisation of China and being able to take a clearer systems perspective of what is actually happening in China. Is it what we thought has been happening in China for the last 20 years? China’s industrial policy stands up to real rigour in terms of what it’s developed and created, independent of what it may or may not have stolen from the US.
What has changed my thinking is really starting to understand the historical context for a lot of what we’re seeing in China. It’s a binary perspective: the US versus China. What I’ve spent a lot of time doing in the last year is looking at smaller strategies in between that also work in unique and interesting ways. I’ve been looking at Pakistan and the evolution of their monetary system, which is fascinating. Perhaps a better way to think about China is vis-à-vis India, not the US. My interest in China has come with this more nuanced perspective: if there is degradation not only to the West but also this binary idea of “China bad, West great,” where in the middle can we start to see interesting context to understand the way China is actually operating today versus how we think it’s been operating for the last 20 years?
Marieke: One of the things you’ve deep-dived into recently, which we found appealing, is how you look at Chinese monetary institutions. As you point out, they are different from Western ones. Can you help us understand how different they are in their construct and why they’re different?
Sinéad: Because I’m coming at this as an outsider, a lot of the assumptions that monetary experts make are things I don’t know. Coming at this from a different lens has allowed me to poke certain assumptions in different ways. This might be obvious to people in your field. What has fascinated me is this idea that in the West, monetary policy and central banking independence equals good, and integration of central banks with the state equals bad. Coming from a different perspective, this was something I understood to be the case in reality. In the West, this is often why we hear that the Chinese economy is unstable because we don’t really know what’s happening—they lie about it, it’s integrated, there’s this political element to it. This is describing the sentiment around how some of this is reported.
My journey through monetary policy in China has shown me this is complete rubbish. The historical lens is interesting here. In the late 70s, you had this command economy in China. In the West, this idea that we have central bank independence is great and it works because we have deep capital markets. You look at the US: the deepest capital markets in the world. These capital markets act as a transmission system for coordination and price signalling. If you go to China in the 70s, where there are no private capital markets, what transmits any of this information from the state or the central bank to coordinating impact? There’s nothing there. Out of necessity, you have this one-party system.
The context in the 70s, as it’s going through this change: you have social issues that were worrying for the political apparatus, and importantly you had no unemployment buffer. Employment goes hand in hand in China with social and political stability. The fear in China around this time is that they are worried about instability from premature markets, that there wasn’t enough stability in their nascent markets.
It’s interesting to think about India. The comparison in the 90s with this mixed economy—India actually does have deep markets during this period, but they’re informal. I want to compare India and China because there is one assumption in the West that both India and China are on a development trajectory that should and will eventually mirror the US and Europe. They’re not. The goal for China, as with India for different reasons and different contexts, is not that eventually when China becomes a good enough economy and political system, it will be independent.
Let’s not forget, central banking independence is a new technology in the West. It’s interesting that we impose these moral, nearly quasi-moral standards on China that we have only taken on ourselves in the West for very specific reasons.
“Politicians wanted to be shielded from hyperinflation”
Nicolas: Would you say the discussion about central bank independence started among economists and then became the norm because of the fiscal situation in the West? At some point, the politicians had no choice but to spend more, even though the deficits were growing. We were in need of a backstop to that, and central bank independence was the answer. Whereas in China, they are not there yet. They might go there, like growing a deficit, but not yet.
Sinéad: I think it’s a mix. There are two different elements: this moral lens and then a structural element—what is the actual goal and what is it trying to fulfil? Why do we think this is a good or bad thing? Structurally, there are obvious reasons. As Western markets liberalised, it became too difficult to coordinate politically. Also, the retribution when there was hyperinflation back to the political class was too big a risk for politicians. They wanted that separation because they wanted to be shielded from the pushback on hyperinflation. The Chinese model is the opposite. They said we want to be able to control it because we think structurally we can, because we control more of the market. Whereas the markets were too autonomous in the West to deal with the complexity of this, and politicians ultimately said, “I don’t know how to do this and I’m going to lose my job. Let’s create some distance. This is someone else’s problem.” Look at what we’re seeing with Jerome Powell at the minute in the US.
This moral lens came from post-Nazi Germany. The underlying assumption there was that a bad economy and hyperinflation led to such social ills that Nazism was the output. There was a moral reason that we should avoid at any cost hyperinflation, to a certain degree inflation, because we do not want to create those social ills that led to this catastrophe. The irony of all of this, which we’ll probably discuss, is that this is exactly where we’ve ended up, just from the other end. We have a tightly controlled economy by the central bank which has led to social ills, and then political rupture comes from that.
China thinks about this in a different way. Part of that is that China’s economy has not liberalised enough. Structurally, it’s different in terms of its fiscal characteristics. But the structure underneath it is so different that it might be able to not have that issue.
“Onshore, offshore, and pressure absorption”
Marieke: I agree. A lot of what you say—we look with our Western eyes towards a culture that’s fundamentally different. Even the sense of self is different when you look at how children are educated, the way you learn the Chinese language. The depths of cultural differences cannot be comprehended, how deep it is. Therefore, this tendency to put our models on something... I really appreciate how you frame the fact that the underlying economy and the needs are different, and also the culture, the social background where people come from is different. There isn’t a right or wrong model. There is a model that works within a certain context, and now we’re starting to comprehend the depths of it.
Maybe double-clicking on something you mentioned in your writings: the Hong Kong role. I also lived in Hong Kong after China. Hong Kong is fascinating. It plays a fascinating role for China. It is onshore, offshore, and has gone through historically different waves. What do you see as the role of Hong Kong today within that? Is it a sustainable arrangement it has with China?
Sinéad: That’s interesting because there’s a Western perspective and then there’s the underlying structure, which is somewhat different. My understanding is there’s this bimodal currency. You have the onshore CNY. The purpose is to create stability. Everything monetary policy in China is about stability—social. In the West, the purpose of central banks is to create inflation stability. The role of the central bank in China is to create social stability, employment stability, fiscal stability, political stability. It is wide-ranging, and thus there are different tools that China has to deal with that. When you think about the Hong Kong model with China, you have the onshore currency. Its role is to create stability. Then you have the offshore CNH, which in my opinion is to provide pressure absorption and buffer. When I think about China, I think about China as being this octopus with multiple tentacles that are going out and doing different things at the same time. Whereas in the West, we seem to be binary: on, off, politically connected or not. China has a hybrid model with everything.
This bimodal system allows China to access global liquidity. If you look at what India is doing, the role of the Reserve Bank of India—their issue was always access to liquidity because they were worried about fiscal instability. China still has a bit of that. They want access to liquidity, but what they do not want is to import this global chaos that comes with that. By which we mean the instability: a butterfly flaps its wings in DC and now you have societal collapse in Beijing. That is what they want to avoid. The weaponisation of the dollar that we’re seeing today can be looked at through the lens of creating instability, or through what I think of as a defence mechanism—defence in the military defence context.
In the West, you have one currency and one market, one price. In the East, you have these various levels. You have the onshore and then the offshore currency. This allows a high-fidelity segmented risk management for China. The risk here is not about the currency between Hong Kong and China. It’s more about the geopolitical aspect and the political. Will Hong Kong’s role change or not? The risk is that Hong Kong needs to exist and operate as it does today for this system to work.
Taking a systems engineering approach to this, we can think about this as transitional or non-transitional when we talk about whether it’s sustainable. I personally believe it is sustainable because this is a non-transitional state for China. It will continue. There is no—China has never stated that its end goal is to have a unified price here. The West’s assumption, however, is that this is the goal because the West assumes that eventually, once its economy develops enough, China will operate in the same way as the West. But China has never said that this is its goal.
Let’s think about what a transitional state does to a system. Let’s say this is in the middle of changing or progressing. The number one thing this will allow is speculation against the state. Think about Polymarket or betting markets at the minute. Any time you have “will it, won’t it develop, will it reach this stated end goal,” you can bet against the state. George Soros knows this, and this is what China absolutely does not want. It does not want huge speculative bets against the state, against the currency. But that’s fine because in China’s mind, this is not a transitional state. This is non-transitional. This is what it is, this is how it is. So there is no point betting against it because you’re probably going to lose. This is a way for China to create some speculation but to have that speculation happen offshore.
When I say it’s a pressure absorber, this difference between the onshore and the offshore currency—if we look at 2015, 2016, when there was massive renminbi depreciation scare, you had this capital outflow, expectations, and growth slowdown. If this was a unified system, which most analysts in the West assume it will eventually become, you would have had this sharp onshore devaluation of the currency. What happens then? Mass panic, capital flight, domestic credit would have tightened immediately, local domestic economic issues, and then eventually political shock. Political shock is the one thing that China is not willing to touch or go near.
What actually happened when you had this dual system was that the offshore currency devalued sharply, but onshore it moved much more slowly. That spread between the two widened, and people were able to speculate on the spread as opposed to the actual onshore currency. China has created this system whereby when there is a shock, it is speculated on the outside on the second-order impact and never on the first-order impact of the currency. This is smart because this pressure has been solved through this price divergence. This is the benefit of a non-transitional state. The West assumes that this is some sort of error and that at some stage it will fix itself. But this is not the way China thinks about it.
Marieke: Fascinating.
“The ability to tolerate instability is what makes it stable”
Nicolas: About the idea of a transition, and you insisted on the importance of stability from a Chinese perspective. Many China experts I talk to say “yes, China cares about stability and delivers stability,” as we are seeing at the moment. But instability still appears when there’s a succession, when a new paramount leader takes over from the previous one and can decide that the whole system will go in a different direction. From the perspective of monetary policy, since you studied the history of the central bank, have you spotted changes of direction when Hu succeeded Jiang and then Xi succeeded Hu?
Sinéad: I don’t want anyone thinking I have studied the history of China’s monetary policy! What I am in the process of doing at the minute is that for India’s central bank, which is fascinating, especially as you go through the partitions. Because of the work I’m doing on Pakistani industrial policy, I have not done this in the more extensive and complex system of China.
What I will say is this: looking at this from a systems structural perspective, the goal of the Chinese system writ large, regardless of who is in charge, is stability. This does not mean they do not tolerate instability. You cannot get rid of instability from a system. We can discuss later when we discuss the economies of the West and East with regards to social ills and politics. But the way China is structurally set up organisationally and through monetary policy allows it to endure instability quite well because it has specific mechanisms where it can take pent-up instability and release it through a mechanism which does not cascade to the rest of the economy.
I have not looked at the specific regime changes of monetary policy through government and leadership changes. But what I can say is the way the system is constructed at the minute, which is independent of the leader, is such that it can and does tolerate instability well. This is probably why you see, unlike in the West, where you don’t touch anything because it’s all going to break—when one Fed chair steps down, another comes in, it’s “don’t touch anything because we don’t know what any of these buttons do”—whereas in China, they do take on slightly more risk because they know structurally the system will hold because it can tolerate instability. We’ll discuss later the social impact this has on the people that live there. But the ability of China to tolerate instability is exactly what makes it stable, paradoxically.
Nicolas: Very interesting.
“Digital money without legitimacy outside the system”
Marieke: Super interesting. I think also the concept of the buffer, the way you described it with Hong Kong in 2015, 2016, is super interesting.
Maybe moving on, or continuing on the topic of China: in Currency of Power, we look a lot at digital currencies and their impact and how they are reshaping systems. There is a lot written about the digital yuan, but it’s often misunderstood. What’s your view on it? Why do you think it’s designed to do what it does?
Sinéad: This is where I have to say you are the expert on this. I have a specific perspective I’m willing to share, but please do not think I spent many weeks and months trying to get to the bottom of all of this. I still feel I don’t particularly understand it well, but I do have a perspective I will share with you.
It’s interesting because in the West, it feels contradictory that China has anything digital. If we think about the cultural perspective of what we think around digital currencies in the West, it’s very different. My own bias: I came to know Bitcoin and digital currencies through when Twitter was still called Twitter. I was on one of the initial small teams building Bluesky when it was before it was a social site, when it was a decentralised information movement platform. So I understood anything digital in this space to equal off the grid or to be something that moved away from legitimacy.
From that lens, which I think is how probably a lot of people in the West have seen Bitcoin as being some scammy off-the-grid thing, thinking, “Oh, why is China involved in all of this?” I think the two things are different. In the West, or at least I have seen a lot of people I know see digital money as this new form of money that is separate from the current forms we have today. We can get into later why people want different forms of money and currency and power and legitimacy. But in the East, and in China, I think it’s a structural thing: we have digital money and it’s good at doing some stuff better than others. The government does not allow it to take on that extra meaning of power or legitimacy. It is a tightly controlled tool for creating faster settlements and modernising an otherwise somewhat archaic financial plumbing system. That is all it is. China has never given it the legitimacy of being about creating power elsewhere.
China has state-controlled banks, capital controls, and absolute political authority. But what it does not have is some public alternative to private payment monopolies. This is important because if you look at China’s perspective on monopolies within the state, especially private sector monopolies, it’s radically different to the US. A digital form of money, especially if you look at the digital renminbi, preserves the state’s access to real-time information without relying on commercial intermediaries. That is important for China. This is the goal of any and all of its monopoly interventions over the last 10 years. They want the technology. As your six-year-old said, “Wow, this is amazing, all this cool technology.” What they will not allow for is legitimacy built outside of the political system. When we think about digital money, we think of legitimacy outside of a current system. In China, it’s very much legitimising the current system by making it better and faster. That is my assumption.
Nicolas: I agree. I’m sensitive to this idea that for a government or a whole system to be legitimate from a citizen’s perspective, it needs to deliver, to be efficient and easy to use. That’s the David Graeber critique of the left: why does the left love bureaucracy so much? Bureaucracy turns the state into an enemy of the people. We should want to get rid of that so people really love interacting with the state. That would be the idea. From what I hear in China, they welcome the technology because it makes the whole system more fluid, more easy to use, more conducive to growth and stability ultimately.
“China leapfrogged the entire thing”
Marieke: Maybe bouncing on that: when I was living in China, literally if you ordered flight tickets, you could order them online but you had to pay in cash. Someone was coming to your door with a paper ticket—we’re not talking that long ago. After that, China totally leapfrogged the whole thing. Out of, we would say, nowhere, you have WeChat and Alipay that started and exploded with a very Chinese custom, Hong Bao, around Chinese New Year. You give physical cash in a red envelope to people. But they embraced those rails because guess what, they’re so much better. They enable the use of technology, but in a way that it’s not outside of state control, it’s still within control. I think there’s been this entire leapfrog that we haven’t had because we’ve had systems that were kind of working and infrastructure that was working a bit better.
Another interesting point I’d love your perspective on: China went through being the core and heart of crypto. Up until 2021, you had some of the best Chinese engineers and developers, Binance and CZ and all those exchanges that were born out of China. A lot of people in the crypto industry were flying to and living in China because it was so open. Then 2021, it’s all blocked, or at least it looks like that. But today, for example, in Bitcoin mining, China is number three. I looked at the data and couldn’t believe it. China is number three in Bitcoin mining. They’re obviously making quite a lot of strides with the digital yuan and other infrastructure they’re building.
How do we make sense of this contradiction? Because in a way, there’s a system, but things are banned, but it’s really embraced, and they’re probably some of the most advanced on it. How do you think about these contradictions?
Sinéad: That’s interesting. Can I piggyback off something you were saying? I want to go back to the legitimacy point because this is somewhat at the heart of this contradiction. A lot of the research I did at MIT around democracy in technology and competitiveness with China—I could summarise probably an 80,000-word report I wrote in one sentence: in China, they want democracy, but they’ll be happy if you give them Disney. It is this idea that if you keep people happy, you can create enough legitimacy for any system to work.
When I recently went back and read some of the work I did at MIT, I couldn’t believe it. Either I was really stupid back then, or—I’m happy to say where I look back and think, “Probably shouldn’t have said that”—but I think what has changed more is not me, it’s the system in the US. Back in 2019, when I was at MIT writing this, it was fine to be at MIT, champagne socialists looking at China and thinking, “Oh, they want democracy, but they have Disney instead. Let’s look at these two systems.”
If we compare, what are the negatives of China? You don’t have democracy, you don’t have these values, human rights issues, surveillance, you can’t say what you think. Guess what? In the West, we have surveillance that is unparalleled, but it’s surveillance that hinders, not helps us. It is a one-way mechanism for the state or private monopolies to gather data on you to give you nothing back. At least in China, you get services. You have human rights abuses in the West. This has undermined legitimacy in the West more than any monetary policy ever has. It’s a toss-up with human rights abuses and a lack of legitimacy around global legal systems that the West has created and rolled back from.
All of the negatives that we attributed to China, and democracy—I’m sorry, but if you look at what’s happening in the US at the minute, question mark. This erosion of legitimacy in the West, but there is nothing keeping people happy in the West. We don’t have housing, we don’t have healthcare, we don’t have infrastructure, we don’t have education. Our quality of life is drastically falling. People are poor, inequality is higher. These things are eroding the legitimacy of the system in the West. At least if you were to tolerate the bad things in China, you have education, housing, infrastructure, all the things your six-year-old said were fabulous.
This is a contradiction in itself. In China, this model shows us explicitly people will absorb the negatives if there’s a perceived trade-off that benefits them. In the West, we’re experiencing in real time there’s no trade-off for us anymore. I am not willing to lose the democratic values of the West and have no healthcare and no housing. If we’re going to be undemocratic, I’m moving to China where at least I’ll have an education. This is a structural contradiction we used to look at with China and say, “Oh, but they’re watching Disney, they’re too preoccupied to know they don’t have democracy.” Neither do we, and now we don’t have Disney either. This is why the perception of the Chinese model is changing.
Then this technology idea is fascinating. China is built structurally in an engineering way. Dan Wang’s big book this year or last year—anyone who knows anything about China could probably have written a similar book. These are well-known ideas that China is good at engineering. They have great engineers. Why is that? Because China itself, structurally, is built like an engineered system. The lawyers think like engineers because of how the structure works. That is why it’s so easy for me as an engineer to look at China and say, “Oh yes, this model works perfectly. If I were to design a system, it would probably look like this.”
This structural framework that engineers rely on exists in the lawyers and the teachers and the bureaucrats because this is how their system is. This is why there’s such enormous engineering talent coming out of China—people have this engineering mindset anyway. In the West, we have to train it into you, and in the East, it’s prevalent because of the system. On top of the fact that you have these great engineers in China, they’re going to go where the money is. The closer the capital, the more money you make. People are human, whether they’re Chinese or American—they want to better their own position relative to wealth accumulation. So it is not surprising that the top crypto engineers are Chinese.
What is surprising to people is the extent to which the state of China allows this expertise development in what are often seen as nefarious use cases. But it’s not surprising when China is not binary. It’s not “get rid of everything bad.” A good analogy: when I was younger, I’m from Ireland, people when I was younger would have started drinking and going to pubs when they were 15 or 16, which is ridiculously young. But I could always tell when I went to college and met people at 19 or 20 who had never been allowed out of the house or had a drink before they got to university—they went totally crazy when you experience alcohol for the first time at an older age and you’re not used to having a drink here with your parents at dinner. The French system does this perfectly.
This is how I think about the Chinese government dealing with Bitcoin. They allow a certain amount of leakage into the system because they know you cannot have total—firstly, you cannot completely control underground activity. It’s like another way to look at it: we’ve covered alcohol, drugs. You talk to the DEA—I don’t have any friends in the DEA, but their strategy is, we know who the local drug dealers are, we let them do what they’re doing as long as we can watch them. It is a safer way to do that than to drive those people underground where we really cannot see them. This is a sensible contradiction that the Chinese government takes with these digital currencies. We know we’re not going to stop these ultra-smart people. We also want to be able to track the enormous wealth being created, and we don’t want that wealth to sit outside of our system. But the minute the system becomes too strong, then it’s time for everyone to get out of the sandbox.
Nicolas: Like happened to Jack Ma.
Sinéad: He was too successful for the model, I think.
Marieke: But I wonder on that—this is pure speculation—we might see a reversal of some of these people that were outside starting to come back in. I was reading recently there’s Ai Weiwei visiting back his own country.
Sinéad: I was talking about this.
Marieke: When you look, some of the biggest players are still made by Chinese engineers. Some of them might be in Singapore, maybe slightly outside, but I think are going to get closer because it is embraced and there is a comprehension. So I think it’s going to be interesting.
Sinéad: What do you think that is?
Marieke: For all the reasons you mentioned. I think you framed it well. If you look at the negatives of China, which are democracy and surveillance, and if you look at the negatives in the West, which we don’t think we have but actually have in an unsaid thing, then maybe I’m actually better off. Again, I’m going to quote my six-year-old again because of the way he saw it: in China, when you go in the street now, there are cameras everywhere, but you see the cameras, they’re everywhere.
Sinéad: Yes.
Marieke: I pointed it to my son. I said, “Look, everything is there.” His reaction was, “Well then we’re safe, we know we’re safe.” I was like, “Oh, that’s an interesting reaction.” Then I told him, “But would you not rather have a place where you don’t have that?” He’s like, “Well, but still, someone is going to see what I’m posting, what I’m doing.” So he was like, “At least I know it’s here and I can see it and I know the rules of the game, and therefore it’s keeping—” Again, it’s a naive, maybe naive perspective, but when you said what you expressed, I was like, yeah, in China you can see it. London is probably one of the places most surveilled, but you don’t see it. So in a way, I think all the trade-offs are gone and we think we have them, but it’s a mirage. I don’t know, it will be interesting to see who goes back and who doesn’t and what alignments happen.
Sinéad: Totally. I think at the minute in the West, because we’re living through this transition, we still have this old narrative of “we have democracy, we have liberal values”—we don’t. That discontinuity between the lived experience and the narrative causes an enormous amount of anxiety, at least for me, but in general with people. In China, it’s straightforward: you do this and you’ll be expelled, do this and you’ll be fine. Here’s what we’re willing to tolerate and here’s what we’re not. If you cross that line, we’re going to have a discussion about it. That gives you—the basic premise for an economy operating in the first place are legal boundaries.
“US citizens flocking to China to do engineering”
This is the difficulty now in the West. If you have a business, business thrives on top of “here’s a legal framework, here’s what you can do, here’s what you cannot do.” In the West, I mean, there is no such thing as international law. I’m sorry, but the people still pretending this exists—for some people it is used ad hoc if and when it is chosen to be used. That is the equivalent of not existing at all. At least in China, you can develop an understanding of the trade-offs and make a decision about whether you’re willing to accept them.
Interestingly, what we’re going to see is this merging. When you’re talking about people coming back into the fold in China, I think China is realising there’s a massive opportunity. I want to talk about some of the talent outside of China moving as China—you go to MIT, you go to Harvard, Cambridge, they’re right next to each other. You go to Harvard Square or by MIT—all of the buildings around there are biotech. The industry is biotech. A friend of mine just finished a PhD, spent seven years at the hospitals at Harvard doing her biotech PhD. There are no jobs. No jobs. If you’re MIT or Harvard coming out of biotech, the companies aren’t hiring. The industry has moved to China.
A lot of engineering talent I know is moving to China because not only are the salaries they’re offering better, but you don’t have the stasis you have in the West. If you’re an engineer, you want to build something. Sure, you want money while you do it, but you want to build something, you want to get something done. If you work in academia in the US now, it’s not a great time to be in academia, but there’s no ability to get something done. In China, they’re like, “Yeah, here’s a lab, here’s people, build whatever you want.” That is a really exciting proposition.
Nicolas: Even US citizens, you mean? Or Chinese nationals?
Sinéad: US citizens are flocking to China to do engineering in China. This was unimaginable even a few years ago. Back then, I was advising on MIT’s China policy because there was a massive problem with infiltration of the CCP and a transfer of information from MIT to China. But now it’s not secretive because people just go, they bring their knowledge with them. They don’t want to stay in the US.
There is this liberalisation of values and academics from the US into China. I think China has realised here is a unique moment in which we can—China has a lot of flexibility in what it’s willing to do and how quickly it can move certain values in certain sectors in favour of gaining perceived advantage. It’s absolutely doing that right now. Come to China, work at this university, we’ll give you a million dollars a year tax-free and build whatever you want, hire whoever you want. Here’s a lab. And they’re doing that.
“China can decide where and how slowdown happens”
Nicolas: We want to talk about the dollar and whether China poses a challenge to it. But before that, because you alluded to it: we have many echoes from China at the moment that Chinese society is not doing that well. There’s rising unemployment, people have difficulties making ends meet. Not that they’re angry towards the government, but the contrast between China crushing it as an export powerhouse and the actual state of the middle class in China seems to be widening. Have you studied anything on that aspect? Because you alluded to social ease and whether the situation is worse in the West compared to China, but maybe China is worsening as well.
Sinéad: The use of the words “worse” and “worsening” is interesting, and I’ll get back to that. This has been—I think quite a few years ago now when I was at Harvard, I was working on the strategy for a large multinational luxury goods company. Like a lot of these companies, their growth strategy could be put into one word: China. This idea of this growing middle class was the tide that lifted all US boats. This is hilarious because whether you were Disney, whether you were LVMH, it really didn’t matter. We have this neverending supply of middle-class people in China who are going to want to experience this handbag for the first time. It was funny working with these boards and these executives saying, “Hang on a second, you realise Mickey Mouse with the American flag isn’t going to be that popular with the CCP. They don’t quite have this distance between the private sector and the government.” There was this complete unknown around how do you actually operate in China.
A lot of them saying, “Wait, we’re going to have to onshore manufacturing in China if we want to sell LVMH in China?” And I said, “Yeah, you’re not going to be able to manufacture in India, slap an American logo on it, and take advantage of the middle class in China.” But the big question I had at that time was: is this growth sustainable? For how long will this middle class just be this nameless, faceless consumer sector that is going to absorb all of these products? I think this is a big question at the minute. The economic slowdown in China is certainly one that is top of discussion around many global talking points.
But I guess the question around “worse” or “worsening”—for sure, we are going through a global recession. It’s become increasingly difficult to understand the meaning of the word recession because the economy is so fragmented and polarised in different ways. But if you look at basic sentiment and basic data, people no longer have—anecdotally, my phone rings multiple times a week. Someone, anyone from a college graduate to an executive who’s been at a FTSE 30 company for 20 years, saying, “I’m unemployed.” We can keep saying it’s ChatGPT for the next 10 years. I don’t think it is. China is absolutely experiencing this too.
I think the difference between China and the West is that China has a much stronger ability to control where it wants to see economic slowdown and through which social class it wants to do that. If you’re the CCP and you’re saying someone has to take a hit here—we can discuss this later when we get into transitional states between a well-functioning and high-growing economy and one that’s not. There are winners and losers. In the US and in the West, we typically say, “Well, someone wins and someone loses. Let’s hope it’s not me.” In China, they can—think about the octopus and the tentacles—they can say it’s going to be this class and it’s going to be this sector and it’s going to be this region because this is what’s going to create wider stability, and we’re going to ring-fence it here.
Potentially they say, “Okay, the middle class, it sucks that you don’t get to buy 10 Louis Vuittons this year instead of two. But also we need that bottom 10% to move up, so you’re going to slow down, and okay, you guys can keep going.” They have an incredible ability to be able to do that. You cannot—it’s like instability—you cannot avoid it. There is global slowdown. Is it worse than the West? I don’t know. Who knows? Everyone lies about the numbers now, even the West. But what I will say is China has the ability to decide where and how it happens. That is really interesting.
“Power is zero-sum in the West”
Nicolas: Should we say a word about the dollar before we move to the other half of the interview? We were wondering what your views are on China potentially challenging the dollar as a global reserve currency.
Sinéad: This is usually the thing people want to talk about. In the world I live in, it’s weaponisation. Outside of the world you live in, which is nuanced and much more exacting and precise, the world I live in is “Oh no, China, are they going to militarily invade Taiwan? And is the dollar going to disappear?” I was giving a defence economic seminar last year for a week for PhD students, and the only question they had was, “Yeah, but the dollar is dead. China is taking over.” And I said, “Well, hang on a second, don’t believe everything you read on Twitter.”
It’s interesting because I think about conflict and this weaponisation of anything and competitiveness in this American way. You can hear the Air Force One song. It is true absolute power. This is not the way that China thinks about it. There’s this idea that China is trying to overtake the US, and I don’t think it is. There is this multi-rail system, of course, in that there is now a competitor potentially to the US dollar. But let’s look at the way this conversation is framed.
In the US, we assume that power is zero-sum. You win or you lose, the US is on the top or it’s been defeated by China. Where does this come from? This idea contextually comes because the West has its systems and structures that have come online and been developed through—not to be one of those totally woke people, but through a very imperialistic system of we take over this country or this capability. Power is positional. This gave rise to an entire academic thinking. If you look at Graham Allison at Harvard Kennedy School and this idea of great power competition, there will be one winner and one loser, or one winner and many losers, but never many winners.
I was lucky to work with Graham when I was at Harvard. But it was enlightening the way that specific doctrine has been moved into military strategy, into economic strategy. Any alternative is a direct threat.
“Hide your strength while you bide your time”
Nicolas: To this idea of hegemony also, maybe because all those people’s thinking was shaped by the Cold War and the actual confrontation with a very different system.
Sinéad: That system is very different to the Eastern system. China does not have this Cold War attitude because China never developed its mechanisms externally to itself. China developed internally. When you develop internally, you build your system around existing constraints and fragmentation. Those are the real threats to you: constraints and fragmentation. Not that you need to overtake and absorb an entire other entity externally. This has created an entirely different way in which the two think about the nature of combat.
China does not do public escalation, and it absolutely does not do ideological confrontation. The easiest way to see that people don’t understand this is through the narrative around tariff wars. Recently, I have a friend who, very much into military strategy, continually seemed to misunderstand what China would do next and would say, “Oh, this is it. They’ve been waiting 500 years, and now they can finally slap on the tariffs and take over Taiwan.” And I said, “This is never going to happen. That is not how China—China avoids at any cost confrontation.” We have in the White House the most confrontational person in the world.
There’s this idea in China—it’s called shi—we don’t really have the phrase in English. It’s power as configuration, not force, which is interesting. Going back to how China is an engineering state, its power is in the structure, not in what it does, but how it exists. China’s advantage and its positioning comes from this. If you look at military doctrine, not to take us too far away from the discussion of monetary policy and this idea of de-dollarisation, there’s a reason why I think China is not trying to directly take over the dollar, apart from the fact that China understands this is an expensive and difficult thing for it to do right now.
You had Mao in the 50s to the 70s, and through his military doctrine, we had this idea that endurance is your main tool. If you had any military tool, it is that of endurance and time. This is where we see time as a weapon. Although this had been for centuries embedded into the culture, this came out as a specific doctrine for 20 to 30 years. Time is your friend here, and you would avoid any head-on victory. This idea that as your enemy advances, you retreat, and so you make them take all these unnecessary steps, and you use time to wear out your friend, which is potentially something we’re seeing right now.
Then you had the Deng Xiaoping era from the 70s to 90s, and you see this addition on top of the time being: hide your strength while you bide your time. This is fantastic. Hide your capabilities and build quietly. Keep building them. You don’t necessarily need to distract them, but don’t talk about it in the same way that you don’t have this massive PR campaign for your new naval warfare ship.
Then it brings us to today’s PLA doctrine, the People’s Liberation Army military doctrine right now, which is that you’re looking for a system-wide destruction of the enemy. You are not trying to decapitate the enemy. What this means is you want to degrade all of their coordination and you want to neutralise their ability to create networks. We’re seeing this through Belt and Road—the perfect example. You want to attack their dependency, but you never do head-to-head combat. You’re not trying to cut the head off the snake, you just want to make the snake powerless.
Which brings us back to this multi-rail currency. China is not trying to take over as a dominant currency. China’s fear is that it imports instability. This is ultimately the state fear because instability equals political instability. So they are trying to reduce its exposure to instability. It is creating, I guess, a parallel system. If you were to take away any military understanding or combat, it is trying to create additional points of redundancy through which it will not rely on US and Western instability. But at a deeper level, if you were trying to assume that there was anything adversarial going on with the currency, you would assume they are not trying to attack and overtake the currency of the US, but they are certainly building long-standing alternatives which may, in the future—we can get into energy and all the rest—which may actually become much more prevalent.
“We are addicted to quantitative easing”
Nicolas: Thanks so much. That’s very enlightening. We will move now to the second part of our discussion, which is about your other series called How To Fix A Crackhead Economy Addicted To Free Money.
Sinéad: Yes.
Nicolas: Maybe the best way to introduce this is for you to explain the difference between coordination and redistribution. Then we’ll move to discussing quantitative easing and its effect on the economy since 2008, and how to some extent it explains the whole crypto political movement, which is our focus here.
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