Miles Yu explains the devious cultural significance of the Gaokao, which is China¡¯s two-day college entrance exam. He then explores why everyday homeowners in China are getting crushed by 20¨C50 percent increases on their utilities. Lastly, he peels back the curtain on how the Chinese Communist Party uses aggressive subsidies to infiltrate and undermine global markets.
China Insider is a weekly podcast project from 91ÆÞÓÑ Institute's China Center, hosted by Miles Yu, who provides weekly news that mainstream American outlets often miss, as well as in-depth commentary and analysis on the China challenge and the free world¡¯s future.
Episode Transcript
This transcription is automatically generated and edited lightly for accuracy. Please excuse any errors.
Miles Yu:
Welcome to China Insider, a podcast from the 91ÆÞÓÑ Institute¡¯s China Center. I am Miles Yu, senior fellow and director of the China Center. Join me each week along with my colleague, Shane Leary, for our analysis of the major events concerning China, China threat, and their implications to the US and beyond.
Philip Hegseth:
I¡¯m Phil Hegseth filling in for Shane Leary who got married last week. So, congratulations to Shane. We¡¯ve got three topics to bring miles this week. The first surrounds China¡¯s two-day college entrance exam called the Gaokao, which saw a record. 13 million students take their shot at the test last week. Secondly, we explore why everyday homeowners in China are getting crushed by 20 to 50% increases in their utilities. And finally, Miles peels back the curtain on the global EV market and how the CCP is using aggressive subsidies as a means to infiltrate and undermine global markets. Miles, good to see you again.
Miles Yu:
Good to see you, Phil. Thank you again for standing in for Shane.
Philip Hegseth:
Anytime. Anytime. So, we¡¯ll get started. Last week, 13 million hopeful students across China took their shot at the Gaokao, which is the country¡¯s two-day college entrance exam. Students spent years preparing and cramming for this test, and a lot of them only get one shot at it. Honestly, I¡¯m curious why you chose this as the first topic today. Could you introduce me to the Gaokao and our listeners to it and explain the significance culturally, economically, just kind of its impact?
Miles Yu:
Well, first of all, that¡¯s basically a distinguish our China Center here at the 91ÆÞÓÑ from many other think tanks in DC because we normally analyze the China events from inside out rather than outside in. I mean, Gaokao is a national phenomenon in China. It¡¯s so important to the nation and to the world for that matter, and nobody¡¯s talking about it. So that¡¯s one reason why I like to choose this. Gaokao stands for National Unified Examination for admissions to general universities and colleges. It¡¯s basically the annual college entrance exam in China. The score of which normally would decide your future, it¡¯s China¡¯s examination hell. It¡¯s nine hours together divided into two days. So, this year is June 7th and June 8th. So, as you mentioned this year, the number of exam takers has reached a new height. It¡¯s 14.4 million. It stands for a 4% increase over the last year, 2023.
Over one third of them are repeaters this year. That means, oh really. 4.1 million of them repeaters. They didn¡¯t get in last year. So, they take it again. There is a chance, but this is very rare right now. The youth unemployment is so high somewhere range between 20% to 45%. So, people, why not take a shot? They¡¯re so desperate. So that¡¯s why there were a lot of people taking this exam this year. I took my Gaokao years ago. At the time the acceptance rate was about 5% or 4%. Gaokao has an enormous impact on China in the following ways. Number one, almost all Chinese teenagers are impacted. A Chinese social system, the social system must have all children included as everything tends to be mandatory and compulsory. So, the CCP knows the future of its regime rests heavily on how the young are educated. Secondly, it¡¯s just about the only thing most parents care about in China ¨C their child¡¯s education.
I use child¡¯s education, not children¡¯s education because most of kids in China are from the one child family. The entire family¡¯s resources are normally spent on the child¡¯s schooling and education, which led to the booming business of tutoring and the college admissions guidance industries, which the Chinese Communist Party views as some kind of conspiracy because they don¡¯t like people to come together to group. So that¡¯s why they banned the private tutoring business, which has also ruined many people¡¯s careers in a sense. But there¡¯s also a lot of very political sides of this from the point of view of the CCP leadership, one of the most important things, obviously is the young people are formative, idealistic. They¡¯re easy to be influenced or excited. Now, energy is a good thing. Energy could be constructive or destructive, and China is a country full of repression and injustice.
So young people are the crucial social group to either keep the society stable or blow it up with their youthful rage and testosterone. Every CP ruler knows this. Mao Zedong, for example, liberated the high school and college teenagers in the 1960s and seventies and told them to bombard the bourgeois headquarters, especially the teenagers that hated the teachers, professors. Then you had the red guards and the cultural revolution just like the Hitler¡¯s youth or Stalin or Fidel Castro¡¯s young pioneers. So, Mao, Stalin, and Castro, and Hitler knew the destructive power of the youth, and they explored that hundreds of millions of people¡¯s lives were destroyed all along the way. Now after Mao¡¯s death, Deng Xiaoping came along, and he had a different understanding. He understood the destructive nature of youth. So, from Deng Xiaoping onward, Hu Jintao and Xi Jinping, of course, they make sure young people do not turn into another generation rate guards and destroy the CCP itself.
So, the best way is to turn them into nerds competing for the only golden ticket to a good life. There you have Gaokao. So, this is the dark interpretation of Gaokao. From a political point of view, Gaokao has become a national obsession of all young people and their parents. And the CCP uses all kinds of ways to make sure that Gaokao is done correctly. And they use Gaokao as a control mechanism for social mobility, making sure that all young people compete for technical excellence to serve the regime rather than to educate them into individual thinkers contributing to the world.
Philip Hegseth:
You bring up controlled social mobility golden ticket. If a student doesn¡¯t pass this, what¡¯s the consequences? What is their next move if they don¡¯t get the score they¡¯re looking for, if they don¡¯t get the golden ticket, what can it mean for that child¡¯s economic future?
Miles Yu:
Well, first of all, the Chinese youth have an enormous psychological problem right now, if not mental illness because the pressure is so high from the society, from the community, and from the parents themselves. So, failure is not something that they were taught to deal with properly. So that¡¯s why every time after Gaokao, when the scores are revealed, you have a lot of people, we are talking about tens of millions of people in China who are really depressed, and the depression leads to a lot of social problems, nonetheless which is suicides. So, suicide race right now, you go to Chinese social media right now go to or WeChat. You see a lot of videos about young people climbing onto the rail of a bridge and jumping to their own demise. I mean, there¡¯s a lot of it. It¡¯s become a major national security problem right now, and then you can join the army of the unemployed.
And for most people, they just feel so, and they feel so helpless. So, they become what I call theÌÉƽ , lying flat. Don¡¯t do anything tuning in dropout and turn into a Chinese version of hippies. On the other hand, though, you do have the Chinese youngsters becoming the world¡¯s most talented exam takers. Nobody could beat the Chinese when it comes to taking the exam, and that¡¯s not the stereotype, that¡¯s reality because of this kind of high-pressure, mandatory compulsory education system in China. Now, China also is the world the most corrupted cheating center for college exams because the stakes are so high. So much so that high tech hacking by the Chinese into exam centers worldwide have become a routine concern. SAT, the American version of f Gaokao, with a much more benign severity, had to stop all tests inside China because the scores had become unbelievable. Soo, it¡¯s literally become incredible. So, they have to stop. So now if you¡¯re a teenager wanted to come to the United States to study an SAT or SAT is required, you must take it outside of China. You can¡¯t take it in China because the cheating is so rampant. You have to take it outside or in Macau, in Hong Kong or Singapore. But far more importantly, the CCP¡¯s manipulation for Gaokao has direct relevance to the United States and the American¡¯s National security.
Philip Hegseth:
Please, what is that relevance? I know there¡¯s more here.
Miles Yu:
Yeah, so the CCP is the master of playing the US card far out maneuvering all American politicians or many self-claimed China experts in exploiting America¡¯s talents and creativity for the CCPs own long-term communist rule. One of the CCPs most successful moves over the decades in playing the US card is to subcontract or offshoring educating China¡¯s technical experts in science, technology, engineering, and math to America through the world¡¯s best higher education system. They wonder, we all call American colleges and universities. So, for nearly three decades, the CCP sends millions of Chinese young people to the United States for education in American college and universities to train talents for them. So, China sent more students in the United States over the three decades than any other countries in the world. Now there are close to 200 countries in the world that send students to the United States. There are over 300,000 Chinese students studying in the United States on American campuses and the university alone this year, 2024. That number constitutes about 40% of all US international students.
Philip Hegseth:
That¡¯s not a coincidence.
Miles Yu:
Yeah, one country alone has more than 40%. So, this is the CCP¡¯s long game, and it has paid off. Look at China¡¯s today. I mean in almost the fields, military and other leading fields of technology, the leading figures in all fields are all trained by the United States over the decades, and they all have returned to China to serve the CCP in weakling and defeating the US. The ultimate sucker of all time. To carry out this education offshoring enterprise can be also risky too. That¡¯s why you see the [inaudible] problems they have to overcome, number one, that is how to make sure those educated in the United States would go back. So that¡¯s why you see this enormous effort spent by the Chinese government on American campuses and the universities. They want to make sure the largest section in Chinese embassy and Chinese consulates across America is the education division.
That division controls all the CCP sales on American university campuses, mostly through this phony autonomous organization called the CSSA, a Chinese Student Scholars Associations. Do you know how I know this? Because after Tiananmen, I was a student at Berkeley. I was the first independently Democratic elected student leader over there and I had to fight the Chinese Council in San Francisco¡¯s education division all the time. They tried to overthrow my democratic position there, and after they left, they probably took it over. I don¡¯t know how that happened. So, this is why the Chinese influence, the Chinese government influence of my Chinese students on American campuses and universities is absolutely atrocious and we must stop this. This is the interference, the Americans academic freedom and our system of law. Second problem they have to fail is how can you make sure that the Chinese students who come to the United States to study will sufficiently brainwashed before they come to the United States to study and well Gaokao is the way.
So that¡¯s why Gaokao is also very political serving as the way to brainwash the young and the malleable. The obvious way is to control the contents of the exam. So, if you look at Gaokao exam, if you look at it, it¡¯s pretty obvious. For example, a required portion of Gaokao is a socialism with the Chinese characteristics. This actually is a major subject. So, you have to study Marxism, Leninism, and Xi Jinping thoughts. You may not believe it, but you have to really know it, memorize it in order to pass the exam. And once you memorize it, even if you try not to believe it, but the term of discourse, your conceptual framework is already formed. [Yeah, you¡¯ve got the muscle memory]. That¡¯s right. So other required subjects such as history, political science, and Chinese literature, et cetera, et cetera, they¡¯re all completely communist, ideological propaganda and untruth.
I mean, I cannot bear myself to read the Chinese high school history books because for just a nonsense, it is really, really bizarre how they could really control that kind of stuff. That¡¯s why you see many young Chinese CCP defenders here in America on American campuses because they¡¯re already preconditioned by the Gaokao system. That¡¯s one of the reasons the government wants everybody to go through Gaokao. The Chinese student body here in the United States are probably the second most brainwashed student body on campuses. The first one would be the pro-Palestinian Hamas radicals, most likely influenced by the Hamas Politburo and the Hapas Department of Diaspora somewhere in Gaza and West Bank. So, I think Gaokao is very enormously influential, Gaokao is enormously impactful. We have to really pay attention to it, not only for the sake for the health of the Chinese youth and also for the natural security of the United States.
Philip Hegseth:
That was wonderful, Miles. Moving on to our second topic. Economic hubs around China, including cities like Shenzhen and Guangzhou are raising the prices of utilities for homeowners. Water, gas, even public transportation are seeing 20% jumps in costs, even upwards of 50% increases in some places from last year. So, what¡¯s causing this reactionary jump miles? What¡¯s the reasoning behind it?
Miles Yu:
Well, first of all, China is not a democracy. Therefore, if the state control utility company wants to hike the rate, they can do it without any hearing, without anything, they just suddenly announced. The sudden hike was announced in the first week of May, nationwide. Normally, the utility rate jumped by about 20 to 40%. Not only the utility rate, your plane tickets, your high-speed rail train tickets, your highway tolls. They were unbelievable. For example, this coming Saturday, June 15th, nationwide, all the main railway train tickets rate will jump by about average to 20%, 20%, some of them as high in some of the main arteries of the rate will be jumped up by as high as a 40%. So, this affected millions and millions of people, mostly affecting those people who work in the cities, and they have to go back to their countryside homes across the provinces.
Those are the poor. They were downtrodden. There are many reasons for this. One of the reasons, of course, the Chinese government¡¯s way to demand, I use the word demand to demand spending. Number one, they don¡¯t have enough money to spend. Number two, they were not really sure about how the crazy government is doing the business. So, they do not have confidence in a government¡¯s way to control the economy. So, they don¡¯t want to spend. If you don¡¯t want to spend, and then you got a lot of inventory in the factory, you couldn¡¯t really sell and then you couldn¡¯t sell, and then basically you go broke. So, you close shops. That¡¯s one of the problems that the Chinese economy is facing. But there¡¯s also another really important reason why there¡¯s nationwide hikes on all the utility and transportation prices. That is the extraordinarily high fees and cost of maintenance, repair, and even replacement.
China is a country that has an infrastructure madness. The Chinese communist specialty is to build landmark projects to showcase the magnificence of the party and socialism. So communist regimes all over the world, particularly China, they tend to spend the enormous amount of money, national assets for massive railways, highways, skyscrapers, hydroelectric dams, gigantic opera houses, et cetera, et cetera. There¡¯s no country in the world that has more skyscrapers than China, but usually they¡¯re half empty. Nobody could move in because it¡¯s very scary, very expensive. They want to showcase to the outside where the Chinese communist party is so awesome. But the problem is they¡¯re not made by economic market forces. They¡¯re by Politburo decisions for political reasons. So, they try to transplant this communist specialty of infrastructure madness globally. And then you get the BRI Belt and Road Initiative. How do you do that? Well, the Chinese government do this infrastructure normally through massive debt. The monopoly that runs China¡¯s railway business, which has the world¡¯s the largest, most sophisticated high-speed railway system, by the way, owns a debt of about $900 billion, close to a trillion dollars debt, including a five-year bond that worth $300 billion whose interest payment height is just about due now.
So that¡¯s why none of these major projects, landmark projects are making any money. You take a high-speed railway train, bull train China is very impressive between Beijing or Shanghai, between Shanghai or other places. Most cases they¡¯re empty, very expensive. So, because they¡¯re now built by market demands, so they¡¯re losing money, and they have own lot of debt and what could be the worst economic model than that? So, this is kind of a perfect storm. This is one of the reasons why those people have to raise the rate. China built this landmark project. It¡¯s a bridge connecting Macau, Hong Kong and mainland, and it is held as the triumph of social system. It is now operating at a tremendous loss because there are few cars that quite travel on that bridge because nobody needs that kind of stuff. But then directly related to the rate hike is the poor quality and terrible safety standards of all this major infrastructure problem.
Highway collapse all over China right now. Three gorgeous dam engineering is kind of problematic right now. And then EVs, China had the EV crazy, now they¡¯re marching to the world. But if you go to Chinese internet system, you watch Chinese WeChat, Chinese Douyin, their version of TikTok, you see Chinese made EV cards burning, exploding for no reason on the road on the street. And the one telling example, remember a couple weeks, several weeks ago, there was an earthquake in Taiwan that caused a lot of damage to people in Taiwan. However, hundreds of kilometers away in mainland China, they were far away from the epicenter. But that earthquake in Taiwan caused more buildings collapsing in Xiamen than in Taiwan due to code violations.
Philip Hegseth:
Right? The Taiwanese buildings actually fared very well.
Miles Yu:
Yeah, so poor quality costs, more expensive maintenance and repair and these repair costs and maintenance costs are gigantic. And all China¡¯s major infrastructure projects, particularly the railways which started about 15, 16 years ago, are now enter the age of requiring massive maintenance and repairment. So that¡¯s why the cost was not factored in. Now they have to really spend more money on that. So, the solution obviously is raising the price and harm the consumers and the people. And the worst part of that is the CCP could never stop this kind of a madness, this infrastructure madness, because this kind of suicidal economic model is an addiction. The CCP can never kill. If you look at the 14th to five-year plan, which is the current plan, it still demands yearly expansion of infrastructure spending, especially high-speed railways construction. High railway construction is under the current 14th five-year plan is supposed to expand by about 2,500 miles a year. That¡¯s insane. So that¡¯s why the communist economic model is the ultimate culprit for all this economic madness. We have to realize the problem of China¡¯s economical woes is not related to international free market system up and downs, the cycle. The Chinese party has its own cycle.
Philip Hegseth:
To your point, once your bar for success is showing that you can build all these railways, if you stop doing it, then you show that you¡¯re not meeting that former bar of success. You have to keep building it and have to keep showing that you can, if that¡¯s how you show the world that your economy is strong.
Miles Yu:
That¡¯s exactly right. The Chinese economy is built on a mirage, on a facade because it is not market driven. And this BRI has global consequences. We all realize the problem of the BRI project, which is intrinsically related to China¡¯s infrastructure madness now is based upon two things. One is a massive debt, secondly poor quality.
Philip Hegseth:
And all of it falls on the backs of homeowners and regular Chinese people who are then having to foot a bill that they didn¡¯t ask for or need. So how is this impacting everyday Chinese households who are now being asked to pay for these services that they aren¡¯t using enough of or didn¡¯t need in the first place?
Miles Yu:
At some point, China would have this kind of a tipping point where people would say...
Philip Hegseth:
Enough, enough is enough. Yeah...
Miles Yu:
Okay, enough is enough. So, the party realizes this, but they really cannot solve this problem because of the innate nature of the party. It¡¯s controlled. That¡¯s one reason why the Chinese repression is a vicious cycle. You cannot let it lose. It is like holding a tiger by its ears. You cannot let it go yet you cannot really continue to hold it. This is a problem with the CCP¡¯s regime. It¡¯s a problem. In the past, we thought it was a problem for CCP itself domestically, but now it¡¯s impacted the globe. We have taken this issue very seriously to understand the CCP¡¯s model of governance, the source of conduct from systemic, from inside out rather than outside in.
Philip Hegseth:
Well, to that point. Moving on, we turn to our final topic, which is the CCPs subsidized manipulation of the global EV market based on public disclosures. For the top 10 recipients of Chinese government subsidies were EV related and notably EV battery maker Contemporary Amperex Technology received north of $790 million in subsidies, which accounted for 13% of its total profit last year. And remind you, these are publicly released numbers. So, who knows what the actual numbers are. So, give us the story here, Miles, because government subsidies for strategic industries are not a new thing and the US and Europe are doing it as well, and then sometimes in the same industry. So, what makes the CCP¡¯s strategy so different and dangerous to the global markets?
Miles Yu:
Well, the CCP is determined not only to ruin its own economy, but also to ruin the global economy. So, the CCP¡¯s idea is to control, dominate the key industries in the world. Right now, they¡¯re doing three things through massive state subsidy. Subsidy is anti-market. The three industries were auto industry, particularly EVs, high-end electronics, and the E-commerce, and they want to create global monopolies run by the communist party and through those companies. So, you mentioned the top 10. The top 10, you know the company that received the most government subsidy in 2023 is CATL, the words and largest EV battery maker, which has about 40% of global market share. Many of the Tesla¡¯s batteries were made by cattle, not the ones made in the United States, but Tesla has several plants overseas. The next one is SASE motor, that is the largest state-owned automaker in China.
It¡¯s the second largest hybrid and EV car maker in the world. This is the one that uses mostly German technology. Volkswagen for example, is a collaborator. As a matter of fact, it¡¯s a state owned, it¡¯s government owned CCP owned and other ones called BOE, which is the third largest recipient of the state subsidy. BOE is a maker of about a quarter of the words LCD and OLED screens, including most of Apple¡¯s iPhones, right? It is actually very interesting about BOE, it was originally in the offshoot of the Chinese military intelligence, the technical division of that. So, the one after BOE is Sinopec. Sinopec is the world¡¯s largest oil gas, petrochemical conglomerate. Why does this profit-making company would still need a state subsidy? Because Chinese government wants to use this Sinopec to control global market. So, the next one is TCL, TCL is world¡¯s second largest smart tv, mobile, phone and home appliance makers.
You go to Best Buy, you go to Amazon, many of the stuff you buy there, TCL, and the other one is China Mobile, China Mobile State Monopoly. It is the largest mobile network operator and the world¡¯s largest telecom company. Why would such a monopoly still need a state subsidy? Because it¡¯s owned by the Chinese Communist Party. You want to move the monopoly of China to become a monopoly of the world, and that¡¯s how scary it is. Of course. Next one is CNPC, which is another China¡¯s petroleum giant. It¡¯s the fourth largest petrol corporation in the world. Following that is BYD. BYD is the nemesis of Tesla. It¡¯s the maker of the world¡¯s top selling EV suppressing Tesla worldwide. This is one of the companies that worries the European a lot. The Biden administration has just announced we¡¯re going to impose a hundred percent tariff on cars made by BYD and other Chinese EV makers.
Following that is Great Wall Motor. This is China, the largest SUV and pickup truck maker. And then of course followed by that the number 10 largest recipient of Chinese state subsidy is SMIC, SMIC, which is the PRC¡¯s the largest chip maker. So, you see, the problem is that it¡¯s not really at all in compliance with the global free trade system. It¡¯s entirely a Chinese strategic move to create a global dependency on China so that the CCP could have the total control of the world¡¯s economic supply chain. The next administration or next congress should absolutely focus on this big 10. We just talked about it, make them a part of the anti-market Chinese system. There should be a threshold if you receive this much of the competition subsidy from the government, sovereign government, and you¡¯ll be declared as an anti-market. You¡¯ll be banned from doing business in the international free trade system. That¡¯s my dream pipeline dream. It¡¯s not only a dream if we don¡¯t dream such a thing, if we don¡¯t make it happen, we¡¯ll all be ruined. The global free market system that started there about 500 years ago as we know it will be finished to be replaced by a CCP controlled, anti-market system of [inaudible] centralism. That¡¯s a very close reality. We have to be very careful.
Philip Hegseth:
One final question. You mentioned bans or something like that. Is there anything beyond tariffs when you¡¯re thinking about the next administration that is something tangible, we can do to take on those top 10?
Miles Yu:
That¡¯s a very good question. I don¡¯t think we have enough tools to ban anything because banning is essentially very anti-market. Even imposing tariffs itself has caused enormous controversy within the free market trader, free traders, right? They split the Republican party, for example, in the United States, but that¡¯s not just a normal issue of principle. It¡¯s a matter of self-preservation. If you don¡¯t do things like that and you¡¯re going to destroy yourself. People in Washington DC always engage themselves into totally useless debate. I¡¯ve seen this in recent issues of foreign affairs about the utility and the validity of regime change. Should we, should we not? It¡¯s totally idiotic debate because if the regime is not changed, we will be changed by the regime. The regime is changing us, and it has changed us. Now you talk about is there anything other than tariffs? Yes. That is, we have to enact a comprehensive national security law to provide legal statutes for the courts to cancel all those anti-market economic operations and entities. So far, we have focused on an executive approach. We have to really approach judicial and the legal tool, and that¡¯s the ultimate way. American is a country rule by law, right? We cannot really allow this executive ineptitude to continue. I¡¯m not talking about the personnel. I¡¯m talking about the lack of tools by the executive branch. President Donald Trump issuing an executive order banning WeChat and TikTok in 2020. That executive order was overturned by the court within weeks. We do not have the legal statute to do things that must be done.
Philip Hegseth:
Gotcha. Great point to end on. Well, we covered a lot, Miles, so appreciate you spending a little extra time with us this week.
Miles Yu:
Thank you very much. I¡¯ll see you next week. Thank you for listening to this episode of China Insider. I¡¯d like to thank my colleague, Shane Leary, for taking part in this undertaking every week. I¡¯d also like to thank our executive producer, Philip Hegseth, who works tirelessly and professionally behind the scenes for every episode. To make sure we deliver the best quality podcast to you, the listeners, if you enjoy the show, please spread the words. For Chinese listeners, please check our monthly review and analysis episode in Chinese. We¡¯ll see you next time.