The second ministerial round of the EU–China Trade and Investment Consultations takes place this week. EU Trade Commissioner Maroš Šefčovič is meeting his counterpart, Commerce Minister Wang Wentao, in Beijing this Thursday-Friday, but nobody is holding their breath for a quick resolution. The next date to watch is 15–16 October, when EU leaders meet at the European Council in Brussels to discuss their response.

Some sort of escalation is likely—not a full-blown trade war, but an intensification of the same tit-for-tat measures and countermeasures we’ve seen to date, punctuated by negotiations.

That is, at least, the expectation of many Chinese analysts that we have been reading. 

We’ve been working on a paper in cooperation with the Friedrich-Ebert-Stiftung, analysing Chinese perspectives on EU-China trade tensions. The paper, which draws on a large corpus of Chinese-language texts published between October 2022 and September 2026 will be published shortly through FES’s online library, but given that Šefčovič is in Beijing on Thursday, we wanted to provide subscribers with a preview.

What follows is an abridged version of the much longer full paper.

1. Chinese analysts seldom regard the EU as a capable geopolitical actor. EU fragmentation and disunity are consistently highlighted in the corpus and the standing recommendation is engagement with member-state capitals rather than Brussels.

2. Analysts broadly follow the semi-official narrative that the US is a principal driver of Europe’s tough line on China. However, an emerging strand of analysis treats the hard line as Europe’s own.

3. Authors reject the view that subsidy and dumping explain the surplus, but they more readily acknowledge that domestic demand is too weak to absorb capacity, which then spills abroad.

4. The dominant diagnosis is that Europe’s anxiety is real but misattributed, but macroeconomists in particular are more willing to acknowledge a domestic imbalance and to link overcapacity to trade friction.

5. The prevailing expectation in the corpus is for protracted, institutionalised friction. The observation that there is still room for negotiations is recurrent and the dominant call is for “strategic composure”.

6. Analysts are more concerned about the wider external frictions created by China’s trade surplus than about tensions with the EU per se.

7. The EU can expect a firm but non-escalatory response to any trade defence measures introduced this year. The dominant prescription is to gradually expand imports rather than restrict exports.

8. Localisation, or further Chinese manufacturing investment in Europe, is the most widely supported solution to trade frictions, but there are detractors—technology transfer and investment terms will be a key battleground.

9. Implications for the EU:

   1. Prioritise member state unity; make sure to match rhetoric with action; expect firm but measured resistance; treat the surplus as a global problem; and follow China’s domestic economic debate closely.

   2. Avoid resting arguments on subsidies and frame trade effects in terms of Europe’s social stability; ask for measures Beijing can present as its own policy; and define the boundaries of de-risking.

HOW BEIJING READS EUROPE: CHINESE PERSPECTIVES ON THE EU–CHINA TRADE CONFLICT

Jacob Mardell

An abridged version of a forthcoming Sinification paper produced in cooperation with the Friedrich-Ebert-Stiftung. The full paper will shortly be available through the FES online library.

Chinese analysts seldom regard the EU as a capable geopolitical actor. This assessment is broadly shared by authors in the corpus, who are sceptical about EU unity and European staying power in a trade conflict. The establishment consensus reading of Europe is—to borrow a phrase from Sun Keqin (孙恪勤), a researcher at CICIR—that it is a “declining aristocrat”.

EU fragmentation and disunity are consistently highlighted in the corpus and the standing recommendation is engagement with member-state capitals rather than Brussels. There are, however, a few who see EU institutions as increasingly important actors. Zhang Jian (张健), for example, argues that, as the Franco-German axis weakens, the Commission is filling the vacuum.

The perception of EU weakness—in both its general standing and its cohesion—is matched by confidence in China’s current position. With Chinese analysts reading the Xi–Trump summit in May as a truce with the US, some consider Europe’s position diminished. The perception that China prevailed in the 2025 US–China trade war also leads several analysts to conclude that a conflict with a less powerful actor such as the EU would be comparatively manageable.

The corpus broadly follows the semi-official narrative that the US is a principal driver of Europe’s tough line on China. However, since late 2025, and more clearly since the May 2026 summit, an emerging strand of analysis, mostly from Europe specialists, treats the hard line as Europe’s own. Yan Shaohua (严少华) expects EU China policy to be “driven more by its own internal dynamics” and Xin Hua (忻华) notes that Europe “originated” (首创) de-risking.

Authors who address the transatlantic question have long argued for differentiated treatment of the US and Europe. It may seem self-evident to Europeans that Europe and the US should be approached differently, but it speaks volumes that this point must be made, and the opposite argument—that Europe answers to the US and so China should focus on Washington—is also made several times.

On the future prospects of the transatlantic relationship, authors disagree on whether 2026 represents rupture or continuity, but the most common reading is that the transatlantic relationship will persist in diminished form, sustained by Europe’s structural dependence on the US in security and other areas.

The corpus also provides a less positive interpretation than the semi-official line on what “strategic autonomy” means for China. Even Jian Junbo, who has consistently argued that Beijing should support European strategic autonomy, wrote in January 2023 that it “carries a strong undertone of targeting China” and called it a “double-edged sword”.

Most authors agree that, whatever strategic autonomy might mean for China, it remains largely aspirational. Li Xing (李形) calls it “a myth constructed through political discourse”, and Jian Junbo, writing of the EU’s vow to pursue geopolitical competition, writes that “the slogans are too loud and the actual steps too small”.

On the prognosis for China–EU relations, analysts tend to repeat the official line that China and Europe have no fundamental conflict of interest and no “geopolitical contradiction”, but several senior Europe specialists have begun to qualify it.

Observing a fundamental shift in relations in recent years is a more common position than repetition of the official line might suggest. In fact, several of the most prominent Europe specialists now state that trade relations have shifted from vertical complementarity to horizontal competition.

Several authors take a pessimistic position on EU–China relations as a whole. Jin Canrong endorses the view that EU–China relations face a “tipping point” similar to that in US–China relations a decade ago, and judges that “the overall trend has turned negative”.

On China’s trade surplus and the overcapacity issue itself, Beijing has been vocal in its official denial of the charge. The consensus evident in the corpus broadly follows this party line, though in less categorical terms and with some variation. Authors reject the view that subsidies and dumping explain the surplus, but they more readily acknowledge that domestic demand is too weak to absorb capacity, which then spills abroad.

The Chinese Europe experts in the corpus broadly reiterate the sanctioned narrative on the drivers of the “China shock 2.0” narrative in Europe, arguing that the EU’s movement towards “protectionism” stems from anxiety about self-inflicted industrial decline and that confronting China will only compound the problem. They tend to describe Europe’s concerns as legitimate, but do not concede the European account of their causes. The dominant diagnosis is that Europe’s anxiety is real but misattributed—Jiang Feng (姜锋), for example, calls the EU’s hard line “in essence the external projection of its internal crisis”.

Some authors describe Europe’s responses as emotional and irrational, while others trace this transferred trauma to European dependence on Russia.

Among the Europe experts more receptive to European concerns, Ding Chun writes that Europe’s concern about the deficit “is not in itself too unreasonable, and is easy to understand” and that China should “take the European side’s genuine concerns seriously”.

Macroeconomists in particular are more willing to acknowledge a domestic imbalance and to link overcapacity to trade friction. This may in part be because it is more politically permissible for Chinese economists to raise concerns about the negative externalities of observed domestic phenomena than it is to start from foreign complaints and follow them to their conclusions about the Chinese system. Among them, Huang Yiping (黄益平) most clearly treats “China Shock 2.0” as a serious proposition. Yao Yang (姚洋) also accepts the phenomenon, rejecting only the mechanism.

These acknowledgements are the most direct in the corpus and come from senior figures, but they are largely macroeconomic and begin from a domestic starting point, with trade friction named as a consequence. They do not accept the argument on subsidies and—of potential relevance to European policymakers—their arguments are intertwined with concern about the domestic, as well as the external, implications of China’s export-driven model.

The prevailing expectation among experts is for protracted, institutionalised friction. Despite confidence in China’s position, few authors predict that the EU will concede easily, or appear to expect a full-scale trade war. The central prediction is for intermittent bargaining leading to a negotiated settlement, and authors point to a precedent in the EV case.

Ding Chun’s prediction sums up the consensus—he expects that the EU will be “tough in rhetoric, escalatory in instruments, but leaving room in implementation”.

This is not to say that authors expect a return to the status quo ante. For example, Ding Chun also expects the dispute to migrate “from friction over single products to friction between industrial systems”.

While analysts are relatively confident that a full-scale trade war with Europe can be avoided, there is greater concern about the external frictions created by China’s trade surplus more broadly—particularly with countries in the Global South.

This contrast is most clearly evidenced by results of the annual survey conducted by the Center for International Security and Strategy at Tsinghua, which asks Chinese experts to assess the principal geopolitical risks facing China. In most years, US-related concerns occupy first place, while Europe registers at or near the bottom—seventh of eight in 2024 and last in 2025. In 2026, the item devoted to the US—technology decoupling and “systematic encirclement”—fell to third place, behind the Taiwan Strait and China–Japan relations, although the US is listed as a core party to both. The “securitisation” of EU–China economic relations, under the heading “crossing the tipping point” (跨过临界点), ranked seventh of ten, with April’s Hungarian election flagged as the turning point. At fifth place, the middle position, was international backlash over a second “China shock” and the concern that a “wolf-pack effect” around Chinese overcapacity would galvanise a unified international position on Chinese trade and overcapacity. The concern is not about Europe per se, but about a global backlash, although Europe was identified as its potential leader.

Although the baseline sentiment throughout the corpus is that, with Europe relatively weak, China holding retaliatory options and the US–China relationship stabilised, China is in a strong position, few authors argue that Beijing should press its advantage.

The corpus, on balance, is considerably less hawkish than Chinese debates tend to be when the adversary is the US, let alone when the focus turns to Japan. The observation that there is still room for negotiations is recurrent and the dominant call is for “strategic composure”.

Explicit hawkishness is a minority position and is concentrated largely outside the Europe-specialist community, particularly among public and media commentators. Arguments against a hard line are more extensively developed, and restraint is the dominant prescription.

Huang Jing (黄靖) summarises China’s formula with the phrase “the keynote of our relations with Europe is not struggle but compromise and cooperation: if you insist on fighting, we will fight you. When the fighting is done, so long as you are willing to extend a hand, we remain willing to shake it”.

Where retaliation is advocated, authors call for trade measures of the sort seen in response to the 2024 EV tariffs. However, in 2026 authors increasingly treat export controls on rare earths and other critical inputs as China’s strongest card.

Authors also refer to the legal toolkit China has developed over the years to strengthen its defensive and offensive capabilities vis-à-vis foreign pressure. Authors pair legal defence with a call for China to shape the rules itself. Ma Xiaolin (马晓霖) and Wang Wanying (王婉赢) for example, write that “passively adapting to the other side’s rule framework is clearly not advisable”, and that active participation in rule dialogue is the route to “converting rule pressure into institutional competitiveness”.

Discussion of stimulating domestic demand features prominently in the corpus, with a number of authors portraying rebalancing as necessary not only from a domestic standpoint, but also in order to improve China’s external relations. However, the debate on rebalancing is long-standing—despite growing calls from economists to boost domestic demand, and despite Beijing’s stated support for the same objective, its policy planning continues to prioritise manufacturing and export-driven growth.

Few authors call for restricting exports directly, and several rule it out. Xu Mingqi (徐明棋), for instance, states that “restricting exports is not feasible”. However, the rejection of export curbs is less firm than it first appears. For example, further cutting export tax rebates is on the table—Zhang Deli (张德礼) calls cutting or abolishing them “the government’s relatively direct and effective means of adjusting export prices”.

In general, “balancing upward”, or expanding the export of European services, agri-food and high value-added consumer goods is widely supported.

The domestic reform debate also discusses gradual RMB appreciation as a solution. Support for appreciation is gradually growing among Chinese economists, who argue that China’s currency has room to appreciate and that appreciation could advance RMB internationalisation while tempering trade friction. However, no author advocates an overnight revaluation, and the Plaza Accord is cited mainly as a cautionary example.

Localisation, or further Chinese manufacturing investment in Europe, is the most widely supported solution to trade frictions, the logic being that the local value and jobs created would allay European concerns about industrial decline. This argument resonates with a broader discussion beyond the corpus. The case for a new wave of Chinese overseas investment is gaining support in both discourse and policy, with an increasing number of establishment intellectuals calling for a “Going Out 2.0” in order to build a “new China” abroad.

However, this idea also has its detractors. Luo Zhiheng (罗志恒) for example calls for safeguards against an overly rapid transfer of capacity “hollowing out the domestic industrial chain”.

Prioritise member-state unity. Long-standing advocacy of a differentiated approach to EU member states and constituent interests has become more explicit as trade tensions rise. Brussels is already keenly aware that disagreement among member states is a structural weakness and that warnings about Beijing’s “divide and rule” approach are long-standing, but it should continue to stress the importance of a united approach, underlining that Beijing’s strategy depends on being able to play interest groups off against one another.

Match rhetoric with action. Chinese analysts generally hold the view that Brussels’ rhetoric on China outpaces its ability to act and they tend to attach limited weight to European power and to the EU as a geopolitical actor. The power Chinese analysts take most seriously is regulatory and market power, and they read unused instruments, such as the Anti-Coercion Instrument, as lacking credibility. Despite Beijing’s objections, the more the EU develops and applies its de-risking and trade defence instruments, the more Chinese analysis is likely to treat it as a significant actor.

Expect firm but measured resistance. Despite considerable confidence in China’s relative strength, analysts generally do not argue for exploiting that advantage aggressively. The debate is not hawkish: the dominant counsel is for restraint and calibrated retaliation, with an expectation of manageable conflict running alongside negotiations. This may reflect confidence in a Chinese victory—a view that there is no need for urgent action—but it may also stem from recognition of Europe’s economic significance to China, combined with reluctance to risk further disruption, given the state of China’s domestic economy and wider global instability. The corpus of expert views tentatively supports the latter reading. Additionally, China’s economy faces significant headwinds, and second, that Beijing has other pressing concerns—in the Middle East, with Japan and across the Taiwan Strait—and has little reason to escalate a confrontation with its second-largest trading partner.

Treat the surplus as a global problem. Chinese analysts are less concerned about Europe itself than about the wider international consequences of China’s trade surplus and the EU’s potential to galvanise a broader front of resistance. The EU should not view trade tensions with China as an isolated, bilateral phenomenon, but as a part of a wider renegotiation of China’s role in global trade. Brussels should coordinate as much as possible with other countries, particularly in the Global South.

Follow the domestic economic debate. Chinese macroeconomists write more openly about China’s trade surplus than Chinese Europe experts do. This indicates that the imbalance is acknowledged more widely within the Chinese establishment than extensive rebuttals in the official discourse and by Chinese Europe experts would imply.

Speak Beijing’s language on “subsidies” and “overcapacity”. While some concede the overcapacity charge, analysts almost universally reject the idea that overcapacity is mostly a subsidy-induced phenomenon. This is the official line, but it also appears to reflect a genuine view that Europe underestimates the competitiveness of Chinese industry. Chinese analysts accept the premise that European industry is under pressure, and arguments framed in terms of social stability are familiar to Beijing.

Ask for what Beijing can present as its own policy. Few Chinese analysts call for direct export restrictions, and several rule them out, but in practice, Beijing has already licensed exports of battery-electric cars, cut export tax rebates and negotiated minimum prices for electric vehicles—and presents these as its own decisions rather than as concessions.

Define the boundary of de-risking. The most persistent Chinese complaint about “de-risking” is that it is open-ended. This also creates leverage: Brussels can offer greater predictability in exchange for Chinese commitments rather than conceding it unilaterally.

Technology transfer and investment terms are likely to be a key battlefield. Localisation is the most widely supported Chinese response to trade tensions and investment in European production is likely to be a central part of Beijing’s offer. There is, however, a tension between growing concern about technology transfer and industrial hollowing-out on the Chinese side, and demands for technology transfer and local value added on the European side.

Much of the commentary in September revolved around the strength and limitations of economic interdependence as a source of political power. Against the backdrop of “strategic stability”—or stalemate—in the US-China trade relationship, Wu Bingxuan and Huang Chaofeng advise Chinese firms to concentrate on trade diversification and developing sanctions-evasion tools against the prospect of expanding US trade controls and restrictions on Chinese firms.

Regarding the absence of a business delegation accompanying Xi to Washington for the summit last month, the well-connected political commentator “Chairman Rabbit” suggests China’s feelings of insecurity about the trading relationship may lie behind it. The presence of high profile Chinese CEOs could have invited scrutiny of their relationship with the state, or requests from Trump for them to invest in the US.

China-EU trade talks are ongoing, with a resolution hoped to be achieved by mid-October and a further escalation in trade tensions looming if the talks fail to deliver. While these talks take place, China’s global trade relationships are also in the spotlight elsewhere.

The “China squeeze” thesis, recently advanced by Arvind Subramanian and Shoumitro Chatterjee, continues to provoke indignation in China against the backdrop of Xi’s visit to New Delhi for last month’s BRICS summit. The economist Xia Chun rebuts the idea that China’s economic juggernaut is displacing industrial activity in developing countries, offering as he does so an interesting window into how many in China view the source of their industrial advantage. Liu Zongyi links the “China squeeze” concept to Indian policy circles and an attempt by New Delhi to compete with China for leadership over the Global South, while Jin Canrong advises Chinese enterprises to be cautious about investing in India.

Brazil, another Global South heavyweight, is already a rapidly growing destination for Chinese enterprises escaping the low-profit squeeze of race-to-the-bottom competition at home. Against the backdrop of the election race between Flavio Bolsonaro and Lula, several scholars look at how economic penetration and political influence interact. Li Wei observes that there is a mismatch between Brazil’s apparently “laid-back” approach to international affairs and the hope among some Chinese scholars that it could form a counterweight to the US in the western hemisphere.

Di Dongsheng and Zhao Yixian offer nicely contrasting prescriptions for Chinese businesses expanding their operations in Brazil. For Di, the goal should be to deepen Chinese influence in order to shift Brazil’s political and business climate in ways more favourable to Chinese firms. Zhao, meanwhile, suggests Chinese businesses expanding overseas should aim to build “a Brazilian company with Chinese strengths”, adapting to local requirements and labour practices from the outset. BYD, in particular, has drawn fire for its labour standards in the country.

On the domestic front, Yang Wenhui and Wu Xinye express thoughtful caution on the limitations of AI as a tool for improving governance, while a roundtable with some of China’s most influential economists sets out the main lines of debate over economic rebalancing and stimulus in China. Liu Shangxi, however, observes that beyond shuffling money around, resolving problematic moral hazard in China’s economy will require more thorough institutional reforms.

— James Farquharson

1. US-China:

   1. Meng Weizhan on the midterms and the durability of Trump’s accommodation with China

   2. Liu Chong on developing a shared US-China vocabulary of AI risk

   3. Wu Bingxuan & Huang Chaofeng on strategies for evading the expanding US sanctions toolkit

   4. Ren Yi (Chairman Rabbit) on the possible reasons underlying the absent business delegation on Xi’s visit to Washington DC.

2. Global Order:

   1. Zhu Zhaoyi on the need to better define China’s security role overseas.

   2. Huang Ping on the challenge posed to certain middle powers’ leverage over AI supply chains by US–China accommodation

   3. Sun Chenghao & Zhang Xueyu on how AI could drive more intense nuclear competition

   4. Zhao Hongtu & Chen Wenlin on the rise of “electricity powers” and Europe’s energy dilemma

3. Brazil:

   1. Li Wei on the gap between China’s commercial presence and America’s social influence in Brazil

   2. Di Dongsheng on Chinese firms’ encounters with Brazil’s labour protections and development politics

   3. Zhao Yixian on mitigating the risks faced by Chinese companies setting up operations in Brazil.

4. India:

   1. Liu Zongyi on India’s BRICS ambitions and competitive coexistence with China

   2. Jin Canrong advising caution to potential Chinese investors in India

   3. Xia Chun on land reform, caste and the roots of China’s manufacturing lead over India

5. Russia and North Korea:

   1. Li Shenghua & Wu Wenzhuo on the strategic implications of North Korea’s current leverage over Russia

6. Economy:

   1. Ju Jiandong, Justin Yifu Lin, Yu Yongding, Yao Yang & Li Xunlei on China’s fiscal stimulus choices

   2. Liu Shangxi on the obstacle posed by moral hazard to China’s economic transition

7. AI and Tech:

   1. Yang Wenhui on how AI use could come into tension with local officials’ discretion and initiative

   2. Wu Xinye & Wang Zice on how AI-assisted grassroots governance could simply amplify the loudest voices

   3. Huang Rihan & Shi Yukun on the strategic purpose of US-China competition in orbital computing

8. State and Society:

   1. Liu Yunshan on the issue of “exam specialists” among the younger generations

   2. “Wen Ping” on algorithm-driven pseudo-history and upholding the correct national narrative

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1. US-China

Meng Weizhan (孟维瞻): A narrow Democratic House majority would make Trump’s accommodation with China more politically costly, while leaving him substantial control over policy. Investigations, hearings and budget conditions could expose concessions to accusations of sacrificing national security for trade deals, and Democratic cooperation with Republican hawks over advanced chips, AI computing power, Taiwan and secondary sanctions could intensify this pressure. The main risk is that congressional pressure over export licences, sanctions and investment makes Trump’s existing accommodation with China harder to sustain, gradually eroding the summit’s stabilising effect. – Associate Research Fellow, Institute for Advanced Study in Social Sciences, Fudan University (Greater Bay Area Review, 28 September)

Liu Chong (刘冲): For a China-US cooperation framework on AI governance to succeed even as competition intensifies, a shared understanding of risk will be necessary first. The threshold for slowing or stopping AI training should depend less on a definition of whether AGI has been reached than on whether existing safeguards can reliably constrain a model. Governance standards should specify which combinations of capabilities warrant closer monitoring and what kind of abnormal behaviours warrant slower or suspended training. It may then be possible to establish scientific trust, mechanisms for sharing safety capabilities and a common understanding of when to apply the brakes. – Director, Centre for Technology and Strategy, China Institutes of Contemporary International Relations (CICIR, 28 September)

Wu Bingxuan (吴柄萱) & Huang Chaofeng (黄朝峰): The backdrop of stabilising US–China relations is not halting expanding financial restrictions on Chinese firms. Broader US trade controls require more diversified technology and supply chains, with risks assessed beforehand and alternative buyers and suppliers kept available. To counter tighter investment scrutiny, firms should expand de-dollarisation and use offshore financial centres and complex ownership structures to make transactions and acquisitions harder for US regulators to scrutinise. – Wu Bingxuan, PhD student, Koguan School of Law, Shanghai Jiaotong University; Huang Chaofeng, Professor and Deputy Director, National Institute for Strategic Studies, Shanghai Jiaotong University (Shanghai Jiaotong National Institute of Strategic Studies, 27 September)

Ren Yi (任意) / Chairman Rabbit : The absence of a full business delegation accompanying Xi to Washington may reflect concerns about sending the wrong policy signals domestically and internationally. Participation of Chinese companies in the delegation could mark private companies as state-linked targets for sanctions or distort domestic competition, or cause them to be pressured into US investments whose long-term security no White House administration can guarantee. Lower-profile exchanges through industry associations and state-level exchanges would allow greater economic cooperation while limiting these risks. – Political commentator (Tuzhuxi New Platform, 24 September)

See our separate analysis for a fuller account of the response in China to the Xi-Trump Summit:

2. Global Order

Zhu Zhaoyi (朱兆一): China’s Global Security Initiative needs to move from broad principles to practical security support. As Gulf states diversify their partnerships without giving up US deterrence, China could contribute crisis warning, mediation, shipping and energy security cooperation, humanitarian assistance and postwar reconstruction. This would give practical substance to “security governance without dependence” in the form of credible and lasting support at critical moments, without copying the US military alliance model or requiring countries to choose sides. – Executive director and associate professor, Middle East Institute, Peking University HSBC Business School think tank (contribution to a World Affairs roundtable, “The Paradox of Security Dependence”, 2026, Issue 18)

Huang Ping (黄平): The smaller economies that control critical AI technologies are indispensable to China and the US, giving them a degree of leverage that is nonetheless subject to the nature of the US-China relationship. These middle powers benefit most from a stable but limited Sino-US rivalry that preserves access to both markets: intensifying competition could force them to choose sides, while a US–China bargain could decide market outcomes without their participation. Following the summit, a shared interest in keeping East Asian semiconductor production running could further reduce the ability of these middle powers to gain leverage in the context of supply shortages. – Qianhai Institute for International Affairs (Greater Bay Area Review, 23 and 30 September).

Sun Chenghao (孙成昊) & Zhang Xueyu (张学玉): AI could intensify nuclear competition without an increase in warhead numbers. Better surveillance and targeting may threaten an adversary’s ability to retaliate, while gains from software and data remain hard to measure through arms control. Practical starting points would be to identify where AI enters nuclear systems and extend the US–China commitment to human control of nuclear weapons to all five recognised nuclear powers. – Associate Research Fellow, Center for International Security and Strategy, Tsinghua University; Research Assistant, Peking University (Strategic Decision-Making Studies, no. 5, 2026).

Zhao Hongtu (赵宏图) & Chen Wenlin (陈文林): The disruption of oil supplies during the US–Israeli conflict with Iran could accelerate the rise of “electricity powers”, especially in Asia. As countries seek to reduce their dependence on imported fuels and vulnerable shipping routes, influence will increasingly rest on the ability to manufacture and deploy clean-energy technology, alongside oil and gas reserves. Europe faces a dilemma: it wants faster electrification to improve energy security, but efforts to reduce dependence on external clean-energy supply chains raise costs and slow the transition. – Institute of Economic Research, China Institutes of Contemporary International Relations (Qiushi, no. 17, 1 September)

3. Brazil

Li Wei (李巍): Washington retains “social influence” in Brazil through regional elites’ children and assets in the US, enabling pressure through visa restrictions, while widespread admiration for America reinforces its influence. China’s extensive trade with Brazil has not yet translated into comparable geopolitical influence, and China should aim to deepen this partnership, exploring military cooperation to strengthen Brazilian autonomy and counterbalance US power. However, Brazil’s “laid-back” [佛系] approach to international affairs and limited ambition to become a global or military power mean that the prospect of Brazil playing a balancing role against the US is still distant. – Professor and Associate Dean, School of International Studies, Renmin University of China (Pingheng Xuehui, 23 September)

Di Dongsheng (翟东升): Chinese firms expanding into Brazil are often frustrated by cultural and institutional differences: labour protections prevent managers from pressing employees to work harder, while misguided progressive policies drain resources from Brazil’s industrial development. To strengthen and protect their investments in the country, Chinese firms should fund stronger industry associations to lobby governments, prevent involutionary competition from replicating overseas and pursue legal remedies when projects run into trouble. They should also work with Brazilian alumni of Chinese universities on cultural and scientific exchanges to build local influence and encourage Brazilians to draw lessons from China’s approach to development. – Dean, Institute of Area Studies, Renmin University of China (Guancha, 3 September)

Zhao Yixian (赵懿先): Chinese firms entering Brazil often choose the quickest, cheapest way to start operating and postpone building local compliance systems. These early decisions are a “slow poison”: tax, labour and other risks may emerge together three to five years later, when the business is larger and correction far more costly. Rather than rushing in, the goal should be to build “a Brazilian company with Chinese strengths”, capable of making decisions and sustaining relationships within Brazil’s institutions. – Director, Overseas Interests Protection Research Centre, East China University of Political Science and Law (Guancha interview, 8 September)

4. India

Liu Zongyi (刘宗义): India wants to use BRICS to strengthen its bargaining position with China and the West while avoiding a choice between them. It seeks to represent the Global South and act as its bridge to Western countries, without turning BRICS into an anti-Western bloc. Through the “China squeeze” narrative, India casts Chinese manufacturing dominance as a constraint on other developing economies in the Global South and gives India a basis to demand more Chinese investment and technology transfer. Its engagement with China thus forms part of a strategy of competitive coexistence, rather than alignment. – Director of the South Asia Research Centre at the Shanghai Institutes for International Studies. (Guancha, 13 September)

Jin Canrong (金灿荣): Chinese businesses looking to invest in India should be cautious: India uses the promise of its vast market to attract Chinese businesses while imposing far tighter restrictions on China than China does on India. Chinese firms should prioritise exports over investment, insist on payment before shipment and favour projects with few fixed assets. If substantial investment is unavoidable, joint ventures with European or Russian firms in India would be an effective measure to spread the risk. – Professor, School of International Studies, Renmin University of China (WeChat Public Account, 7 September)

Xia Chun (夏春): The “China squeeze” thesis, advanced by two Indian economists to account for developing countries’ manufacturing difficulties, cannot explain China’s lead over India, which emerged before reform and opening in 1978. In comparison with India’s incomplete land reform, China’s land reform dismantled landlord power, weakened inherited status barriers and provided the fiscal basis for industrialisation. By contrast, India’s caste hierarchies restricted labour participation and its prioritisation of elite education did not create mass employment as with China’s industrialisation. Instead, India’s IT services attracted skilled workers and raised wage expectations, hindering manufacturing through a form of “Dutch disease”. – Founder and chief economist, Zhihui Group (New Economist, 3 September)

5. Russia and North Korea

Li Shenghua (李圣华) & Wu Wenzhuo (吴文茁): Russia currently depends more on North Korea than Pyongyang does on Moscow because it needs North Korean troops and weapons for the war in Ukraine. Pyongyang could turn this wartime leverage into longer-term gains through Russian economic and technological support and diplomatic backing, reducing its dependence on China. Russia’s need for the alliance could also draw it away from its longstanding opposition to North Korea’s nuclear programme and towards recognition of Pyongyang as a nuclear-armed state. – Professor, College of Economics and Management, and MA student, Centre for Korean Studies, Yanbian University (东疆学刊, 2026, issue 4)

6. Economy

Roundtable at the Tsinghua PBCSF Chief Economists Forum, 19 September: Ju Jiandong (鞠建东) recommends issuing renminbi government bonds overseas to support household incomes, replace local debt and fund investment while advancing renminbi internationalisation. Justin Yifu Lin (林毅夫) recommends central government assuming local debts incurred through implementing national policies, while leaving local governments responsible for vanity projects. Yu Yongding (余永定) urges stronger fiscal expansion and infrastructure investment to boost domestic demand, reduce trade surpluses and limit accumulation of risky dollar assets. Yao Yang (姚洋) supports borrowing domestically, where funds are abundant, and warns that long-term investment priorities cannot resolve immediate economic problems. Li Xunlei (李迅雷) recommends replacing local debt through recapitalisation measures, relaxing special-purpose bond spending restrictions and stimulating consumption to restore domestic economic circulation. (New Economist, 19 September)

Liu Shangxi (刘尚希): The issue of a “shared risk pot” [风险大锅饭] in China’s economy is allowing losses to be socialised through public finances and preventing markets from clearing risks. Implicit state guarantees make keeping inefficient businesses alive cheaper than restructuring, trapping resources in declining industries. Furthermore, an “information black hole” is undermining market-based risk pricing, making banks more cautious about lending and companies more hesitant to borrow. To reform this, capital costs should be made to reflect actual risks, bankruptcy procedures should be simplified to enable orderly exits and the allocation of responsibility within state-run sectors should be made clearer. – Vice-president, China Society of Macroeconomics and CPPCC National Committee member (People’s Political Consultative Daily, 7 September)

7. AI and Tech

Yang Wenhui (杨文辉): Excessive reliance on AI could undermine the discretion and initiative of local officials, which are both important sources of dynamism in China’s development and governance. AI tends to favour predictable and low-risk outcomes, potentially provoking the “passive resistance” of officials to AI adoption if they find reliance on the models constraining their freedom of action and creativity. AI adoption in government should therefore be concentrated in areas where rules are clear, data are abundant and the costs of error are low. Decisions requiring flexibility and ethical judgement should remain with human officials. – Assistant Professor, Institute of State Governance and School of Government, Peking University (E-Government, issue 8, 2026)

Wu Xinye (吴新叶) & Wang Zice (汪子策): While AI promises to improve grassroots governance in some respects, it could reinforce inequalities in whose needs are addressed. Digitally vocal groups could disproportionately influence resource allocation by officials, leaving less digitally engaged residents overlooked. AI systems gathering residents’ views may prioritise issues generating quick likes and comments, overlooking less popular problems that require sustained discussion. Offline outreach and face-to-face discussion should complement digital tools to counter such “click-based participation”. – Professor and PhD student respectively, School of Political Science and International Relations, Tongji University (Social Sciences, issue 8, 2026)

Huang Rihan (黄日涵) & Shi Yukun (石宇坤): Satellite computing constellations are an important field of development and geopolitical competition, potentially helping China maintain computing services when ground facilities and networks are disrupted. Furthermore, analysing satellite observations in orbit could speed disaster response by reducing the raw data that must reach Earth before action can be taken. Against the commercial model of SpaceX’s planned orbital data centres in the US, China’s state-led coordination could accelerate deployment despite the uncertain commercial returns. – Professor, School of International Relations, and PhD student, College of Foreign Languages, Huaqiao University (Contemporary International Relations, issue 8, 2026)

8. State and Society

Liu Yunshan (刘云杉): In China, the hope that education can change a family’s fortunes has, for some, turned the gaokao into a project that dictates a child’s entire school life. “Haidian mothers”, often first-generation university graduates, try to reproduce their success by preparing children for entry to prestigious universities. This can produce “exam specialists” skilled at finding high-scoring answers within fixed rules but less practised at solving uncertain problems. As marks and GPA become the currency of recognition, students often see themselves and others as occupying ranked positions in relation to each other. – Peking University Graduate School of Education (Educational Academic Monthly, 2026, no. 5)

“Wen Ping” (文平, pen name): Algorithm-driven “pseudo-history” threatens China’s cultural and ideological security by eroding historical understanding and national identity, particularly among young people. Claims that the Tang was a “foreign” regime, alongside narratives excluding the Yuan and Qing from Chinese history, link up with dangerous overseas narratives and undermine the historical consensus underpinning a unified, multiethnic Chinese nation. AI-generated false historical material, particularly from overseas, could enter training datasets, creating a feedback loop in which algorithms amplify biased narratives and reinforce distorted beliefs. Platforms must embed “mainstream values” in recommendation algorithms and act against accounts repeatedly spreading such claims. – (Qiushi, no. 17, 1 September)

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Gung-Ho Diplomacy: Chinese Commentary on the Trump-Xi Summit (30 September)

In official commentary, symbolism and language are the focus, even if difficult questions lurk beneath. CCTV’s Yuyuan Tantian blog approvingly quoted Trump’s invocation of “gung-ho” as a symbol of Sino-US cooperation. The term originated in a wartime mistranslation of China’s Industrial Cooperatives (工合, for short) as “work together”, and a similar linguistic elasticity appears in Yuyuan Tantian’s treatment of “respect, fairness and reciprocity” (the US addition to the new formula of a “constructive relationship of strategic stability”, which China has now also adopted). In Trump-administration terms, “fairness and reciprocity” usually refers to redressing unequal market access and global trade imbalances. The blog acknowledges this, but instead recasts the phrase in terms of sovereign equality, national status and China’s preferred principles of global governance. Read here

China’s Strategy for Promoting Non-Alignment in Southeast Asia | Xue Song (23 September)

Dr Xue Song argues that Sino-Indonesian relations under President Prabowo Subianto are becoming “more strategic and institutionalised”. Her evidence includes the inaugural Comprehensive Strategic Dialogue, the second foreign and defence ministers’ (2+2) meeting, a planned 2027-31 action plan and expanding defence cooperation, including through the Peace Garuda exercises. She contends that economic frictions such as nickel policy can be contained within this framework, and that Indonesia’s engagement may widen political space for other ASEAN states to pursue defence ties with China. The institutional intensity is real and is broadening the relationship beyond economics. However, it also reflects a practical need to manage divergence, and both dynamics are at work. Read here

What China Wants from the Washington Summit (18 September)

The framing of “constructive strategic stability” has remained consistent since our coverage of the consensus view in May. “Strategic stability” is presented by many scholars as a consequence of “strategic stalemate”, a term that the IR scholar Jin Canrong has previously explained as emerging from Mao’s On Protracted War. It refers to temporary stability achieved through mutual deterrence, and in this case is widely seen as having been attained as the outcome of improvements in China’s relative strength. The “constructive relationship” part is more aspirational and is how Chinese scholars often distinguish this paradigm from the nuclear-deterrent-based “strategic stability” between the US and the Soviet Union. Read here

What China Needs from an AI Deal with America | Huang Ping (13 September)

AI is expected to be a central issue at the Xi-Trump summit later this September, but the scope for concessions on either side seems much less certain. US rhetoric around AI safety is often viewed sceptically in China as a means of holding back homegrown companies, and given the recent exchange of barbs between the US and China over AI distillation, the scope for agreement over the terms of market competition appears even narrower. Huang Ping, a scholar at CUHK-Shenzhen, nevertheless lays out why it would be in China’s interests to seek a much broader AI agreement to secure its access to global markets and influence over standards. Read here

Who Pays for the New Economy? Economic Digest: August 2026 (8 September)

Overall expectations for the second half of 2026 are low among Chinese economists. This is partly a matter of policy—many would have preferred an unambiguous shift towards fiscal stimulus after the mid-year Politburo meeting, which instead focused on incremental policies and accelerating the transition to “new growth drivers”. Yet, as Wu Ge argues, the fundamental macroeconomic direction is dictated less by policy than structural factors. Mainly, these are the deepening deflationary effects of local-government deleveraging as formerly hidden debts from local-government financing vehicles (LGFVs) are moved onto government balance sheets through debt swaps. Read here

China’s Mandate to Rule the Waves and Secure the Future | Di Dongsheng (3 September)

There is something distinctly High Victorian about Di Dongsheng’s closing proclamation that “the descendants of the dragon shall ultimately rule the stars and the waves”. Indeed, the piece certainly strikes an extremely hawkish tone throughout, with Di proposing the establishment of a naval–merchant–financial complex to wrest maritime power from the “Anglo Saxons”. Yet Di is also picking up on a familiar thread in Chinese strategic thinking, made newly urgent by events around the Strait of Hormuz: the vulnerability and importance of maritime chokepoints. Read here

Changes Unseen, Strategies Uncharted | Digest: August 2026 (31 August)

This month’s digest pulls in different directions—insofar as we can follow a single thread, it is that of traditional systems being swept away and of “changes unseen in a century” coming to pass: in discussions of nuclear proliferation, the Cold War nuclear order has “irreversibly come to an end”; in the Middle East, the US security architecture is crumbling; in the maritime domain, volatility threatens sea lanes; and overseas, Chinese firms’ modus operandi is shifting. While most scholars identify the increasing security risks attendant on such changes, what comes next and what China should do about it are open questions. More hawkish scholars advocate stronger unilateral action in the international system, while others caution against such measures. Read here

N.B. Sinification features a broad spectrum of voices, ranging from conservative hawks and state propagandists to more moderate and liberal thinkers. Readers are encouraged to bear this diversity in mind when engaging with the content.

In official commentary, symbolism and language are the focus, even if difficult questions lurk beneath. CCTV’s Yuyuan Tantian blog approvingly quoted Trump’s invocation of “gung-ho” as a symbol of Sino-US cooperation.1 The term originated in a wartime mistranslation of China’s Industrial Cooperatives (工合, for short) as “work together”, and a similar linguistic elasticity appears in Yuyuan Tantian’s treatment of “respect, fairness and reciprocity” (the US addition to the new formula of a “constructive relationship of strategic stability”, which China has now also adopted).

In Trump-administration terms, “fairness and reciprocity” usually refers to redressing unequal market access and global trade imbalances. The blog acknowledges this, but instead recasts the phrase in terms of sovereign equality, national status and China’s preferred principles of global governance.

“Respect” is the prerequisite. It means respecting each other’s social systems, development paths and core interests, in keeping with the spirit of the three Sino-US joint communiqués. “Fairness” is a guiding value embedded in the new type of international relations advocated by China […] “Reciprocity” emphasises mutual benefit and a balance of rights and obligations, equality of standing in international affairs and consideration for each other’s interests.

The use of “a shared formula, interpreted differently by each side” has long been a deliberate strategy for managing Taiwan relations. It seems novel in the US-China relationship itself.

Yet the summit has brought some aspects of the relationship into sharper focus. In the following, we discuss how Chinese analysis and commentary present:

1. The implications for US-China trade

2. “Pomp and circumstance” at the summit

3. Prospects for future cooperation on AI safety

4. The road ahead for “strategic stability”

I. Trade: “Higher than Expected” Future Risks

The well-connected political blogger Ren Yi (Chairman Rabbit) summarised the shorter-than-hoped-for extension of the Busan truce as a sign that Trump plans to use rolling extensions, alongside the continued possibility of signing off on the $13 billion arms sale to Taiwan as a “chip”, to “keep China in suspense”. He sees the fact that Trump only has two years left in his mandate as extra reason to avoid “indulging in fantasies” of hoping for any giveaways.

According to the macroeconomic analyst Luo Zhiheng, the currently planned 30 billion USD in tariff reductions only touches on a very small proportion of US-China trade — equivalent to a drop of 1.9 percentage points in the overall US tariff on imports from China, leading to an estimated overall tariff of 19.5%.

Luo views the ongoing Section 301 investigation into “structural excess capacity and production issues” as likely to be used by the administration to maintain the overall tariff level on China at around 20%, even with marginal declines in the tariff rate via expanding Board of Trade exemptions for non-sensitive goods. Section 232 investigations, he warns, could cause tariffs on semiconductors and other sensitive goods to rise further. He is pessimistic about further progress in the short term, predicting a “higher than expected” risk level for disruption in US-China trade over the coming months, and advocating continued trade diversification and improvements in China’s own sanctions toolkit.

A post-summit article, co-authored by Huang Chaofeng, Vice President at the National Institute of Strategic Studies at Shanghai Jiao Tong University, similarly argues that the US sanctions toolkit is continuing to expand against the backdrop of strategic stabilisation, and advises Chinese companies to improve “sanctions circumvention” and advance de-dollarisation. The US ambassador’s recent post on X about China’s grip on rare earths, although a contrast with the summit’s bonhomie, is unlikely to have come as a shock.

II. Optics: The Pot that isn’t Boiling

Much of the commentary, and especially social media and state media reports, focused on the significance of the optics. As Ren Yi put it, there is a certain value in avoiding the elephant(s) in the room during ceremonial visits. If, as he argues, “the form is the substance”, then some degree of progress can be claimed over May:

As the Chinese saying goes, “Don’t point to the pot that isn’t boiling.” If two people know they cannot talk through a particular issue without hurting their relationship, put it off. First discuss the things they can talk about, leaving the difficult questions until later. Once the “heat is right”, “the water will naturally find its channel”.

For propaganda purposes, the “exceedingly rare” diplomatic gesture of Trump meeting Xi on the tarmac was useful for signalling prestige stemming from China’s status (see translation from Sinocism of a Xinhua report on the visit). Given China’s carefully pruned online space, searches related to some of the more comic or uncomfortable moments at the summit (such as “granite” or “Les Misérables”) yielded no relevant results, and the comments sections under state-media Weibo posts about Xi’s invitation to 100,000 young Americans to study in China were obscured.2

Posts that interpreted the cordial reception as a sign of China’s national strength, meanwhile, were widespread. In a comment representative of that overall tenor, one netizen opined, “Blondie understands etiquette perfectly well, but only exercises it towards entities that possess value and heft.” Who qualifies, in that case? “There are likely only two people in the world who meet his standards,” another quipped.

While in terms of tangible agreements, the visit may not have been especially constructive, some netizens wholeheartedly agreed with Trump’s views on construction — particularly the renovation of historic buildings. Images of guests sitting cosily around tables at the state dinner in the East Room elicited amused sympathy for Trump’s ongoing replacement of the East Wing of the White House with a new banquet hall.3 When one commenter on the post suggested Trump may be missing the comparatively roomy Great Hall of the People, another opined, “How can that, with everyone crammed in like at some village fete, be compared to a proper grand establishment like ours?”

By contrast, a minority seemed unaware of Trump’s construction projects in DC, pointedly remarking that “American taxpayers would never allow their money to be spent on their leader’s banqueting hall” — a reminder that, within the bilateral relationship, Americans are not unique in treating the other side as a foil to their own domestic frustrations.

III. AI Safety (mostly TBD)

Apart from the outline of an “AI dialogue” mechanism between He Lifeng and Scott Bessent, with another meeting promised for late November, little was announced on joint AI risk management. In terms of what could come next, Liu Chong, Director of CICIR's Center for Sci-Tech and Strategic Studies, argues for starting with shared risk assessments and vocabulary, building scientific trust and eventually reaching a “strategic consensus on applying the brakes when necessary”.

One interesting recent development is a softening in the ideological positioning of “open source” as a morally superior alternative to “closed source”. Zheng Yongnian, a heavyweight scholar at CUHK-Shenzhen, has previously presented open-source AI as the purest expression of China’s cooperative development model. Addressing future US-China cooperation on AI safety, he is now more equivocal about China’s attachment to open models:

In my view, we are still not discussing AI nearly enough. We cannot simply say that closed models are good and open models bad, or vice versa. Openness and closedness are themselves relative concepts. When we discuss open source, we often mean releasing model weights, rather than making everything available without restrictions. If we ignore these boundaries and insist on unrestricted openness, managing the risks becomes a major problem. Governments can use artificial intelligence, and so can NGOs. Constructive forces can use it, and destructive forces can use it too. A balance needs to be found here.

This may reflect the more balanced language on open source in China’s latest AI Safety Governance Framework, suggesting that concern about “loss of control” is shifting the dial in other aspects of China’s AI discussion. It at least shows a degree of growing alignment among US and Chinese policy analysts in the assessment and definition of AI risks, but there is some way to go towards a joint risk-management mechanism.

IV. Future prospects: Making it through the Midterms

Throughout 2026, Chinese analysts have been heavily indexing on the role of the midterms in the US-China relationship. One expectation, advanced by Fudan international relations scholar Wu Xinbo among others, was that the pre-election period could offer a window for securing concessions by offering purchases that Trump could sell to his base.

In the absence of significant agricultural purchase announcements subsequent to the May meeting, the mental model has shifted towards interpreting the midterms as a source of pressure on Trump to be tough on China. On the eve of the summit, Sun Chenghao argued that the more realistic objective was therefore not a comprehensive breakthrough, but preserving a baseline of stability as US electoral politics intensifies around the elections and the arrival of new figures in Congress.

Looking ahead to what most Chinese analysts expect to be Democratic gains in the midterms, Chinese scholars project a discounting of the Trump dividend for the bilateral relationship, weakening the personalised approach that many Chinese analysts have seen as an opening. Fudan scholar Meng Weizhan, based on his assessment that the Democrats will flip the House but not the Senate, regards Trump’s free hand in foreign policy as likely to be weakened through greater Democratic power to launch investigations and influence congressional hearings:

[A narrow majority in the House] would mean that the overall trajectory of US competition with China would remain unchanged, but Trump would have less room to ease economic and trade frictions through his personalised and transactional approach.

While analysts do not regard a full derailment of US-China relations as likely, the midterms are expected to cap the scope for improvement, especially by increasing political pressure around Taiwan. Financial analyst Zhao Jian captures the prevailing view that, over the near to medium term, the most realistic goal for the relationship will be risk reduction and preserving room for manoeuvre — “not ceasing to fear the other side, but still picking up the phone despite that fear”.

Today's introduction is from Dr Gatra Priyandita, a senior analyst at the Australian Strategic Policy Institute specialising in Southeast Asian security and the geopolitics of cyberspace. He has published widely in academic journals, policy reports and newspapers, including recently an insightful analysis of Indonesia’s naval exercise with China and its implications for Indonesian foreign policy. We're very grateful to him for contributing to this newsletter. — James

Dr Xue Song argues that Sino-Indonesian relations under President Prabowo Subianto are becoming “more strategic and institutionalised”. Her evidence includes the inaugural Comprehensive Strategic Dialogue, the second foreign and defence ministers’ (2+2) meeting, a planned 2027-31 action plan and expanding defence cooperation, including through the Peace Garuda exercises. She contends that economic frictions such as nickel policy can be contained within this framework, and that Indonesia’s engagement may widen political spa…

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In anticipation of next week’s meeting, we’re looking in this newsletter at how Chinese establishment scholars assess:

1. What “constructive strategic stability” actually means

2. Prospects for progress on trade and tech controls

3. The scope for cooperation on AI safety

4. Whether Taiwan could derail the rapprochement

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Huang Ping, a scholar at CUHK-Shenzhen, nevertheless lays out why it would be in China’s interests to seek a much broader AI agreement to secure its access to global markets and influence over standards. His reasoning is that whatever disagreements other countries may have with Washington, they tend to share its fundamental concerns about industrial competition from China. Recent events at the G20, where China alone opposed provisions on addressing “non-market policies” in global trade, amply illustrate the US’s ability to pull together a united front on suc…

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Yet, as Wu Ge argues, the fundamental macroeconomic direction is dictated less by policy than structural factors. Mainly, these are the deepening deflationary effects of local-government deleveraging as formerly hidden debts from local-government financing vehicles (LGFVs) are moved onto government balance sheets through debt swaps.

Wu Ge deems that even China’s large trade surplus cannot compensate for the weakening of domestic credit creation as local governments deleverage. He suggests that strong high-tech exports have had a limited impact on money creation because their benefits are constrained by China’s position in global value chains, where foreign firms capture much of the value from high-end chips and AI models.

As a result of the inability of new growth drivers to compensate for the drag in traditional sectors, Luo Zhiheng expects the overall slowdown and resulting fiscal pressures on the state to persist until around 2032. The consequences of these fiscal pressures are illustrated by an unusually probing academic article from Dai Zhixin on the normalisation of fines and confiscations as a revenue-raising measure for many local governments.

Faced with this, what are the proposed policy measures? Rebalancing towards “investing in people” to develop new sources of growth in consumption and services is the longstanding answer. However, that takes time and more money. Meanwhile, investment in high tech remains a key policy priority, placing another demand on strained finances.

Cue the panacea: more government and state-supported bond issuance. Cao Jing’s article represents the most rose-tinted framing of this approach, proposing the novel accounting approach of recognising local-government investments in human capital and welfare as assets on their balance sheets.

Zhang Jiqiang is more measured. The three-year debt-swap programme launched in 2024 to tackle hidden debt has already strained banks’ balance sheets by requiring them to absorb large volumes of long-dated local-government bonds. Amid these pressures, Beijing recently announced a $54 billion recapitalisation of banks and insurers. The main debt-swap programme ends this year, which should ease the strain on banks and help stabilise lending growth in the medium term. However, local governments will still face funding constraints, with Zhang expecting greater reliance on bonds issued by provincial-level LGFVs and policy-backed technology and industrial companies.

Zhang Ming proposes another way to ease the funding squeeze: revitalising local-government holdings by turning industrial parks, logistics centres, transport infrastructure and data centres into publicly investable real-estate investment trusts (REITs)—effectively, reviving land finance in a more regulated manner. Yet repackaging assets does not make them more productive: the scope for this approach ultimately depends on finding properties with sufficiently reliable income to attract investors, and Zhang concedes that currently, participation by non-institutional investors is low.

Amidst this rather challenging outlook, economists regard any improvements in demand as likely to be concentrated in growing first- and second-tier metropolises, as population flows reflect the overall theme of divergence and leave many lower-tier cities behind.

Li Xunlei couples his relative optimism for these metropolises with a damning assessment of lower-tier cities’ fiscal prospects. Faced with the reality of regional divergence, he counsels centralising fiscal powers and directing fiscal transfers towards growing urban centres, while restraining expenditure in shrinking localities: investing in people only works if the investments go where people want to live. Based on his macroeconomic assessment, he identifies property in growing metropolises, consumer stocks and large-cap companies as contrarian investment opportunities (see the “Consumption and Social Security” section below for his reasoning).

What about AI? Just as bond issuance and patient capital have become the optimistic buzzwords in macroeconomic discussion, a Qiushi article by Z.ai co-founder Tang Jie on the “token economy” has prompted much speculation about how commoditised intelligence might benefit China’s tech ecosystem.

We spotlight a couple of more measured takes. Hou Hong argues that the open-source business model desperately needs to find a way to “save itself”, identifying charges for overseas cloud providers as a possible pathway to subsidising the domestic market. Huang Yutao points out that much overseas use of Chinese open-source models currently relies on foreign data centres—an obstacle to the “token export” narrative that needs to be overcome if Chinese providers are to capture revenue from overseas users.

— James Farquharson

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In Brief

1. Policy Support and H2 Assessments:

   1. Wu Ge on the cause of monetary contraction in China’s economy.

   2. Luo Zhiheng on the medium-term effect of K-shaped economic divergence.

   3. Dong Yu explaining the rationale behind the central government’s relatively restrained fiscal posture.

2. Local Government and Real Estate:

   1. Dai Zhixin, Xie Yihao & Yang Su on the prevalence of fines and confiscations as a revenue-raising tool.

   2. Li Xunlei on “transport overcapacity” and its pronounced risks for shrinking lower-tier cities.

   3. Yao Yang on the importance of real estate and the naivety of seeing tech investments as a funding source for local governments.

3. Bonds and Financing:

   1. Cao Jing on bond issuance as a pathway to fiscal stability for local governments.

   2. Zhang Jiqiang on local government finances after the deleveraging cycle ends.

   3. Zhang Ming on the potential of REITs to revitalise local-government land assets.

4. Tech and AI:

   1. Tang Jie on the potential of the AI token economy and token exports to act as an economic engine.

   2. Huang Yutao on overcoming the reliance on overseas data centres for token exports.

   3. Hou Hong on a possible pathway to saving the open-source business model from unprofitability.

   4. Liu Shaoshan on the potential of cheap energy to become part of China’s comparative advantage in token exports.

5. Consumption and Social Security:

   1. Li Xunlei on the overlooked investment opportunities to bear in mind from 2027 onwards.

   2. Sun Liping on the difficulties facing the establishment of a social security system for gig economy workers.

1. Policy Support and H2 Assessments

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The argument is framed, at least, with a defensive fig leaf. Despite the new “relationship of constructive strategic stability between China and the United States”, Di does not believe that Trump has “accepted defeat”, and he expects the US to build leverage against China’s vulnerabilities, chief among which are chokepoints on its vital maritime routes. His solution? China should embark on a thirty-year effort to secure dominance over…

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This month’s digest pulls in different directions—insofar as we can follow a single thread, it is that of traditional systems being swept away and of “changes unseen in a century” coming to pass: in discussions of nuclear proliferation, the Cold War nuclear order has “irreversibly come to an end”; in the Middle East, the US security architecture is crumbling; in the maritime domain, volatility threatens sea lanes; and overseas, Chinese firms’ modus operandi is shifting.

While most scholars identify the increasing security risks attendant on such changes, what comes next and what China should do about it are open questions. More hawkish scholars advocate stronger unilateral action in the international system, while others caution against such measures.

Addressing maritime chokepoints, Di Dongsheng argues that China must embark on a 30-year effort to secure control of the seas, whereas Zhao Long makes the opposite case, arguing that the solution lies in the international community’s joint efforts to maintain “open, stable, and predictable operating rules”. Hu Bo comes down on Zhao Long’s side, arguing that military power cannot provide absolute security, while also claiming that maritime chokepoints remain secure despite volatility and that Hormuz is an exceptional case.

On Taiwan, two analysts reflect positively on the US’ new posture following the May summit. Zhou Zhihuai argues that the “Taiwan issue has begun to become an option for cooperation” between the US and China, while Wang Weixing claims that Taiwan’s path of “resisting reunification by force” has been “completely closed off” after the US revealed its bottom line.

However, on the broader US–China relationship, Wang Fan counsels caution, writing that while US strategic contraction is an inevitable trajectory, China should maintain strategic composure and not act too hastily.

In the Middle East section, Zhou Li, a former vice-minister, looks favourably on the “Mecca Agreement” signed on 7 August. Not only does it have points of convergence with China’s Global Security Initiative, but it is “an inevitable product of deepening global multipolarity” that exposes the “inherent fragility and hypocrisy of the US-led unipolar security architecture”.

Sun Degang reads weakening US security commitments as forcing the Gulf States to pursue policies that reflect a newfound pragmatism and emphasis on diversification. Meanwhile, Niu Xinchun explores the downward trajectory of US–Israel relations and Guo Xiaobing explains how the Iran war has fundamentally changed the underlying logic of aerial warfare.

While next month’s commentary on Europe is likely to heat up ahead of ministerial talks in October, August’s coverage was sparse but contained a couple of highlights: Duan Demin and Wang Hongyi provide a fascinating, business-focused map of Europe’s shifting geoeconomic landscape, while Wang Yuyan and Wang Shuo pin Europe’s “economic protectionism” on France.

Elsewhere, Zheng Jiyong provides an unusually frank account of Beijing’s shifting priorities vis-à-vis North Korea, admitting China’s discomfort with growing Russia–DPRK ties and writing that short-term denuclearisation is no longer a realistic goal. On Russia itself, Zhou Li offers a rare account of the country’s economic woes, though he is quick to highlight Putin’s responsiveness to criticism.

This month’s “Going Out” section focuses on the Global South—Qin Hui claims that China’s “low human-rights advantage” is being eroded and that rather than dispatching Chinese labour for overseas infrastructure, Chinese firms are now hiring local labour. Ju Yue and Chen Qi then explore how another established economic model—in which resource-producing countries supply minerals and China processes them—is shifting due to localisation and “resource nationalism”.

On AI, commentators focus on wider AI ecosystems: Huang Yutao looks at China’s “token exports” model; Hou Hong examines the trade-offs of continuing the open-source strategy for development; and Liu Shaoshan makes the case that as agentic AI develops, a cheap supply of energy will become a major source of China’s comparative advantage.

Finally, the award of Fields Medals—mathematics’ highest honour—to Chinese nationals in July continues to prompt reflection. Ding Xueliang uses the occasion to question China’s focus on applied disciplines over theoretical research, while Li Houchen examines the debate over whether the winning mathematician, Wang Hong, should return to China.

Zhu Rongji’s death also generated a number of pieces, the most interesting of which (besides the Zhao Jian piece we translated in full) was Yang Zaiping’s article, which warns that China’s development is fettered by “ultra-leftist” ideological currents that threaten to derail continued market reform.

More than usual, August’s commentary is a mixed bag of themes, without a dominant mood or prescription—the constant is change, coupled with a strong sense that geopolitical turbulence is an operating condition rather than a problem that can be solved.

— Jacob Mardell

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1. US–China & Global Order:

   1. Jin Canrong on China needing to expand its nuclear arsenal to strengthen deterrence.

   2. Jiang Tianjiao on the Cold War nuclear order having “irreversibly come to an end”, bringing new risks.

   3. Wang Fan on US strategic contraction being inevitable, but China needing to resist advancing rashly.

2. Taiwan:

   1. Zhou Zhihuai on “jointly managing ‘Taiwan independence’” becoming an area of US–China cooperation.

   2. Wang Weixing on historic restructuring in the Taiwan Strait and “resisting reunification by force” being completely closed off.

3. Maritime Security:

   1. Di Dongsheng on China needing a 30-year effort to “regain” control of the oceans.

   2. Zhao Long on growing threats to maritime chokepoints requiring international cooperation.

   3. Hu Bo on broad maritime security, Hormuz being an exceptional case and military power being unable to provide absolute security.

4. Middle East:

   1. Zhou Li on the “Mecca Agreement” aligning with the Global Security Initiative and reflecting deepening multipolarity.

   2. Sun Degang on weakening US security commitments pushing Gulf states towards different forms of diversification.

   3. Niu Xinchun on US–Israel relations entering long-term structural decline as both ideological affinity and strategic alignment erode.

   4. Guo Xiaobing on Iranian asymmetric operations fundamentally disrupting the logic of aerial warfare.

5. Europe:

   1. Duan Demin & Wang Hongyi on Europe’s geoeconomic map being redrawn, with Southern Europe shifting from periphery to destination.

   2. Wang Yuyan & Wang Shuo on France as the “standard-bearer” of European economic protectionism.

6. Russia & North Korea:

   1. Zheng Jiyong on short-term North Korean denuclearisation no longer being realistic and the risks of deeper Russia–DPRK ties.

   2. Zhou Li on Russia’s resilience under sanctions masking long-term erosion of economic competitiveness.

7. Economy:

   1. Dong Yu on the Chinese government’s plan for the economy.

   2. Yao Yang on a naïve belief that high tech can replace the property sector.

   3. Sun Liping on the difficult challenge of establishing a social security system for the growing ranks of flexible workers.

8. Going out:

   1. Qin Hui on rising wages and local resentment eroding China’s “low human-rights advantage” and the growing use of local labour in overseas infrastructure.

   2. Ju Yue & Chen Qi on resource nationalism shifting critical-mineral value chains towards local processing.

9. AI & Tech:

   1. Huang Yutao on China competing with the US through “token exports”, with overseas compute and data trust remaining constraints.

   2. Hou Hong on growing US support for open-source AI competition.

   3. Liu Shaoshan on cheap energy becoming a major Chinese comparative advantage as agentic AI develops.

10. Society:

    1. Ding Xueliang on institutional conditions constraining breakthroughs in mathematics and basic science.

    2. Li Houchen on the Wang Hong debate revealing an assumption that individual career choices are subject to collective judgement.

    3. Yu Huiwen on Hohhot using continuous performance evaluation to enable cadre demotion.

    4. Yang Zaiping on “ultra-leftist” thinking as the principal fetter on economic development, threatening continued market reform.

    5. Liu Dong & Zhang Jun’an on young people’s “debt spiral” reflecting structural risks, requiring stronger welfare provision and tighter credit controls.

1. US-China & Global Order

Jin Canrong (金灿荣): China should rapidly expand its nuclear arsenal, developing tactical nuclear weapons and increasing its reserves as much as possible in order to strengthen deterrence. Recent NBC reporting that the US Department of Defense is studying a new policy of using tactical nuclear weapons in the case of a direct conflict with China or Russia is plausible and warrants China moving beyond its previous thinking of “as long as we have enough, that will do” regarding its nuclear arsenal. — Director, Center for China’s Foreign Strategy, Renmin University of China (金金乐道编辑部, 14 August).

Jiang Tianjiao (江天骄): The Cold War-era nuclear order has irreversibly come to an end, but a new order has not yet coalesced. Doubts about extended nuclear deterrence have led Japan, South Korea and Saudi Arabia to debate acquiring nuclear weapons, while some Global South states may pursue proliferation to enhance security and international standing. Russia and the US are developing new nuclear weapons and doctrines for their “limited use” in conventional conflicts. China fears its smaller arsenal could be vulnerable to a pre-emptive US strike, while Washington has refused to assure Beijing that it would not target China’s retaliatory capabilities. — Associate Professor, Development Institute of Fudan University. (复旦发展研究院, 9 August).

Wang Fan (王帆): US strategic contraction did not begin with Trump and is not determined by the wishes of a particular president—when the cost of maintaining hegemony exceeds the benefits, contraction becomes inevitable. However, China should exercise restraint, rather than seizing the opportunity to “advance rashly”. As major-power competition shifts towards artificial intelligence, the world may leave the area of nuclear deterrent-based stalemate and wars may once again produce clear winners, increasing systemic risk in the world order. As these changes progress, a world dominated and controlled by the West will fade out of existence—and in its place will be a more reasonable situation of multipolar joint governance. — Former President and Professor, China Foreign Affairs University (Guancha.cn, 7 August).

2. Taiwan

Zhou Zhihuai (周志懷): Following the China–US leaders’ meeting in May 2026, the Taiwan issue has begun to become an option for cooperation between the two sides, but cooperation should involve “jointly managing ‘Taiwan independence’”, rather than “jointly managing the Taiwan Strait”. The two sides have not yet formed an institutional consensus embodied in a joint statement or joint communiqué, and the US should reduce uncertainty by moving from personal statements by the president towards formal official statements. Overall, the essence of China–US relations remains competition, and the relationship is still at the stage of strategic stalemate rather than strategic counter-offensive. — Research Fellow and former Director, Institute of Taiwan Studies, Chinese Academy of Social Sciences (CRNTT, 12 August).

Wang Weixing (王卫星): The security configuration in the Taiwan Strait has undergone a historic restructuring and the path of “resisting reunification by force” has been completely closed off. The overall chessboard of China–US competition has undergone a systemic reset, while Trump has clearly revealed America’s “strategic bottom line” of being unwilling to become involved in a conflict in the Taiwan Strait and unwilling to pay the price for “Taiwan independence”. The balance of power across the Taiwan Strait has undergone a fundamental reversal, with mainland China’s ability to strike at “Taiwan independence” separatism and resist external interference continuously strengthened. — Vice-President, National Society of Taiwan Studies; former Deputy Political Commissar, PLA Academy of Military Science (京彩台湾, 12 August).

3. Maritime Security

Di Dongsheng (翟东升): The US has not fully accepted the “relationship of constructive strategic stability” and may be preparing leverage against China’s weak points, the major one being its maritime routes. Geopolitical changes around the Panama Canal, Greenland and Iran are warning signals that the openness of the oceans is moving towards an end. Counting the US alliance network and overseas bases, China remains far from surpassing US maritime power and may need a 30-year effort to secure control of the seas. Besides channelling funds into the navy, China must foster a new national consensus: only by “regaining” control of the oceans can the Chinese nation have a future. — Associate Dean, School of International Studies, Renmin University of China (翟东升的全球政治经济研究, 25 August).

Zhao Long (赵隆): Under the dual impact of the Ukraine crisis and the Middle East crisis, the vulnerability of critical maritime routes has become even more pronounced. The rapid proliferation of long-range precision-strike weapons and low-cost unmanned platforms has increased asymmetric combat capabilities, while critical routes are increasingly becoming an important lever through which certain countries seek strategic competitive advantages and dominance over industrial and supply chains. The international community should uphold freedom of navigation, common, comprehensive, cooperative and sustainable security, and improve the provision of public goods for critical maritime routes. — Director and Research Fellow, Institute for International Strategy and Security, Shanghai Institutes for International Studies (环球时报, 24 August).

Hu Bo (胡波): Developments in the Strait of Hormuz have caused enormous volatility, but global maritime chokepoints remain stable and secure overall. The Strait of Hormuz is exceptional—other routes have alternatives and other countries would find it difficult to imitate Iran’s approach of blockading the strait. Military strength has its limits—safeguarding the security of maritime passages must still rely primarily on diplomatic, economic, financial and legal means. As the world’s largest goods-trading nation, China cannot pursue absolute security in the way the United States does. China should maintain strategic composure and not become excessively anxious merely because certain countries occasionally “talk tough”. — Director, South China Sea Strategic Situation Probing Initiative (溟坤数科, 9 August).

4. Middle East

Zhou Li (周力): The principles embodied in the “Mecca Agreement”—“collective self-strengthening, openness and inclusiveness, and defensive self-protection”—have points of convergence with the core spirit of China’s Global Security Initiative. The agreement’s political significance exceeds its military significance, communicating to the outside world a strategic posture of “collective self-strengthening and not relying solely on the United States”. It is an inevitable product of deepening global multipolarity, catalysed by the US-Israeli conflict with Iran, which has further exposed the inherent fragility and hypocrisy of the US-led unipolar security architecture. — Former Vice-Minister, International Department of the CPC Central Committee (爱思想, 19 August).

Sun Degang (孙德刚): The Gulf Arab states’ philosophy of “security depends on the United States, development depends on Asia” is coming under strain as conflict in the Middle East intensifies, forcing them to pursue divergent policies that nonetheless reflect diversification amid declining US hegemony and weakening security commitments. Saudi Arabia and Kuwait are pursuing strategic autonomy by expanding cooperation with additional partners. Oman and Qatar are pursuing strategic balancing, maintaining close relations with the US while engaging Iran. The UAE and Bahrain, meanwhile, remain dependent on US support. — Director, Center for Middle Eastern Studies, Fudan University (光明日报, 2 August).

Niu Xinchun (牛新春): The structural trajectory of US–Israel relations is one of gradual long-term weakening due to the erosion of two traditional pillars: ideological affinity and strategic alignment. Ideologically, Americans, particularly Democrats, increasingly see Israel’s “democratic” character as fading and moving away from American values, while polling shows growing public hostility towards Israel. Strategically, US and Israeli interests are increasingly misaligned: Washington is pursuing strategic retrenchment in the Middle East, while Israel seeks to reshape the regional balance of power through military force against its regional adversaries. — Executive Dean, China–Arab States Research Institute, Ningxia University (环球时报, 11 August).

Guo Xiaobing (郭晓兵): Iran’s asymmetric operations have broken through the US–Israeli air and missile defence system, disrupting the underlying logic of aerial warfare. Faced with the impact of Iran’s swarm tactics, the West is accelerating adjustments to air and missile defence systems. Emphasis will be placed on developing short-range laser interception capabilities, with reliance on high-end missiles abandoned in favour of a graduated, layered defence system. Artificial intelligence will likely be used to remedy weaknesses in low-altitude detection, attack and defence will be integrated in order to strike threats at their source, and manufacturing capacity across the entire industrial chain will be strengthened. — Director, Arms Control Research Centre, China Institutes of Contemporary International Relations (中国网, 11 August).

5. Europe

Duan Demin (段德敏) & Wang Hongyi (王弘毅): Europe’s geoeconomic map is being redrawn and Southern Europe is shifting from the market periphery towards becoming a destination for investment into electrification-related industries. Following the EU’s imposition of anti-subsidy duties on Chinese EVs, Chinese firms must resolve industrial frictions by implementing a localisation model of “manufactured in Europe, designed for Europe, maintained by European workers”. Political change in Central and Eastern Europe provides an opportunity to abandon the rigid model of tying relations to “top-leader projects”. In security-conscious Northern Europe, Chinese firms should use minority equity stakes, joint R&D, replaceable supply-chain models and avoid controlling acquisitions. — Director of Centre for European Studies, Peking University; Associate Professor, Centre for Central and Eastern European Studies, Beijing Foreign Studies University (北京对话, 9 August).

Wang Yuyan (王语嫣) & Wang Shuo (王朔): France has become the “standard-bearer” of European economic protectionism, turning French concerns into common European anxieties and French initiatives into EU operating rules. Europe is facing competition from Chinese manufacturing to the East and US subsidy policies to the West. Whereas the “China shock” of the late twentieth century was concentrated in labour intensive industries, the new shock has penetrated into traditional areas of European strength. France has shaped a roadmap for the EU’s direction of travel, “herding” member states towards trade defence, industrial support and greater “economic sovereignty”. — Research Assistant and Professor, School of International Relations, Beijing Foreign Studies University (世界知识, 25 August).

6. Russia & East Asia

Zheng Jiyong (郑继永): Beijing is adjusting its policy priorities towards North Korea—it recognises that immediate denuclearisation of the peninsula is not realistic, while deepening Moscow–Pyongyang relations give North Korea greater strategic autonomy and make its behaviour more difficult to predict. The greatest risk from deepening Russia–North Korea cooperation is that it provides the US, Japan and South Korea with a powerful pretext for strengthening security cooperation. China needs an institution-driven policy towards North Korea, emphasising formal cooperation mechanisms and institutionalised communication channels. Beijing also hopes to involve North Korea in more multilateral cooperation platforms. — Professor and Dean, Institute of Country and Area Studies, Tianjin Foreign Studies University (Foreign Affairs, 10 August).

Zhou Li (周力): Russia has demonstrated surprising resilience under Western sanctions, but this has been more a matter of passive adaptation than active breakthrough—the Russian economy faces erosion of its long-term competitiveness as military mobilisation, capital outflows and tight monetary policy squeeze civilian investment. External pressure is “resonating” dangerously with internal structural weaknesses. Former VEB chief economist Andrei Klepach argues that Russia finances the world while the world finances Ukraine, and warns that a social crisis is “almost certain”. Klepach is a genuine patriot, while Putin’s response is evidence that he is listening to expert opinion. — Former Vice-Minister, International Department of the CPC Central Committee (爱思想, 24 August).

7. Economy

Dong Yu (董煜)：Four “Zhong Caiwen” articles published in quick succession this August address misunderstandings regarding the leadership’s responses to China’s economic challenges. The government is working both to “accelerate the transition between old and new growth drivers”, but this does not involve the abandonment of traditional industries, whose upgrading remains an important part of economic planning. Meanwhile, the absence of large increases in stimulus is due to planners aiming for targeted structural measures to avoid creating economic dependence on policy support. The economic priorities are to continue focus on the provision of high-quality services, leverage private investment by providing private companies with a list of “national projects” eligible for support, and aim to “create a fair and orderly environment for market competition”, curbing local protectionism and duplicated construction. — Executive vice-president, China Institute for Development Planning Tsinghua University; Former deputy director, Second Economic Bureau of the Central Financial and Economic Affairs Commission (三里河，25 August)

Yao Yang (姚洋)：The prevailing explanation that China is passing through a “gear shift” period while transitioning from property to an economy driven by technology obscures the pressing need to focus on boosting weak demand. Property and construction are huge industries, and there is space for it to expand as rural populations continue to move to cities, or migrate from third- and fourth- tier cities to first- and second- tier cities. Furthermore, while a strong property sector does not suppress the development of high tech, excessive investment in high tech sectors can crowd out consumption as it reduces local governments’ ability to subsidise household consumption. The idea that local governments may eventually be able to replace income previously generated by property through returns on equity investments in technology sectors is “extremely naïve”. — Dean and Professor, Dishui Lake Advanced Finance Institute, Shanghai University of Finance and Economics (姚洋说, 21 August)

Sun Liping (孙立平)：The controversy surrounding recent statements by a Peking University professor on social security for gig workers draws attention to a salient fact: China’s flexibly employed population is growing rapidly, and the traditional “five social insurances and one housing fund”, financed jointly by employers and employees, is not adapted to this kind of work. The professor suggested that gig workers with irregular schedules enjoy a greater degree of “freedom” and that it therefore does not make sense to include them in the same social-security system as those in formal employment—a claim that is difficult to accept. However, her core proposal of introducing an “unbundled” and flexible system of social-security protection for mobile workers would function well as a transitional arrangement towards fuller protection in the future. — Retired Professor of Sociology, Tsinghua University (老孙荐读, 26 August)

8. Going Out

Qin Hui (秦晖): The traditional Chinese overseas infrastructure model is precisely the opposite of the colonial model—rather than using local workers for hard labour, Chinese firms dispatched their own migrant labour abroad. However, this is now changing as rising wages and local resentment push Chinese firms towards local hiring. The Tindouf–Béchar railway illustrates this “integration with international standards”, with skilled workers and managers coming from China and locals performing the heavy labour. As such, China’s “low human-rights advantage” is being eroded, though the old model has not disappeared, as demonstrated by the BYD “slave labour” case in Brazil. — Professor Emeritus of History, Tsinghua University (失語者, 7 August).

Ju Yue (琚悦) & Chen Qi (陈琪): Global critical-mineral value chains are shifting from a model in which “resource-producing countries supply minerals and China processes them” towards one in which “resource-producing countries retain the value chain”, diminishing China’s control over processing capacity. Across resource-rich African countries, export controls, industrial-chain localisation and changes to ownership and operating rights are turning temporary interventions into structural norms. China must move beyond the role of “resource acquirer” towards “two-way empowerment”, using joint ventures, technology sharing and local processing to align investment with African development goals. — Lecturer and Researcher, respectively, Baize Institute for Strategic Studies, Southwest University of Political Science and Law (白昃研究, 23 August).

9. AI & Tech

Huang Yutao (黄宇韬): The key arena of competition between Chinese and US AI is shifting to one of ecosystems, rather than purely the performance of the models. The Trump administration has rescinded many of the Biden restrictions on global exports, emphasising export of the “full stack”. As China cannot replicate this model, it is focusing on “token exports”, a non-monopolistic business model that is attractive to price-sensitive users. However, Chinese token exports generally run on overseas data centres—a far cry from the ideal of using local electricity and national compute. The main challenges for this model are balancing overseas and domestic demands for inference and establishing trust in Chinese companies’ handling of overseas data. — Assistant Research Fellow, Global Governance Division, Institute of World Economics and Politics, Chinese Academy of Social Sciences (FT Chinese, 24 August).

Hou Hong (侯宏): The emergence of strong voices in the US tech industry in support of competing on the open-source front signifies a growing US industrial consensus on the importance of ecosystem diffusion to national AI competitiveness. However, while Chinese companies’ open-source approach may serve the national interest, the reality is that the difficulty of earning profits on open-source technology means that the industry’s future business model is uncertain. The open-source model may yet find a way to “save itself”: Kimi recently modified its K3 open-source terms to require overseas cloud platforms deploying its model to sign a separate agreement, departing from the classic definition of open-source and offering a potential profit-making path forward. — Assistant Professor of Management, National School of Development, Peking University (侯宏文存, 16 August).

Liu Shaoshan (刘少山): Energy is not currently the main price constraint of artificial intelligence model-inference costs, but as agentic AI develops, a cheap supply of energy will become a major source of China’s comparative advantage in AI. At present, cheap electricity can partially relieve the pressure that poor chip efficiency might place on operating costs. However, it is not enough to simply continue providing data centres with cheap electricity. To avoid idle capacity, policy needs to focus more on improving actual utilisation rates through better coordination between computing and grid supply, as well as developing the capacity to provide compute services to overseas customers, at lower costs than the US. — Director, Embodied Intelligence Centre, Shenzhen Institute of Artificial Intelligence and Robotics for Society (环球时报，26 August).

10. State & Society

Ding Xueliang (丁学良): This year’s Fields Medals have prompted reflection among mainland scholars: whereas the winners had access to five-to-ten-year research funding, Chinese mathematics and basic-science researchers complain that annual reporting requirements push them towards projects seeking “quick success and immediate benefit”. Government funding should not favour applied disciplines while cutting support for abstract theoretical research. Some discussion encouraging students to study abroad has already been abridged, yet the winners’ decision to pursue postgraduate study in the West was crucial. Internationalised teams are also less prone to rigid hierarchy, arbitrary administrative interference and senior researchers abusing their positions. — Professor Emeritus, Hong Kong University of Science and Technology (學人, 2 August).

Li Houchen (李厚辰): The debate over whether Fields Medallist Wang Hong should return to China reveals a deeper consensus that an individual’s career is a national question open to collective judgement. Even official commentary’s “tolerance” over Wang Hong staying away implies that her choice requires permission. This system of absorption is not accomplished through propaganda alone, but is a Chinese-style logic in which investment amounts to a claim over someone’s person. The real question is whether those ordinary researchers who have no Fields Medal also have the right to choose where they live, whom they work with and whom they thank. — Independent scholar and columnist (看理想, 10 August).

Yu Huiwen (于会文): To promote a system in which cadres can “go up and down”, cadres must genuinely be able to “go down”, with the “soft ailments” of mediocrity and laziness treated as grounds for demotion alongside the “hard injuries” of disciplinary or legal violations. Hohhot is responding by turning cadre evaluation from “judging horses” to “racing horses”, using monthly tracking and differentiated performance indicators to identify officials for removal. Since the reshuffling of Hohhot’s Party and government leadership teams in 2021, 11 cadres have been removed from leadership teams for shortcomings including weak public-engagement skills and an inability to handle difficult and complex situations. — Member, Standing Committee of the CPC Inner Mongolia Autonomous Regional Committee; Party Secretary of Hohhot (求是, 1 August).

Yang Zaiping (杨再平): The principal fetter on China’s economy is now the resurgence of “ultra-leftist” ideological currents, which have caused a lack of confidence among private businesses, foreign investors and the market. The old planned-economy system has largely been reformed, but the process is not complete. The basic spirit of reform and opening since Zhu Rongji’s period can be summarised in three words: marketisation, rule of law and internationalisation. This was true then and will remain true for a long time to come—successful reforms must retain continuity rather than constantly “flipping the pancake”. — Founding Secretary-General, Asian Financial Cooperation Association (IMI财经观察, 16 August).

Liu Dong (刘东) & Zhang Jun’an (张君安): The “debt spiral” among young people is a defensive strategy for survival in an uncertain environment and a consequence of structural risks being transferred downwards onto vulnerable groups. Online-lending platforms and illegal credit providers target young people who urgently need funds or lack self-control. The government should increase subsidised rental housing, improve subsidies for training and education, as well as strengthen the social-security system’s buffering role. Regulators should also impose strict combined credit ceilings on young people who don’t have stable repayment capacity and prevent borrowing from multiple lenders. — Associate Professor and Head of the Department of Social Work and Lecturer in Social Work, Shanghai Business School (文化纵横, 26 August).

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Why China’s Football Problem Is an Economic Problem | Li Xunlei| (28 August)

Li Xunlei, chief economist at the securities firm Zhongtai International, is among the most engaging proponents of economic rebalancing in China. In the this article, he cites China’s World Cup qualification woes as among the consequences of a growth model that prioritises fixed-asset investment. With returns on investment falling and growth in local government debt outpacing GDP growth, Li presses the case for an urgent shift towards growth anchored in household consumption. He argues that failure to carry out such a shift represents an obvious, but neglected, risk factor in China’s economy—what one might also call a “grey rhino”. Read here

Xu Jilin on the Politics of Resentment among China’s Youth (26 August)

In this piece, introduced by Timothy Cheek, Xu Jilin dissects the phenomena of “lying flat”, “involution”, and the troubling attitudes of China’s youthful “post-90s” generation. That attitude, expressed in the low motivation of lying flat and distrust of the meritocracy described as involution—in which more work does not result in advancement—is described by Xu as yuanhen, “resentment” in simple terms. Xu’s essay is both a recognition of the social experience of this generation (and a useful introduction to readers of Sinification) and also a warning to those with the power to give this youth some hope and opportunity. As he concludes, “These are grave questions that China must now confront in earnest.” Read here

Sun Liping and Li Daokui Debate China’s Disconnected Growth (20 August)

Whether expressed as “strong supply, weak demand”, overcapacity or some form of a “K-shape”, a consensus has emerged that insufficient demand is the central weakness of the Chinese economy. The persistent debate centres on how best to fill that demand gap. Here, Li Daokui argues that while new industries have failed to expand sufficiently to replace the old ones, the deflationary “black hole” of local government finances has exerted a cooling effect on the entire economy. In the same edition, Sun Liping provides a riposte to Li Daokui’s diagnosis. Read here

Understanding Europe’s “China Shock” Anxiety | Huang Yiping (19 August)

The full-scale trade war that Huang Yiping warns of here has not yet come to pass, but the reprieve may be temporary. Huang is very much an establishment voice and he doesn’t stray far from the mainstream framing, but he takes European anxiety far more seriously than most and makes an important concession along the way. This should offer some encouragement to EU policymakers, who for years have felt that their concerns have fallen on deaf ears. However, those same policymakers may be less heartened by Huang’s reading of European fragmentation and his later recommendation that China “bypass highly politicised EU-wide negotiating frameworks”. Read here

Strong Supply, Weak Demand, Little Urgency? | Economic Digest: July 2026 (14 August)

“K shaped” is July’s defining buzzword, with a flurry of articles exploring China’s simultaneous boom and bust in different parts of the economy through this alphabetic metaphor. Taken together, this edition contains a remarkable range of competing prescriptions, but many do converge around a sense that insufficient demand and economic imbalance require a more urgent policy response. It is ironic then, that the most recent piece in the collection—Zhang Jiqiang’s reading of the Political Bureau of the CPC Central Committee meeting held on 30 July—concludes that, in Zhang’s opinion, “the urgency of stepping up policy support is not high.” Read here

Dreaming of Zhu Rongji’s China | Zhao Jian (14 August)

The death of Zhu Rongji, the former premier of China who spearheaded market-oriented economic reforms during the 1990s, was announced on Wednesday. This obituary is by the economist Zhao Jian, an advocate of renewed marketisation and an admirer of Zhu’s forceful approach to driving through a series of state enterprise restructurings and market-oriented reforms. Judging by the article’s removal from WeChat a day after publication, it may have touched a nerve. Nominally written as an obituary for Zhu, the piece is really his lament for a bygone era when Chinese society felt confident and people said what they really thought. Read here

Advantage Does Not Equal Victory | Digest: July 2026 (4 August)

The celebratory mood that followed the Trump–Xi summit in May seems to have run its course. The prevailing assessment of US–China “strategic stability” remains broadly optimistic, but July’s commentary offers a more sober assessment of China’s strategic environment. July’s strongest writing qualifies confidence in China’s rise—American retrenchment is adaptive rather than terminal, the trade war is survivable but unavoidable and China’s growing power is running ahead of the institutional, diplomatic and intellectual capacities needed to translate it into durable gain. Read here

N.B. Sinification features a broad spectrum of voices, ranging from conservative hawks and state propagandists to more moderate and liberal thinkers. Readers are encouraged to bear this diversity in mind when engaging with the content.

In the following article, he cites China’s World Cup qualification woes as among the consequences of a growth model that prioritises fixed-asset investment, but fails to generate sufficient household wealth or employment opportunities. In his telling, the financial insecurity which results from this model intensifies educational competition and pushes children towards pathways with clear career returns. Youth football participation loses out.

There are, in addition, more serious concerns than the poor performance of China’s first eleven. With returns on investment falling and growth in local government debt outpacing GDP growth, Li presses the case for an urgent shift towards growth anchored in household consumption. He argues that failure to carry out such a shift represents an obvious, but neglected, risk factor in China’s economy—what one m…

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Today’s edition opens with an introduction by Timothy Cheek, Professor in the Department of History and the School of Public Policy and Global Affairs at the University of British Columbia. A leading authority on modern Chinese history, his research focuses on the history of the Chinese Communist Party and intellectuals in twentieth-century and contemporary China. He published The Intellectual in Modern Chinese History in 2015 and, more recently, has co-edited The Chinese Communist Party: A Century in Ten Lives (2021). He also runs a collaborative project entitled “Revisiting the Revolution”, translating recent PRC scholarship on China’s modern revolutionary and social history. Many thanks to him for contributing to this newsletter. — James and Thomas

Xu Jilin (b. 1957) is a well-known Shanghai academic and public intellectual who has been widely translated and featured in Sinification. An active public commentator as well as prolific historian of Chinese intellectuals and political c…

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Economists of a Keynesian bent, such as Yao Yang, Yu Yongding and Zhang Ming, all concede to varying degrees that the pre-2021 economic model had problems. However, they all argue that the most urgent task is to repair local government balance sheets in order to restore economic activity in traditional construction and manufacturing. They suggest that reform to the economic model, whether in favour of emerging industries or household consumption, would be too slow and inadequate to meet the current challenges of stagnant demand, investment and employment.

Such thinking was prominent in a recent, widely shared speech by the Tsinghua economist Li Daokui. Li argues that while the new industries have failed to expand sufficiently to repla…

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The EU has said that talks must yield “tangible results” before the next ministerial-level meeting in October, but many of the Chinese analysts we’re reading see the underlying conflict as structural and persistent.

Since Huang delivered this speech, Beijing has also formalised its answer to “China Shock 2.0” with a Ministry of Commerce position paper that explicitly rejects the claim that insufficient domestic demand is contributing to excess capacity, instead rebranding China’s industrial rise as “China Opportunity 2.0”.

Huang is very much an establishment voice and he doesn’t stray far from the mainstream framing, but he takes European anxiety far more seriously than most and makes an important concession along the way.

He begins with the defence (China is making progress in rebalancing its economy towards consumption) and continues with a long diagnosis of Europe’s myriad problems, but he also concedes that China can no longer simply overlook the external pressures created by its large trade surplus. China, he argues, must move beyond “simply invoking the broad macroeconomic benefits of free trade” to take fuller account of the effects its surplus has on partner countries.

That this concession feels refreshing says something about the tenor of the wider debate, which is largely focused on shifting the blame for Europe’s economic malaise away from China.

This should offer some encouragement to EU policymakers, who for years have felt that their concerns have fallen on deaf ears. However, those same policymakers may be less heartened by Huang’s reading of European fragmentation and his later recommendation that China “bypass highly politicised EU-wide negotiating frameworks”.

— Jacob Mardell

1. The “China Shock 2.0” narrative refers to the widening of China’s external imbalances, particularly as Chinese competition at scale has begun to emerge in frontier and high-end manufacturing sectors.

2. Although China has made progress in pursuing rebalancing, its economic scale means it still faces considerable external pressure—the pressure its surplus exerts on other countries’ industrial structures cannot be overlooked.

3. Europe is particularly anxious because the sectors now under pressure are pillar industries that sustain employment and its high-income, high-welfare model.

4. Meanwhile, the US fears being overtaken in specific technologies but retains strong endogenous growth momentum and sees AI-driven automation, rather than Chinese competition, as the greater employment threat.

5. While China and the US lead on AI, and Northeast Asia supplies much of its hardware base, Europe struggles to translate its strong research assets into industrial scale.

6. Europe is not monolithic—France and southern Europe lean towards protection, while Germany and northern Europe are more restrained—and there is no shared model for turning “economic resilience” into policy.

7. China and Europe may be the last hope for preserving an open, multilateral international economic system—a bilateral trade war would deliver a major shock to global trade and supply chains.

8. China’s approach should therefore shift from emphasising “competitiveness” to pursuing “win-win” outcomes, taking full account of trading partners’ capacity to absorb the impact of China’s trade surplus and their likely policy responses.

9. China should stay firmly committed to expanding domestic demand and stabilising property without returning to speculation, while more effectively communicating its rebalancing policies abroad.

10. Five areas of practical cooperation would allow both sides to draw on their respective comparative advantages: green transition, high-end manufacturing, industrial AI, high-end services and third-party markets.

Name: Huang Yiping (黄益平)
Year of birth: 1964 (age: 62)
Positions: Dean, National School of Development, Peking University; Dean, Institute of South-South Cooperation and Development, Peking University; Director, Institute of Digital Finance, Peking University; Peking University Boya Distinguished Professor
Other: Member, Monetary Policy Committee of the People’s Bank of China
Research focus: Macroeconomic and financial policy; international financial system; rural economic development
Education: Bachelor’s degree in Agriculture [Agricultural Economics], Zhejiang Agricultural University (1984); MA (Economics), Renmin University of China (1987); PhD (Economics), Australian National University (1994)
Experience abroad: Senior Lecturer, Australian National University (1994–2000); General Mills International Visiting Professor of Economics and Finance, Columbia Business School (1997–1998)

CHINA–EUROPE RELATIONS ARE MARKED BY BOTH ICE AND FIRE, AND COOPERATION IS THE ONLY WAY FORWARD
By Huang Yiping (黄益平)
Published by China Finance 40 Forum on 12 June 2026
Adapted from a keynote speech at the 488^th CF40 seminar on 31 May 2026
Translated by Cherry Yu
(Illustration by ChatGPT)

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My remarks today are based mainly on impressions and judgments formed through recent exchanges in Europe, though not all of them relate directly to Europe itself. I should say at the outset that I do not endorse labels such as the so-called “China Shock 1.0” or “China Shock 2.0”. However, for the sake of discussion, I will use these terms provisionally. In an era of globalisation, shocks of this kind have always existed, whether in the rise of German and Japanese manufacturing or the dominance of US and UK finance. The real issue is how different countries respond and adjust.

At present, “China Shock 2.0” has become one of the most heavily hyped topics internationally. During our visit, it surfaced in virtually every setting, from bilateral meetings and think-tank discussions to roundtables with political and business figures, all centred on the structural challenges it is seen to pose.

The so-called “China Shock 1.0” refers to the wave of exports that followed China’s accession to the WTO, as large volumes of traditional manufactured goods—from low-end light industrial products and textiles to toys—entered international markets and had a discernible impact. Objectively, however, the structural impact of that earlier shock on many developed economies was not as large as is often assumed. Many labour-intensive industries were already moving offshore, and even if China had not absorbed that capacity, it would likely have shifted to other low-cost economies. As some American economists have argued, the decline in manufacturing employment across developed countries was not simply the result of China’s rise, but reflected the combined effects of technological progress, automation and changes in the global division of labour. In short, this was a dynamic process of change.

By contrast, the so-called “China Shock 2.0” mainly refers to the widening of China’s external imbalances over the past few years, particularly as competition at scale has begun to emerge in frontier and high-end manufacturing sectors such as electric vehicles, lithium batteries, photovoltaics, high-end machinery, industrial robots and semiconductors. The main difference from the past is that these are sectors developed countries had spent decades cultivating, and where they believed they held secure competitive advantages. Yet China has performed remarkably well upon entering these fields, supported by its complete industrial chain, large-scale production capacity and continually improving manufacturing processes. This is not to say that Chinese products have reached the very highest level in every subcategory. But judging from field research and industry data, many high-end Chinese products are already close to European standards, reaching around 90%, or even more than 95%, of that level. At the same time, the advantages of China’s domestic industrial chain can keep overall production costs 30% to 50% lower [than comparable European production costs].

[Note: A February 2026 report by France’s High Commission for Strategy and Planning estimates average China–Europe production-cost gaps of 30% to 40% at comparable quality, reaching 50% or more in some sectors. Huang’s specific 90% and 95% quality estimates could not be verified against a public source or clearly defined metric.]

In fact, over the past two to three decades, the Chinese economy has been moving gradually towards rebalancing and has made considerable progress. Recently, with France preparing to host the 2026 G7 summit, the French presidency commissioned the Centre for Economic Policy Research to produce a special report entitled “The New Global Imbalances”, for which I was invited to write the section on China’s economy. In reviewing the data systematically, I found that over the past two-plus decades, China has been moving towards greater balance over the medium to long term, whether measured by investment as a share of GDP, household final consumption as a share of GDP, or the current account balance as a share of GDP. In other words, rebalancing has indeed been taking place. [Note: This is a selective presentation of Huang’s own report, where the quoted consumption figures include both household and government consumption, yet remain below the 2000 level. Huang also identifies a persistent policy bias towards investment, although household consumption has improved modestly since its 2010 trough.] We have also noted that since 2018, China’s current account surplus has risen somewhat as a share of GDP, reaching 3.7% at one point in 2025, a rebound from previous years but still below the 4% warning threshold. What deserves closer attention is what has driven this marginal change.

[Note: The 4% figure was discussed as a potential surplus limit during the G20 rebalancing talks in 2010, but the G20 ultimately adopted non-binding indicative guidelines rather than a formal cap or warning threshold.]

Even so, at this stage China still faces considerable external criticism and economic and trade challenges over its external imbalances. The first reason is that China’s economy has become very large. Although China’s current account surplus as a share of GDP has fallen sharply from its historical peak of 10% to 3.7% in 2025, some experts have pointed out that the picture looks different when set against changes in the global GDP structure. Measured against the GDP of the rest of the world, the relative size of China’s surplus has in fact increased. This shows that once China has become a major economy, the existing scale of its surplus can still exert an impact on other countries’ industrial structures that cannot be overlooked, even as China continues to pursue rebalancing.

Second, there is the debate around “China Shock 2.0”. Europe’s sense of alarm is greater this time because these sectors were originally pillar industries that allowed developed countries to maintain their high-income, high-welfare systems. They worry that once Chinese products enter global markets in large volumes, they may well displace existing domestic industries. If that happens, and these pillar industries are replaced or placed under sustained pressure, will these countries be able to cultivate new industries to fill the economic gap and maintain their existing welfare spending? In advanced economies that have been more successful in developing high-tech industries and diversifying their economies, such concerns are relatively limited. But in much of Europe, where industrial structures remain closely tied to traditional high-end manufacturing, the pressures of industrial transition have become especially apparent. Put simply, for many developed countries, this round feels entirely different from the earlier era of low-end industrial relocation.

Let me give one example to illustrate some recent changes in the global distribution of emerging technologies and industries. The changes are especially clear in AI. China and the United States now form the first tier, performing relatively well in algorithm development, computing-infrastructure deployment and the commercialisation of applications. The UK is generally seen as belonging to the second tier, and also as doing reasonably well. During our exchanges there, our overall impression was that the UK’s upward momentum was quite clear, and that its attitude and position were somewhat more moderate than those of continental EU economies. Because the UK’s traditional manufacturing base is less substantial than that of Germany, France and other Western European countries, it is less directly exposed to substitution by Chinese high-end manufacturing and has more scope to expand into future industries.

In recent exchanges with industry and think tanks across different countries, we also noticed an interesting phenomenon that we had not paid much attention to before, which is that beyond China itself, Northeast Asia’s rise in AI hardware deserves close attention. Japan’s advanced materials and precision components, South Korea’s memory chips, and the advanced-node semiconductor fabrication and packaging-and-testing industries in Taiwan together provide a stable and well-developed hardware foundation for the global AI industrial chain, mainly in support of Western technology companies. Whether measured by investment and financing data in global capital markets or by capacity trends in emerging industries, Northeast Asia now appears to be entering a second wave of manufacturing resurgence.

Within this stratified global landscape of technological innovation, Europe appears to be in a somewhat awkward position. European interlocutors noted that, although their universities and research institutes hold a substantial stock of patents in frontier technologies and a strong cohort of innovative start-ups, these strengths have not yet translated into visible progress in commercialisation and large-scale industrial deployment. Europe has moved relatively quickly in building regulatory frameworks, from the digital economy and the implementation of GDPR data protection rules to stablecoin regulation and AI legislation. Yet the commercialisation and industrial application of frontier innovations do not seem to have kept pace with this institutional development. The reasons are highly complex, but the point of this example is that as emerging industries evolve rapidly, countries experience global industrial change differently depending on their resource endowments, policy arrangements and levels of development.

Within Europe, although the 27 EU member states have differing priorities and clear internal divisions, there is now one core concern shared across Europe: if its existing competitive industries are displaced by foreign products, and emerging industries cannot develop sufficient scale in time to fill the resulting economic gap, Europe’s medium- to long-term economic development will face serious challenges. To put it more starkly, Europe sees this not simply as a matter of concern over market competition but as a systemic challenge concerning the survival of its high-welfare system.

This also explains why there are clear differences between China–US and China–Europe relations on many economic, trade and technology issues. US anxiety initially stemmed from distributional tensions caused by the loss of blue-collar jobs among young people in small towns across the Midwest. Later, as China’s new energy, 5G, high-end equipment and other industries rose, this anxiety extended into questions of competition over the commanding heights of global technology and competition over the power to set international economic and trade rules. Overall, however, the United States still has strong upward momentum in industrial innovation. Its competitive advantages remain highly pronounced in frontier fields such as artificial intelligence, quantum computing, biotechnology and aerospace, as well as in technological innovation, industrial innovation, high-end manufacturing and financial services. The United States is concerned that China may one day overtake it in certain areas, yet its own economy as a whole still has strong endogenous growth momentum.

Recently, I met with industry contacts visiting from the United States, and when the conversation turned to Europe, they said its current concern is whether China’s industrial expansion will eventually lead to the loss of European pillar industries, jobs and household income. Americans had previously worried about these issues of manufacturing offshoring as well, and I remember Janet Yellen raising related issues when she visited our institute. According to this contact, however, Americans are now less worried about the employment problems Chinese industries might create for the United States, as the biggest variable affecting industrial employment at this stage is displacement by AI-driven automation. I do not know whether this judgment is backed by solid data, but his broader impression was that US sensitivity to China-related issues has shifted at this stage, marking a fundamental difference from Europe’s current situation.

Europe’s problem lies in the fact that its long-running high-welfare social model has relied heavily on the excess returns generated by the technological premiums and brand barriers of high-end manufacturing sectors such as automobiles, precision machinery and chemicals, yet these pillar industries are now coming under considerable pressure from highly cost-effective Chinese products. Europe also faces multiple development bottlenecks arising from its own internal weaknesses. During our field research in Germany, we heard a particularly interesting view that Germany’s vast stock of high-quality patents and specialised, innovative start-ups has not been matched by sufficiently developed domestic capital markets or a strong venture-capital ecosystem, leaving it without a smooth funding and incubation pathway and making it difficult to turn laboratory technologies into emerging industries at scale.

I said that China does indeed face some similar difficulties in industrial commercialisation. We had originally seen Germany as an important model for our own industrial transformation and upgrading, but as both countries move into a new stage of industrial upgrading, it now seems that China and Germany are facing a similar constraint, with a lack of direct financing holding back the commercial application of technological innovation. I wonder whether this might suggest that, at this new stage of development, traditional bank-led financial systems around the world are struggling to meet the needs of innovative industries, thereby posing even greater challenges for financial system reform across countries.

I came across a set of figures in the UK showing that a large share of Europe’s capital-markets business had once been concentrated in London. Since Brexit, only 4% of that business now remains there, while the rest has been diverted to continental European cities such as Paris and Amsterdam. Yet in the short term, these cities are unlikely to fully match the market depth and supporting legal infrastructure that once sustained London’s market position. Europe’s capital markets remain underdeveloped overall and have yet to play a major role in scaling up emerging industries.

[Note: ECB data indicates that London retained a major role in most euro-denominated financial-market segments after Brexit, although EU equity trading shifted sharply to continental venues.]

Meanwhile, Europeans attach great importance to regulation and standard setting in relation to innovation, and to some extent this may have dampened start-up activity by creating stringent compliance thresholds. In my view, all industrial regulatory rules ultimately need to strike a dynamic balance between innovation and risk control, and between industrial vitality and compliance management. The GDPR is a case in point: Europe has built a highly comprehensive system for protecting personal privacy, but years after its implementation, Europe has not seen the emergence of major home-grown global technology companies or large-scale big-data industrial clusters of its own.

The same can be seen in AI regulation, where Europe introduced tiered and classified AI regulatory rules at an early stage, an approach that has been studied and drawn on repeatedly in China’s policy research community. Regulation is differentiated according to risk level, with lighter oversight for areas without systemic importance and strict regulation reserved for those with systemic importance. The outcome is plain to see, with Europe producing very few home-grown, benchmark-setting AI companies.

[Note: The EU AI Act classifies AI systems by four levels of risk; “systemic risk” is a separate classification applied to certain general-purpose AI models.]

During our talks in Brussels, we also discussed stablecoins, and they noted proudly that their Markets in Crypto-Assets Regulation had been implemented far earlier than the various bills in the United States. I then asked why Europe’s own crypto industry and blockchain-related sectors had not achieved any obvious development at scale, given that the regulatory rules had been put in place so early. Admittedly, their legislative approach may place greater weight on risk control and on safeguarding the bottom line of financial security, which is an understandable policy choice. Yet judging from actual industrial outcomes, Europe’s own emerging technology industries have shown only limited signs of progress.

Across Europe, policy thinking is now widely shifting from its previous emphasis on economic stability towards a stronger focus on economic resilience. But there is still no common, workable plan for how to quantify and deliver that resilience, or which industries it should rest on.

At the same time, it is important to recognise that Europe is far from monolithic. Divisions of interest between northern and southern Europe, and between France and Germany, are also quite pronounced. France and the southern European economies are more directly exposed to imports of Chinese high-end manufactured goods and are therefore more inclined at the policy level to introduce various forms of protective trade legislation. By contrast, Germany and many northern European countries have a large investment presence in China, while the interests of their multinationals are deeply tied to the Chinese market, making their overall position more pragmatic and restrained. The fragmentation of priorities among the EU’s 27 member states and the normalisation of policy bargaining have also sharply reduced the effectiveness with which unified industrial policies can be put into practice. Against this backdrop, the EU has successively introduced new rules, including the Cybersecurity Act Revision and the Industrial Accelerator Act. Many of these measures are presented as security safeguards or industrial-support policies, but in reality they raise barriers to foreign investment and further securitise and politicise economic and trade issues.

[Note: Both measures were European Commission proposals at the time of the speech and, as of August 2026, remained pending under the EU’s ordinary legislative procedure.]

Although the EU continues to step up protectionist policies and raise trade barriers, China and Europe still have many deep-seated interests in common.

I think the most important question is what we should do if Europe’s economy faces industrial shocks and downward pressure on growth in the years ahead. At a meeting in Europe, I told the head of a leading think tank that as unilateralism, protectionism and great-power rivalry intensify globally, China and Europe may be the last hope for preserving a multilateral and open international economic system. The long-term survival of this system is therefore crucial, because a serious, large-scale trade war or economic confrontation between China and Europe would deliver a major shock to the global multilateral trading system and to global industrial and supply chains. The direction of US economic and trade policy is already clear to everyone.

The question, then, is how the current frictions and tensions in the bilateral relationship can be resolved. In my view, China’s approach to external economic and trade relations should shift from simply emphasising the “competitiveness” of its own industries to pursuing “win-win” [共赢] outcomes in bilateral economic and trade relations.

Now that China is a major economy—the world’s second largest, with manufacturing output accounting for more than 30% of the global total—any new round of export expansion or shift in its import structure will have a substantive impact on supply-demand balances in international markets, as well as on industries and employment in partner countries. If real livelihood concerns are not properly addressed, simply invoking the broad macroeconomic benefits of free trade is unlikely to win support from public opinion or policymakers in partner countries. China therefore needs to take full account of the capacity of partner-country industries to absorb the impact and of their likely policy responses when shaping its external economic and trade strategy, and to update its top-level strategic thinking accordingly [与时俱进].

More specifically, I think there are two practical directions. Internally, China needs to stay firmly committed to domestic economic rebalancing. In fact, we should already recognise—or be coming to recognise—that if we cannot steadily reverse the pattern of external imbalances, our own insufficient domestic demand and overreliance on external demand as a driver of growth will create risks to the sustainability of growth over the medium to long term. Rebalancing the economy by expanding domestic demand is therefore not only an external necessity for easing international pressure but also an internal requirement for China’s own high-quality development. Going forward, China will need to communicate its policies more clearly and effectively in multilateral settings and bilateral economic and trade talks, both to achieve win-win outcomes in bilateral trade and economic relations and to strengthen the foundations of its own outward-facing economy. Rebalancing will remain a crucial macroeconomic policy priority for a long time to come.

In the current macro environment, stabilising the domestic property market is therefore an economy-wide strategic priority and a key lever for expanding domestic demand and advancing macroeconomic rebalancing. The real-estate value chain connects dozens of real-economy sectors, including building materials, home renovation, home appliances and property services.The sector underpins large-ticket household consumption and local government finances, serves as the main form of asset allocation for Chinese households, and is closely linked to the financial system through bank credit, non-standard financing and other channels. Anchored in the basic principle that “houses are for living, not for speculation” [房住不炒], policy should focus in the short term on stabilising expectations, reducing inventories and protecting essential housing demand, while working over the medium to long term towards a new model of real estate development that supports both renting and home ownership [租购并举] through a coordinated set of targeted measures.

As for the specific areas of China–Europe economic cooperation, I have identified five practical areas that could be discussed and advanced jointly with European countries, allowing both sides to draw on their respective comparative advantages, deepen the division of labour and achieve mutually beneficial cooperation.

The first area is green transition, where cooperation is already largest in scale and has the clearest prospect of producing concrete results. China brings large-scale capacity across the full industrial chain in photovoltaics, wind power, energy storage and new energy vehicles, together with clear advantages in cost and industrial deployment. Meanwhile, Europe has accumulated deep expertise in green hydrogen, carbon capture, carbon-footprint accounting standards, new grid technologies and green project certification. Given the strong complementarity between their industrial chains, cooperation on green transition will be essential for Europe’s efforts to implement the European Green Deal and meet its carbon-neutrality goals.

The second area is collaboration and division of labour in high-end manufacturing. The two sides could explore a differentiated model of specialisation, with Europe focusing on high-value-added upstream segments such as core components, specialised materials, industrial software and chassis design, while China builds on its strengths in large-scale smart manufacturing, end-product assembly and deployment, and its vast domestic consumer market. Cooperation in the automotive industrial chain could serve as a model for binding upstream and downstream interests together [利益绑定] between upstream and downstream segments.

The third area is careful, sustained engagement in industrial AI and smart manufacturing. Europe has first-mover advantages in data compliance, privacy legislation and the development of global AI governance rules, while China has a vast range of industrial application scenarios, a large computing-power base and practical experience in implementing smart manufacturing. The two sides could avoid sensitive areas such as general-purpose foundation models and facial recognition and instead focus their cooperation on more practical projects such as smart factory upgrades and industrial digitalisation.

The fourth area is two-way opening in high-end services, a field that is relatively less politically sensitive and serves as a major source of Europe’s services trade surplus with China. In 2024, the EU’s services trade surplus with China exceeded US$50 billion, with intellectual property licensing fees alone surpassing US$10 billion.

[Note: Eurostat records EU services exports to China of €67.3 billion and imports of €45.5 billion in 2024, implying a surplus of €21.8 billion, not more than US$50 billion. The claim that intellectual-property licensing fees exceeded US$10 billion could not be independently verified.]

Sectors such as finance, insurance, commercial legal services, healthcare and high-end education are areas of clear European strength, while also matching China’s pressing needs as its domestic industries move up the value chain. Greater two-way opening in these areas would steadily expand the two sides’ shared interests.

The fifth area is joint development of third-party markets. China should initially bypass highly politicised EU-wide negotiating frameworks and instead partner with individual sovereign states with greater capacity for action, such as Germany and France. In Global South markets such as Africa and Central Asia, the two sides could jointly deliver projects in new energy, infrastructure and manufacturing parks, drawing on their respective strengths to open up additional markets.

To conclude briefly, current China–Europe relations are marked by both ice and fire. The “ice is thickening” as tariff barriers rise and protective legislation continues to expand, yet beneath the surface there remains a “warm current”: multinational companies continue to expand their on-the-ground investment in China, the green transition creates a compelling practical need for cooperation and both sides share an interest in preserving the multilateral system. Structural problems undoubtedly exist, but so does a solid foundation of deeply intertwined bilateral interests. The real question is not whether China and Europe should cooperate, but in which areas and under what rules. Even so, translating these broad principles into practice remains difficult, making this an issue that deserves sustained and close attention over the long term.

The other phrase that completely saturates July’s collection of articles is “strong supply, weak demand”. The K-shaped metaphor describes the divergence, while “strong supply, weak demand” serves as the semi-official diagnosis of the structural imbalance behind it.

Even Li Daokui, who ostensibly pushes back against the K-shaped consensus, is really arguing that the metaphor is a distraction from the fact that the Chinese economy has been running cold for three years. In other words, the diagnoses are common ground. What is still heavily contested is where the transmission mechanism from investment into household demand has broken down and therefore what remedy should be applied.

The nearest thing to an official position comes in the form of a Qiushi commentary on the household consumption rate, published under its anonymous “special commentator” byline, with CASS’s Xu Qiyuan credited as drafter. It concedes that the investment-heavy model was historically appropriate, but lacks “long-term rationality”, though it quickly forecloses the transfer-based remedies suggested elsewhere with its disavowal of “helicopter money” and warns that the household consumption rate must not be “reduced to a rigid assessment task”.

Compared with the tone of marked concern apparent in the rest of the selection, it appears relatively sanguine. One might even read it cynically as co-option, rather than an adoption of the diagnosis, given that its immediate policy message is “historical patience and strategic resolve”, or less charitably, business as usual.

In contrast, calls for an immediate fiscal response are widespread in July’s collection and a large group of authors, including Li Daokui, Zhang Ming, Zhao Yanjing and Jia Kang, call for the central government itself to expand borrowing. Li in particular argues that the central government must relieve local governments, which have become “black holes” of economic energy.

Shen Jianguang and Fan Lei make a more modest version of the fiscal intervention case, arguing that expenditure has simply fallen behind the budget schedule and that more timely implementation might still replicate the 2024 pattern of growth being “suppressed at first, then buoyant later”.

There is also a disagreement about what fiscal intervention should prioritise. Li Daokui and Zhang Ming focus on relieving the property sector and local government balance sheets while others would prefer to see a more direct shift towards households and consumption. Liu Shijin makes the latter case most explicitly, arguing that stimulus should be redirected towards consumption, social security and households. He also most clearly cuts across the structural reform vs. macroeconomic stimulus divide, explicitly arguing that it’s not an either/or choice.

Two of the strongest pieces explicitly question how much balance-sheet expansion can achieve in the first place. Yang Ruilong describes K-shaped divergence as “fundamentally a structural problem” and argues that fiscal and monetary stimulus alone is insufficient because aggregate policy is failing to transmit effectively into the manufacturing and mid- and downstream sectors.

Cao Yuanzheng also claims that fiscal and monetary demand stimulus may only work temporarily. His theory is that the foundation of the Chinese economy is shifting from individual firms to the entire industrial chain and that imbalance is rooted in changes to the microeconomic foundations of the economy itself.

Elsewhere, Zhou Junzhi, providing the mechanism behind the K-divergence, explains that exports are no longer translating into domestic investment and argues that the “basic foundation” of household consumption is already relatively saturated—a claim also echoed by Sun Liping.

For most authors, AI threatens to further complicate the imbalance. Lu Ting warns that the boom could widen China’s K-shaped divergence and Huang Yiping describes a “substitution spiral” in which automation cuts labour income, weakens demand and encourages further automation.

Zhao Yanjing and Peng Wensheng both highlight China’s AI investment gap with the US, but draw opposite conclusions—Zhao favours open-source competition designed to undermine US profitability, while Peng calls for government-led catch-up investment.

Yin Jianfeng and Zhang Yang are more sanguine on AI, arguing that the existence of structural bifurcation in the economy due to a combination of path dependence in government policy, AI development and the energy transition is a long-term fact, and that “learning to dance with the K” is the only way to survive.

Taken together, this edition contains a remarkable range of competing prescriptions, but many do converge around a sense that insufficient demand and economic imbalance require a more urgent policy response.

It is ironic then, that the most recent piece in the collection—Zhang Jiqiang’s reading of the Political Bureau of the CPC Central Committee meeting held on 30 July—concludes that, in Zhang’s opinion, “the urgency of stepping up policy support is not high.”

— Jacob Mardell

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Nominally written as an obituary for Zhu, the piece is really his lament for a bygone era when Chinese society felt confident, people said what they really thought and there was an assurance, felt by Zhao while watching leaders speak on the television, “that someone was holding up the weight of this country, that someone was giving his all for us”.

Zhao is unabashedly nostalgic. In expressing the wish that he might awake from a present-day dream and find himself back in the world of Zhu’s premiership, his piece is reminiscent of the “Dreamcore” aesthetic—a trend where internet users adapt hazy images of 2000s scenes to evoke nostalgia for an apparently simpler time. But instead of limiting himself to vignettes of danwei-distributed ice lollies and internet cafés, Zhao’s essay is a more overtly politicised form of Dreamcore. He regards Zhu Rongji together with Jiang Zemin, China’s top leader at the time, as the embodiments of that era’s sense of confidence. Compared to the relative freedom and perceived certainties back then, he describes the society of today as suffocating and draining.

Such nostalgia merits mention of the obvious: living standards have significantly improved in China over the last two decades. Zhao is acutely aware of this, and admits that trying to find a single culprit for the current feeling of hopelessness is like “throwing a punch only for it to land on cotton wool”. There is no one cause he can identify: the anti-corruption drive, deflating the property bubble—even “stability maintenance” by local governments and the online censorship that has left his essay peppered with euphemisms—can each be justified or defended on some rational basis. Taken together though, he sees them as constituting one problem: a broader loss of trust.

— James Farquharson

Name: Zhao Jian (赵建)
Year of birth: September 1980 (Age: 45)
Position: Founder and President, Xijing Institute; Professor, School of Business, University of Jinan; Director, Institute of Strategy, Shanghai Chief Economist Financial Development Center
Previously: Chief Economist, Bank of Qingdao; Director, Macroeconomic Research Centre, Ping An Bank
Research focus: Macroeconomic analysis
Education: Bachelor’s degree in Finance, Shandong University of Finance and Economics (2004); MA in Finance, Shandong University (2007); PhD in Finance, Shandong University (2010), jointly trained at the University at Buffalo, State University of New York
Experience Abroad: Visiting scholar, University at Buffalo, State University of New York (2009–2010); research experience at the Finance Laboratory, Niagara University

HE’S GONE. HOW I WISH THIS WERE ALL ONE LONG DREAM
By Zhao Jian (赵建)
Published by Xijing Research Institute on 12 August 2026
Human-edited machine translation
(Illustration by ChatGPT)

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He’s gone.

When the news came, I was scrolling through my phone. The obituary notice that popped up on the screen was so short that it left me dazed. So then, the man who once spoke on television with such powerful force of personality [挥斥方遒] and such ringing conviction [铿锵有力] had already reached the age of ninety-eight. The man whom we imagined would always be around—somewhere in the world—had really gone.

Suddenly, this world seemed like one long dream.

Late at night when everyone falls silent, I often lie staring, blankly, at the ceiling. Outside the window are the lights of a city that never go out. From downstairs, the footsteps of someone returning home late can occasionally be heard. I gaze around, observing this world and then myself. Where is this? Who am I? How did everything come to be like this?

I want to pinch myself. Really, pinch myself hard.

If it hurts, that would prove this is not a dream. But if that is the case, why does everything feel so unreal?

How I wish this were all just a long dream and that I might awake to find myself back thirty years ago. There were no smartphones then, no short-form videos and no screens filled by the purveyors of anxiety. The sky was blue, life moved slowly and people could say what they really thought [话是可以直说的]. We were poor then, properly poor. A month’s wages would not buy more than a few jin of meat. We lived in communal corridor blocks [筒子楼], travelled by bicycle and could only afford a new item of clothing at Chinese New Year. Yet people had a light in their eyes and a sense of standing on solid ground [心里有底]. Tomorrow was something they could see.

We believed then that hard work would be rewarded, that good things would come to good people and that things in this world could all be reasoned out.

Back then, he would pound the table on television, thundering that even “minefields” [地雷阵] had to be crossed and denouncing “tofu-dreg” [豆腐渣] construction projects.1 Sitting in front of our black-and-white televisions, we had the feeling that someone was holding up the weight of this country, that someone was giving his all for us [这个国家有人在扛着，有人在为我们拼命]. Reflecting on it now, that feeling of being protected, that comforting certainty that “if the sky fell, there would be someone tall enough to hold it up” [天塌下来有个高的人顶着], just seems like something from a previous life.

CCTV recently broadcast a documentary about Jiang Zemin [Note: Zhao employs the nickname “长者”, or “the Elder”2]. On the screen, he felt just as affable, wise and effortlessly assured as ever. Suddenly, I became aware that the people who shaped that era are leaving us, one by one.

They really are gone.

As people born in the 1980s, ours is the generation that was raised to adulthood by that era. We grew up listening to their speeches, and with their receding figures ahead of us. We assumed that this was simply how the world was meant to be: it had authority, direction, a prevailing theme [主旋律] and a clear sense of right and wrong, truth and travesty [是非曲直].

China was far less developed then than it is today. There were no high-speed trains, no aircraft carriers and no position as the world’s second-largest economy. The international situation was extremely turbulent and our domestic contradictions were a mess of tangled branches [盘根错节]. Everyone lived life on a shoestring. Meat was seldom seen on the dinner table and wardrobes held the same few clothes, worn over and over again. Yet strangely, people did not feel that life was hard.

Or rather, life was hard, but it was hardship sustained by hope [苦得有盼头].

And now? We have material abundance, choice, skylines bristling with high-rises and streets teeming with traffic. Open your phone and the entire world’s cuisine is yours to order. Open a shopping app and goods from around the world will be delivered to your door. So why, then, do we feel so empty [空落落] inside?

Anxiety is as pervasive as the air we breathe. A sense of suffocating heaviness clings to our bodies like a wet garment that cannot be removed. The most terrifying thing is the despondency [灰心]: not about any one thing in particular, but about everything. Work, marriage, children, the future… it all just leaves us feeling drained.

Is it my problem? Or has the world really changed?

I’ll make a stab at answering this.

Fighting corruption [反FB]? Absolutely correct, it was long overdue. Investigating arbitrary fees [清查S费]? Fine, rules needed to be established. Rectifying the property sector [整顿FDC]? That was necessary, someone had to prick the bubble eventually. Controlling the expression of public opinion? There also seems to be a case for that: there are all kinds of mad people out there and you can’t just let rumours fly all over the place [林子大了什么鸟都有，总不能让谣言满天飞].

Taken individually, each of these things makes sense. All are done “for your own good”.

So why, when they are all added together, does it feel so awful?

I thought about it for a long while. Basically—it’s as if all the trust has gone.

In the past, we believed that “when people are born, their nature is good” [”人之初，性本善”]. When we met a stranger, we would assume the best [先往好处想]. If we heard something, we would at least give it some credence [先信三分]. And now? Our default setting has become “human nature is bad”. Businesses must be cheating me, experts are duping me, policies are manipulating me and the people around me are definitely using me.

Bad vibes [戾气] have festered within society. Online, the slightest spark bursts into a conflagration. In face-to-face life, the slightest bump triggers an explosion. People no longer reason things out with one another, but fixate on their own standpoints. What they care about is no longer consensus, but winning and losing. Everyone sees themselves as a victim. Everyone believes that others owe them something.

But where exactly did things go wrong?

I’d like to blame some person, event or policy. Yet the more I mull it over, the more it seems that everyone is just doing their job. Officials are maintaining stability [维稳], entrepreneurs are making money, media organisations are chasing traffic and ordinary people are trying to survive. Who is at fault? It doesn’t seem like anyone is.

And yet, it also feels like no one can escape responsibility.

What is hardest to bear is this feeling of throwing a punch only for it to land on cotton wool [这种一拳打在棉花上的感觉]. You clearly perceive that something is wrong, but you cannot identify a concrete enemy. You want to issue a rallying cry [呐喊], but do not know to whom you should cry out.

It occurred to me later that, perhaps, the reason is actually quite simple.

We’ve grown old.

Even the youngest of those born in the 1980s are now thirty-five and the oldest are approaching fifty. We are no longer the youngsters who could play video games all night and still be bursting with energy the next day. Aches and pains have become routine, our medical reports grow heftier, our hair grows thinner and our stomachs grow larger.

We have collectively entered middle-age.

Physiologically, that is, but more so psychologically. Our hormones are retreating, our dopamine is diminishing and the filters through which we viewed the world are being stripped away, layer by layer. When we were young, we thought that “anything was possible”. Now we think that just staying alive is good enough. When we were young, we thought all the world was a stage. Now we think it is a cage.

Maybe, our surroundings have not actually changed. Judged by some measures, they have even improved. Perhaps what has changed is simply our bodily functioning and our state of mind.

It is like someone suffering from depression, to whom everything appears bleak and dim. It is not that the world has got dimmer, but that something is going wrong with his retina.

Even so, I still think back to that summer twenty [likely thirty] years ago.

Thrumming cicadas, ice lollies and the creak of an old electric fan turning to-and-fro. The news was playing on television, my parents were cooking in the kitchen and I lay belly-down on a bamboo mat doing my homework, wondering with whom I could play football the next day.

It never occurred to me then that those days would disappear, never to return.

Now, Premier Zhu [Z相] and the Elder are gone, the figures of that era facing their final curtain, one after another. Our generation, meanwhile, has been pushed from the audience and into the centre of the stage. We are even beginning to disappear behind that curtain ourselves.

Sometimes, I genuinely wish that all of this were nothing more than a long dream. I could awake to find myself still sprawled on the bamboo mat, the fan still turning, my parents calling me to come and eat and that familiar voice [Jiang, the Elder’s] still intoning from the television: “The Chinese people are invincible!”

But I know that this is not a dream.

A dream would not hurt this much.

So just let things rest.

Let go of those obsessions, abandon those illusions and lower expectations as far as they will go. Eat well, sleep properly and focus on living a good life. Stop asking what it all means, stop searching for answers and stop expecting the world to return to the way it once was.

Simply being able to focus on living a good life has itself become a wild hope.

Farewell, Premier Zhu.

And may we ourselves be granted a little more peaceful sleep within this dream.

(Even after repeatedly cutting and revising a commemorative article like this, I still won’t be able to publish it. Ha.)

The celebratory mood that followed the Trump–Xi summit in May seems to have run its course. The prevailing assessment of US–China “strategic stability” remains broadly optimistic, but July’s commentary offers a more sober assessment of China’s strategic environment.

Authors still assume that US primacy is weakening and China’s material power is growing, but they repeatedly ask whether those advantages can be converted into durable influence. As Zhou Li, a former vice-minister of the International Department of the CPC Central Committee, writes in an otherwise confident survey, “having an advantage does not equate to a winning position”.

Zheng Yongnian and Da Wei complicate familiar narratives of American decline. Zheng describes a waning hegemon whose decline is relative, protracted and non-linear, warning, “China must not lull itself into a false sense of security”. Da distinguishes the end of Pax Americana from the unresolved trajectory of American national power, while Wu Xinbo provides the policy prescription: “constructive strategic stability” rests on credible Chinese counter-pressure.

Elsewhere, Wu says that Xi Jinping’s four global initiatives require real resources to implement. His tone is far from critical, but the observation that “global governance cannot rely solely on conceptual initiatives” is nonetheless striking. Jin Canrong similarly acknowledges that China’s historically East Asia-centred statecraft has left it short of experience in managing genuinely global affairs, while cultural insecurity means confidence lags behind material strength.

AI coverage in July included commentary on Xi Jinping’s announcement of the World Artificial Intelligence Cooperation Organisation (WAICO) and the unveiling of a new Chinese AI model that allegedly rivals US competitors, but much of this commentary was boilerplate. Instead we included two pieces that resist triumphalism about China’s recent advances. While Zhu Songchun identifies dependence on US-defined concepts and paradigms as China’s deeper weakness, Huang Ping distinguishes mass-market success from American frontier leadership.

Among the pieces focusing on Chinese society, Yao Yang uses Wang Hong’s Fields Medal to explore weak female representation in senior politics and a revival of patriarchal ideas. Zhou Lian and Xu Jilin, and separately Dong Yue, focus on young people’s retreat from public life. Zhou and Xu attribute this retreat to repeated experiences of powerlessness, while Dong identifies a sub-group of highly educated home-staying “squatting youth” [蹲族], produced by an expansion of educational opportunities, but a lack of good jobs.

June’s “Going Out” section largely made the case for a new wave of outward investment—July’s selection focuses on its conditions and risks. Li Wei warns that China’s commercial footprint could outstrip the state’s capacity to protect overseas assets, while Liang Dong, Wu Ting and Wu Huimin argue that outward investment serves “dual circulation” only when profits and productive capabilities return home.

On the home front, Liu Shijin treats China’s “strong supply, weak demand” as the result of a production-first growth model that has outlived the shortage economy for which it was built. A fuller account of China’s domestic economy will follow in our forthcoming Economy Digest.

On Europe and its relations with Beijing, the tone is pessimistic about the prospects for resolving structural conflict, but broadly confident about China’s relative position. The most arresting argument comes from former Chinese trade diplomat Zhou Xiaoming, who says China’s support for a “strong, united EU” no longer serves Beijing’s interests: Brussels was imagined as an autonomous pole in a multipolar order, but has instead become an institutional centre of confrontation with China.

Ding Chun and Wu Jiwei, and separately Qin Shuo, reach softer conclusions. Ding and Wu describe EU–China industrial relations as “competitive coexistence”. Qin, a prominent business-media commentator, writes that trade conflict is a normal consequence of China becoming the axis of global manufacturing. His conclusion—that China bears responsibility for steering the contest towards a more open and balanced order—is refreshing.

Coverage of Britain’s new prime minister was voluminous but held few surprises: Long Jing expects broad foreign-policy continuity, constrained by existing security alignments and Britain’s diminished room for manoeuvre.

On the Middle East, Liu Zhongmin and Tang Zhichao see the Iran war accelerating the transition towards a “post-American” regional order—both predict deeper fragmentation and disorder alongside greater regional agency.

July also saw many pieces marking the tenth anniversary of the 2016 South China Sea arbitration award. Most were boilerplate, but Wu Shicun’s interview with the South China Morning Post stands out for warning that fixed Chinese facilities on Scarborough Shoal remain an option if Philippine and foreign patrols intensify. Wu’s threat fits a longer pattern, but remains notable. Bao Yinan offers a less confrontational route, proposing consent-based mediation through the new Hong Kong-based International Organisation for Mediation.

Neighbourhood diplomacy is another major theme of the month. Both Zhou Fangyin and Zhao Long describe an increasingly securitised environment in which US alliance policy raises pressure to choose sides. On China’s regional engagement, Zhang Yun reads Japan–Philippines maritime talks as part of Tokyo’s attempt to become a second centre of regional leadership, Mao Keji and Mao Yaxin interpret India’s reopening to Chinese investment as industrial necessity rather than strategic trust and Wang Youming expects Latin America’s rightward turn to complicate China’s position without dislodging it.

July’s strongest writing qualifies confidence in China’s rise—American retrenchment is adaptive rather than terminal, the trade war is survivable but unavoidable and China’s growing power is running ahead of the institutional, diplomatic and intellectual capacities needed to translate it into durable gain.

— Jacob Mardell

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1. US–China & Global Order:

   1. Zheng Yongnian on America as a “declining hegemon” whose relative decline coexists with renewed technological and coercive power.

   2. Da Wei on Pax Americana ending without settling whether American national power declines or revives.

   3. Wu Xinbo on:

      1. “constructive strategic stability” resting on credible Chinese counter-pressure.

      2. China’s four global initiatives requiring “real money”, institutions and trained personnel to become operational.

   4. Jin Canrong on China’s global experience and cultural confidence lagging behind its material strength.

   5. Zhou Li on accelerating US hegemonic decline and China’s systemic “ideas + strength + strategy” advantage.

2. Europe:

   1. Zhou Xiaoming on why China’s long-standing support for a “strong, united EU” may no longer serve its interests.

   2. Qin Shuo on trade war as a structural consequence of China becoming the axis of global manufacturing.

   3. Ding Chun & Wu Jiwei on China–EU industrial relations entering “competitive coexistence”, with selective cooperation surviving behind higher barriers.

   4. Sun Chenghao on NATO 3.0 becoming more militarily effective.

   5. Long Jing on Andy Burnham’s foreign policy being untested but constrained by circumstances.

3. Chinese Economy & Going Out:

   1. Liu Shijin on “strong supply, weak demand” as the result of China’s production-first growth model.

   2. Li Wei on China’s commercial expansion outrunning its capacity to protect overseas interests.

   3. Liang Dong, Wu Ting & Wu Huimin on outward investment serving “dual circulation” only when profits return home.

   4. Yang Ping on Chinese capital potentially undermining industrialisation in the Global South.

4. Middle East:

   1. Liu Zhongmin on the interruption, but not reversal, of the Middle East’s movement towards strategic autonomy, reconciliation and development.

   2. Tang Zhichao on the acceleration of a fragmented “post-American” order.

5. South China Sea:

   1. Wu Shicun on fixed facilities at Scarborough Shoal remaining an option.

   2. Bao Yinan on using consent-based mediation to manage practical disputes in the South China Sea.

6. Neighbourhood Diplomacy:

   1. Zhou Fangyin on “de-securitisation” and “de-geopoliticisation” as principles for keeping China’s neighbourhood from splitting into rival camps.

   2. Zhao Long on “doubt and fear of America” keeping states vacillating between strategic autonomy and tighter alliance dependence.

   3. Shi Yuanhua on a 64-state “greater periphery” including the United States and the case for China biding its time on Taiwan.

7. Regional Policy:

   1. Zhang Yun on Japan using the Philippines to become a second centre of power alongside Washington.

   2. Mao Keji & Mao Yaxin on India’s attempt to reduce reliance on China making it more dependent on Chinese goods.

   3. Wang Youming on Latin America’s rightward turn complicating, but not dislodging China’s position.

8. AI & Tech:

   1. Zhu Songchun on China remaining dependent on US concepts.

   2. Huang Ping on China’s “good enough and cheap” AI advantage facing a Huawei-style political blockade.

9. Society:

   1. Yao Yang on Wang Hong’s Fields Medal, patriarchal revival and Chinese women’ s shrinking horizons.

   2. Zhou Lian & Xu Jilin on young people’s retreat from public life and “dog-wisdom-ism” among knowledge elites.

   3. Dong Yue on graduate “squatting youth” [蹲族], produced by the mismatch between higher-education expansion and the lack of suitable employment.

1. US-China & Global Order

Zheng Yongnian (郑永年): The whole world may misunderstand the United States, but China cannot afford to do so. America’s decline is relative, not absolute and the decline of a major power is a long-term process. Multipolarisation is a long process and the US will remain the most important pole. Meanwhile, the nature of American hegemony is changing, from “constructive” to “destructive”. In important fields such as AI, American hegemony has not only failed to decline but is being strengthened and upgraded. The US practises protectionism in areas of goods trade where it lacks comparative advantage, but in fields where it possesses comparative advantage, it continues to advance globalisation, thus increasing the dependence of other countries. The American claim that “China is only a few days behind the United States”, satisfies the vanity of people in China while mobilising resources within the United States.— X.Q. Deng Presidential Chair Professor and Dean, School of Public Policy, CUHK-Shenzhen (大湾区评论, 4 July).

Da Wei (达巍): “Pax Americana” is coming to an end, but no conclusion can yet be reached about America’s rise or decline. America is actively dismantling the hegemonic system that it took the lead in constructing after the Second World War. MAGA is not a retreat from empire back to republic. It is a retreat from a liberal internationalist empire to the late-nineteenth-century imagination of a nationalist empire. America has not simply decided that it “does not want to be a hegemon” any longer. More accurately, America is unwilling to continue bearing the costs. Historically, leaps in American national power generally came from the opening of three kinds of frontier: geographical, institutional and technological frontiers—only this latter frontier remains available to the US. America’s national power may increase again, but “Pax Americana” is unlikely to return. — Director and Professor, Centre for International Security and Strategy (CISS), Tsinghua University (清华大学战略与安全研究中心, 1 July).

Wu Xinbo (吴心伯): Constructive strategic stability depends on credible Chinese counter-pressure, and every strike answered with equal or greater force. Repeated rounds of “fighting and talking” have changed expectations. Washington must now price in retaliation before acting. Planned trade and investment councils, fentanyl cooperation, maritime military consultations and the suspension of Taiwan arms sales indicate what stabilisation is able to deliver. However, Trump sees Taiwan as leverage for obtaining concessions from China, so Beijing should make sure to maintain pressure, repeatedly restate its red lines and respond forcefully to US provocation. Stability also remains exposed to US domestic politics—a Democratic House could use hearings, human rights, arms sales and investment restrictions to constrain Trump. Taiwan’s January 2028 leadership election and the November US presidential contest may bring significant changes. — Dean, Institute of International Studies, and Director, Centre for American Studies, Fudan University (思路打开, 6 July).

Wu Xinbo (吴心伯): America’s waning global leadership creates a historic opening for China, but Beijing’s four global initiatives still need to be translated into concrete outcomes. US leadership originally combined material power with progressive principles, but Cold War militarisation and intervention eroded its public character. Meanwhile, today’s reliance on sanctions signals declining diplomatic persuasion and credibility. Newer arrangements such as the Indo-Pacific strategy lack the appeal of post-war institution-building. Global governance cannot rely solely on conceptual initiatives, and if the UN headquarters one day moves from the Hudson to the Huangpu, China must prepare the necessary resources, physical space and professional talent in advance. — Dean, Institute of International Studies, and Director, Centre for American Studies, Fudan University (人大重阳, 3 July).

Jin Canrong (金灿荣): China may yet overturn Brzezinski’s prediction that America will be the last global superpower, but converting its underestimated strength into a genuinely global role requires experience and institutions that its historically East Asia-centred statecraft never developed. Unlike Western powers that were formed by centuries of colonial expansion, Chinese dynasties governed a vast, diverse society, but remained strategically defensive. China’s instinctive rejection of “G2” reflects resistance to being “praised to death”, but also a lack of preparation for global affairs. A separate legacy of Qing rule results in cultural self-denigration—China has grown to 1.95 metres but still thinks itself 1.2 metres tall. Development will reverse this insecurity, while US containment acts as a “good teacher”, training China for the world stage. China should ultimately practise an enduring “kingly way” [王道] of restraint, rather than the West’s “hegemonic way” [霸道]. — Wu Yuzhang Chair Professor, School of International Studies, and Director, Centre for China’s Foreign Strategy Studies, Renmin University of China (金金乐道编辑部, 9 July).

Zhou Li (周力): The American hegemonic system is accelerating its own decline and multipolarisation is deepening, while China possesses a systemic “ideas + strength + strategy” advantage in the emerging order. The US–Israel–Iran conflict demonstrated that military superiority, sanctions and unilateral pressure cannot secure political outcomes. Pakistan- and Qatar-led mediation and the reopening of Hormuz point towards greater regional agency and an American return to offshore balancing. Meanwhile, Western political dysfunction and central-bank gold repatriation signal declining trust in established institutions and the dollar-centred system, though this is “de-risking” rather than imminent de-dollarisation. China’s governance model offers an alternative to Western institutional crisis, but “having an advantage does not equate to a winning position”. European protectionism and a more extreme America remain major risks. Beijing must secure 15th Five-Year Plan technological breakthroughs, repair supply-chain weaknesses and maintain strategic composure. — Former Vice-Minister, International Department of the CPC Central Committee (习近平外交思想和新时代中国外交, 6 July).

2. Europe

Zhou Xiaoming (周小明): China should reconsider its long-standing support for a “strong, united EU”. European integration once suggested an autonomous pole capable of preventing a US–China bipolar order and a third world war, but Brussels has instead become an institutional vehicle for confrontation with China. Recent consultations pulled both sides back from the brink—China still values the European market and strategic autonomy and Brussels doubts it can withstand Chinese retaliation. However, the two sides cannot resolve the structural conflict rooted in Europe’s declining competitiveness and export controls on the advanced goods China actually wants to buy. The “systemic rival” label now overrides partnership, recasting interdependence as risk, keeping the investment agreement frozen and treating engagement with member states as “divide and rule”. Beijing should “discard illusions” [丢掉幻想], prepare for wider restrictions under the EU’s Industrial Accelerator Act and shift more effort to national and local governments, but retain cooperation with EU institutions where possible. — Senior Fellow, Centre for China and Globalisation (CCG); former Deputy Permanent Representative, Permanent Mission of China to the United Nations Office at Geneva (观察者网, 8 July).

Qin Shuo (秦朔): Trade war is a normal condition of China becoming the central axis of the global manufacturing industrial chain—just as China is the anchor of world goods, America is the anchor of world currency. However, compared with when the United States led globalisation, China will have more opponents because China’s industries inevitably face many more competitors. China should not “protect commerce with swords”, or create a “Chinese circle”. Rather it has a responsibility to guide trade war towards a new order. Chinese companies can do more to accelerate localised production, establish more complete compliance systems, respond better to carbon and ESG challenges, and accelerate market and supply-chain diversification. China also has a major card to play, that is, making its own market bigger.— Co-Director, China Business Civilization Research Centre; former editor-in-chief, Nanfeng Chuang and China Business News (秦朔朋友圈, 12 July).

Ding Chun (丁纯) and Wu Jiwei (吴佶蔚): China–EU industrial relations have entered “competitive coexistence” [竞争性共存]. China’s rise from workshop to same-market rival has moved competition from products and prices into investment conditions, technology standards and rules. However, deep interdependence persists and the most likely trajectory is selective cooperation behind higher barriers. Europe still possesses strong basic research capabilities, but it suffers from structural weaknesses in translating scientific and technological achievements into commercial productivity and risks falling into the “medium-technology trap.” The Sino-European contest in emerging industries like artificial intelligence is essentially a clash between “governance-driven” and “application-driven” paths. This competition will not be limited to a single product or technology contest, but will extend to multiple dimensions, including breakthroughs in underlying technologies, supply chain support and the formulation of industry rules. — Ding: Director, Centre for European Studies, Fudan University; Wu: Postdoctoral Fellow, Institute of Belt and Road & Global Governance, Fudan University (欧洲问题研究, 5 July ).

Sun Chenghao (孙成昊): “NATO 3.0” may become more militarily effective without becoming more politically united. China should not expect transatlantic differences to lead to the disintegration of NATO—instead it should expect NATO’s military industrial expansion to lead to more securitised European scrutiny of Chinese technology and supply chains. NATO is shifting towards the delivery of industrial capacity and sustained combat power and Washington seeks to transfer responsibility transfer, without relinquishing US leadership. Trump wants Europe to gradually transform from a “security consumer” to a “security provider,” allowing the US to allocate more strategic resources to the Indo-Pacific. NATO is beset by three contradictions: between the pursuit for strategic autonomy and dependence on the US; between European priorities; and between NATO members who diverge on shared values. NATO will neither disintegrate rapidly nor revert to its past. — Associate Fellow, Centre for International Security and Strategy, Tsinghua University (中美聚焦, 17 July).

Long Jing (龙静): Britain’s seventh prime minister since the Brexit referendum was open to cooperation with China at the local level, but will face a more complicated position as prime minister. Burnham inherits economic decline, social division and international uncertainty, as well as the risks associated with chronic leadership churn. This means that his priority is likely to be domestic repair rather than diplomatic reinvention. Lacking foreign-policy experience, Burnham will likely preserve Starmer’s interest-driven policy, stabilising ties with Washington, sustaining support for Ukraine, rebuilding practical European ties and widening relations with middle powers. — Deputy Director, Centre for European Studies, Shanghai Institutes for International Studies (SIIS) (中美聚焦, 24 July).

3. Chinese Economy & Going Out

Liu Shijin (刘世锦): Strong supply and weak demand are not the result of short-term fluctuations, but originate in an unbalanced pattern of growth supported by institutional and structural factors. At the beginning of reform and opening, China was a shortage economy and this growth model—characterised by high savings, high investment and high exports—was appropriate and possessed clear advantages. But when investment can no longer be expanded and begins to contract, as is the case in China, it becomes increasingly difficult to sustain. Excessive productive investment now suppresses returns, while strong exports are a reason for rather than a consequence of weak domestic consumption. Meanwhile, companies distribute too little income and household deposits are concentrated among the affluent. Only by reducing the savings rate and increasing terminal demand can capacity utilisation be raised. China should reduce its total savings rates, reform its tax system, encourage private enterprises to increase dividends, funnel RMB20 trillion of listed state capital into social-security funds, use 50 per cent of macroeconomic to address the problem, raise pensions to release consumption and use housing support to address the mismatch facing migrant workers. — Former Vice-Chair, Committee for Economic Affairs of the 13th CPPCC National Committee; former Vice-President, Development Research Centre of the State Council (中国宏观经济论坛, 7 July).

Li Wei (李巍): China risks falling into a seventeenth-century “Dutch trap” [荷兰陷阱] if its expanding commercial footprint outstrips its capacity to protect overseas assets, personnel and international routes. China should therefore focus on building a robust system to safeguard its overseas interests. Great-power competition is shifting from seizing wealth towards creating it through technology, commercial application and industrial ecosystems, putting “super-enterprises” on the front lines of geopolitical competition. Chinese companies need to achieve a genuine breakthrough in profitability, rather than simply in sales volume, to achieve sustainable progress. Although globalisation faces severe challenges, it is not coming to an end. Several questions remain: whether China can maintain its status as the “world’s factory” and further climb up the global value chain; whether the US can reindustrialise; and whether emerging manufacturing bases can replicate the industrialisation experience of the “Four Asian Tigers” — Wu Yuzhang Distinguished Professor and Deputy Dean, School of International Studies, Renmin University of China (财经, 2 July).

Liang Dong (梁栋), Wu Ting (吴婷) and Wu Huimin (吴慧敏): “Going global” is not the end goal. Outward investment matters only insofar as it feeds profits and productive capabilities back into China’s domestic economy, advances “dual circulation” and avoids industrial hollowing-out. China has yet to convert its vast domestic industrial advantages into a commensurate capacity to own and earn income from overseas assets. Notably, it still runs an investment-income deficit. Japan offers lessons—including its retention of domestic “mother factories”—but it’s not a model China can simply reproduce. Geopolitical fragmentation, investment restrictions and localisation requirements are replacing the sequential “flying geese” model with a sovereign-bounded “hive model” [蜂巢模式] of multi-centred local production, firms and suppliers moving abroad together. Ultimately, repatriated profits, personnel circulation and overseas R&D should return technology, standards and management capabilities to China. — CICC analysts; Wu Huimin is Executive Dean, CICC Global Institute, and Executive Head, CICC Research Department (中金研究院, 9 July).

Yang Ping (杨平): China’s current phase of exporting capital and productive capacity may damage the Global South’s national industries, triggering protectionism and resource nationalism. If Chinese expansion destroys Southern countries’ own industrialisation, China’s Global South strategy will have “turned entirely into its opposite”, creating new dependency rather than enabling development. Beijing must not conflate its commercial and strategic relationships with the Global South, and should instead coordinate China’s industrial development with Southern countries’ autonomous industrialisation. The “community with a shared future for mankind” requires a political economy that goes beyond generic claims of “win-win” cooperation. — Founder, President and Editor-in-Chief, Beijing Cultural Review (文化纵横, 16 July).

4. Middle East

Liu Zhongmin (刘中民): Renewed war has divided the Middle East into three loose power formations, but has not reversed the deeper shift towards regional strategic autonomy, reconciliation and development. The US- and Israeli-led Abraham Accords grouping now coexists with a Saudi–Pakistan–Turkey–Egypt “Sunni Diamond”, as well as Iran’s weakened but resilient “resistance front”. The new Sunni grouping is not trying to choose a camp or overturn the existing order, but to “find direction” and avoid marginalisation, while Saudi Arabia continues to uphold the two-state solution. This fragmentation has severely impacted, but not yet reversed the previous trend of easing tensions and pursuit of common development and it is increasingly difficult to shake the growing sense of strategic autonomy within the region. While US allies have been unable to completely break free from their security dependence on the US in the short term, they have significantly accelerated their diversification in security and diplomacy. — Professor, Middle East Studies Institute, Shanghai International Studies University (环球时报, 13 July).

Tang Zhichao (唐志超): The US–Israel–Iran conflict has accelerated the Middle East’s transition towards a “post-American era”. This will likely lead towards a more fragmented and disorderly, but more autonomous regional order. Washington’s Gulf security architecture has become a liability that attracts Iranian retaliation, while US forces have failed to protect partners or control Hormuz, shattering the myth of the invincible US security shield. The strategic development trend in the Gulf region has also been reversed, with countries falling into a new development–security dilemma. Regional fronts such as the “Four-Nation Group” of Saudi Arabia, Turkey, Pakistan and Egypt are coalescing and the fragmentation of the Middle East is further intensifying. The US strategy of using Iran as a breakthrough to contain China and Russia in the Middle East has been thwarted, with strategic cooperation between China and Middle Eastern countries deepening.— Professor and Deputy Director-General, Institute of West Asian and African Studies, CASS (当代世界, Issue 6, 2026).

5. South China Sea

Wu Shicun (吴士存): China will not proactively undertake further South China Sea reclamation, but fixed facilities on Scarborough Shoal remain an option. If Beijing builds, it will be because “external forces have left us with no choice”. Any Philippine vessel deliberately grounded at Sandy Cay will be towed away, although China itself does not intend to occupy the feature. Opening Taiwan-held Taiping Island to US or Japanese forces would cross a mainland red line if this developed into activity targeting the mainland or infringing Chinese sovereign rights. Beijing will likewise reject maritime delimitations reached without China that violate its sovereign rights. Practical cooperation should begin bilaterally with fish-stock surveys, catch quotas, coordinated licensing and pollution control. — Founding President and Chairman of the Academic Committee, National Institute for South China Sea Studies (South China Morning Post, 13 July).

Bao Yinan (包毅楠): The Hong Kong-based International Organisation for Mediation (IOMed) could provide China with a third-party mechanism for addressing selected South China Sea disputes without sacrificing the consent and procedural control that is lacking in compulsory arbitration. Proceedings at the IOMed require the agreement of all parties, allow any party to withdraw unilaterally and make only settlements that are formally concluded by the parties legally binding. China helped establish the organisation, was its first signatory, and five of eleven ASEAN countries have already joined. WTO disputes are excluded from its jurisdiction, but not sovereignty or maritime-delimitation disputes. UNCLOS allows parties to pursue consensual procedures before compulsory settlement, placing mediation within rather than outside the Convention. Scholars believe that a “salami-slicing” [切香肠] approach should be taken, prioritising “non-core disputes” [非核心争端] such as fisheries, marine environmental protection, submarine cables and pipelines and law-enforcement encounters. — Associate Research Fellow, Huayang Centre for Maritime Cooperation and Ocean Governance (亚太安全与海洋研究, Issue 3, 2026).

6. Neighbourhood Diplomacy

Zhou Fangyin (周方银): China should keep great-power rivalry from hardening its neighbourhood into opposing camps and make “de-securitisation” [去安全化] and “de-geopoliticisation” [去地缘政治化] central to regional cooperation during the 15th Five-Year Plan. Strategic competition among major powers is leading to a deterioration of China’s surrounding environment, with the US promoting the “de-Sinicisation” [去中国化] of supply chains and pressuring countries to introduce discriminatory policies against China. The securitisation of economic issues and the weaponisation of interdependence have become increasingly common in China’s neighbourhood since 2018, hampering regional integration. China possesses a significant military advantage compared to most of its neighbours, deterring other countries from provoking armed conflict. This provides space for China to firmly state its position, demonstrate goodwill and strengthen consultation with relevant countries. China should also deepen non-traditional security cooperation with its neighbours. — Professor, School of International Relations, Sun Yat-sen University (国际展望, Issue 2, 2026; via 爱思想, 16 July).

Zhao Long (赵隆): China’s neighbourhood will grow more unstable during the 15th Five-Year Plan as the US turns “island chains” into an “alliance chain” [盟链] and regional states oscillate between reducing dependence on Washington and binding themselves more tightly to the US. By forward-deploying partners and outsourcing costs, Washington is able to lower the threshold for military intervention. Trump’s “extractive partnership” produces both “doubt and fear of America” [疑美恐美]—unreliable commitments encourage greater autonomy and diversified ties, but fear of abandonment also pushes US-dependent states towards early declarations of support, over-compliance and surrendering policy space. European NATO members may back Washington’s Indo-Pacific strategy in order to keep US attention on Europe, even as Greenland threats and tariffs erode transatlantic trust. Beijing should build an Asian security model through shared security, respect for differences, dialogue, crisis management and low-sensitivity public goods, backed by BRI and RCEP cooperation, therefore strengthening neighbours’ resilience against external pressure. — Director, Institute for International Strategic and Security Studies, Shanghai Institutes for International Studies (SIIS) (国际展望, Issue 2, 2026; via 爱思想, 16 July).

Shi Yuanhua (石源华): China’s neighbourhood should remain the primary focus of its diplomacy until at least 2035. This “greater periphery” extends beyond China’s immediate neighbours to 64 states across six subregions and even includes the United States. China and the US form the two poles, while all other states are “middle countries” [中间国家] whose positions vary according to their interests rather than fixed bloc loyalties. This includes Japan, which, although clearly an ally of the US, may take a middle course between China and the US on certain issues. During the transition from “standing up” through “becoming prosperous” to “becoming strong”, China has gradually developed its own Indo-Pacific, or “Two-Ocean”, strategy. China’s north and west are relatively stable, while tensions in the east and south are more acute. The most important thing for China is to continue to grow stronger—it should wait until the time is ripe on the Taiwan issue, which may resolve itself without the need for military action, either through internal unrest in Taiwan or the US descending into chaos. — Distinguished Professor, Institute of International Studies, Fudan University (观察者网, 22 July).

7. Regional Policy

Zhang Yun (张云): Japan and the Philippines’ maritime-delimitation talks are less about drawing a boundary than about Tokyo’s attempting to move from subordination in the US system towards becoming a second centre of regional leadership alongside Washington. Tokyo is building direct links among American allies and “like-minded” states and Manila is an obvious partner because it is both a US treaty ally and a longstanding Japanese economic partner. The 2024 trilateral summit, Japan–Philippines Reciprocal Access Agreement and Japanese participation in Philippine exercises and live-fire anti-ship missile drills show that cooperation is moving from diplomacy towards operational military coordination. Japan’s rise to prominence can also reduce strategic costs for the US and under the Trump 2.0 framework, a new “US-Japan-Philippines-Australia” Quadrilateral Mechanism has promoted the deepening of strategic interaction between Japan and the Philippines. — Professor, Department of International Politics, School of International Relations, Nanjing University (中美聚焦, 6 July).

Mao Keji (毛克疾) and Mao Yaxin (毛雅欣): The Achille’s heel of India’s economic policy toward China is the paradox that it seeks to compete with China by utilising its capital, while simultaneously harbouring security concerns regarding Chinese investment. India has repeatedly oscillated between security anxieties, manufacturing ambitions and practical dependence, but guarding against Chinese investment has not yielded the expected results, with bilateral trade reaching new highs. This leaves India in the “double bind” of neither having reduced its dependence on China nor achieved its desired economic autonomy. Ultimately, India’s easing of approvals for Chinese investment in key industries does not mean it has abandoned its economic security logic. — Mao Keji, Associate Research Fellow, and Mao Yaxin, Research Assistant, International Cooperation Centre, National Development and Reform Commission (世界知识, Issue 13, 2026).

Wang Youming (王友明): Latin America’s rightward turn will complicate China’s position without dislodging it. Governments leaning towards Washington will still buy two “insurance policies”, of American political-security protection and Chinese economic support. The “Trump–Monroe doctrine” [唐罗主义] has become a coercive regional architecture, which combines military force and threats against Venezuela and Cuba with an “Americas Shield”—a critical-minerals alliance targeting the lithium triangle, a China-excluding “Silicon Peace Initiative” and open support for right-wing candidates. The consequences are already visible in Panama’s refusal to renew its Belt and Road memorandum, the revocation of a Chinese port concession and “cold politics, hot economics” under some right-wing governments. However, China remains difficult to replace as a commodity buyer, infrastructure provider and partner in the digitalisation and green development of mineral resources. — Senior Research Fellow, Department for World Peace and Security Studies, China Institute of International Studies (CIIS) (中美聚焦, 8 July).

8. AI & Tech

Zhu Songchun (朱松纯): Through the grand narrative of an “AGI race” and a capital bubble, the United States has successfully siphoned global capital into its domestic AI industry—the bubble will eventually burst, but the infrastructure will remain in the United States. Meanwhile, China ranks among the world leaders in the number of papers published, but its ability to define problems and open up new paradigms remains far too weak—China must abandon the mentality of a “follower” and stop copying the United States’ narrative framework. The true height of technological competition is autonomy in thought and narrative—this is, in essence, a cultural competition, not merely a technological one. We must break our “faith in data” and understand clearly that intelligence is led by values, not driven by data. Here the thousand-year exploration and discussion of the “heart” in Chinese thought points towards an AGI technological path based on Eastern philosophy and wisdom. — Director, Beijing Institute for General Artificial Intelligence; Dean, School of Intelligence Science and Technology, Peking University (知识分子, 19 July).

Huang Ping (黄平): Chinese AI has won the battle of “good enough and cheap”, but not the battle of “the strongest”, and America’s current restraint is a matter of choice, not a matter of capacity. Chinese models meet functional requirements while offering extremely good value for money, but America dominates the high-end market. America’s political toolkit remains largely unopened—Domestically, American companies using Chinese AI could easily be incorporated into a stricter regulatory framework, while America’s influence over its global network of allies is far stronger than it has so far demonstrated. Faced with this largely foreseeable blockade, China must prepare in advance. The limits of China’s power mean the best path is an indirect response, accelerating the depth of the global integration of its open-source ecosystem, focusing on the Global South and promoting local development of its weights. It should resist restricting foreign access to its strongest models. — Associate Professor and Assistant Dean, School of Public Policy; Deputy Director, Institute for International Affairs, Qianhai, CUHK-Shenzhen (大湾区评论, 15 July).

9. Society

Yao Yang (姚洋): Wang Hong’s Fields Medal shows what Chinese women can achieve, but the status of women in China is shrinking. In recent years, the space available for women to develop and flourish in China has shown signs of contraction. The socialist revolution launched a powerful movement for women’s liberation, and the number of women entering the workforce continued to grow with the transition to a market economy. However, the path for women into politics and public society is much narrower and within the senior cadre ranks there are only two female governors and no female provincial Party secretaries. Traditional thinking is returning, while overseas conservative thinking has also entered China, creating a trend of rejecting work to advance women’s rights. — Dean and Professor, Dishui Lake Advanced Finance Institute, Shanghai University of Finance and Economics (姚洋说, 29 July).

Zhou Lian (周濂) and Xu Jilin (许纪霖): Young Chinese are withdrawing from public life because repeated experiences of powerlessness have taught them that participation changes little. From the 1980s until around 2010, intellectuals and young people generally cared about public issues, but ten years ago, Chinese society underwent a significant change involving a turn towards the self and personal growth. Under the conditions of precarious and scarce employment, it is entirely understandable that young people treat “preserving the self” and “securing the present” as their primary objectives. Since reform and opening, those who received the greatest dividends were indeed the generations born in the 1950s, 1960s and 1970s. Among elites of this generation, the pathology is “dog-wisdom-ism” [狗智主义], meaning a cynicism that sees through hypocrisy but engages with it anyway, venting through irony rather than resistance. Meanwhile, China’s education system sets rules for children too early, limiting their creativity. — Zhou: Professor, School of Philosophy, Renmin University of China; Xu: Zijiang Scholar and Professor, Department of History, East China Normal University (许纪霖文化说, 13 July).

Dong Yue (董越): The mismatch between educational opportunity and job scarcity has produced a distinct group of graduate “squatting youth” [蹲族]—middle-class alumni of leading universities who remain outside of regular work, refusing jobs they regard as beneath the value of their education. They are distinct from those “lying flat”—rather than rejecting intense competition, their “squatting” is more strategic: through non-participation in employment, they resist competition they regard as unfair and standards of success they regard as alienating. Responses must move beyond the short-term logic of “forcing employment”. Structural and cultural problems require systematic solutions. Higher education should move from expansion based on scale towards high-quality development better adapted to economic needs and the government should improve social-security systems for freelancers, digital nomads and micro-entrepreneurs, providing low-cost environments for business incubation. — Faculty Member, School of International Education, Guangdong University of Finance (当代青年研究, 12 July).

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Zhou Juan on The Social Costs of China’s Education System | (29 July)

Zhou Juan’s striking claim is that Chinese children suffer not from an “excess of self”, but from selves that have never been fully formed. Academic competition divides pupils into over-disciplined “good kids” and withdrawn “bad kids”, but both are deprived of the free play, sustained relationships and unstructured time needed to develop judgement, empathy and emotional resilience. The result, Zhou argues, is a generation whose inner lives become narrow enough to be dominated by grades, adult approval, phones or games. Today’s silent, fragile and mutually alienated pupils will become tomorrow’s university students and will shape the country’s future class structure, Zhou concludes. Read here

Shi Zhan on RMB Appreciation and Building a “Shadow China” Abroad (22 July)

Shi Zhan goes beyond a call for companies to invest overseas, setting out a wider architecture for China’s next phase of globalisation. His argument—including his suggestion that renminbi appreciation could attract foreign buyers of Chinese government bonds, giving Beijing additional fiscal resources with which to cushion the resulting employment pressures—is striking. But what makes the piece especially relevant to European policymakers is the tension between the emerging “Made with China” narrative and Shi’s frank admission that only the “front end” of Chinese manufacturing will move abroad. Read here

Investing in People—or Just More Things? | Economic Digest: June 2026 (14 July)

Last month’s economics digest examines whether “investing in people” signals genuine rebalancing or simply repackages the country’s long-standing preference for investment. Chinese economists connect weak demand with strained local finances, increasing reliance on government and SOE borrowing, depressed household incomes and property-sector damage. They debate remedies ranging from rural pensions and social security to debt restructuring and institutional reform. Read here

Justin Yifu Lin on Pessimism about the Chinese Economy (9 July)

Justin Yifu Lin challenges three increasingly common diagnoses of China’s slowdown: state-sector overreach, demographic ageing and balance-sheet recession. He argues that weak growth stems primarily from the prolonged global slowdown since 2008, while state-backed infrastructure has supported private firms rather than displacing them. Education can keep “effective labour” rising despite ageing, and China’s vast household deposits suggest that weak consumption reflects confidence rather than insufficient resources. Notably, he treats pessimistic economic commentary itself as a cause of weak expectations. Read here

American Decline, Chinese Exposure | Digest: June 2026 (6 July)

June’s Chinese policy debate is confident about America’s relative decline, but less relaxed about the vulnerabilities accompanying China’s own rise. This digest tracks contrasting readings of Trump’s Taiwan policy, the US–Iran agreement, Europe’s growing resistance to Chinese exports and a new phase of firms “going out”. It also looks at North Korea’s nuclear status, Russia’s demographic contraction, weak domestic demand, AI-driven job disruption, social over-competition and dependence on overseas critical-mineral supplies. Read here

Zhang Jian on China, the EU and Russia “De-Risking” from the US (3 July)

Zhang Jian turns the language of “de-risking” back on Washington. China, Russia and Europe, Zhang argues, are simultaneously reducing their exposure to American finance, technology and security power, producing the effect of a collective response to US hegemony even without any formal coordination. Trump’s return has worsened Europe’s strategic position, improved Russia’s and expanded Beijing’s room for manoeuvre. Meanwhile, the digital euro, European defence autonomy and local-currency settlement all help weaken dollar dominance and bloc politics. Zhang likely overstates both Europe’s convergence with China and Russia and the deterioration of its transatlantic ties, but a CICIR vice-president treating Western fragmentation as an opening for China is a notable signal. Read here

N.B. Sinification features a broad spectrum of voices, ranging from conservative hawks and state propagandists to more moderate and liberal thinkers. Readers are encouraged to bear this diversity in mind when engaging with the content.

Orna Naftali is Abraham Miller Chair in Chinese Studies and Associate Professor in the Department of Asian Studies at the Hebrew University of Jerusalem. An anthropologist specializing in childhood, youth, education, and the family, as well as citizenship, legal consciousness, and national identity, she has authored three books: Children, Rights, and Modernity in China (2014), Children in China (2016), and Mobilising China's One-Child Generation: Education, Nationalism and Youth Militarisation in the PRC (2024). Her current research explores gender education, youth bullying, and juvenile delinquency in contemporary China. — Many thanks to her for contributing to this newsletter.

Debates over education and parenting often mirror deeper public anxieties about society’s current path and future direction. In the following essay on Chinese childhood, sociologist Zhou Juan delivers a sobering assessment, arguing that the crisis facing today’s children points to a fundamental fracture within Chinese society.

Zhou’s analysis reflects a wider academic and media discourse regarding youth issues—particularly isolation driven by digital addiction, soaring psychological distress and rising suicidal ideation. As she and other observers contend, this youth malaise is fuelled by ruthless academic competition and the strict regimentation of children’s time. Zhou argues that parents’ relentless drive for achievement strips children of emotional resilience, free play and a space of their own. She further notes that this pressurised landscape reveals distinct gender dynamics: girls frequently internalise strict discipline to succeed academically, whereas struggling boys are more likely to disengage or rebel. Meanwhile, China’s rural “left-behind children”, raised away from their migrant parents, face profound emotional detachment from caregivers who in Zhou’s words, “have no concept of what a childhood ought to look like.” Contrasting these contemporary conditions with her own 1980s-and-90s rural childhood, Zhou maintains that youth apathy today stems fundamentally from a growing disconnect with the natural environment and from “incomplete socialisation”. She warns that such deficient early experiences give rise to acute psychological distress that persists well into higher education and young adulthood.

Zhou’s insightful analysis helps explain the recent rise of the ‘lying flat’ (躺平) movement in China. Overwhelmed by 内卷 (“involutionary”) competition in school and the workplace, a growing number of Gen-Z and millennial youth are consciously lowering their expectations, choosing to forego home ownership, marriage and hyper-competitive career tracks. Beijing views this passive resistance as a direct threat to socio-economic stability and aggressively censors online debate around it. Indeed, state anxieties run deep: In April 2026, a Ministry of State Security official claimed that hostile foreign forces systematically orchestrate the “lying flat narrative” to “brainwash” young people in China. Yet while officials condemn the trend, the government has also launched various policy interventions to address the heavy academic burden Zhou describes.

Attempts to alleviate stress on primary and secondary school students in China date back at least to the early 2000s, most recently culminating in the 2021 “Double Reduction” (双减) policy, which curtailed homework loads and banned for-profit academic tutoring. Yet studies indicate that the policy has produced mixed results at best, failing to meaningfully ease the pressure on children. Ultimately, Zhou’s essay illuminates why such measures remain ineffective, while pointing to the root causes of the crisis in contemporary Chinese childhood.

— Orna Naftali

1. Reports of youth crime, suicide and psychological distress have prompted schools to expand counselling and therapy, with “fragility” [脆弱] becoming a widely observed characteristic of contemporary youth.

2. Such fragility stems not from insufficient hardship, but from childhoods lacking the emotional and social resources needed to absorb setbacks and recover from them effectively.

3. A grade-centred education system divides “good kids” [好孩子] from “bad kids” [坏孩子], giving each group radically different experiences of adult attention and discipline throughout childhood.

4. “Bad kids” are often given up on as unmanageable, retreating into a silent state dominated by online games and phones as meaningful communication with parents and teachers breaks down.

5. By contrast, the “good kids” live under tightly controlled schedules, becoming exemplars of good behaviour only by internalising discipline and suppressing their exhaustion, resistance and desire for freedom.

Orna Naftali’s Mobilising China’s One-Child Generation: Education, Nationalism and Youth Militarisation in the PRC (2024) draws on qualitative fieldwork as well as state, media, and school materials to examine the intersection of education, militarisation, class and gender identities among Chinese youth.

6. Despite receiving opposite treatment, both groups develop similarly narrow inner lives, easily dominated by grades, adult approval, online distractions or other single sources of emotional meaning.

7. Withdrawal and over-compliance are the contrasting responses to this same narrowness. The resulting mutual incomprehension between the two groups may eventually harden into divisions between the social classes of the future.

8. Both groups face internal conflicts: “bad kids” seek recognition despite withdrawing, while “good kids” desire freedom despite practising self-restraint. Silence and total submission mark the destructive extremes.

9. This cohort’s apparent “selfishness” reflects not an “excess of self” [自我过剩], but an underdeveloped self, deprived of the play, freedom and social interaction needed to cultivate judgement and empathy.

10. These problems are likely to persist into adulthood, contributing to mental-health problems, hypersensitivity and intolerance among university students and in wider society.

Name: Zhou Juan (周娟)
Year of birth: Not publicly available (Age: early 40s)
Position: Associate Professor, Department of Sociology, Huazhong Agricultural University
Research focus: Rural sociology; agricultural governance; smallholder farming
Education: BA in Social Work, Jilin University (2006); MA in Sociology, Nankai University (2008); PhD in Sociology, Chungnam National University, South Korea (2012)

FRAGILE, SILENT, PITIABLE, DIVIDED AND ISOLATED: WHAT IS GOING ON WITH OUR CHILDREN?
By Zhou Juan (周娟)
Published by New Rurality on 15 June 2023
Human edited machine translation
(Illustration by ChatGPT)

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What is going on with our children? This question is one that many educators and parents are asking. Growing numbers of adolescents are committing serious crimes or taking their own lives with apparent “ease” [轻易], while mental-health problems have become increasingly prevalent among young people.

Is there something the matter with them? Increasingly, schools are establishing counselling and psychological treatment clinics in an attempt to “save” our children through therapy and intervention. But if we are to do this, we need to understand what has actually happened to them.

Fragility [脆弱] is one of the main characteristics ascribed to adolescents in media discourse. In 2020, a fourteen-year-old boy in Wuhan jumped to his death after his mother slapped him in public. There are countless news stories of adolescents taking their own lives because they were not allowed to use their phones or were criticised by the teacher. When they see such reports or hear about such incidents, people born in the 1980s and members of older generations tend to wonder: “Why are children nowadays such snowflakes—unable to withstand the slightest blow or rebuke? When we were young, being beaten and scolded by our parents and teachers was perfectly normal, but we never heard about anyone killing themselves.”

Teachers, parents and psychological treatment organisations have come to regard inner fragility as a defining characteristic of today’s children. Consequently, teaching children to cope with setbacks and build resilience has become an important part of parenting, school education and psychological intervention.

But why exactly have our children become fragile? Is it because they have encountered too few setbacks? Every generation faces its own “setbacks”, just as every child encounters their own. Though the nature of those difficulties may change, life never ceases to present difficulties. For children growing up in the 1980s, not being able to eat the food they wanted, or being unable to hand over their school fees to their teacher on time, might have constituted a setback. For children today, a setback might mean their parents not buying them a toy they desire or refusing to let them use a mobile phone.

In reality, one finds that it is not that children [today] have experienced fewer setbacks, but that their ability to accept them has weakened. Why, then, have children become fragile?

The word “silence” [沉默] is what encapsulates another significant characteristic of children that is leaving teachers both alarmed and helpless to intervene. The headteacher of a township secondary school, who had thirty years of teaching experience, once described the present situation to us as follows:

“What makes us teachers feel most powerless nowadays is not that they [the students] are naughty and difficult to discipline. Naughty children are actually easier to discipline. It is the silence [that is the hardest to deal with]. Schools used to be difficult to manage because there was so much fighting. Now the pupils do not fight at all, but rather keep their heads down, pursuing romantic relationships and playing games. Boys in particular have lost their openness and vitality, unable to summon up any energy or spirit. We have no idea what they are thinking, they do not fight or speak and whatever you say to them, they offer no response or reaction. Neither parents nor teachers can enter their inner worlds, as they are unwilling to communicate with others, experiencing neither the desire nor the need to do so. Yet they do not feel frustrated or under pressure either. Even if they score only a few marks in an exam, they do not even particularly care. They are content with things as they are and have no motivation to change.”

Students of this kind account for about a quarter of pupils at this headteacher’s school.

It is as though these students have been transported into another world, where everything is about mobile phones and games. Neither teachers nor parents can pull them back. A transparent wall stands between our world and theirs, preventing information from passing between the two. Voices from this side cannot reach the other, while voices from that side cannot reach us. However much we shout and call out to them, the children simply turn their backs, lower their heads and look at their phones. They neither hear us nor see us, and nor do they want to hear or see us. We feel desperate, while they remain cold and placid. We cannot get in, while they disdain to come out. What we see is their silence, but in that other world they may be happy and active. The adults have no means of finding out and know nothing about it. Their silence may mean that we are “losing” our children.

“Pitiable” [可怜] is the word that describes another group of children standing in contrast to the silent types. These are the pupils whom the headteacher described as receiving particular attention from their parents and who have an especially conscientious attitude towards their studies. Unlike the children whom nobody supervises or can control, every moment of these children’s time is carefully managed—indeed, managed rather too carefully. From Monday to Sunday and from seven in the morning until nine at night, every part of their day is planned and scheduled. Even the period between nine at night and seven the next morning falls within the scope of “sleep management”: they mustn’t stay awake, they mustn’t go to bed late, and nor can they go to bed early.

There is nothing inherently wrong with time management. The problem is that all this management revolves around the idea of “study”. I have seen far too many children whose entire lives outside school are filled with extra tutoring, and far too many parents who enrol their children in every kind of class available on the market. The general pattern is that younger pupils are trapped by extra tutoring, while older pupils are trapped by homework. It is usual for junior secondary pupils to be doing homework after midnight. This is not because they work slowly, but because they are given that much work. Of course, I have also heard many parents complain that their children have no time to play or sleep. Yet even as they complain, they do not seem to stop enrolling their children in classes or pressing them to finish their homework. Parents have ample reason to justify themselves: “What else can we do? Everyone is competing this intensely [大家都这么卷]. If we refuse to join the rat race, we’ll be harming our children.”

I have observed these children and spoken with them. They are generally not very physically robust, and many are positively frail. They can genuinely be described as “model children” [很乖]. The girls in particular are so obedient that it hurts to see [怪得让人心疼]. They quietly accept their parents’ arrangements. Perhaps at first they were reluctant or resisted, but gradually they grew accustomed to them and even internalised them. They came to regard attending numerous supplementary classes and completing large amounts of homework as simply what they’re supposed to do or their given responsibility: “Isn’t everyone else doing the same?” Some children even ask to, or insist upon, attending extra tuition classes because all the other children do so.

Inwardly, they may experience many moments of collapse or crying out [“崩溃”和“哀嚎”], but these feelings are quickly suppressed and they rapidly “return to the proper track” [回归正轨]. They may even continue completing their schoolwork while collapsing and screaming inwardly. After all, they do not have much spare time to waste. I once saw a parent make the following remark online: “Do you know why girls increasingly outperform boys at school? Because girls are better than boys at enduring the competitive rat race [更耐‘卷’] and withstanding intensive ‘hot-house’ [抗‘鸡’（娃）] parenting.” Is this girls’ good fortune or their tragedy?

The main divide [撕裂] is between the “good kids” and the “bad kids”. Even within the same school and the same classroom, a clear boundary and profound gulf exist between the two. To the bad kids, the good kids are both “boring” and “not to be messed with”. They are boring because “all they know how to do is study, uncomprehending of anything we talk about, so we have nothing to say to each other—they’re like people from an entirely different world.” They are not to be messed with because “no matter whose fault it is, once the teacher gets involved, everything is always our fault [千错万错都是我们的错]. That’s what happens when you’re an underperforming student—the others are the ones the teachers will go out of their way to protect.”

To the good kids, the bad kids inspire both envy and disdain. They envy their “waywardness” [恣意] because it represents everything they want to do but cannot, yet they also disdain it because such behaviour is “despised” [唾弃] by parents, schools and even society. And so, beneath the same sky, in the same classroom and all within childhood, “good kids” and “bad kids” live as though they belong to two different worlds. They seldom communicate, struggle to understand one another and may even become antagonistic. Such a failure of communication, understanding and tolerance may well persist into adulthood and become a gulf between their respective social classes.

Children are also divided internally. Though one may be categorised as a “bad kid”, one still longs to be seen, recognised and praised, struggling between “going astray” and “becoming better”. Silence is one possible outcome of this struggle, and it is the worst one. Meanwhile, even “good kids” long to play and “let themselves go” [放纵]. They struggle between “indulgence” and “self-restraint”. Complete submission to discipline is one possible outcome of this struggle, and it too is the worst one. All these impulses are natural to children and, indeed, to human beings. But we—parents, teachers, schools and society—have not provided sufficient space in which these natural impulses can be expressed, reconciled and balanced. We leave children to face these internal divisions alone, allowing them all too easily to slide towards one extreme [让孩子独自在这些撕裂中轻易地滑向一种极端].

Isolation [孤立] is the cumulative impression created by the self-portrait of “the child” emerging from the different perspectives discussed above. Whether in families that are coldly indifferent or close-knit, jam-packed classrooms and crowded hallways, or amid the bustle and clamour of human society, they all feel isolated. This is because they lack sufficient time, space, opportunity and emotional energy to communicate and form connections with their parents, relatives, peers and society at large.

They appear to be surrounded by the family, school and society, and to be the objects of attention and care, yet they have never truly experienced an extensive or deep connection with anyone. All the attention paid by families, schools and society revolves around academic results. It is their marks, rather than the children themselves, that form the focus of concern. All of the child’s time, energy and emotional resources are likewise directed towards the single objective of academic results. It is as though each child, tightly surrounded by family, school and society, has an individual beam of “light” shining down upon them, while outside of that beam lie only darkness and emptiness [头顶都有一束单独照向他的“光”，“光束”之外皆是黑暗和虚无]. That lonely beam of “light” is the thing called “academic results”. Each beam lies apart, isolating the child from their surrounding world just as it beckons the child to rush desperately towards “that thing” as if their life depended on it. While the beams of light cannot merge, the darkness outside exists as a single whole [光束无法连成片，黑暗却融为了一体].

To feel what freedom is, children need enough unstructured time and unlimited space for their imaginations to roam. Only through knowing freedom can they actually experience their parents’ unconditional love and acceptance, and perceive the world’s beauty. Children need sustained and sufficiently frequent interaction with their peers before emotions such as love and hatred can be awakened in them. Only by playing, arguing and even fighting with their peers can they learn compromise, deference and respect, or understand rules and learn to abide by them. Only by learning and listening to stories from the adult world and about adults’ emotional lives can children gradually come to know and understand our world. More importantly, it is only through these sustained and profound interactions and connections with others that they can learn to put themselves in another person’s position [换位思考] and thereby develop empathy. This empathy is the starting point and foundation from which children may learn to tolerate others and assimilate into our world.

However, if children’s extra-curricular time is not only filled up with study but also fragmented [打碎] by an assortment of supplementary classes, or if their minds are burdened by studying and the pursuit of grades, how will they be able to sustain interactions or form deep connections with their relatives and peers? Time at school is essentially already set aside for study, and moreover schools now follow the principle that safety comes first, not even allowing children to leave the classroom during breaks, let alone romp about [嬉戏打闹] and play.

During lessons the rule is emphatically: “No talking.” At boarding schools, the desire to make pupils easier to manage means they are expected to remain in their classrooms at all times apart from meals. “Messing around” is anathema [最忌“打闹”], and the rule number one at bedtime is “No talking.” Even in nursery, the first rule that children are required to obey is “No talking”, followed by “Sit straight and don’t shuffle around.” Meanwhile, the communities of familiar faces in the neighbourhood that once provided the main setting in which children could organise their own play-dates, play or mess around have long since disappeared. Many families, moreover, have only one child. Whether looked at vertically or horizontally, our children are isolated—isolated from their families, school and society.

Many people believe that today’s young people suffer from an “excess of self” [自我过剩], that they are too egotistical, care only about themselves and give no thought to others—or, put it less politely, selfish and narrow-minded. I do not think this is an “excess of self”. Rather, it is the consequence of having failed to form a “self”.

Relevant theories in both psychology and sociology hold that the self is formed through interaction with others. Through various forms of social contact and interaction, children ought to come to know themselves by coming to know other people, while also learning norms through those interactions. But they are isolated in the three principal settings of socialisation—the family, the peer group and the school—and lack both interaction and deep communication. It is therefore difficult for them to carry through the process of socialisation to the end and form a mature and integrated sense of self. Selfishness and narrow-mindedness involve making calculations founded on a fully developed awareness of oneself. In this sense, what is described as young people’s “self-centredness” is, in my view, not selfishness or narrow-mindedness. It is rather a manifestation of incomplete socialisation and a “self” that is not fully formed—a form of “immaturity” or arrested development [一种社会化未完成、“自我”未完整的表现，即是一种“幼稚”或“幼态”].

Another consequence of isolation is that it leaves children unable to develop an inner life [心灵之域]. What is this inner life? Put simply, it is the child’s internal “secret garden”. It might contain a magical natural world, animals that understand their feelings, intimate companions, beloved toys, favourite games, people they like and “places” known to no one but themselves. It may contain a castle or small wooden cabin where they can be alone and where extraordinary, unexpected events might occur at any moment. It is the child’s own world. They enter this secret garden when they are happy, and when they have been hurt, allowing them to hide in the castle to relish their happiness alone or heal their wounds. By communicating with animals or enjoying the companionship of friends, they can either share their joy or the burden of their pain. This world acts as a buffer for negative emotions, an amplifier of positive ones and a space in which children can reconcile themselves both with who they are and with the external world.

When I was young, my parents argued frequently and sometimes even came to blows. My mother would hit me almost every day and, sometimes, not just once. Yet, neither back then nor today has this caused me much psychological trauma. This is because I was far too busy: in my head, I was responsible for “managing” all the fruit trees in our village, the fish in its streams and all our family’s animals. I knew how many fruit trees of each kind every household had planted, where on the mountain the wild hawthorns, wild jujubes and other fruits grew, and which field ridge had a towering mulberry tree. I knew which ditches were deep or shallow, which were full of eels and which were teeming with crabs and shrimps. I knew which mountain hollows contained legions of centipedes, which slopes abounded in medicinal herbs and where the venomous snakes lay in droves. I knew when each kind of fruit would ripen, when each kind of fish should be caught, and when to hunt for centipedes or gather medicinal herbs. I knew all these things intimately and regarded them all as my own.

I also knew which of my friends were the most suitable companions for catching centipedes and which were better for picking fruit. At home there was the little dog to which I was closest, a kitten I had rescued, the pigs, chickens and ducks that I had to feed three times a day, and the old ox that I cherished the most and was entirely responsible for taking out to graze.

The whole village was my “secret garden”. Throughout the four seasons, and even for different months of a single season, I always had my own things to keep me busy. I was free and happy in my secret garden. My parents’ arguments, my mother’s slaps and bullying from my schoolmates became merely parts of my life. Sometimes, even feelings of utter sadness and pain would vanish without a trace [消散无踪] at the moment when, perched on the ox’s back, I saw the fading glow of the setting sun.

When your life and inner life have so many dimensions, it is difficult to become so fixated on one thing or person that you cannot let it go. It is also hard to regard any one matter, especially a single difficulty, as overwhelmingly large or serious. In other words, a person’s inner life is relative. The magnitude of an “event” depends on the breadth of one’s inner mind, and the breadth and scope of children’s inner lives shape the emotional capacity, imagination and richness of their minds. When children have no time to encounter nature, make friends or develop their own interests, and when their sole objective is a single set of marks or measure of academic performance, it is a challenge for them to develop a rich and expansive inner life. It may instead become a barren, dry plain [荒芜如枯原], ready to be occupied immediately by games and mobile phones. Alternatively, it may contain only their parents and teachers, whose emotions might even substitute for the children’s own. This leaves their emotions without a buffer, apt to become narrow and inflexible [单一而偏执].

One can imagine, perhaps, that the inner wilderness of the fourteen-year-old boy who jumped to his death after his mother slapped him in public had, throughout his fourteen years on the planet, contained little else but his mother and her expectations. When the sensation of his mother’s disappointed words and her slap came crashing down on him [席卷而来], that stifled [逼仄] psychological space could no longer contain all the pent-up feeling that had accumulated within it. Once the place occupied in their minds by parents and teachers is taken over by a particular star, it is likewise possible to imagine the intensity of these children’s celebrity worship.

My nephew is a “seasoned” [资深] young internet addict. He is a typical case: he never raises his head, never speaks and [barely] eats, while his eyes remain permanently glued to his games and his mobile phone. On one occasion, when I spotted an opportunity, I quickly tried to start a conversation about something that interested him. I asked him why the game was so much fun, with the idea of him describing what exactly made it interesting and which elements appealed to him. He replied: “Fuck, it’s so intense!” I asked what exactly made it intense. He answered: “It’s just so intense—so, so intense!” I asked again and received the same answer. Then I understood. In his barren inner world, occupied by nothing but games, there existed no rich store of adjectives. “So intense” [太刺激] was the only phrase he possessed to describe his favourite game. Perhaps even the words “Fuck, it’s so intense!” had been learnt from the game itself.

This is true not only of my nephew. Some of the adolescents I have interviewed are unable to express their thoughts through language, let alone draw upon a rich vocabulary to describe things. Whether they are describing an event or a mood, beauty or ugliness, they can do little more than let the adverbs “extremely”, “very” and “so” do the full heavy lifting [使劲用“非常”“很”“太”这几个副词]. One possible reason for this inability to express and describe things is that prolonged exposure to mobile-phone videos and games has prevented them from acquiring a command of language. Another is that they have lost the capacity to feel, and simply have no thoughts left within them to express.

A stifled and barren inner life cannot nurture a rich and sensitive mind. While making it difficult for children to experience their own joy, anger, sorrow and happiness [喜怒哀乐], it also makes it hard for them to perceive the hardships and suffering of others, understand the world’s plurality and richness, or tolerate the differences within it. Are the various forms of antagonism found online not also manifestations of an inability to tolerate diversity and difference? Such a constricted and barren inner world arises from a constricted and barren childhood, but the anaemic desolation [苍白荒芜] of our children’s youth is not their fault. It is ours.

The importance of children to a society goes without saying. Here, I merely wish to use several observations to discuss the possible social consequences of a barren childhood.

First, during my rural fieldwork in recent years, I have found that many parents born in the 1990s have chosen to give up migrant work elsewhere [放弃在外务工] and return to their villages to accompany and supervise their children. Many explain their decision by saying, “I grew up as a left-behind child [留守儿童], and I don’t want my own child to become one as well.” It is indeed true that, in schools, many of the children who are difficult to discipline or remain silent are these left-behind children, whose academic performance also tends to be poorer. Yet these parents born in the 1990s, as former left-behind children, face a major difficulty: they do not know how they should raise their own children. Either they remain unable to manage them properly, or they enrol them in a large quantity of extra tuition classes. Put otherwise, they know only that they must not allow their children to become left-behind children, but have no concept of what a childhood ought to look like.

Second, while discussing adolescents’ mental-health problems with a secondary-school headteacher, I remarked in passing that such issues were also increasingly prevalent among university students, turning into a serious problem. The headteacher took up my remark quite naturally, saying, “That’s because they come to university from schools like ours!” I was taken aback for a moment before I understood. Of course! The headteacher meant that the problems affecting today’s primary and secondary pupils are not merely problems affecting schoolchildren. These pupils will grow up to become university students and young adults in society. As they mature, their problems will not disappear but rather evolve into a different kind of social problem.

Third, the American scholars Greg Lukianoff and Jonathan Haidt argue in The Coddling of the American Mind that one important reason American university students have become so inflexible, hypersensitive, quick to take offence, easily provoked and intolerant is the childhood they lost amid educational competition. Such characteristics of university students have directly contributed to some of the problems found on American campuses today, and even to certain problems within society more broadly.

Lukianoff and Haidt argue that one important reason American university students have become so inflexible and hypersensitive is the childhood they lost amid educational competition.

He was responding to my questions about the sustainability of China’s trade surplus with Europe. His argument in a nutshell: Beijing recognises there’s a problem, but it will be resolved by the transition from a “Made in China” world to a “Made with China” paradigm that promises jobs and local value creation for host economies.

I was left with the impression of an important new line being worked into shape.

The case for a new wave of Chinese overseas investment is gaining ground in both discourse and policy. Last month saw the publication of a new State Council regulation granting Beijing wide-ranging powers to punish foreign entities deemed to harm Chinese investors and our new June digest section, “Going Out”, engaged with this trend.

The article by Shi Zhan, a profess…

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Still, the temptation to depict Gao as a rare truth teller within a supine profession, though common enough in comments on Xiaohongshu and revealing of frustration with official control of economic narratives, does a disservice to other Chinese economists. It also does not reflect how even establishment economists see their fellow practitioners: just last month, Justin Yifu Lin criticised the dampening effect of other economists’ pessimism upon public expectations. The economists in question might respond that probing the structural underpinnings of China’s economic trajectory is a more useful exercise than producing “positive energy”.

Usually, economic critiques take less overt forms than the public doubting of official statistics. The Chinese obituaries for Gao ground his reputation not just in his frankness, but rather in his unusual ability to combine the broad perspective of policy statecraft with the instincts of a sell-side strategist. That reputation was established after 2006, when he correctly foresaw that industrial overcapacity and weak returns on productive investment in China would channel liquidity generated by China’s trade surpluses towards equities and property, driving a prolonged upward revaluation of these assets (cf. the subsequent property boom).

That mode of structural diagnosis continues. In a piece surveyed here, Li Xunlei, chief economist at Zhongtai Securities, echoes Gao’s classic analysis of asset revaluation with an account of how industrial overcapacity and asset inflation interacted in China’s post-reform economy. After 2008, industrial overcapacity and weak household purchasing power allowed the money supply to grow without comparable consumer-price inflation, while the surging property sector absorbed liquidity and became the main engine of credit expansion sustaining China’s investment-led growth model.

Since the property slump began in 2021, Li observes that credit generation has shifted away from land finance and towards bond issuance by local governments and SOEs. This may superficially accord with the policy objective of deepening capital markets, but it also amounts to a continuation—via new mechanisms—of public-sector balance sheet expansion to compensate for weak household purchasing power and sluggish private investment. Consequently, he expects the twin imperatives of financing technological investment and supporting an ageing population to keep government leverage on an upward trajectory for the foreseeable future.

However, with local governments financially stretched, the scope for further locally financed stimulus may be limited. Zhao Wei, chief economist at Shenwan Hongyuan Securities, shows that falling fixed-asset investment in April stemmed mainly from deleveraging by fiscally strained local governments, while reliance on fines, administrative fees and one-off asset sales to shore up revenues has increased in many provinces. Lu Ting, chief economist at Nomura, compares this phenomenon to Japan’s experience of balance-sheet recession, arguing that systemic debt is blocking the transmission of monetary loosening and stimulus into effective investment. He therefore calls for centrally coordinated support and tighter auditing of local governments as prerequisites for clearing out the bad debt and restoring broader demand and investment.

The familiar long-term prescription for reform of the economy is, of course, “investing in people”—boosting disposable income among households to restore demand and private investment. However, this slogan means different things to different people, and there are doubts among its strongest proponents about whether genuine household rebalancing will follow. Economists such as Li Xunlei, Lu Feng (卢锋, not the industrial economist 路风) and Zhang Xiaojing are in favour of deep, structural rebalancing towards households, but all note that institutional biases favouring quantifiable investment in industry make this extremely difficult. In another piece, Li raises the issue of a potential gap between rhetoric and actual policy in his aside on a recent Qiushi editorial.

They are probably right to be sceptical. Yin Yanlin, Vice-Chairman of the National CPPCC’s Economic Affairs Committee, and Lu Feng (路风), the influential industrial economist, explain in their analyses why the expansion of the services sector and investment in people ought not to be seen as broad rebalancing. In their view, implementation must proceed cautiously, selectively and strictly in light of the ultimate strategic priorities which, as both of them underline, are ensuring the primacy of investment and sustaining industrial vitality.

— James Farquharson

1. Local Government Finances:

   1. Li Xunlei on China’s shifting engines of monetary expansion and rising public leverage.

   2. Lu Ting on hidden bad debts and the limits of stimulus transmission.

   3. Zhao Wei, Jia Dongxu & Hou Qiannan on the local fiscal strain behind the investment slowdown.

   4. Zhang Yu on audit findings exposing distorted fiscal incentives and weak policy implementation among local governments.

2. Structural Splits:

   1. Shen Jianguang on three expanding divides in the Chinese economy.

   2. Guan Tao on China’s K-shaped economy and risky dependence on the global AI cycle.

3. Rebalancing:

   1. Li Xunlei on the structural causes behind weak consumption, overcapacity and rising debt.

   2. Lu Feng on the institutional reform required to rebalance supply and demand.

   3. Zhang Xiaojing on how China’s growth model privileges producers over households.

   4. Qu Hongbin on consumer demand as the missing link in innovation commercialisation.

   5. Huang Yiping on reversing decades of wealth transfers from households to producers.

   6. Liu Shijin on expanding the middle class and reshaping local fiscal incentives.

4. … or Just Adjusting the Course?:

   1. Justin Yifu Lin on the flaws of three pessimistic takes on the Chinese economy.

   2. Yin Yanlin on defining “investing in people” as targeted fixed-asset investment.

   3. Lu Feng on services as an integral component of industrial strength.

   4. Zhang Jun on strengthening original innovation rather than chasing fashionable technologies.

5. Capital Markets:

   1. Wang Jian on a liquidity trap with Chinese characteristics.

   2. Liu Xiaochun on trialling hybrid credit-equity financing for technology start-ups.

6. Property Market:

   1. Zhu Ning on why seasonal sales improvement does not signal a national housing recovery.

   2. Luo Zhiheng on uneven property stabilisation amidst declining systemic risk.

7. Artificial Intelligence:

   1. Zhang Fan on redesigning taxation for an economy less dependent on labour income.

   2. Jiang Xiaojuan on AI’s unusually broad threat to educated employment.

   3. Justin Yifu Lin on China’s advantages and constraints in the Fourth Industrial Revolution.

1. Local-Government Finances

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But as with most simple theories, there are certain blind spots. Lin does not account for how successful industrial policy might depend on defying, or rather newly defining, an economy’s landscape of comparative advantage through legal and political frameworks that favour certain economic actors over others, or currency intervention that depresses the foreign-currency value of wages and output. This was essentially the criticism made by the South Korean economist Ha…

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