A world on edge: unemployment anxieties, hidden debt, spiralling China–Japan tensions, and a shifting global tech order - Let’s Jump In!
China’s Labour Market Anxiety Erupts Into View
Rural underemployment risks meet the looming graduate wave
A senior official at China’s Ministry of Agriculture and Rural Affairs touched off a national firestorm this week by urging policymakers to “prevent a large-scale return and idling of migrant workers in their hometowns.” The language was unusually direct—hinting at deeper labour-market fragilities that rarely surface in official remarks.
Behind the warning sits China’s “two stabilities and one prevention” framework—designed to stabilise employment and incomes among formerly impoverished rural households, and prevent them from sliding back into absolute poverty. Over 30 million such workers have remained in the labour force for four consecutive years; a sudden reversal would carry economic and political consequences.
Beijing insists there’s no sign (yet) of a mass reverse migration. But structural pressures are mounting:
Construction and manufacturing are absorbing fewer workers.
Skill requirements are rising, disproportionately affecting older rural migrants.
Local rural economies cannot meaningfully absorb returnees.
The Ministry’s immediate priority: tighten data monitoring to detect any surge in returnees early.
If older migrant workers pose one kind of challenge, China’s youth present another, potentially more explosive one.
A record-breaking graduate cohort looms
China expects 12.7 million university graduates in 2026, up from 12.22 million in 2025. Youth unemployment (for the 16–24 non-student cohort) sits just above 17%—a number widely viewed with skepticism.
Officials are preparing “extraordinary, unconventional policy measures.” Economists warn that structural mismatches, technological displacement, and AI-related anxieties will only intensify. And, crucially, the lesson from China’s own modern history is clear: large cohorts of unemployed graduates and disaffected rural workers represent a red-line political risk.
China’s Hidden Debt Crunch Deepens
Mass consolidation of rural banks and creeping systemic risk
CFMO Yicai reports that Beijing is accelerating the consolidation of small and midsize financial institutions as local governments struggle under unprecedented debt burdens.
The scale of the clean-up is extraordinary:
225 financial institutions disappeared in the first half of the year—already surpassing all of 2024.
Rural banks make up ~80% of China’s banking network, and many are now being merged into regional giants.
Inner Mongolia merged 120 lenders into a single rural commercial bank; Henan merged 25.
The problem is structural: rural lenders spent years extending cheap credit to local governments and LGFVs (Local Government Financing Vehicles) for unproductive infrastructure. With land sales collapsing and the property market mired in crisis, these debts are unraveling. IMF estimates:
But consolidation alone cannot fix governance failures. Past disasters—such as Baoshang Bank in 2019—underscore risks of political interference, weak oversight, and balance sheets contaminated by “hidden debt.”
Hong Kong Scandal: The Deadliest Fire in Decades
A catastrophic blaze tore through Wang Fuk Court in Tai Po this week, killing 94 people, injuring 76, and leaving more than 200 unaccounted for.
Investigators are probing whether flammable scaffolding, non-compliant exterior materials, and questionable renovation practices amplified the spread. The ICAC has launched a probe; three construction executives have been arrested on suspicion of manslaughter.
The incident has ignited public fury and raised serious questions about safety standards in one of the world’s densest cities.
Property Market Tremors: Vanke Under Severe Pressure
China Vanke—long a bellwether for Beijing’s attitude toward the property sector—has seen its dollar bonds collapse to 44 cents on the dollar. Two bonds worth 5.7 billion yuan come due in December.
Shenzhen Metro Group has provided ~30 billion yuan in support this year, but the reliability of this state backing is now in doubt following leadership changes and whispers of stricter lending terms.
With new-home sales still falling and regulatory scrutiny expanding, Vanke’s crisis highlights the narrowing room for Beijing: how to stabilise the sector without endorsing a full-scale bailout.
LGFV “Hidden Returns” in Hong Kong Exposed
A Bloomberg investigation revealed dozens of LGFVs offering secret, off-book yields—double their official coupons—to entice investors in Hong Kong.
Mechanisms include:
This revives practices Beijing already punished onshore. Now regulators in Hong Kong are preparing a possible crackdown. But given the desperate need for refinancing among debt-burdened provinces, enforcement may collide head-on with Beijing’s priority to maintain social and fiscal stability.
China’s Banks Loosen Standards as Credit Demand Collapses
From “phantom loans” to ultra-cheap high-LTV mortgages, lenders are scrambling to hit year-end targets.
Rates have plunged:
Subsidies from financially strained local governments are covering part of borrowers’ interest—often for just one year. Brokers are facilitating shell companies and falsified paperwork, raising fraud risks.
In segments of Beijing where home prices have fallen 30–40%, many loans are now underwater. Renewing them at higher LTVs merely delays recognition of losses.
Russia–China: Sanctions, Scarcity, and Price Hikes
A study from the Bank of Finland Institute for Emerging Economies finds Chinese exporters are sharply raising prices for goods with military applications being sold to Russia:
Some categories—ball bearings, machinery, mechanical components—saw import values rise purely because prices soared despite falling shipment volumes.
Western sanctions officials privately say: if Chinese firms are overcharging Russia, “that’s a pretty good outcome.”
UK–China Relations: Engagement With Guardrails
Prime Minister Keir Starmer is set to approve a “super-sized” Chinese embassy in central London after MI5/MI6 security checks—a symbolic step in Labour’s attempt to stabilise relations.
But this comes amid a flurry of competing pressures:
Security pushback intensifies
MI5 issued fresh warnings that MSS operatives are cultivating parliamentary staff via LinkedIn, offering financial incentives and subsidised trips.
Security Minister Dan Jarvis unveiled a new political espionage action plan.
British universities face new scrutiny after Beijing allegedly pressured Sheffield Hallam University to censor human-rights research.
Scientific cooperation narrows
Science Minister Patrick Vallance announced a sharply reduced UK–China S&T agreement—now restricted to “uncontroversial” fields like health, agriculture, climate, and planetary sciences. Sensitive dual-use areas (robotics, satellites, remote sensing) have been stripped out.
Think-tank ties under the spotlight
FT revealed National Security Adviser Jonathan Powell co-hosted events with the Grandview Institution—linked to China’s intelligence ecosystem. Analysts argue transparency, not avoidance, is the only realistic policy.
The result: Britain is trying to reopen channels—but every step is shadowed by new warnings, political backlash, and public mistrust.
The China–Japan Diplomatic Crisis Enters Its Most Dangerous Phase
Three weeks into the confrontation, tensions are no longer confined to rhetoric—they’re spreading across diplomacy, military posture, economics, academia, and global perception.
Beijing escalates to the UN
China’s ambassador Fu Cong submitted a formal letter warning that if Japan intervenes militarily in a Taiwan conflict, Beijing would “resolutely exercise its right of self-defense.”
Japan responded with an unusually sharp counter-letter, implicitly accusing China of attempting unilateral changes to the status quo by force.
Military pressure mounts
Japan is accelerating missile deployments on Yonaguni and Ishigaki—less than 110km from Taiwan.
The U.S. Marine Corps has been quietly moving equipment through Yonaguni’s Kubura Port, reinforcing the First Island Chain.
PLA spokespeople warn Japan will “pay a painful price” if it crosses “even half a step.”
China restricts flights
China’s aviation regulator ordered airlines to maintain reduced flights to Japan through March 2026—a hint the crisis may persist.
International messaging war
China is lobbying France to reaffirm “one China.”
Japan is lobbying the UN to recognise Chinese military expansion.
Public opinion reflects hardening positions
Kyodo polling shows Takaichi’s support rising nearly 6 points since the crisis began.
And the historical irony grows deeper: Beijing is accusing Japan of colonial aggression while asserting its own right to take Taiwan—an island whose modern identity was shaped by both Chinese settler colonialism and Japanese rule.
2025-11-30 05:33:16 +0000 UTC
View Post
⚔️ Taiwan Warnings: “They Know the Consequences”
In a CBS 60 Minutes interview at the start of the week, US President Donald Trump said Chinese officials “know the consequences” of any attempt to take military action against Taiwan. Pressed on whether he would defend the island, Trump replied, “You’ll find out if it happens — and [Xi] understands the answer.”
The comments came days after Trump’s first meeting with Xi Jinping in six years, held in South Korea, where the leaders discussed trade tensions and the resumption of U.S. nuclear testing. Trump said Taiwan “never even came up,” insisting that Xi “understands it very well.” The U.S. continues to maintain “strategic ambiguity” under the 1979 Taiwan Relations Act, which commits Washington to help Taiwan defend itself but stops short of a defense guarantee.
Beijing responded sharply. A spokesperson for China’s embassy in Washington reaffirmed that Taiwan remains “China’s internal affair,” vowing it would “never allow any person or force to separate Taiwan from China in any way.”
The Taiwan issue also cast a shadow over Japan’s new prime minister Sanae Takaichi, who met a Taiwanese presidential adviser at the APEC summit in South Korea. Beijing lodged formal protests, accusing Takaichi of “hyping” Taiwan ties online. Tokyo called the exchanges routine under APEC’s framework. The diplomatic friction underscores the fragility of regional balances—and the stakes of even symbolic gestures.
🤝 Trade Thaw: Tariffs Suspended, Rare Earths Flow Again
In a surprise weekend breakthrough, Washington and Beijing agreed to suspend key tariffs and reverse several export controls, marking the first tangible de-escalation in months.
Under the new pact, China will lift export curbs on critical materials—including rare earths, gallium, germanium, and graphite—while ending investigations into U.S. chipmakers such as Nvidia and Qualcomm. In return, Washington will delay planned tariffs, extend Section 301 exemptions through 2026, and halve a fentanyl-related tariff from 20% to 10%.
Beijing also pledged to resume large-scale U.S. agricultural purchases, committing to buy at least 25 million metric tons of soybeans annually for three years. The White House hailed the deal as “a step toward restoring predictability,” though Treasury officials stressed it was “a pause, not a pivot.”
Markets rallied modestly Monday, but analysts warned the détente may prove short-lived. “The U.S. has made tactical concessions to prevent economic escalation,” said Wendy Cutler of the Asia Society Policy Institute. “The structural rivalry remains fully intact.”
🛢️ Energy Front: Chinese Refiners Retreat from Russian Crude
Chinese oil refiners are pulling back from Russian crude purchases after Washington and its allies expanded sanctions on Moscow’s energy giants Rosneft and Lukoil—and some of their Asian customers.
State-owned giants Sinopec and PetroChina have reportedly canceled multiple Russian cargoes, while smaller independent refiners—known as “teapots”—have paused imports altogether, fearing secondary sanctions. Prices for Russia’s ESPO crude, a key export to Asia, have plunged, with analysts estimating that nearly 45% of China’s Russian oil imports are now at risk.
The move marks a stunning reversal. Russia had become China’s largest oil supplier since 2022, offering steep discounts as Western buyers turned away. But the latest sanctions are biting, leaving refiners caught between energy security and geopolitical risk.
With Russian supply squeezed, U.S. and Middle Eastern exporters are likely to gain ground—ironically at the same time Washington and Beijing are reopening trade channels. “It’s a moment of quiet alignment between necessity and politics,” said Rystad Energy’s Louise Dickson. “China will talk partnership with Moscow but hedge with the West.”
⚙️ Beijing’s New Tech Doctrine: Powering Domestic Chips
According to the Financial Times, Beijing is now subsidizing energy costs by up to 50% for data centers that use only domestically produced AI chips. Provinces such as Gansu, Guizhou, and Inner Mongolia—flush with cheap coal and hydropower—are leading the push.
Electricity is being turned into industrial policy. Chinese chips like Huawei’s Ascend 910C consume 30–50% more power than Nvidia’s top processors, so these discounts effectively level the playing field. Average rates for state-backed centers now fall to 0.4 RMB/kWh (5.6¢)—almost half U.S. averages.
Beijing has also barred foreign chips from all state-funded data centers, including Nvidia’s H20—the last exportable model under U.S. rules. Projects less than 30% complete must remove foreign hardware; others face review.
Analysts view this as a defining phase of China’s “AI sovereignty” strategy: trading efficiency for control. “They’re weaponizing their grid,” said one industry consultant. “Power is cheap, compliance is priceless.”
Goldman Sachs estimates China’s cloud-service providers will invest $70B in data centers in 2025, up 65% year-on-year. The result: cheaper compute, slower chips—but total domestic autonomy.
🏠 Property Ghosts Return: Vanke’s Crisis Deepens
Five years into China’s housing downturn, Shenzhen-based Vanke Co.—once the nation’s most trusted developer—has become a symbol of exhaustion. Its largest backer, Shenzhen Metro Group, has asked the company to pledge collateral for 20B yuan in loans and capped future credit, ending the quiet state protection that had kept Vanke afloat.
The developer faces 5.7B yuan in bonds due by December and another 7.7B by mid-2026, with cash covering less than half. Sales are down 40% this year, creating a 100B yuan funding gap.
Even as Beijing loosens purchase rules in major cities, October home sales plunged 42% year-on-year, showing the rebound has again fizzled. “The property zombie is stirring,” said a Shanghai-based economist. “Every short-term fix buys time—but not solvency.”
💍 Marriage Revival—But Demographic Slide Persists
Official data show 5.15M marriages registered in the first three quarters of 2025—up 9% from last year but still well below pre-pandemic levels. The surge stems from new nationwide registration rules allowing couples to wed anywhere in China and local incentives such as marriage vouchers and “red envelope” subsidies.
Shanghai’s Qixi Festival saw 2,310 marriages—half from out-of-town couples. Yet demographers warn that even small upticks can’t offset the larger decline in births. “Young Chinese are marrying later, having fewer children, or none,” noted sociologist Xue Yali. “The policies encourage weddings, not families.”
🌏 Xi at APEC: Charm Offensive, Cold Reception
With Trump leaving the South Korea APEC summit early, Xi Jinping seized the spotlight, meeting leaders from Japan, Canada, Thailand, and South Korea. His message: China as stabilizer-in-chief in a fractured world.
He framed China as pursuing “non-Western modernization,” offering multipolarity over U.S.-led order. Yet even friendly counterparts pushed back quietly—especially as China’s maritime and military assertiveness continues to alienate neighbors.
Still, Xi’s push to reset ties with Tokyo via Prime Minister Takaichi and to reopen trade with Ottawa marks a pragmatic recalibration. Nearly three-quarters of visiting heads of state to China since 2023 have come from the Global South, a pattern Beijing is keen to entrench.
🧠 Transnational Censorship: Sheffield Hallam’s Retreat
In Britain, Sheffield Hallam University is under fire for halting research into Uyghur forced labor after alleged pressure from Beijing. Documents seen by The Guardian and BBC show that Chinese state-security officers visited the university’s Beijing office last year, warning staff to stop work linked to Xinjiang labor programs.
Soon after, the university’s insurers withdrew coverage for defamation cases, following lawsuits from garment suppliers named in reports. The result: an end to its Forced Labour Lab, previously cited by the UN and UK Parliament.
Human-rights advocates called the episode “a chilling case of foreign censorship on British soil.” Beijing dismissed the allegations as “rumor-mongering.”
🌍 Race for Rare Earth Diversification
Treasury Secretary Scott Bessent told the Financial Times that China’s leverage in critical minerals will “last no more than 24 months,” predicting a coming “rebalancing” as allies ramp up production.
India plans to triple funding for rare-earth magnet manufacturing to $788M.
Canada unveiled a C$6.4B initiative to stockpile and co-invest with G7 partners.
The EU, while welcoming Beijing’s recent suspension of export controls, remains uneasy about the “ambiguous” scope of relief.
As Bessent put it: “It’s one thing to have a gun on the table; another to fire shots in the air.” The rush for diversification, he added, is “the unintended consequence of China’s own overreach.”
📉 Exports Falter, Growth Math Stretched
After eight months of expansion, China’s October exports fell 1.1% y/y, breaking the streak. EVs and solar panels remain strong in volume but weak in value as prices collapse. Analysts say the country’s “quantity up, profit down” pattern is deepening.
Still, Premier Li Qiang, speaking at the China International Import Expo, projected GDP will hit 170 trillion yuan by 2030—implying ~4% annual nominal growth. Li promised a pivot to consumption-driven growth and “anti-involution” policies to curb destructive price wars.
Economists doubt the sustainability. If Beijing says it will reach 4% growth, it will—but through credit, not productivity. The question is not whether it can, but at what cost.
Until next time!
2025-11-09 13:29:14 +0000 UTC
View Post
Date: October 19, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!
HEADLINE: Trade War Implications — Truce Frays, Markets Jolt, Leverage Tested
The uneasy pause in U.S.–China tensions snapped over the last week. After Beijing unveiled sweeping export controls over rare-earths and magnets, the White House threatened a 100% blanket tariff on all Chinese imports from Nov 1, prompting a $2T risk-off sell-off. On The next day, USTR Jamieson Greer said Beijing “deferred” a requested call—fueling concern that channels are closing just as both sides reach for maximum leverage.
Beijing insists its measures are “licensing,” not a ban, and claims partners were informed. Washington says it was blindsided and views the rules as a de-facto choke on inputs that sit inside everything from EVs and wind turbines to missiles and smartphones—where China controls ~90% of global processing. Trump tried to calm nerves—“Don’t worry about China, it will all be fine!”—but mixed signals (threats + reassurance) leave allies and investors guessing.
Why this matters now
Leverage math: China’s rare-earth dominance is real, but the U.S. still holds cards (aviation, upstream software/IP, capital markets). If both move from tariffs to component-level vetoes, expect production stoppages, not just price spikes.
China’s macro backdrop: Domestic demand remains soft; youth unemployment elevated; property fragile. Sept exports to the U.S. fell >15% YTD even as overall exports rose ~6%, highlighting reliance on global demand and transshipment to third markets.
Property’s false dawn: Top-100 developer sales ticked up in Sept (+22% m/m) but Golden Week new-home subscriptions fell 33% y/y across 22 cities. Looser buy rules in big cities juiced a few weeks of activity; the national picture remains weak after a multi-trillion wealth hit.
Factory floor sentiment: Exporters report razor-thin or negative margins to clear inventory; more are scoping moves to Vietnam/Indonesia/Malaysia. If 100% U.S. tariffs land, some coastal clusters could see mass closures by year-end.
What to watch next
Frankfurt prep talks for the next truce window (Nov 10) and whether Xi–Trump still meet at APEC.
Any EU/G7 alignment on counter-measures (rare-earths, ports, shipbuilding).
Signals that Beijing might suspend (not scrap) parts of the regime to keep leverage while easing panic.
North Korea: Li Qiang’s Pyongyang Trip
China’s premier made the highest-level PRC visit since 2019, tying it to the Workers’ Party 80th anniversary and a military parade. Messaging: tighter “strategic coordination” and a shared front as U.S.–China frictions deepen. Read as Beijing buttressing its periphery while great-power competition widens.
South China Sea: Another Collision Near Thitu
Vessels from China and the Philippines collided near Sandy Cay/Thitu after water-cannoning and close-quarters maneuvering. Beijing says Manila intruded; Manila calls it deliberate ramming. The U.S. condemned “aggressive actions.” With China now layering “nature reserve” claims over control tactics, expect more frequent, riskier encounters.
China Exports: Strong Topline, Weak Profits
September exports +8.3% y/y to a 2025 high, despite –27% to the U.S. Gains came via EU/ASEAN/Africa/LatAm and suspected transshipping (e.g., via Vietnam). But industrial profits remain under pressure—price competition + dumping accusations are rising in Europe and Japan. Resilience may be misread as strength: volumes up, margins down.
Europe Moves: Netherlands Seizes Nexperia
The Dutch government invoked the Goods Availability Act to take control of Nexperia (Chinese-owned via Wingtech), citing “serious governance shortcomings.” Production continues under oversight. Wingtech vows to sue. Signal: Europe is ready to intervene in strategic nodes—especially with rare-earths weaponized and shipbuilding/ports under probe.
London’s Biggest Phone Theft Ring Busted
UK police dismantled a network that moved ~40,000 stolen iPhones to China in a year—~40% of London’s reported thefts. Devices were foil-wrapped to defeat tracking and shipped via Heathrow. Expect tighter export checks and more cooperation with Hong Kong/Shenzhen resellers.
Taiwan: “T-Dome” Integrated Air Defense
President Lai Ching-te unveiled T-Dome, a multi-layered, integrated air-defense architecture knitting Tien-Kung, Patriot, sensors, and C2—explicitly aimed at drones/cruise/ballistic threats. Concept mirrors Iron Dome–style integration and reportedly includes deeper U.S. linkages. Beijing warns it raises tensions; Taipei frames it as peace through strength.
China Prices: Deflation Eases, Zombification Spreads
PPI –2.3% y/y (36th month of factory-gate deflation); CPI –0.3%, but core CPI 1.0% (19-month high).
Relief looks administrative, not demand-led. The share of loss-making industrial firms is at a two-decade high, pointing to overcapacity, price wars, weak cash flow despite stable input costs.
Policy choice ahead: shift investment to infrastructure (temporary lift to nominal growth) or to new manufacturing, which risks re-importing deflation next year.
Transnational Crime: Cambodia’s “Pig-Butchering” Empire Hit
The U.S. and U.K. designated Chen Zhi’s Prince Group a transnational criminal organization, alleging vast romance-investment scams, trafficking, and money laundering run from Cambodian compounds. Sanctions span 100+ entities; DOJ seized $15B in bitcoin. The case highlights an ugly nexus of forced labor + online fraud and raises awkward questions for regional governments (and Beijing’s quiet tolerance as Chinese nationals are victimized/ensnared abroad).
UK–China: Spy Case Fallout, Engagement Continues
A headline espionage case collapsed over whether China legally counted as an “enemy” under the Official Secrets Act at the time. MI5 says PRC activity is a daily threat; Parliament wants answers from prosecutors. Yet London proceeds with ministerial visits and delays a decision on China’s Royal Mint Court embassy, reflecting security concerns and economic pragmatism.
China’s Debt: TSF Surges Faster Than GDP
Total social financing +8.7% y/y to RMB 437T (~312% of expected 2025 GDP), while nominal GDP ~4%. Bank lending growth hit a record-low 6.6%, but the baton passed to bond-financed government borrowing. Implied: ~17% of GDP in new debt to add ~4% nominal GDP—a worsening efficiency picture and shrinking runway for painless rebalancing.
China’s Industrial Play: EVs Go Global as Margins Crack
EV exports doubled y/y in Sept to 222k units; China is on track for ~7M vehicle exports in 2025 (1M in 2020). Capacity > 50M/yr vs U.S. ~10M.
Europe bears the brunt: BYD’s UK sales +880%; Chinese brands hit ~13% share and could reach 30% in two years (ex-Ford China CEO projection).
Strategy arc: Scale Up → Flood In → Starve Out (control of magnets, battery inputs). Western OEMs downshift; EU/US/Canada roll out tariffs and probes.
At home, price wars crush dealers; inventories high; even leaders (e.g., BYD) wobble month-to-month. Beijing urges industry “self-discipline” and faster payments to suppliers, but overcapacity remains the core problem.
See you next time!
Tony
2025-10-19 08:24:33 +0000 UTC
View Post
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!
🔥 Headline: US–China Enter a New Phase of Economic Warfare
On Thursday Beijing detonated a broad expansion of export controls across rare earths, advanced materials, batteries, and clean-energy tech—rules with extraterritorial reach that could require approval for overseas products containing even trace Chinese inputs or made using Chinese intermediates. Washington hit back within hours: President Trump flagged a blanket 100% tariff on Chinese imports and fresh export curbs on critical US software. Markets convulsed (tech led the selloff), freight and supply-chain desks braced for choke points, and both sides started gaming staggered November–December effective dates for leverage.
What changed:
Scope & leverage. China’s notices pull more of the “materials stack” (rare earths, synthetic graphite, battery precursors, specialty alloys) into license regimes. Because China controls most processing capacity, approvals can function like de facto quotas even without explicit bans.
Extraterritorial hooks. Thresholds as low as 0.1% value content and “made with Chinese inputs/tech” language give Beijing influence outside its borders—sweeping in EV motors, wind turbines, defense electronics, and even non-Chinese fabs using Chinese refined materials.
US response design. A headline 100% tariff resets price baselines and signals political resolve, while targeted software/IP export controls (EDA, simulation, firmware, industrial software) strike where China is thinner. The November 1 start date leaves a small window for de-escalation.
Who’s exposed (near term):
Autos/Clean energy: NdFeB magnet chains (dysprosium, terbium), graphite anodes, cathode precursors. Expect spot price spikes, substitution attempts (ferrites), and inventory hoarding.
Semis/Defense: Gallium/rare-earth dopants, high-temp magnets, specialty ceramics; approval risk for any device with Chinese content in its BOM.
Industrial machinery: Robotics, turbines, and precision motors that quietly rely on Chinese magnet assemblies.
Three plausible paths (90–120 days):
Managed truce: China phases approvals; US staggers tariff implementation or carves out sectors (most market-friendly).
Tit-for-tat grind: Licenses slow-walked; US layers entity listings and software bans; firms split supply chains by end market (base case).
Hard break: China withholds critical approvals; US broadens export bans & investment curbs; logistic rerouting + rationing (tail risk, highest volatility).
Bottom line: We’ve moved beyond tariffs into a contest over inputs, standards, and platforms—the plumbing of modern industry. China retains near-term dominance in processing; the US retains leverage in aviation, advanced software/IP, and capital markets. The risk now is not a single shock but rolling regulatory aftershocks that force structural supply-chain rewires through 2026.
🌀 Twin Storms, One Stress Test: Typhoon Matmo (and Ragasa’s Hangover)
Typhoon Matmo made landfall near Zhanjiang with 94 mph winds, forcing 347,000+ evacuations across Guangdong and Hainan, halting flights, ferries, rail, and schools, with rain totals up to ~250 mm threatening floods and landslides. It comes less than two weeks after deadly Ragasa, compounding recovery costs for southern provinces and insurers and stretching logistics already disrupted by trade tensions.
🏦 Finance: Hong Kong’s Property Slump Hits Banks
Hong Kong’s deepest property downturn since the 1990s has pushed soured loans to US$25bn (2% of lending). A proposed public “bad bank” fizzled, so private balance sheets are doing the work: HSBC told Hang Seng Bank to sell delinquent mortgage and developer portfolios (~US$3bn). The HKMA has dusted off 1999 “show sympathy” guidance for restructurings—code for coordinated forbearance.
Watch: Developer refinancings (e.g., New World’s), secondary-market loan sales depth, and spillovers to Mainland lenders just as Beijing leans on big banks for LGFV/arrears clean-ups.
📶 Tech War, Telecom Edition: Europe’s Nokia/Ericsson Squeezed in China
European vendors now face opaque CAC “black-box” security reviews on China network bids, stretching timelines and tilting the field toward Huawei/ZTE. Combined Nokia/Ericsson RAN share has slid to ~4% from ~12% (2020). The European Chamber warns localization rules pose an existential threat to foreign suppliers in China.
🧠 Chips & Platforms: Nvidia’s China Reckoning
Nvidia spent 15 years cultivating China’s ecosystem; export controls and Beijing’s “buy local” pivot now imperil that franchise. Engineers are migrating to domestic stacks. Huawei’s Ascend still trails on performance/software, but China is scaling clusters, memory, and interconnect—and pushing a homegrown dev stack. Near term, big Chinese AI players still need Nvidia; medium term, two AI spheres are hardening.
💰 Buffers: Reserves & Gold
SAFE data show FX reserves up to US$3.34T in September (+$16.5bn); gold holdings rose for the 11th straight month. Beijing keeps diversifying without spooking markets—useful if volatility persists into year-end.
🏎️ UK–China: Security Optics vs Commercial Gravity
The collapse of Britain’s China spy case—dropped after prosecutors said China wasn’t legally deemed a “threat” at the time—has stirred political uproar just as London seeks a thaw in relations with Beijing. National Security Adviser Jonathan Powell faces questioning amid allegations of interference, while Prime Minister Keir Starmer denies political pressure.
Meanwhile, trade continues to deepen. Chinese EV maker BYD sold 11,271 cars in the UK last month, up nearly tenfold, despite exclusion from a £650m subsidy program. Its UK market share hit 3.6%, second only to Tesla. The contrast is striking: while Westminster debates espionage, Chinese firms quietly entrench their economic foothold—proof that commerce often advances faster than politics.
🛒 “Golden Weak”: Travel Booms, Spending Lags
China’s Golden Week holiday drew record crowds—888 million trips, up 16%—but per-capita spending fell to a three-year low. Total revenue rose 15%, yet ticket and retail sales barely beat inflation. In Sichuan, visitors rose 7% but revenue just 3.5%; box office takings slid 13%.
The data show consumers are mobile but cautious, squeezed by weak wages and job insecurity. Economists warn that without faster income growth or social-safety reforms, China risks remaining a busy but low-spending economy—where the crowds return, but confidence does not.
🏀 Soft Power: NBA Returns to China
After five years away, the NBA returns with Nets-Suns games in Macau, signaling a thaw since the 2019 Hong Kong tweet crisis. A new Alibaba Cloud deal and extended Tencent streaming rights mark renewed commercial ties with China’s vast basketball audience of 300 million players.
For the league, it’s a business coup—and a warning. It took half a decade and millions in losses to regain access, proof that in China, markets reopen only when politics permit.
Until next time!
Tony
2025-10-12 05:43:24 +0000 UTC
View Post
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
2025-09-28 03:16:42 +0000 UTC
View Post
Hi team – today’s newsletter is free for all. These are usually exclusive for financial supporters of the channel. I hope you enjoy!
Date: September 21, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!
🔶 Top Story: China’s Local Fiscal Crunch — Banks as Shock Absorbers
Beijing is moving on two fronts to stop unpaid local-government bills from strangling the private economy — and it’s asking the state banking system to take the hit.
What’s coming (national plan):
Policymakers are weighing a ≥¥1T (~$140B) package channeled via state lenders and policy banks (e.g., CDB) to let local authorities clear arrears to firms, with a first phase targeted by 2027.
The objective: honor overdue invoices that have crippled contractors’ cash flow, delayed wages, and dented confidence. Xi flagged unpaid bills as a threat to “public trust.”
What’s already started (operational push):
The PBoC has instructed the Big Six SOE banks + 12 joint-stock banks to lend directly to SOEs, LGFVs and fee-funded public institutions so they can pay creditors. Crucially, funds must bypass local governments and be paid straight to vendors to prevent diversion.
Scope: roughly ¥1.8T in arrears identified across these entities; same 2027 finish line.
Why this matters:
Think of it as paying the “dinner bill,” not the mortgage: these are payables for work already done, not the stock of debt. Clearing them is a quasi-stimulus to private cash flows without booking central government debt.
But risk migrates: banks’ loss allowances are already rising (big-five provisioning climbed in 1H25). Unless Beijing gives explicit guarantees or hard collateral, lenders could be left holding the bag if weak LGFVs can’t service the new loans.
Macro tension in the background:
Fiscal firepower is fatiguing: August spending growth slowed, revenues barely budged, the broad deficit widened, and bond issuance decelerated. With land sales soft and tax intake flat, Beijing prefers targeted fixes over a bazooka — hence “rob Peter (banks) to pay Paul (private firms).”
Upshot: relief for SMEs and payrolls now, at the price of thicker contingent risk inside the banking system later. Calculated triage — or creeping desperation as clean balance sheets run out.
🔍 Great Firewall, For Export: The Geedge Networks Leak
A 100k-doc leak shows Geedge Networks selling deep packet inspection/censorship suites inspired by China’s Great Firewall to Kazakhstan, Ethiopia, Pakistan, Myanmar (and one unnamed state).
Capabilities: real-time blocking, throttling, blackouts, user-level tracking, VPN neutralization; deployments revealed inside China (incl. Xinjiang).
Takeaway: information control is now a turnkey industry, with Chinese labs, investors and vendors commercializing state-grade repression overseas.
📉 Macro Check: Investment Swoon, Broad Slowdown
August prints deteriorated again: IP +5.2% y/y (weakest since Aug-2024), retail +3.4%, FAI +0.5% (Jan–Aug).
Housing: resale prices –0.58% m/m; new-home –0.3%; four-year slide leaves averages ~–11% from 2021 (deeper in lower tiers).
Policy watch: weak July–August ups odds of mini-stimulus, but with fiscal limits, expect targeted housing tweaks + arrears clearing rather than a big push.
As PBoF MP notes: dialing down “involution” in favored industries risks shifting overinvestment elsewhere if growth targets stay high.
🪖 Purges Continue: Four More Generals Out
NPC Standing Committee ousted Gen. Wang Chunning (ex-PAP commander, Central Committee) plus three lieutenant generals (logistics and political commissar billets).
🌊 South China Sea: Water Cannons at Scarborough
Days after Beijing declared Scarborough Shoal a national nature reserve, Chinese Coast Guard water-cannoned a Philippine government vessel on a fishery support mission, injuring a sailor and damaging the bridge.
A PLA Navy frigate broadcast live-fire warnings; Manila calls Beijing’s “ramming” claim disinformation.
Expect tightening US–PH coordination, more gray-zone incidents, and rising miscalculation risk.
🚗 Autos: Supplier Cash Relief Meets BYD’s Rough Patch
17 automakers (BYD, Changan, Chery, GAC, Great Wall, Li, Nio, Xpeng, Seres, Xiaomi, etc.) pledged ≤60-day supplier payments — modest progress against the cash-crunch that long cycles created.
BYD: stock –30% from May peak; Q2 profit –30%; 2025 sales target cut to 4.6M (from 5.5M), requiring a heavy Q4 push amid delayed model refreshes. Overseas keeps growing, but tariffs and brand hurdles mount.
Policy through-line: curb price-war “involution”, stabilize the chain — and let market exits begin.
🧱 Did China Just Ban Nvidia?
Reports say the CAC told firms to stop testing/cancel orders for Nvidia’s export-compliant RTX Pro 6000D, after gatherings comparing domestic chips with Nvidia’s allowed SKUs.
Strategic message: no appetite for “hobbled” imports; build an indigenous, controllable AI stack.
The hedge: Beijing could still green-light less-crippled Blackwell-class sales in a broader deal — or slam the door and hand a $100B+ TAM to domestic vendors over time. Nvidia’s CFO guidance: don’t count on China.
Meanwhile, SAMR accuses Nvidia of violating merger conditions tied to Mellanox (2019) — fines could be hefty if deemed “particularly serious.” Timing overlaps with Madrid talks: signal sent.
Meanwhile, an AP investigation details decades of US tech sold into China’s security stack (from servers to mapping to storage), marketed for “stability maintenance” programs — a sobering look at co-produced surveillance.
☎️ US–China: Leaders’ Call, APEC Meet, and Taiwan Aid Rumor
On Friday Trump and Xi held a “very productive” call; an APEC sideline meet is on deck. TikTok progress helps; Boeing orders, fentanyl, and Russia leverage are on the menu.
🇪🇺 EU Chamber: Rebalance or Repeat the Cycle
The EU Chamber’s annual paper urges the 15th FYP (2026–30) to rebalance: consumption lags because manufacturing capacity outran demand, breeding involution and export blowback.
Rare-earths: despite July pledges, EU firms still see bottlenecks; shutdown risks linger.
Brussels weighs new Russia-related sanctions (crypto/banks/energy focus); including Chinese entities would be a serious escalation — and a test of EU consensus.
📈 Market Sidebar (5 bullets)
A-shares/HK tech: AI optimism + policy put fuel a rally; Hang Seng Tech still ~70% below 2021 peak — long runway, fragile footing.
Rates/FX: Fiscal fatigue vs targeted bank-backstops; CNY steadied by fix discipline; gold share of reserves edging up.
Credit: LGFV refinancing windows tighten into Q4; watch bank NPL masking as “special mention.”
Property: Price declines broadening; any housing mini-stimulus likely targeted and city-specific.
Geopolitics: South China Sea incidents and sanctions talk are headline-risk overhangs for beta.
One-liner to leave you with
China is trying to fix a fiscal cash-flow problem with a banking balance sheet — a bridge that might hold long enough to pay the bills, unless the river keeps rising.
Until next time!
Tony
2025-09-21 06:27:28 +0000 UTC
View Post
Date: September 14, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!
🔶 Top Story: Chinese Economy — How Bad Is It?
CSIS gathered four heavyweight China watchers to answer the (unfair but necessary) question: How bad is it? Their grades clustered 4–6/10 — a muddled middle that masks a sharper message: macro “blah,” tech world-class; deflation risk high; consolidation coming.
The split screen. Scott Kennedy describes a bipolar China: dazzling tech clusters (EVs, drones, AI) alongside an economy “on its back” — overcapacity, swollen inventories, flat consumption, and a still-fraught property complex. Real growth holds up; nominal growth lags — the deflation tell.
Grades.
Kroeber (6): Policy since late-2024 stabilized growth; excess-capacity phase peaking; long, messy shakeout ahead. Exports/tech are outperforming and Western protectionism is often a “paper tiger.”
Huang (5): Given housing and trade friction, ~5.3% real growth 1H25 is “amazing.” Manufacturing capex ~+10% in 2024; private consumption’s share rising toward ~40% (still low, but a post-2005 high). DeepSeek’s rise shows private-sector grit.
Aziz (5–6): China can print 4–5% real; the problem is doing so without deflation. Nominal growth is weak; inventories sticky; expect painful consolidation in EVs and advanced manufacturing — bankruptcies/foreclosures wrapped in the euphemism of “restructuring.”
Seguchi (4): Confidence soft, property malaise, local-finance strain; inland bright spots (Chengdu/Wuhan) can’t yet offset coastal drag.
What to watch. No silver-bullet indicator. Kroeber focuses on nominal GDP (“what firms/households feel”): from a steady 8–11% (2016–22) down near ~4% lately. Aziz tracks industrial production (adjusted), customs-to-NA conversions, and private credit — which looks near stall-speed once you strip interest income. Huang flags vanishing series (youth unemployment revisions; private lending; migrant benefit enrollment) muddying the dashboard.
Cyclical vs structural. Both, intertwined. Supply-side crackdowns help, but “soft budget constraints” keep zombie capacity alive. Without local-finance reform and harder exits, today’s cartel-ish “industry self-discipline” will relapse.
Road map.
1. Lift nominal growth (fiscal + deeper rate cuts).
2. Let services lead jobs, especially for youth.
3. Tighten local budget constraints to force real exits.
4. Strengthen household balance sheets (land/social policy; rural incomes).
The punchline. China’s property market has already collapsed; the wider economy isn’t collapsing — it’s deflating and consolidating. Whether this becomes leaner, innovative growth or a Japan-style slog hinges on pricing power, household confidence, and finally breaking the soft-budget cycle.
🚢 Economy I: Poor Trade Numbers — Surplus Big, Margins Thin
August exports rose +4.4% y/y (weakest in six months), imports +1.3%, surplus $102B. US shipments –33%, with diversion to ASEAN (+~23%), EU (+10%), and Africa (+26%). The reroute props volume, but prices and margins are eroding; industrial profits are –~2% YTD and new export orders are slipping. Translation: headline surplus ≠ healthy firms.
🇷🇺🇨🇳 Russia–China: Alignment Deepens, Terms Still China’s
Xi and Putin inked 20+ cooperation docs (AI to agriculture) and a “legally binding memorandum” on Power of Siberia-2 — but no price/timeline. Beijing keeps leverage, buying time while increasing sanctioned Arctic LNG 2 liftings. Sweetener: 30-day visa-free entries for Russians from Sept 15. Net-net: symbolism of unity; substance on China’s terms.
📈 Economy II: Engineering a “Slow Bull” (On Purpose)
Regulators want a managed, durable equity rise: loosen some short-selling curbs, police hype/illegal tips, nudge insurers long-only — and avoid 2015’s blow-up. Social platforms are damping “to the moon” chatter; CSRC talks “rational investing.” Reality intrudes: STAR names can still air-pocket (see Cambricon –14%). Meanwhile, complex quasi-snowballs are back, advertising 20%+ yields — proof that animal spirits never retire, they rebrand.
🇪🇺🇺🇸 EU–US–China: Talk of Secondary Sanctions
EU officials are sounding out secondary sanctions on buyers of Russian energy — code for China (and others). Unanimity hurdle is high (Hungary/Slovakia rely on Russian barrels), Germany frets over China raw-material exposure. Still, Treasury-to-Commission talks are intensifying. If Brussels follows Washington here, it’d be the sharpest transatlantic hit on Beijing yet.
🏀 Soft Power Watch: LeBron’s Full-Page Cameo in People’s Daily
People’s Daily ran a full-page interview with LeBron James: “Basketball is a bridge.” With Nets vs Suns preseason in Macau and an NBA House fan fest slated for October, the league is carefully re-entering the China market post-2019. Steph Curry’s parallel tour and a $60B sportswear race (Anta vs Nike/Adidas/Under Armour) add commerce to the diplomacy.
💱 RMB vs USD: Taking Share While the Dollar Wobbles
After the dollar’s bruising H1, Chinese banks report surging interest in RMB trade/finance. The PBoC is building an offshore liquidity network, Beijing is adding gold (now ~7.6% of reserves), and floating panda bonds for sanctioned Russian energy firms. The aspiration: a tripolar system (USD/EUR/RMB). The price of entry: more openness, predictable rules, macro stability — reforms still pending.
🧊 Deflation Watch: Producer Easing, Consumer Soft
PPI –2.9% y/y (first sequential improvement in 6 months), with coal/steel/metals firmer m/m. CPI –0.4% y/y (food –4.3%, veg –15%), but core CPI +0.9% (18-month high) as subsidies and durables demand help. Three-year deflation streak still bites profits/incomes/taxes. Without credible demand support plus enforced capacity cuts, the PPI uptick fades.
🌊 South China Sea: Scarborough Shoal Rebranded as a Nature Reserve
Beijing designated “Huangyan Island National Nature Reserve,” layering environmental rules (core/buffer/experimental zones) over its effective control. Practically: tighter access, new pretexts for harassment/exclusion of Philippine fishermen, and a legal veneer atop a 2016 PCA ruling China rejects. Expect Manila to escalate diplomacy; US-Philippine security ties likely deepen.
🚗 BYD Warns of an EV “Bloodbath”
At Munich’s auto show, BYD EVP Stella Li forecast ~100 of 130 Chinese EV/hybrid makers will be “pushed out.” Beijing’s crackdown on involution (price wars, stretched supplier payments) lifts discipline but compresses sales tactics; sector margins already slid to ~4.3% (from 5.7% in 2022). BYD hedges with exports (+130% y/y 1H25) and a Hungary plant, but tariffs, compliance, and brand hurdles loom. AlixPartners: ~15 viable PRC brands by 2030.
One-liner to leave you with
China isn’t falling off a cliff — it’s grinding down a mountainside. Whether it lands on a plateau of leaner, pricier growth or slides into a deflationary valley depends on three choices Beijing still controls: let exits happen, pay households, and price capital realistically.
See you next time!
Tony
2025-09-14 04:29:25 +0000 UTC
View Post
Date: September 7, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!
🔶 Top Story: Xi’s Grand Parade — Power, Partners, and a Nuclear Calling Card
Beijing staged one of its biggest military parades in decades on Wednesday to mark the 80th anniversary of Japan’s surrender. Xi Jinping wrapped remembrance and deterrence into a single narrative: a China that “seeks peace” yet is building a “world-class military” to secure sovereignty — read: Taiwan.
Optics: Xi stood shoulder-to-shoulder with Vladimir Putin and Kim Jong Un — the first time since 1959 leaders of China, Russia, and North Korea appeared together at a Beijing parade. It projected cohesion across an emerging authoritarian axis even as each leader keeps hedging with Washington. In Western capitals, the images hardened perceptions of bloc politics and raised questions about Beijing’s “anti–Cold War mentality” rhetoric.
Hardware: For the first time, China showcased its nuclear triad in one go (land, sea, air). Notables included a brand-new DF-61 road-mobile ICBM, upgraded DF-31B/J variants (including silo hints), JL-3 SLBM, and a DF-5C liquid-fuel ICBM touted with globe-spanning range. Hypersonics, directed-energy systems, electronic warfare suites, and the FH-97 stealth “loyal wingman” drone rounded out the message: multi-domain, survivable, networked.
Strategy: Scholar Tong Zhao warns the triple-ICBM reveal signals fading confidence in diplomacy and rising reliance on hard power for regime legitimacy. Markets noticed: China defense shares slid as investors took profits after a 22% YTD run.
Bottom line: The parade fused domestic rallying (economic headwinds) with external signaling (deterrence, bloc optics). It was less about WWII than about the order China wants to help write next — and who it’s willing to stand beside to do it.
🏭 Economy I: August PMI Stuck in Contraction; Property Slide Deepens
The official manufacturing PMI ticked to 49.4 in August (49.3 in July) — still below 50, confirming contraction. Construction logged its fastest post-pandemic decline as the housing slump bites. The extended tariff truce with Washington eased some pressure, but Beijing’s clampdown on price wars/overcapacity is capping output — a necessary medicine with near-term growth costs.
Property: Sales by the top-100 developers fell 17.6% y/y in August after –24% in July; six straight months of declines. Easing in Beijing/Shanghai is “incrementally positive,” but GS now reckons city-level demand could remain ~75% below its 2017 peak for years. In practical terms: the “collapse” already happened; the glide path is the debate.
External risk: Talk of US 200% tariffs tied to critical minerals, Mexico mulling hikes in its 2026 budget, and tighter scrutiny of rerouting threaten the “sell elsewhere” cushion that has offset weaker US orders.
Policy watch: The rest of 2025 hinges on exports’ resilience and whether Q4 fiscal taps open wider. Without more targeted demand-side support, deflationary gravity persists.
🇮🇳🇨🇳 India–China: A Managed Thaw (With Guardrails)
On SCO sidelines in Tianjin, Xi and Modi reprised the “partners not rivals” line: direct flights resuming, border CBMs inching forward, and trade normalization on the menu. Modi emphasized “strategic autonomy” and cautioned against third-country frames.
Why now: Trump-era tariffs on India (up to 50%) and testy US talks give New Delhi incentives to de-risk by stabilizing the northern front. Beijing sees a chance to undercut US encirclement narratives and court a pivotal swing state in the Global South.
Caveats: A yawning trade deficit, Pakistan, South Asia competition, and unresolved LAC flashpoints limit lift-off. Call it de-escalation, not détente.
📈 Economy II: Why Are Chinese Stocks Ripping?
A-shares have flipped from meh to momentum: CSI 300 up ~14% YTD, outpacing major peers. Drivers:
Liquidity rotation: Low deposit/bond yields push households into equities; property is no longer the default savings vehicle.
Policy put (soft): State funds backstopped earlier in the year; insurers nudged to raise equity weightings.
Margin financing: Up 19% in two months to RMB 2.2T — highest since 2015, but with tighter guardrails and less froth.
Foreigners: Cautious. Options markets price lingering macro risk; inflows trail the rally. Sustainability still hinges on profits and demand — not just plumbing and positioning.
🌐 Xi’s Global Governance Initiative: Building the G-xI Lattice
At the Tianjin forum, Xi unveiled the Global Governance Initiative (GGI) to sit alongside GDI/GSI/GCI — five principles (sovereign equality, rule of law, multilateralism, people-centered approach, pragmatism) and three priority platforms (energy, green industry, digital economy). Add: an SCO development bank push, grants/loans, scholarships, joint PhDs, and Luban Workshops.
The play: Use finance + standards + education to hard-wire influence across the SCO/Global South, while reframing WWII history and Taiwan claims in legalistic continuity (Cairo/Potsdam → 1971 UN seat). The US calls it performative; parts of the South hear “options.”
Reality check: Delivery, not declarations, will decide staying power — and India’s hedging looms over SCO cohesion.
👵 Pensions: Employers Must Pay — At a Cost
A Supreme People’s Court ruling killed under-the-table “no contributions for higher pay” deals. Firms must fund pensions, with examples of ~RMB 770/worker/month on top of ~RMB 4,000 salaries — meaningful for thin-margin SMEs.
System stressors: Aging, low fertility, uneven participation (only ~⅓ of workers paid fully last year). Risks: More part-time/retiree hires to dodge costs, informalization, or layoffs. Fixes debated: Lower rates, broaden base, central transfers — otherwise enforcement trades labor protection for employment pain.
🇲🇽 Mexico Eyes Tariffs on China
Mexico’s 2026 budget is set to include higher duties on Chinese goods (autos, textiles, plastics). It ticks three boxes:
Domestic shield for manufacturers;
US alignment with “Fortress North America”;
Fiscal filler for a wide deficit.
China’s carmakers (BYD/MG/Chery) made Mexico their top destination; timing is tight, but even moderate hikes could slow the surge — and test the loophole of China-made vehicles entering via Mexico.
💾 US–China Tech War: Nvidia Demand vs. Party Discipline
Despite Beijing’s frown and Washington’s tighter leash, Chinese giants (Alibaba, ByteDance, et al.) still want Nvidia’s H20 and are already gaming the Blackwell-based B30A (rumored >$20k, ~6x H20 performance). Engineering teams say the price-performance remains unmatched and supply is reliable — market logic.
State logic: Security ministries and regulators are nudging a pivot to “indigenous and controllable” stacks (Huawei/Cambricon). If Commerce approves the modified Blackwell and PRC buyers still abstain, that signals a hard policy turn toward self-reliance — even at near-term performance cost.
Meanwhile: The US Senate’s draft GAIN AI Act would prioritize domestic access to top GPUs and potentially bar exports of the best chips; Anthropic cut off sales to PRC-majority-owned firms. DeepSeek keeps pressing on the homegrown front (agents, FP8 ecosystems). The decoupling tug-of-war tightens.
🇰🇵 North Korea–China: Reset and Recalibration
Kim Jong Un’s first China visit since 2019 piggybacked on the parade. Readouts touted “all-level” exchanges, economic cooperation, and aligned positions. With Moscow ties deepening (including reports of DPRK troop deployments to Russia), Kim arrived with leverage. The Beijing–Moscow–Pyongyang triangle now looks less episodic, more structural — complicating any path back to denuclearization talks.
🇪🇺 EU–China: Parade Optics, Ukraine Reality
As Xi hosted Putin and Kim, Russia launched one of its heaviest strikes on Ukraine. Brussels read the optics as alignment, not ambiguity. EU voices pointed to PRC components supporting Russia’s drone industry and warned of a tightening authoritarian cluster.
But: Europe is split — Hungary courts Beijing; EU–China parliamentary exchanges are resuming. Engagement survives, trust erodes.
🧪 Hot-Mic Levity: “Live to 150”?
A stray boom mic caught Xi riffing with Putin and Kim on living to 150 via biotech and transplants. Banter? Maybe. But it also nods to a genuine PRC bet on longevity science, regenerative medicine, and organ tech — fields with ethical, medical, and… political overtones.
🚗 EVs: Innovation vs. Involution
EVs now exceed 50% of monthly new car sales; engineers pour out of universities; capital spending keeps rising (+21.7% in Jan–Jul). Underneath: 50+ makers, price wars, stretched suppliers, and state-mandated 60-day pay rules with patchy compliance. Exports soak up ~20% of output and trigger tariffs abroad.
Lens: It’s the Japan-’80s dilemma in electric form — world-class tech built on underpriced capital, weak household demand, and rising external pushback. Bulls see enduring capability; bears see a margin graveyard.
Until next time!
Tony
2025-09-07 08:52:30 +0000 UTC
View Post
Date: August 31, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!
🔶 Top Story: Evergrande’s Delisting — A Gravestone for the Bubble Era
The Evergrande saga ended on Monday this week with a whimper: the developer’s shares were struck from the Hong Kong Stock Exchange. The silence is fitting. What remains is a debris field of unfinished projects (≈1,300 across 280+ cities), stranded homebuyers, and a creditor queue that stretches from Guangzhou to Greenwich.
Founded in 1996, Evergrande surfed the great urban migration, at one point worth $50B with liabilities that ultimately swelled past $300B — the most indebted developer on earth. Its default shattered the “too-big-to-fail” illusion and revealed how much of China’s growth had been mortgaged to tomorrow.
Liquidation (ordered in 2024) is being executed Lehman-style: liquidators are seizing assets entity by entity from a tangle of thousands of subs. So far: control of 100 companies worth $3.5B, versus $45B in overseas claims and only $255M recovered. Investigators are pursuing clawbacks from founder Hui Ka Yan (detained; fined for fraud) and former CEO Xia Haijun (alleged hidden US assets).
Zoom out: real estate — once a quarter of GDP and the core household asset — is still sliding. Mortgage stress is rising, prices keep drifting, and the wealth effect has flipped into reverse. Evergrande’s delisting isn’t just corporate demise; it’s the tombstone for a development model built on presales, leverage, and faith that prices only go up.
👉 Why it matters: Without a credible mechanism to complete homes, restructure developer balance sheets, and rebuild buyer confidence, property will remain a persistent drag on growth, local-government finances, and consumption.
🛡️ Microsoft Tightens Zero-Day Access for China Vendors
Microsoft has cut Chinese companies out of early vulnerability sharing (MAPP) where local law forces firms to hand zero-days to the state within 48 hours. The move follows “ToolShell” intrusions exploiting SharePoint, attributed to three PRC-linked groups, and growing concern that pre-disclosure fed offensive stockpiles via the CNNVD/MSS ecosystem.
This decision closes an obvious loophole — but raises awkward questions about why it existed at scale. It also adds to Microsoft’s Washington headwinds after reporting lapses around China-based engineers touching US gov systems.
👉 Signal: Expect more Western firms to revisit any program that effectively pipelines zero-days into state arsenals.
🎖️ September 3 Parade: Power, Optics, and “Intelligentized” War
Beijing’s 80th-anniversary WWII parade will spotlight new services (Aerospace, Information Support, Cyberspace Forces) and systems aligned with networked, survivable, multi-domain ops. Watch for FH-97 “loyal wingman” drones, fresh “Eagle Strike” anti-ship missiles, hypersonics, directed-energy, and expanded EW.
As ever, the parade is message as much as metal: the Party frames historical sacrifice and future deterrence as one continuous narrative, with Xi personally reviewing a 70-minute show of force. (more on the leaders in attendance below)
🧭 The Decline of the Guangdong Powerhouse (expanded)
Guangdong — once shorthand for China’s private-sector dynamism — is losing altitude. The FT’s on-the-ground reporting from Houjie (Dongguan) reads like a time-lapse in reverse: silent workshops, shuttered restaurants, residents stuck between weak factories and immovable mortgages. The causes stack:
Offshoring + tariffs: Low-end manufacturing has migrated to Vietnam/Indonesia; new US tariffs (and end of de minimis) hit precisely the mid-tier exporters that anchor Pearl River Delta supply chains.
Property hangover: The wealth effect that fuelled spending has faded; household confidence is fragile.
Margin asymmetry: Appliance, electronics, and auto suppliers are squeezed by both upstream input volatility and downstream price wars.
Data underline the shift: Guangdong’s growth (3.5%) lagged the national 5% last year; Guangzhou/Foshan barely cleared 2%. Shenzhen remains the outlier, buoyed by venture pools and tech incumbents — but it can’t carry a province of 127M alone.
Why this matters nationally: Guangdong is Beijing’s biggest net fiscal contributor; its slowdown crimps central transfers that backfill weaker inland budgets. Internationally, the PRD’s export machine is the interface with global demand; its erosion amplifies the case for partner “de-risking.”
👉 Outlook: Expect further producer migration, more “go-abroad” footprints (autos/electronics), and a policy pivot toward higher-value services in core metros — while many legacy towns wrestle with a slow-bleed equilibrium.
🗣️ Zelensky: China Not a Security Guarantor
Kyiv ruled Beijing out as a postwar security guarantor, citing lack of support and indirect aid to Russia (components in drones, market access). Ukraine will anchor guarantees to states that have already provided hard support since 2022. Beijing may angle for reconstruction roles, but not the security architecture.
🌊 Undersea Cables: FCC Shifts the Guardrails
The FCC rolled out the first big update since 2001: adversary-linked firms (China/Russia/Iran, etc.) are effectively barred across the cable life-cycle; trusted vendors get streamlined approvals but heavier supply-chain attestations and cybersecurity plans. With >95% of global data on seabed glass, this tilt formalizes “clean cables” to match 5G-era network hygiene.
🧾 Industrial Profits: Less Bad, Not Good
NBS reported July profits down 1.5% y/y (best since May’s slide), helped by a 6.8% pop in manufacturing and swings to profit for steel/refiners on price stabilization. High-tech earnings jumped (semis +ICs +aerospace), but PPI deflation, soft retail, and weaker new export orders linger. Mining is still a drag (coal oversupply). Translation: anti-“price war” measures help margins at the edges; demand is the missing piece.
🛫 Li Chenggang’s “Pop-In” to Washington
China’s vice commerce minister is dropping by DC between Mexico/Canada stops — not a formal round, more a “keep the lines warm” session. Agenda: soy purchases (conditional), fentanyl-linked tariff relief (unlikely without real enforcement moves), and nudging on tech restrictions (Commerce not on the calendar). The atmospherics are frosty: Ambassador Xie just blasted US protectionism; Trump claimed the US holds “cards that would destroy China” if played.
💽 US-China Tech War: Domestic Chip Ramp
Three Huawei-serving AI fabs are rumored to spin up 2025–26, with combined capacity potentially exceeding SMIC today. SMIC is doubling output; CXMT is testing HBM3; Cambricon/Biren/MetaX are scaling around DeepSeek’s FP8-first software stack. If the hardware catches up enough, China’s ecosystem gains resilience — not parity — but a tighter “good enough” loop.
🎓 600k Chinese Students? And a NYC Politics Exposé
Trump floated doubling PRC student numbers in the US to ~600k — a sharp pivot from earlier cutback talk — arguing universities need the influx. Base backlash followed; Commerce framed it as essential to US higher-ed. Meanwhile, a NYT probe outlined PRC-aligned “hometown associations” shaping NYC campaigns via endorsements and pressure — spotlighting the blurred line between diaspora civic life and foreign influence.
🧨 Nvidia, China & The Price of Geopolitics (expanded)
Another blowout quarter — and a China caveat. Nvidia posted $46.7B revenue (+56% y/y) and guided ~$54B for Q3, but revealed zero H20 sales to China last quarter and none assumed next. CFO: if “geopolitical issues” clear, Q3 could include $2–$5B of H20 — but the base case is zero. Shares dipped.
Why zero? Beijing reportedly branded H20 a “security risk,” quietly steering BAT (and others) away, while regulators push indigenous stacks. The politics hardened after US Commerce Secretary Howard Lutnick’s July line about giving China “not our best, not our second best… just enough to get developers addicted” — a soundbite tailor-made for PRC hawks arguing to rip off the Nvidia band-aid.
Under the hood: Nvidia freed up $180M by releasing H20 reserves and sold ~$650M of H20 to a single non-China buyer. Jensen Huang still pegs China as a $50B opportunity if products can clear rules, and he’s lobbying for Blackwell approvals — but the trend is clear. Cities (Beijing, Shanghai, Guiyang) are setting domestic-chip usage mandates (up to 100% in DCs), DeepSeek is optimizing around FP8 on homegrown silicon, and supply chains are aligning to a good-enough local stack.
👉 Bottom line: Nvidia’s global demand remains torrid, but China is shifting from “constrained customer” to “motivated substitute-builder.” Even partial success in FP8-capable domestic chips would lock in a structural, not cyclical, loss of Chinese share.
🕊️ SCO Summit in Tianjin
Leaders from 20+ countries (incl. Putin; UN’s Guterres) gather Sun–Mon. Expect Xi to pitch SCO as the platform for “post-American” order narratives, fold GSI talking points into agenda language, and roll out “high-quality development” packages. Optics matter: simultaneous friction with the West + visible Global South convening.
⚡ Taiwan Rhetoric: “Nazification” Line
People’s Daily ran a commentary accusing the DPP of “Nazification” — invoking paramilitary “Black Bear/Bluebird” groups and legal changes. The framing mirrors Moscow’s “de-Nazification” trope; it hardens domestic narratives and further toxifies cross-Strait political space as Lai’s approval softens.
👥 Kim & Putin to Join Xi at Beijing Parade
Next week’s parade will feature Kim Jong Un and Vladimir Putin alongside Xi — visuals of an emerging counter-order. Each leader still runs bilateral channels with Washington, but the tableau signals deeper strategic alignment even as interests diverge (e.g., DPRK troops aiding Russia; PRC’s risk calculus on escalation).
On a lighter note: It was wonderful to chat with subscribers at a meet-up in Auckland this week. I look forward to the next meet-up somewhere else in the world.
Until next week,
— Tony
2025-08-30 23:42:17 +0000 UTC
View Post
📬 China Update — End of Week Newsletter
Date: August 24, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!
🔶 Top Story: The Overcapacity Crisis & Cement
Few commodities embody China’s growth story like cement — and few better illustrate its slowdown. Cement was the lifeblood of the country’s urbanisation miracle, poured into the foundations of entire new cities, vast transport networks, and sprawling apartment blocks. Now it is in retreat.
Cement production fell more than 5% year-on-year in July to 146 million tons, marking the weakest July since 2009. Extreme weather — both heatwaves and heavy storms — worsened the slump, but the deeper driver is structural: real estate investment is collapsing, infrastructure spending is sluggish, and new loans shrank for the first time in 20 years. Unlike steel, much of which feeds export industries, cement is almost entirely a domestic barometer. Its decline shows just how fragile the underlying economy has become.
The problem extends well beyond construction. From solar panels to autos, from batteries to shipbuilding, China’s industrial system is producing far more than the market can absorb. The Ministry of Industry and Information Technology has launched an “anti-involution” campaign to curb destructive competition, but success is uncertain. Chinese firms now churn out nearly double the world’s annual demand for solar panels. Auto production has hit new records, yet domestic sales are saturated, forcing exports to rise 25% in July.
Analysts stress that as long as Beijing maintains excessively high GDP targets, local officials will keep incentivizing new factories, perpetuating the cycle. As one economist observed: “We used to call this rebalancing, then dual circulation, now involution. The problem is the same — supply-led growth with weak demand. Changing the label doesn’t solve it.”
👉 Key takeaway: Cement’s collapse highlights the waning of China’s old growth engine. Overcapacity is no longer a sectoral problem but a systemic drag, pushing the economy toward stagnation.
🏙️ The Investment Riddle: Cities Show the Divide
A new Carnegie China report, The Chinese Investment Riddle: What Cities Reveal, highlights how China’s development model is diverging across regions. The findings underscore that despite central pledges of “high-quality growth,” many local governments remain trapped in old habits of brute investment.
Third- and fourth-tier cities recorded investment intensities averaging 58% of GDP in 2024, far above the national average of 40%. With real estate revenues drying up, they leaned heavily on industrial parks, infrastructure projects, and state-guided manufacturing investment — even when productivity returns were meagre.
The analysis shows a negative correlation between investment intensity and productivity (-0.21 with labor productivity, -0.62 with total factor productivity). More investment often means worse efficiency. Overlapping industrial projects create cutthroat competition and underutilised capacity, crowding out consumption and weakening household demand.
By contrast, Tier-1 hubs like Beijing, Shanghai, and Shenzhen — and advanced Tier-2 cities like Nanjing — are closer to a service-driven model, with more efficient use of capital and higher integration with global markets. These hubs remain attractive to multinationals for R&D and premium consumer offerings.
🕴️ Another Minister Purged
The reported detention of Liu Jianchao, head of the CCP’s International Department, has jolted China’s diplomatic corps. Liu, a veteran ambassador and former graft-buster, was seen as a possible candidate for foreign minister or even the Politburo. His abrupt disappearance — allegedly on national security grounds — removes him from that trajectory.
The lack of explanation recalls earlier purges of senior military and diplomatic figures. Liu’s fall reinforces a sense of instability within Beijing’s foreign policy apparatus. For now, it appears Wang Yi will continue as foreign minister well past the next Party Congress, ensuring continuity but also highlighting the risks of opaque elite politics.
💰 Beijing Targets Overseas Investors
Tax authorities are intensifying enforcement on overseas investment income. Notices in Shanghai, Zhejiang, and Shandong remind residents that offshore trading gains are subject to a 20% tax, aligned with global norms but rarely enforced until now.
The crackdown comes as fiscal pressures mount: shrinking land-sale revenue, costly baby subsidies, and measures to stimulate consumption. With OECD data-sharing frameworks now in place, Beijing can more easily track offshore accounts. Some investors have already been billed retroactively, with penalties added for delayed payments.
The campaign underscores Beijing’s determination to tap wealthy citizens’ offshore income to plug budgetary gaps — and signals that fiscal pressure is spilling over into private finance.
📉 Stock Market Malaise Persists
China’s stock market continues to underperform global peers, with the CSI 300 index still near levels of a decade ago despite intermittent rallies. For households, the failure of equities to generate wealth reinforces a culture of high savings, undermining Beijing’s efforts to boost consumption.
Regulators are pushing reforms — limiting IPOs, encouraging dividends, tightening oversight — but scandals and poor governance have left investors distrustful. As one veteran analyst put it: “China’s capital markets remain a paradise for issuers, a hell for retail investors.” Until returns improve consistently, households are likely to keep saving rather than spending.
🌏 Belt & Road at Gwadar Stalls
Pakistan has pressed China’s Gwadar Port operator to step up investment in the surrounding free zone, but progress is stalling. Only the southern section has been developed at a cost of $250 million, leaving most of the area untouched. Security, water, and power shortages continue to deter investors.
Geopolitical dynamics complicate the picture: Islamabad has moved to ease tensions with Washington, fuelling speculation that Gwadar could become a bargaining chip in its relations with Beijing. For now, analysts say the lack of a clear business case makes further Chinese investment unlikely, despite political rhetoric.
🧠 MERICS on Party in Daily Life
A new report from MERICS, Serving the People by Controlling Them, describes how the CCP is embedding itself deeper into daily life through digital surveillance, service delivery, and grassroots mobilization. From “grid management” to volunteer neighborhood monitors, the Party is tightening its control of communities while presenting it as public service.
The fusion of welfare and control strengthens resilience in an era of economic slowdown and rising geopolitical tension. The CCP is preparing society for “struggle,” with citizens expected not only to comply but to sacrifice when needed.
🌐 Wang Yi’s Diplomatic Circuit
Foreign Minister Wang Yi met India’s top leadership this week, including Modi and Jaishankar, signalling cautious improvement in ties. Agreements were reached on river data-sharing and reopening Himalayan border trade, while Beijing pledged to help with India’s needs for rare earths and fertilizers.
But frictions remain: India objected to a Chinese claim that New Delhi endorsed Beijing’s “One China” line. Wang has since moved on to Afghanistan, urging Kabul to join the Belt and Road, before heading to Pakistan. The balancing act underscores both new cooperation and persistent distrust.
💱 Yuan-Backed Stablecoins on the Table
Beijing is considering yuan-backed stablecoins as a way to boost the renminbi’s global role. A roadmap under review by the State Council could set targets for international use and integrate stablecoins with China’s digital yuan infrastructure.
Unlike decentralized cryptocurrencies, a Chinese stablecoin would likely be fully traceable, programmable, and tied to real-name IDs. Such a design could embed policy levers directly into money — from expiry dates to spending limits. Officials remain cautious, halting seminars to prevent speculative frenzy, but the move reflects Beijing’s recognition that dollar-backed stablecoins are reshaping global finance.
🏚️ Housing & Jobs Under Strain
China’s rental market is flooded, with listings in 55 cities hitting a three-year high in July while rents fell for the 11th straight month. Government-backed affordable housing is crowding out private landlords, pushing yields lower and feeding into the broader property price decline.
At the same time, youth unemployment surged to 17.8% in July — the highest in nearly a year — as 12.2 million graduates entered a weak job market. Beijing has rolled out counselling and training programs, but graduates report months of searching with little success. Analysts warn that weak household income growth will make it even harder to rebalance the economy toward consumption.
🌊 Pacific Islands Forum Pressure
China has demanded the Pacific Islands Forum revoke its 1992 recognition of Taiwan’s participation rights, calling it a violation of the One China principle. The unusually blunt demand, issued by Beijing’s embassy in Tonga, sets up a potential clash at next month’s summit in the Solomon Islands.
Pacific leaders now face the challenge of preserving regional unity on climate and development while navigating intensifying pressure from both Beijing and Taipei. The episode highlights how China is pushing to close even symbolic gaps in Taiwan’s global presence.
💻 Tech War: Nvidia & DeepSeek
U.S. Commerce Secretary Lutnick’s blunt comments that Nvidia’s H20 chips were meant to “get Chinese developers addicted” have backfired. Chinese regulators are now discouraging firms from buying the H20, accelerating adoption of domestic alternatives like Huawei’s Ascend. Reports suggest Nvidia has even paused H20 production as demand wanes.
Meanwhile, Hangzhou-based DeepSeek released V3.1 and teased a new FP8-capable domestic chip. If real, it would mark a breakthrough, since FP8 dramatically improves AI efficiency and is currently a key Nvidia advantage. Whether near-term reality or long-term aspiration, the signal is clear: China’s AI sector is doubling down on indigenous hardware.
🔚 Final Thought
This week’s stories tell a consistent tale: China’s old engines — cement, construction, property — are faltering, while overcapacity and “involution” spread across emerging industries. Beijing’s push for consolidation, innovation, and new tools like stablecoins reflects an urgent need to reset the growth model. But as protests, purges, and trade frictions remind us, the transition will not be smooth — and the costs will be high.
Until next week,
— Tony
2025-08-23 23:46:14 +0000 UTC
View Post
Hi everyone! Here is this week’s newsletter for financial supporters of the channel. I have made this edition free for all so that folks can get an idea of what it contains. If you would like these weekly newsletters plus other exclusive benefits going forward, consider becoming a member.
Date: August 17, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!
🔶 Top Story: Has “Peak China” Finally Arrived?
Veteran China analyst George Magnus, in his essay Why Peak China May Finally Have Arrived, argues that the long-expected slowdown in China’s rise is now material reality.
For decades, projections of China’s unstoppable ascent overlooked structural weaknesses: rigid political centralisation, reliance on debt-fuelled stimulus, and diminishing returns from past reforms. By 2021, China’s economy had reached three-quarters the size of America’s. Today, that ratio has slipped to 62%, with China’s per capita GDP just 20% of the US level. Its share of global GDP has fallen back from 18.5% in 2021 to about 16.5%.
Magnus stresses that many one-off growth drivers have been exhausted: mass rural-to-urban migration, the demographic dividend, and transformative reforms like WTO entry. Meanwhile, China faces shrinking household formation, a structurally declining property sector, and productivity growth that has ground to a halt.
Externally, the “super-globalisation” era is over. Trade and investment are fracturing along geopolitical lines, with many countries resisting what they see as China’s mercantilist trade behaviour. Internally, misallocated capital and weak consumption mean growth is increasingly unbalanced.
Magnus draws a parallel to “Peak Japan” in the late 1980s: global champions will continue to emerge — Huawei, BYD, CATL, DeepSeek — but they will exist in an economy weighed down by debt, inefficiency, and political overreach.
👉 Key takeaway: China remains an industrial powerhouse, but its era of rapid convergence with the US (is terms of economic size at least) appears to be over. The challenge now, he argues, is managing relative stagnation without triggering social or political instability.
💻 Tech War: A Revenue-Sharing Precedent
In a remarkable development, Nvidia and AMD agreed to hand over 15% of revenues from certain chip sales to China in exchange for US export licenses.
The Commerce Department began issuing licenses for Nvidia’s H20 and AMD’s MI308 chips after Nvidia CEO Jensen Huang met President Trump. Analysts estimate the deal could funnel billions into US coffers.
Critics warn the chips could accelerate China’s AI capabilities, while others see a dangerous precedent of monetising export controls. Nvidia insists the H20 has no military use and warns against “repeating America’s 5G mistake” by ceding the Chinese market entirely.
👉 Signal: Export controls are no longer just about security
📉 Economy: Weak July Data, Property Slide
China’s economy lost momentum across the board in July, underscoring the difficulty of sustaining growth despite heavy state support. Industrial output at factories and mines rose just 5.7% year-on-year — the weakest pace since last November and down sharply from June’s 6.8%. Retail sales expanded only 3.7%, their slowest growth this year, compared with 4.8% in June. Fixed-asset investment slowed to 1.6% in the first seven months, dragged down by the steepest real estate slump in over five years.
The property market remains the largest single drag. New-home prices across 70 major cities fell 0.31% month-on-month, the fastest drop in nine months, while resale values declined 0.55%. All four tier-1 cities recorded falls of nearly 1% or more, a worrying signal given Beijing’s hopes that leading cities would stabilize demand. Real estate investment is down 12% year-to-date, the steepest contraction since the pandemic, while major developers like Evergrande and China South City face liquidation or delisting.
Policymakers are reportedly preparing to mobilize state-owned enterprises to buy unsold housing stock from distressed developers, but analysts warn this will do little to revive household demand. Household formation is shrinking, first-time buyer cohorts are smaller, and consumer confidence remains weak. Fitch Ratings notes that the sector’s recovery remains “fragile and uneven,” hinging not only on stimulus but on broader job market and income stability.
July’s slowdown was compounded by extreme weather — record heat, heavy flooding, and related supply disruptions — but deeper structural pressures are at work. New loan issuance in yuan terms contracted for the first time in two decades, a stark sign of weakening credit demand. Economists at Nomura warn of a looming “demand cliff” in the second half of the year as overcapacity curbs, waning exports, and real estate woes converge.
🛃 Trade Truce Extended
Trump announced a 90-day extension of the US-China tariff truce, postponing tariff hikes until November. Markets cheered, with Asian equities rallying. But fundamental disputes — oil imports from Russia and Iran, fentanyl duties, restrictions on US business — remain unresolved.
Soybean purchases and rare earth magnet flows are focal points. Analysts say the truce buys time but doesn’t resolve underlying tensions.
⚡ Overcapacity: Lithium & Autos
Lithium stocks rallied after CATL halted production at a major Jiangxi mine, sparking expectations of broader curbs amid Beijing’s campaign against overcapacity. Futures hit their daily limit, though analysts caution supply remains abundant.
Meanwhile, China’s auto industry posted record July figures: 2.23 million cars produced, 475,000 exported, and NEV exports up 120% year-on-year. Yet profitability is heavily propped up by subsidies, and export surges risk fresh trade friction with Europe.
👉 Bottom line: Production keeps climbing, but overcapacity and subsidy reliance remain systemic risks.
🌊 South China Sea: Collision & Confrontation
Tensions spiked after a Chinese navy ship collided with a China Coast Guard vessel while chasing a Philippine patrol near Scarborough Shoal. Manila released dramatic footage and accused Beijing of “risky maneuvers.”
The incident underscores the volatility of disputed waters where accidents risk rapid escalation. A Philippine documentary, Food Delivery: Fresh from the West Philippine Sea, spotlighting fishermen and marines, has further angered Beijing.
🤖 AI: DeepSeek Stumbles
AI start-up DeepSeek delayed its R2 model launch after failing to train it on Huawei’s Ascend chips. Engineers struggled with stability and connectivity, forcing the company back to Nvidia hardware. The setback highlights how far Chinese chips lag behind US rivals, even as Beijing pressures firms to adopt domestic alternatives.
🚨 Domestic Unrest: Jiangyou Protests
A viral schoolgirl assault video in Sichuan triggered rare street protests against lenient police handling and perceived official cover-up. Hundreds gathered, chanting slogans and clashing with police before censors wiped online discussion.
The protests reflect growing public anger at local governance failures — a recurring theme from Gansu to Hangzhou — that risks eroding trust in grassroots officials.
🎓 UK Academia Under Pressure
A new UKCT report says fear of Chinese retaliation is leading British academics to self-censor, distorting China studies. The OfS regulator now requires universities to ensure academic freedom and review ties with Confucius Institutes. Beijing dismissed the findings as “absurd.”
🏛️ CCP’s “Anti-Formalism” Drive
Xi Jinping has launched a new campaign against bureaucracy, ordering shorter reports (max 5,000 characters), fewer meetings, and stricter oversight of official apps. The move is part of efforts to discipline cadres and redirect focus to economic challenges.
I hope you enjoyed this end of week newsletter!
Until next week,
— Tony
2025-08-17 03:51:24 +0000 UTC
View Post
I’m super excited to launch new exclusive weekly content for all financial supporters of China Update. I’m now trialling an end of week newsletter to be published on the weekend giving a summary of the major stories we covered that week. This is to express my gratitude for all your incredible support of the channel - I hope this adds value for you. Please let me know your thoughts on this.
📬 China Update — End of Week Newsletter
Date: August 9, 2025
Your Essential Wrap-up on Chinese Political, Economic & Geostrategic Developments
Let’s Jump In!
🔶 Top Story: Overcapacity Crisis Moves to the Fore
Two major reports this week — one from the Financial Times, the other from China’s Caixin — discussed how Beijing’s post-property-bubble growth model is deepening structural overcapacity, eroding profits, and locking the economy into a cycle of “involution” (内卷) rather than innovation.
The FT piece highlights how local governments, desperate to hit GDP targets after the real estate crash, have poured investment into favored manufacturing sectors — EVs, batteries, AI, robotics, and solar panels — regardless of market demand. This has shifted the costs of the property slump into manufacturing and pushed trade surpluses higher, as domestic weakness is offset by grabbing more foreign demand.
Caixin’s investigation zeroes in on the auto industry, revealing that behind double-digit sales growth lies an industry mired in a profit-crushing price war. Overcapacity is extreme: passenger car inventory hit a five-year high of 3.45 million units in May. With 129 NEV brands in 2024, only 15 are projected to survive financially by 2030. Payment delays to suppliers are stretching to nine months, while nearly three-quarters of dealerships missed sales targets in the first half of this year.
Key takeaway: Beijing’s high growth targets make reducing overcapacity impossible— but without a shakeout, profitability and sector health will keep deteriorating, as will China’s general fiscal health
📈 Exports Rise, Margins Collapse
China’s exports jumped 7.2% year-on-year in July to $322 billion — the fastest pace since April — on strong demand from Europe, Southeast Asia, and Africa. But shipments to the US plunged 22% amid ongoing tariff pressure.
High-tech goods, chips, and vehicle exports all surged, but profit margins are being squeezed, with manufacturers selling at or below cost to keep production lines running. The result: exports once again outpaced imports, underscoring domestic demand weakness.
Washington is eyeing new tariffs on goods “transshipped” via Vietnam and Mexico — routes increasingly used to circumvent US duties. Economists warn that the second half of 2025 could see slower growth as tariff risks and weaker global trade bite.
💸 Debt: Restructuring vs. Reality
Both Michael Pettis and other analysts warn that China’s “debt-restructuring” campaigns are not reducing debt, only shifting it between balance sheets. Official debt-to-GDP is now 309%, up from 303% at the end of 2024 — higher than the US, and rising faster.
Beijing’s control over the financial system means a banking crisis is unlikely, but unproductive investment has left trillions in hidden losses. Transferring local debt to the central government delays the reckoning and risks weakening the country’s last clean balance sheet.
⚡ BYD Feels the Squeeze
China’s largest EV maker saw July sales drop 10% month-on-month and its Hong Kong-listed shares fall 28% from May highs. Price cuts designed to undercut rivals have drawn regulator warnings, while supplier payment delays echo troubling property sector practices.
Overseas expansion now accounts for nearly a quarter of sales, but the domestic glut — and intensifying scrutiny — make meeting BYD’s 2025 targets uncertain.
🌪️ Deadly Flooding from Beijing to Hong Kong
Torrential rains forced the evacuation of over 82,000 Beijing residents this week, just days after floods killed 44 people in the city’s northern suburbs. Hong Kong issued its fourth “black rain” warning in a week, while Shenzhen raised its first red alert since 2018.
With extreme weather events intensifying, officials warn more disruptions are likely in the weeks ahead.
🧠 AI Safety with Chinese Characteristics
Beijing’s “AI safety” rules mimic international language but embed political priorities — from safeguarding “core socialist values” to flagging Taiwan democratization as a “threat.” Developers must maintain large “test question banks” and implement monthly risk reviews.
A NewsGuard audit found Chinese chatbots frequently reinforced pro-government narratives in both Mandarin and English. Meanwhile, Huawei’s “Project Spare Tire” aims for 70% chip self-sufficiency by 2028 as US export controls tighten.
⚙️ Tech War: Nvidia in the Crosshairs
Chinese regulators summoned Nvidia over concerns tied to potential US chip-tracking mandates. At the same time, US prosecutors charged two Chinese nationals with smuggling restricted H100 chips via Southeast Asia. The White House allowed sales of Nvidia’s downgraded H20 chips to continue, betting it keeps Chinese developers reliant on US technology.
⛽ Oil, Rare Earths, and the Trade Talks Standoff
US-China trade talks in Stockholm made progress — but Washington’s demand that Beijing halt Russian and Iranian oil purchases remains a deal-breaker. China, which buys up to 90% of Iran’s oil exports and 1.3 million barrels/day from Russia, is unlikely to yield.
Meanwhile, China’s control of rare earths and other strategic minerals is squeezing US defense contractors. Prices for some materials have surged 60x, supply delays are mounting, and efforts to build domestic production remain years away.
🦟 Chikungunya Outbreak Revives Covid-Era Controls
In Foshan, Guangdong, over 6,500 chikungunya cases in a month have prompted pharmacy purchase tracking, mass testing, and travel history checks. Health experts question using Covid-style measures for a mosquito-borne disease, but authorities cite the flood season and international travel as complicating factors.
Until next week,
— Tony
2025-08-09 10:41:55 +0000 UTC
View Post
Exclusive Member Content: There Are Two Chinas, and America Must Understand Both The technological success that has captured the attention of many in the United States is one aspect of the Chinese economy. There’s another, gloomy one. By Li Yuan - Original Article: https://www.nytimes.com/2025/05/13/business/china-economy-us-trade-war.html
2025-05-25 11:21:37 +0000 UTC
View Post
Hey everyone! As some of you know this Sunday will be the first ever China Update Live Q&A. I’m looking forward to a more casual ‘meet and greet’ style show. As financial supporters of the channel I wanted to first open questions to you guys. Let me know your questions and I will select from these first. Thanks everyone!
2025-02-07 23:57:33 +0000 UTC
View Post
Exclusive Content: America’s China Strategy Is Incomplete Putting Beijing on the Back Foot Requires Economic Tools Beyond Tariffs By Elizabeth Economy and Melanie Hart. Original Article: https://www.foreignaffairs.com/united...
2025-01-19 11:08:14 +0000 UTC
View Post
Exclusive Member Content: Xi Digs In With Top-Down Economic Plan Even as China Drowns in Debt Xi Jinping is bracing for a showdown, sticking with economic policies aimed at making China the world’s most powerful country
By Lingling Wei of WSJ
Original Article: https://www.wsj.com/world/china/china-xi-debt-economic-plan-13aaeec1
2024-12-28 14:00:00 +0000 UTC
View Post
Exclusive Patreon Content: China’s Housing Rescue Falls Short in City That Signaled the Crisis The limits of government intervention are evident in Zhengzhou, where home prices keep falling. By Bloomberg Businessweek Original Article: https://www.bloomberg.com/news/features/2024-12-17/china-s-housing-rescue-falls-short-in-iphone-city-zhengzhou
2024-12-21 12:15:00 +0000 UTC
View Post
Hi Team
Great piece here from the Lowy Institute. While there isn't the space to discuss this in a video, it's well worth a read if you have some time over the weekend:
https://www.lowyinstitute.org/publications/revising-down-rise-china
2022-03-17 11:59:19 +0000 UTC
View Post
Hey team, here is the link for the People's Daily piece discussed in today's video:
http://theory.people.com.cn/n1/2022/0209/c40531-32348178.html
For some reason I was having issues with it on youtube.
2022-02-11 20:16:21 +0000 UTC
View Post
Hey guys,
I normally don't do public interviews with media because that's what I normally charge clients for. But I owed an old buddy a favour, so I did this interview with a local radio station in Hawaii. After the show the put it on Youtube, so if you guys are interested in seeing me giving an interview (rather than my normal style on YT), you can check it out here:
https://www.youtube.com/watch?v=zYKffebU2G8
2021-10-19 11:26:33 +0000 UTC
View Post
