📬 China Update — End of Week Newsletter

Date: September 28, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments

Let’s Jump In!

🏗️ Economy: Infrastructure Push & Labor Strains

China is once again leaning on infrastructure to prop up growth. Data from China State Railway Group show fixed-asset investment in railways hit 504.1 billion yuan ($70.8bn) in the first eight months, up 5.6% year-on-year. If the pace continues, 2025 will be a record year, with spending topping 900 billion yuan. Major projects include the Chongqing–Xiamen high-speed line and massive station upgrades in Shanghai and Chongqing.

The revival underscores a familiar pattern: when Beijing declares manufacturing “over-involuted” with too much overcapacity, investment is redirected into railways and other infrastructure—regardless of long-term returns. As PKU’s Pettis put it: “If overcapacity is reduced in manufacturing, but GDP targets must be met, investment will be forced into infrastructure—even when it doesn’t make much sense.”

Yet household pressures are mounting. Social security contribution bases—which track average wages—rose by barely 1% in Shanghai and Beijing this year, compared with average 9% hikes in the pre-pandemic era. That’s a stark signal of wage stagnation. Urban unemployment has ticked higher, and private surveys suggest hiring sentiment is at its weakest since early 2020. With consumer confidence already depressed, weak wage growth risks deepening deflationary pressures.

Meanwhile, Chinese banks face a new wave of retail loan defaults. Interim disclosures show nonperforming personal loans at 45 listed banks surged 12.3% in the first half of 2025, outpacing even property-sector bad debts. Credit card delinquencies in particular are climbing. State-owned giants like ICBC and Agricultural Bank each reported over 20% jumps in retail NPLs. As one Moody’s analyst warned, “The borrowers left are the least creditworthy, and lenders are being squeezed at both ends—higher defaults, lower margins.”

👉 Takeaway: Infrastructure keeps GDP numbers afloat, but wages, household demand, and retail lending show a system under stress.

🇺🇸🇨🇳 US–China Relations: Guardrails & Leverage

A bipartisan group of US lawmakers visited Beijing—the first House delegation since 2019—meeting Premier Li Qiang and calling for deeper engagement. Rep. Adam Smith, top Democrat on the Armed Services Committee, framed it as “breaking the ice,” though relations remain structurally adversarial. The visit followed a Trump–Xi phone call and comes ahead of their APEC meeting in South Korea next month.

At the same time, US Treasury Secretary Scott Bessent stressed Washington’s leverage in the trade war, citing aircraft engines, chemicals, and access to capital markets. Aviation is the clearest pressure point: COMAC has slashed C919 deliveries due to reliance on GE engines and avionics. Agriculture, however, is a weaker card—China hasn’t booked a single US soybean cargo this season, leaning instead on Brazil and Argentina.

Adding complexity, Beijing announced it will drop its “developing nation” status at the WTO—a symbolic concession long sought by Washington. While analysts say it won’t change much in practice, it could ease some tensions in Geneva and let China reposition itself as a defender of multilateralism.

🤖 Tech War: Huawei’s AI Chips & TikTok

Huawei unveiled an ambitious AI chip roadmap, pledging its Ascend series will rival Nvidia by 2027. Its strategy: use massive clusters of “good enough” chips to offset weaker per-unit performance, linking thousands into Atlas supercomputers. Huawei claims its 2026 “Atlas 950 SuperPod” will surpass Nvidia’s planned clusters on memory and interconnect bandwidth.

Skeptics aren’t convinced. Former NSC advisor Chris McGuire noted Huawei’s 2026 chip is actually weaker than its current best, and Nvidia’s 2027 parts may still be 27 times more powerful. Scaling production to cluster enough chips looks “extremely unlikely,” he said.

Meanwhile, Trump signed an executive order forcing ByteDance to divest TikTok’s US arm at a fire-sale valuation of $14 billion. American investors, including Oracle and Silver Lake, will take control, while ByteDance retains under 20% and still collects licensing fees. Critics call it a discount deal where ByteDance gives up ownership but keeps profits. The sale must be finalized within 120 days—just as Trump gears up for APEC and a possible China visit in 2026.

🌪️ Environment & Climate: Typhoon Ragasa & Xi’s Pledge

Typhoon Ragasa, the strongest storm this year, slammed Guangdong on Wednesday with 120 mph winds, forcing over 2 million evacuations. Guangdong, Hainan, and Fujian received $21m in emergency relief as railways shut, schools closed, and ferries to Hainan were suspended. Hong Kong endured storm surges and flight cancellations; Macau closed its casinos. The storm has left dozens dead across the Philippines, Taiwan, and southern China.

Against this backdrop, Xi Jinping pledged at the UN climate summit to cut China’s emissions by 7–10% from peak levels by 2035, with non-fossil energy to hit 30% of consumption. He also promised a vast expansion of solar, wind, and EV adoption. Skeptics note China’s coal consumption remains massive, but the pledge positions Xi as a climate leader in contrast to Trump, who dismissed climate change as “the greatest con job ever perpetrated.”

⚓ Military & Security: Fujian Carrier Breakthrough

China’s new aircraft carrier Fujian has conducted successful launch and recovery tests with its J-15T fighters, stealth J-35s, and KJ-600 early warning planes—the first time all three types were confirmed at sea. With electromagnetic catapults, the Fujian represents a leap in PLAN capabilities, narrowing gaps with the US Navy. Analysts say once operational, it will allow China to project power across the first island chain into the Pacific, potentially reshaping the naval balance.

📰 Closing Note: Jerome Cohen (1929–2025)

Jerome A. Cohen, the pioneering American scholar of Chinese law, has died aged 95. From the 1960s onward, Cohen trained generations of lawyers and scholars, advised corporations, and championed rights activists. He was central in resolving the 2012 Chen Guangcheng standoff and never stopped pressing Beijing to strengthen legal norms. As he reflected last year: “We may be in a period of transition without even knowing it.” His legacy endures as a bridge between law, China, and the global community.

Until next time!

Tony