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 culture in the modern period, Xu is identified as a Chinese liberal and proponent of reform within the current Chinese system. His writings before 2015 addressed hot political topics of the day, such as the political role of intellectuals in China (the 2004 debate over ‘public intellectuals’), what China’s role in the world should be (the debate over Tianxia-ism), and humanistic readings of Party ideology. However, like his PRC compatriots, Xu has stepped back from political commentary under the strictures of current Party policy. Instead, he has turned to social commentary with a focus on youth issues and light essays and online lectures plumbing both modern and traditional history for useful lessons—not, as before, for Party leadership but for fellow citizens in general and youth in particular. In this way he continues his commitment as a public intellectual in China’s “New Era.”

In this piece Xu dissects the phenomena of “lying flat” (tangping), “involution” (neijuan), 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, though Xu displays his academic chops by citing German sociologist Max Scheler’s theory of ressentiment. This term, it emerges, is the key point and warning of the essay: such broad-based, diffuse resentment against fellow youth who have done well and toward all elites is a volatile social cocktail that in modern history led to violent revolution (Xu invokes the ressentiment of Chinese intellectuals before 1949). Thus, 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.”

—Timothy Cheek

1. “Lying flat” among younger generations is a symptom of dissatisfaction with the inescapable realities of blocked social mobility and reduced opportunities, rather than a lifestyle choice that is actively made.

2. The phenomenon is closely associated with “next-wave culture”—the experience of those born in the 1990s and 2000s, who came of age amid increasingly ossified social hierarchies and utilitarian outlooks.

3. This lies in contrast to the idealism and expanding opportunities experienced by the “former-wave” generations, which fostered faith in personal striving and a sense of individual destinies being bound to the nation’s future.

4. Those who claim to have actively embraced lying flat are either privileged “pseudo-adherents”, whose withdrawal is enabled by security rather than imposed by constraint, or a small minority of genuine philosophical Cynics.

5. Most adherents of lying flat, however, are reluctant. Beneath the outward withdrawal from society lies deep resentment towards a system that demands constant effort while distributing its rewards unequally.

6. Faced with these diminishing prospects in the modern meritocracy, lying flat psychologically allows individuals to lower their expectations while continuing to function.

7. Lying flat is therefore also associated with the spread of “low desire” among young people, who grew up amid material abundance but feel that there is little prospect of achieving distant ambitions.

8. It also reflects a withdrawal from broad ideological narratives among the younger generations. It elevates the individual, spontaneous will above all else, but it is the will of a “hollow subject” rather than an active intellect.

9. Such withdrawal does not preclude the risk of political instability. Historically, in China’s mobile yet hierarchical society, frustrated aspirations have tended to accumulate into a destructive “disorganised force” that cannot readily be bargained with.

10. China’s leadership must take this problem extremely seriously: accumulated resentment could develop into a destructive “great flood” that elites may struggle to control.

Name: Xu Jilin (许纪霖)
Year of birth: March 1957 (age: 69)
Positions: Professor and Zijiang Scholar, East China Normal University (ECNU); Deputy Director of the Institute of Modern Chinese Thought and Culture (under the Ministry of Education), ECNU
Research Focus: China’s modern and contemporary intellectual history; 20th and 21st century Chinese culture
Education: BA East China Normal University (1978-1982)
Other: Owing to the Cultural Revolution, the university entrance exam was still suspended when Xu graduated from high school in 1975. As a result, he was sent to work in the countryside as part of the “Down to the Countryside” movement. He began his bachelor’s degree in 1978 after the exam was reinstated.
Experience abroad: Australian National University (2000); National University of Singapore (2000); Harvard University (2001-2); University of British Columbia (2004); University of Tokyo (2005); Taiwan’s Academia Sinica (2008); France’s École des Hautes Études en Sciences Sociales (2009); and Japan’s Aichi University (2010).

LYING FLAT AND THE CULTURE OF THE ‘90s GENERATION
By Xu Jilin (许纪霖）
Published in the journal “Exploration and Free Views” in December 2021
Thank you to Xu Jilin for his permission to share this article
Translated by James Farquharson
(Illustration by ChatGPT)

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“Lying flat” [躺平] was one of the most fervent topics of debate in 2021, becoming a sociocultural phenomenon of emblematic significance. Though the term’s meaning is open to interpretation, my view is that the most quintessential form of “lying flat” is a phenomenon inseparable from the generation born in the ‘90s—a manifestation of “next wave” culture.

[Notes: “Lying flat” (躺平) is a movement which arose in 2021, calling for retreat from the competitive pressures of modern Chinese society. “‘Next wave’” culture” (“后浪"文化) is a term originating from a state-produced 2020 Youth Day video that refers to the experience of the post-‘90s generations, born into relative wealth and stability—but as Xu argues, with fewer opportunities for upward social mobility—compared to the earlier, “former wave” generations, whose experience was shaped by historical upheaval, social transformations and intellectual ferment.]

One might use three different lenses or perspectives to analyse social phenomena in China, namely the “left–right”, “upper–lower” and “before–after” divides. What one means by “left–right” is analysing young people through the lens of their ideological and political positions. This analytical approach yielded great results [卓为有效] in the wake of the great debate [大论战] between liberals and the New Left in the 1990s. [Note: The mid-1990s debate pitted liberals emphasising rights and constitutional reform against New Left critics of marketisation and inequality.] In recent years though, the inherent limitations of such an ideology-based approach to drawing distinctions have become apparent. The ‘90s generation grew up amidst a “depoliticised” era. Most are completely indifferent [漠不关心] to any kind of grand narrative, with scant interest in either left- or right-wing ideologies. Hence, trying to understand this generation through a traditional “left–right” divide is asking the wrong question, especially since the complexity of China’s contemporary social problems cannot exactly be encompassed by “left” and “right” distinctions.

The second approach, that of looking at the “upper–lower” strata, has attracted growing attention amidst the polarisation of society’s wealth distribution, the intensification of “involution” [内卷] and the ossification of social mobility. China’s modern concept of lying flat resembles the idea of the “lower stream society” [下流社会] that emerged in Japan at the turn of the century. It is a life choice made, either willingly or unwillingly, by young people in the lower reaches of the middle class who have lost hope of upward mobility. One might locate the sociological origins of lying flat within that relationship between “upper and lower” strata in the social structure.

What I want to focus on today is the third, or “former–latter” dimension. This involves examining lying flat from the perspective of generational succession, as a phenomenon quintessential to those born in the ‘90s. I have a basic analytical framework for generational change in contemporary China. Essentially, those born in the 1950s and 1960s are now the older generation, or the quintessential “former wave” [前浪]; the quintessential “next wave” [后浪] is made up of new human beings born in the ‘90s and ‘00s; and the intervening generation of those born in the ‘70s and ‘80s are less typical, sharing characteristics of both the former and latter waves. Those of the former wave, the ‘50s and ‘60s generation, had their ingrained dispositions formed during the “enlightenment” atmosphere of the last century’s end, and are possessed of a post-idealist spirit [Note: Xu’s own generation]. For them, without convictions and ideals, poetry and distant horizons, life is meaningless [何以谈人生].

The ‘90s and ‘00s “next wave”, by contrast, came of age in the secularised atmosphere that followed the 1990s. The intensification of exam-oriented schooling and the influence of a utilitarian philosophy of life that recognises only success at the expense of values have created a vast, perhaps even unbridgeable, gulf between many young members of the next wave (though not all of them) and their parents’ generation. This spans their values and outlook on life, their modes of thought and their aesthetic tastes. It was against this background of generational conflict that the phenomenon known as “lying flat” emerged.

However bitter or exhausting life becomes, the former-wave generation has always believed in the value and meaning of striving. So long as one makes a personal effort, there is always hope and a future path ahead. If you ultimately failed, you accepted your fate [认命]. The older generation possesses a deeply rooted concern for family, nation and the wider world [家国天下]. Having lived through great historical upheavals and dramatic ups-and-downs, they believe that individual destiny and the nation’s future are interwoven and cannot be separated for an instant. They delight in discussing great affairs of state and the globe: the nation’s lofty prospects are also their own future destinies. Yet if the parents’ generation were “born under a red flag” [红旗下的蛋], their children’s generation are “born under a national flag” [国旗下的蛋]. The ‘90s “next wave” grew up amid China’s rise, possessing an instinctive love for the motherland and the state. They feel “red by nature”: the motherland is the home with which they naturally identify, while the state enjoys unquestioned legitimacy as the political embodiment of their national community.

Paradoxically, however, whereas the older generation cannot separate the self from family and nation, for the younger generation the self is the self and the state is the state. They seem like two entirely different “skins”. Hence we find the emergence in the ‘90s generation of a peculiar psychological phenomenon that their parents find utterly incomprehensible: “complete confidence in the nation’s future, coupled with utter despair about one’s personal fate”.

“Former wave” and “next wave” are both relative terms. It is revealing here to compare those born in the 1980s with those born in the 1990s. Last year, the promotional film Next Wave, released by the video website Bilibili for Youth Day on 4 May, caused an enormous stir. [Note: Xu is picking up on the backlash that the video generated among young people against the video’s narrative and its “paternalistic” [爹味] tone.] Yet it was chiefly the post-1980 generation that was genuinely excited by it. “The freedom to learn a language, master a craft, appreciate a film or travel to a distant place”: such sweeping confidence and readiness to take on the world [傲视天下] belong precisely to the self-assurance of those born in the ‘80s, who came of age during times favourable to economic development. Good jobs offering freedom of choice were everywhere, while house prices remained within reach through a family-funded deposit and a personal mortgage.

Based on my observations, however, young professionals born in the ‘90s were generally unmoved by Next Wave, even regarding it with a degree of contempt. The outbreak of the China–US trade war, difficulties in finding employment and soaring house prices meant that the ‘90s generation, only recently out of university and newly arrived in the workplace, no longer shared that sense of success and swollen self-confidence enjoyed by those ten years older. To the contrary, trapped instead in involution, “996” work culture [9am–9pm, 6 days a week], and various systemic pressures, they feel that no matter how desperately they struggle, they still cannot discern even the slightest wisp of a future. Promotion, marriage and children have all become dreams visible in the distance but beyond their reach [可望不可即]. Lying flat consequently emerged as a new way of living or posture towards life.

In fact, before lying flat emerged, another buzzword had already become popular: the so-called “Buddha-like youth” [佛系青年] or “Buddhist lifestyle”. On the surface, lying flat and being Buddha-like may appear to be the same thing, embodying the same posture towards life. Their inner differences, however, are enormous. First, Buddha-like young people consciously choose such a Buddhist lifestyle. Amid fierce competition in the workplace, they began to reconsider and redefine the value of life. Is it really necessary to go all out [打拼]? How, fundamentally, can one live contentedly and find one’s place in the world? A minority of young people therefore changed the way they live. They took a step back from the active life of struggling in order to win and turned instead towards a Zhuangzi-esque or Zen Buddhist life, seeking inner freedom, ease and untroubled spontaneity [逍遥自在]. By contrast, most young people who lie flat have been left with no choice. They lack the inner self-awareness of Buddha-like youth and the willingness to take that pathway. Lying flat is an unwilling makeshift expedient [权宜之计] taken in the face of an inescapable reality. The Buddha-like life involves both rational awareness and a voluntary act of will; lying flat is neither conscious nor voluntary. This is why it contains, deep within it, the resentment to which I will turn later on.

Second, in its quintessential form, the Buddha-like outlook belongs to those born in the ‘80s, whereas lying flat is a cultural phenomenon distinctive to the ‘90s generation. The capital needed for a carefree, Buddha-like existence relies on a certain degree of material security and accumulated wealth. Young people born in the ‘80s could achieve this, but that is an unaffordable luxury for those born in the ‘90s and who have suffered repeated setbacks in the work environment. They can respond to their straitened circumstances only through the passive posture of the “five don’ts” [五不]: do not buy a car, do not buy a home, do not date, do not marry and do not have children. This is the uncomfortable implication of lying flat. It operates on an entirely different level to the carefree facility [潇洒自如] of the Buddha-like youth, and as a state of being, is worlds apart.

As the trend of lying flat sweeps upon us, we need to distinguish the subtle differences within it. Among those proclaiming lying flat the loudest [喊得震天响] in China today, I can identify at least three types: pseudo-adherents of lying flat, active adherents and passive adherents.

The pseudo-adherents of lying flat are the winners in our age of competition; they might equally be called adherents of “winning while lying down” [躺赢]. Some have already achieved financial independence and can let themselves go without too much scruple. Others can say that “my father is Li Gang”: they have powerful patrons behind them and can make money without getting out of bed. [Note: a young man reportedly shouted this following a fatal drink-driving collision in 2010, his father being Li Gang, a senior local police official.] As an online saying puts it, “The successful can cultivate themselves; the poor are left with no choice.” [Note: 达者独善其身，穷者无可奈何, a play on a phrase from Mencius, “if poor, focus on self-cultivation; if successful, work for the benefit of the wider world” 穷则独善其身，达则兼济天下.] The genuine adherents of lying flat are the poor who have no choice, whereas the pseudo adherents are successful people concerned only with their own self-cultivation. All they seek is the peace of mind and untroubled existence afforded by adopting the posture of lying flat. There is nothing tragic about their social position. On the contrary, they are successful or fortunate people whom everyone envies. Who wouldn’t like to win without trying? Most people simply lack the necessary capital and luck.

The second type consists of active adherents of lying flat. They possess a degree of conscious awareness, transforming an existence imposed upon them by necessity into a consciously embraced, “-ism”, a beautiful inner utopia. Lying flat is thereby elevated into the ideology of “lying-flatism”. One of the earliest online posts to launch the discussion, “Lying Flat Is Justice”, was a metaphysical spiritual manifesto:

“I can bask in the sun and sleep in my barrel like Diogenes, or live in a cave like Heraclitus and contemplate the Logos. Since no intellectual current genuinely upholding human subjectivity has ever existed in this land, I can create one for myself. Lying flat is my philosophical activity. Only by lying flat can man become the measure of all things.”

In this sense, they may be understood as China’s Diogeneses, its philosophical Cynics. Adorno once said that it is impossible to live a right life in a wrong world. Consequently, these active adherents withdraw from the fiercely competitive arena of wealth and status [名利场] to seek, in the immaterial realm, a secure sense of self.

Unlike the Cynics of ancient Greece, however, such a “self” possesses a distinctly modern characteristic: it has been stripped of values. When they say that “only by lying flat can man become the measure of all things”, this “man” is not Man with a capital M, endowed with a universal humanity, but merely the lower-case individual, emptied of universal values. Most members of the ‘90s generation are value nihilists. When they proclaim the value of the self, that self is no more than a vessel filled with personal desires and individual will. In such a valueless world, what, alone, can be trusted? Only the choices made by one’s own will. Man is the measure of all things, only because his will constitutes the world and his choices provide the standard by which everything in it is measured. One might argue that “man is the measure of all things” asserts the subjectivity of the ego, yet this subject is far from a rational and enlightened being that turns its own reason to common use. [In reality], it happens all too often that the self is merely a subject of will and desire, from which all definite values have been stripped. Beyond the self and the physical world, there is no longer any god, absolute truth or transcendent being. The only reality is what the self wills—a will that is absolute. Such a subject requires neither justification nor reflection. It has neither a past nor a future, only the present.

When Hamlet asks himself, “To be or not to be—that is the question”, he is engaged in rational self-reflection. But a self which is so absolutist about the individual will has no need for reflection, because reflection presupposes definite values. The modern self merely amounts to an exercise of free will, but this free will, emptied of values, becomes no more than the will exercised by a hollow subject. Although “I want” appears to represent the individual will’s free choice, that will is governed by forces alien to the self—the opinions, fashions and trends generated by the market. The human will is just an empty vessel, filled with the dominant ideology of everyday life. Many young people born in the 1990s appear highly individualistic, but behind their wills stand the celebrities, idols and internet personalities whom they worship. The market’s invisible hand manipulates their wills and rules their very subjectivity.

Although the exceptional [佼佼者] among them may become self-aware philosophical Cynics [精神犬儒], Buddha-like youths with clearly defined values or even radically engaged advocates of resistance through lying flat, nevertheless, such active adherents remain a minority. Most belong to the third category of the passive lying flat adherents. Passively lying flat does not mean refusing to work altogether, living off one’s parents [啃老] or becoming a welfare-dependent shut-in [吃低保]. To the contrary, these people are more like the low-desire population [低欲望群体] of Japan. Having cut off their desire for upward mobility or to sell themselves to a 996 working regime, they still have jobs but no longer invest themselves in their work or make any great effort. Online, this form of lying flat has been compared to that of a sea spider. Sea spiders grow by feeding on waste from the seabed. Consisting of little more than legs and a head, they have virtually no flesh worth eating and are consequently quite safe within the food chain. Once you have made yourself useless, no one can exploit you—neither capital nor your friends. Lying flat thus offers the security of an impoverished existence.

The Zhuangzi recounts Hui Shi telling Zhuangzi of a foul-smelling ailanthus tree [臭椿树] in the forest. Its trunk was so swollen and its branches so crooked that woodcutters would not even glance at it. It was genuinely enormous but useless. Zhuangzi replied: why worry about whether it is useful? A useful tree would long ago have attracted attention and been cut down, bringing its life to a premature end. It is precisely because the tree is useless that it preserves its life and enjoys longevity. The security sought by passive adherents of lying flat is what Zhuangzi celebrated as “the usefulness of the useless” [“无用之用”].

Critics tell those who lie flat: “You may make it through the first of the month, but you won’t last until the fifteenth!” In fact, passive adherents are not spendthrifts who consume their entire salary and then have nothing left for their next meal. What they have chosen—or had thrust on them—is the fatalism of a low-desire existence, according very much with the post-materialist outlook of the 1990s generation. Their parents attached greater importance to wealth accumulation and the value of money, having grown up amid material scarcity and possessing an instinctive sense of insecurity. By contrast, this younger generation was born and raised amid material abundance and places less particular value on money and wealth. Urban middle-class children, especially, do not share that same anxiety about material deprivation. They still need material things, but these are no longer such a paramount objective in life. They are unwilling to demean themselves for “five pecks of rice” by adjusting to their boss’s whims or enduring their parents’ nagging.

What they want is personal freedom, to live spontaneously and according to their own inclinations. This is certainly not freedom as a legal right—the external freedom from coercion—but a typically Chinese concept of freedom: the spontaneity [率性] of the Zhuangzi. In the past, bosses fired their employees. Now, young employees frequently fire their bosses, resigning and walking off at the slightest disagreement [一言不合，便辞职走人]. Employers today complain that staff born in the 1990s are impossible to keep happy and that they must constantly adjust to their employees’ whims. This is characteristic of the “new human” of the post-materialist age. Even if resignation condemns them to a “lower stream” status, then so be it [也在所不惜].

The young person who passively lies flat has neither a past nor a future, only the present. A past entails accepting responsibility for one’s parents and family, while a future entails pursuing a succession of modest goals that lead step by step towards the socially expected life of buying a home, marrying and having children. The adherent of lying flat rejects all this, severing ties with both past and future. Only the present remains, together with the pursuit of spontaneity and freedom within it. To lie flat is to live spontaneously and be free. Yet lying flat also requires a renunciation of the life expected by society. Only after that renunciation can one lie down and enjoy a limited measure of spontaneity, though the price is considerable.

For passive adherents of lying flat, this choice is an inescapable form of resistance to the meritocracy that is mainstream in society today. Meritocracy can be translated into Chinese as “elitism” [精英主义] or “rule by the able” [贤能主义], but in the contemporary world it has acquired a new meaning as the combination of “IQ + perspiration”. It even offers an inspirational message: if you work hard, you are bound to succeed. Meritocracy presents the beautiful utopian prospect of a world of equal opportunity in which only the strivers can come out on top [爱拼才能赢]. The older generation lived through a period in which everyone received a share of the growing economic pie, and they consequently became true devotees of the meritocratic creed. Today’s world, however, has become a zero-sum game in which the success of a minority is accompanied by the failure of the majority. However intelligent you may be and however hard you work, you are not guaranteed the future you’d expect.

Michael Sandel, Harvard’s celebrity professor, calls this “the tyranny of merit”. In his view, a meritocracy founded on the survival of the fittest not only places the majority at an economic disadvantage but also deprives them of their social dignity as human beings. A profound sense of failure has convinced growing numbers of young people that effort is futile and that everything can only be blamed on personal fate or social injustice. One young professional born in the ‘90s angrily demanded online:

“I graduated from an elite Project 985 university [Note: a government programme launched in 1998 to develop a select group of universities into world-class institutions; replaced by Double First-Class Construction universities in 2017 under Xi Jinping but the term is still used to refer to China’s top universities.] and work 996 every day, but still cannot afford a home in Beijing, Shanghai, Guangzhou or Shenzhen. Why can an almost illiterate old man from an urban village [城中村] receive several flats after his home’s demolition and then earn more in monthly rent than I do from working? Isn’t the windfall he enjoys from the location itself a product of our efforts? Why is he entitled to sit back and live off the fat of the land [坐享其成] while I, however hard I work, have no prospect of buying a home?”

Such sentiments are extremely common online, leading me to observe a profound phenomenon: lying flat-ism is really a case of “while the body lies flat, the heart does not” [身躺心不平]. Their bodily repose is merely an illusion, while they are inwardly bursting with dissatisfaction and burning indignance [愤愤不平]. Unlike either the pseudo- or active adherents of lying flat, and still further unlike the Buddha-like youths, the passive adherents harbour deep within them an indefinable resentment. The targets of this resentment are: first, capital; second, elites; and third, the meritocratic system that compels them to struggle without respite. Within a section of society’s losers, a sense of hostility towards the rich and elites is pervasive online. The many descriptions of being “trapped in the system” [“困在系统”] similarly express intense dissatisfaction with meritocracy.

Even among undergraduates and postgraduates who have yet to enter the workplace, their intellectual interests have shifted alongside changes in society. Most of the postgraduates I supervise study Chinese intellectuals in the modern period. At the turn of the century, the dissertation topics they chose were generally abstract questions in intellectual history. About ten years ago, their attention began shifting towards social and cultural history, particularly power transitions [权势转移] and upward and downward social mobility. In recent years, many have become more interested in the pent-up torment [苦闷] and anxiety that inhabited the inner world of May Fourth youth [before 1949], examining how that anxiety developed into dissatisfaction and ultimately led them towards revolution. As it turns out, academic trends within the ivory tower can be intimately connected with social reality. The progression from abstract ideas to concrete questions of social mobility and finally to inner anxiety and dissatisfaction vividly reflects the evolution of young professionals’ social mentality over the past twenty years.

The resentment underlying “while the body lies flat, the heart does not” is a psychological phenomenon that deserves close attention. The German sociologist Max Scheler once made a particular study of what he termed ressentiment and argued that it was a product of modern democratic society. By “democratic society”, he meant, in Tocqueville’s sense, a modern society in which people can move freely between upper and lower strata, as opposed to the hierarchical society of medieval Europe. In medieval society, everyone occupied an assigned place and observed the duties of their station [各安其位，各守本分]. People harboured few excessive desires or ambitions, and the psychological soil in which such ressentiment grows was therefore largely absent.

In a modern democratic society, however, the ceiling separating the classes has been broken through. Work hard enough and you may rise above everyone else. Society consequently produces figures resembling Julien Sorel [Note: the social-climbing protagonist of Stendhal’s The Red and the Black]. Yet the pyramid to success remains the preserve of a minority. A mobile democratic society liberates the desires of the majority while giving them very little prospect of fulfilment. Hence, they accumulate all kinds of ressentiment: resentment of people from the same social stratum who have enjoyed greater luck, and resentment of the rich and powerful elites towering above them.

China’s historical tradition differs from Europe’s. As I have argued in The Pulse of China: Xu Jilin’s Fifty Lectures on Traditional Culture, China has since antiquity been a “mobile hierarchical society” [流动的等级社会]. [Note: Xu Jilin’s 2021 book has not been translated but an interview promoting the book has been translated at David Ownby’s Reading the China Dream.] Channels and space for free mobility have always existed between aristocrats and commoners and between the upper and lower reaches of society. Yet society has nevertheless remained strictly hierarchical, with superior and inferior status distributed according to power, wealth and culture. Feeling inferior before one’s betters and lording it over those below have produced a twisted social character, whereby each individual can only obtain greater social respect through a desperate struggle towards the top of the pyramid.

In the imperial examination system, the desire of the “country boar to snuffle up a fine cabbage” [“土猪拱白菜”] was everywhere. The objective was to squeeze into high society and win others’ respect. For most people, however, upward mobility remained hopeless no matter how hard they struggled. Ressentiment accumulated deep within them, day after day, until, at a certain point, it was transformed into a subversive and destructive energy: an “unorganised force” that challenged the established order. Organised forces are not frightening, because one can rationally bargain with them. However, an “unorganised force”, filled with ressentiment, possesses undeniably large destructive power—like a great flood, it is difficult to channel [如同大洪水一般，难以疏导]. This must be taken extremely seriously.

To treat the generation born in the ‘90s well is to treat China’s future well [善待90后，就是善待中国的未来]. What path should China take towards common prosperity? How can more of those who have chosen to lie flat recover their confidence and once again see reason for hope? These are grave questions that China must now confront in earnest.

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 replace the old ones, the deflationary “black hole” of local government finances has exerted a cooling effect on the entire economy. For Li, the idea of a “K-shaped” split between the high-growth emerging sectors and low-growth traditional sectors is a distraction from the need to restore heat to the economy as a whole. In response, he proposes heavy, centrally backed stimulus on an aggregate level.

Not everyone agrees. The following piece by retired Tsinghua professor Sun Liping is framed as a riposte to Li Daokui’s diagnosis. Sun is a liberal-minded sociologist and public intellectual known for his work analysing Chinese society through the lens of inequality and social fracture. In his view, the K-shaped split is not only genuine, but reflects the breakdown of the old economic transmission process, whereby investment in the economy’s “upper body” (formerly manufacturing and real estate) could once “pull up” the “lower body” of consumption and employment. Aggregate stimulus or additional liquidity would therefore fail to revive the broader economy.

Sun sees the breakdown of this old mechanism as driven by technological change, which is siphoning capital towards priority industries in the upper arm of the K. His conclusion is one shared by pro-rebalancing economists such as Li Xunlei and Liu Shijin: “the crucial task is to change the model of development and give priority to people’s livelihoods [民生], employment and building a sound social-security system”.

The following is a translation of Sun Liping’s recent article, followed by a translation of Li Daokui’s speech from last month for context.

—James Farquharson

1. The diagnosis of China’s economy as “overall cold” was correct during the pandemic and its immediate aftermath, but since 2025 the economy has moved towards an increasingly pronounced “fire-and-ice” split between rapidly growing and struggling sectors.

2. The economy’s “upper body” and “lower body” increasingly resemble independently operating systems, with circulation between advanced industries and ordinary livelihoods weakening.

3. As such, the main problem is not simply that emerging sectors are too small to “pull up” the rest of the economy, but that the past mechanism whereby this would occur is failing.

4. Instead of boosting the rest of the economy as construction and manufacturing once did, emerging industries are now siphoning capital away from other parts of the economy.

5. The effect of this split is that traditional industries and even earlier high-growth sectors are left with diminished access to investment, harming economy-wide employment and livelihoods.

6. AI is further weakening livelihood security by eroding the link between economic growth and employment, thereby encouraging greater precautionary saving.

7. Additional liquidity would likely remain circulating within the economy’s “upper body”, producing a limited effect on reviving employment, consumption and investment activity across the wider economy.

8. Rather than relying primarily on aggregate-level stimulus, policy should prioritise livelihood spending, employment and social security as a way to rebalance towards a new development model.

Name: Sun Liping (孙立平)
Year of birth: 1955 (age: 71)
Positions: Retired Professor, Department of Sociology, School of Social Sciences, Tsinghua University (active faculty: 2000–2020)
Other: Specially Invited Research Fellow, China Society of Economic Reform (CSER); former Director, Centre for Research on Oral Materials of Social Life, Peking University; former Director, Development Research Centre, Department of Sociology, Peking University
Research focus: Social modernisation; social transformation and structural change; market transition; oral social history; state–peasant relations in contemporary China
Education: BA in Journalism, Department of Chinese Language and Literature, Peking University (1982); Sociology Special Programme, Nankai University (1981)

ON THIS POINT, I DO NOT ENTIRELY SHARE PROFESSOR LI DAOKUI’S VIEW
By Sun Liping (孙立平）
Published on his Public Account on 13 August 2026
Human-edited machine translation
(Illustration by ChatGPT)

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At a recent forum, Professor Li Daokui offered up an important economic assessment: the greatest problem facing China’s macroeconomy is not K-shaped divergence, but that the economy as a whole is running cold [不是K型分化，而是整体偏冷]—and that this “running cold” has been ongoing for three years.

As an old friend, I understand his point: he wants to stress that we must confront the problems before us and maintain an alertness to crisis. But as a specific diagnosis, I disagree with his view.

Is China’s economy currently running cold across the board, or is it undergoing K-shaped divergence—or, as I have repeatedly put it recently, is it split between fire and ice? These are two very different diagnoses. I think we may need to examine the question dynamically.

Viewed from an evolving perspective, I think that the diagnosis of an economy running cold across the board was appropriate during the pandemic and the period immediately afterwards, broadly up until 2024. But since the beginning of 2025, the situation has changed markedly: the economy has gone from running cold as a whole to two worlds of fire and ice [冰火两重天].

The heat is concentrated in two main areas. One is high tech and advanced manufacturing, and the other is exports. Consider the following data:

In the first half of 2026, value added in high-tech manufacturing grew by 13.3% year on year, 7.9 percentage points faster than among all large-scale industrial enterprises [Note: 规上工业, or enterprises with annual revenue exceeding RMB 20 million]. Within this, aerospace vehicle and equipment manufacturing grew by 16.3%, while the electronics and communications equipment industry grew by 17%. AI-related industries such as integrated-circuit manufacturing and intelligent in-vehicle equipment manufacturing maintained growth of over 30%, while industrial robot output rose by 28%.

During the first seven months of 2026, exports grew by 14% year on year, with growth reaching 27.0% in June alone. Within this, cumulative integrated-circuit exports surged by 91.6% year on year, partly due to price effects. Vehicle exports rose by 49.1%, lithium-battery exports by 35.8%, wind-turbine exports by 34.8%, ship exports by 32.7% and industrial robot exports by 13.2%.

Professor Li Daokui is, of course, aware of this development. He simply believes that these sectors still account for a relatively small share of the economy. As he puts it, the new industries are indeed expanding, but they remain too small to fill the hole left by the extinguishing of the traditional growth engines.

But I believe that what matters most is the trend, and the structural characteristics that the trend reveals.

Two different diagnoses may stem in the main from different ways of viewing the problem. Professor Li Daokui broadly approaches it from an aggregate perspective. From this perspective, he emphasises two problems. The first is employment: he points out that the broad unemployment rate has reached 10.2%. The second is fixed-asset investment: he says that its negative growth is almost unprecedented in recent decades.

Viewed in aggregate terms, I agree with these conclusions. But I believe we must look more closely beneath the surface.

Take fixed-asset investment. In 2024, overall investment in China’s high-tech industries grew by 8.8%. Within this, investment in high-tech manufacturing rose by 8.2% and investment in high-tech services by 10.2%. Investment by centrally administered state-owned enterprises in strategic emerging industries grew by 17.6% year on year. In 2025, investment accelerated across all these fields, while nationwide investment in equipment renewal grew by as much as 11.8%. In 2026, investment in electronic-circuit manufacturing rose by 55.6%, lithium-ion battery manufacturing by 24.4%, aerospace vehicle and equipment manufacturing by 24.7% and information services by 15.5%.

Therefore, while recognising that fixed-asset investment is running cold overall, we must pay even greater attention to the ice-and-fire split across different sectors.

Where, then, does the problem lie? Professor Li Daokui’s reasoning is that the hot parts of the economy remain too small to pull up the economy as a whole. One therefore needs to act at the aggregate level [从总量上做文章] and heat up the entire economy. My view, however, is that there exists a structural problem behind this phenomenon. In other words, the question is not whether sectors are able to pull up the rest of the economy, but whether the “pulling-up” mechanism even still exists at all.

Several years ago, I proposed the concept of a new dual structure—the problem of what I referred to as the economy’s “upper body” and “lower body”. Judging from current trends, these two parts look more and more like two independently operating systems: you run your way and I run mine [你运行你的，我运行我的]. In the past, growth could create employment and increase society’s purchasing power, thereby promoting circulation and prosperity throughout the economy. But this relationship has grown progressively weaker. Instead, resources across society are continually being siphoned into high-end industries. This is particularly clear in the stock market.

One point needs particular emphasis: we may now be confronting a very new situation and a very new problem, rather than the traditional economic logic of the past. A few days ago, I wrote an article entitled The US Economy Is Also Split Between Fire and Ice. In the first quarter of 2026, AI-related investment contributed 0.75 percentage points to annualised quarter-on-quarter US real GDP growth, while in the same period private consumption contributed only 0.37 percentage points, its lowest level since the second quarter of 2022.

Why should economies that differ so much in so many respects display this common characteristic? Because a common factor, the current technological wave centred on artificial intelligence, underlies it. It is simply that this factor manifests itself differently in different contexts.

Different diagnoses naturally suggest different approaches to solving the problem.

On the basis of his aggregate analysis, Professor Li Daokui argues that over the past 20 years, local infrastructure investment and public fiscal expenditure consistently amounted to around 41% of GDP and served as an important driver of regional growth. That proportion has now fallen to 35%, with an even sharper contraction in capital expenditure. Burdened by heavy debts, local governments have gone from engines generating heat to entities that instead absorb it.

As such, Professor Li Daokui’s proposed solutions are to more than double central government bond issuance, enabling local governments to emerge from contraction and once again become a force driving transformation; to increase welfare provision and remedy its deficiencies; and to expand the supply of high-quality public services.

Many people attribute weak consumption to inadequate household incomes, but Professor Li rejects this logic. Household consumption demand has now moved upmarket. Demand for ordinary everyday goods is approaching saturation, while people are more willing to spend on healthcare, high-quality education and elderly-care services. The issue is that there is insufficient high-quality supply in these areas. People want to spend but have nowhere suitable to do so. This, he argues, is the real reason consumption has failed to pick up.

I agree with some of Professor Li Daokui’s specific policy proposals, such as remedying shortcomings in welfare provision. But I think his basic approach remains one centred on liquidity. In my view, the problems we now face are much more complex than this. The key lies in the aforementioned new challenges created by the technological wave centred on artificial intelligence.

More specifically, the new challenges we face include at least the following three:

First, new technologies are siphoning up capital. Leaving aside state investment, China’s venture-capital market recorded 2,865 funding deals in the first quarter of 2026, totalling RMB 256 billion—year-on-year increases of 52% and 48% respectively. The overwhelming majority occurred in new-technology sectors. Not only are traditional industries being neglected, but even what were once called the “new three” [Note: EVs, solar and batteries]—which are, in reality, now the “old new three” [老新三样]—are being left out in the cold.

Second, it is becoming increasingly difficult for wealth to spread through society by means of employment. In the past, when the economy improved, employment would improve and people’s incomes would rise. The current problem is that when the economy performs poorly, jobs are naturally harder to find and incomes decline, but even if the economy improves, none of this will necessarily change fundamentally. It is not that the new parts of the economy are unable to pull the whole economy along, but that the very logic through which “pulling up” could once occur just does not exist [新的部分不是带不动整体，而是根本没有带动的逻辑].

Third, the uncertainty we now face is unprecedented. Some time ago, I introduced the concept of “livelihoods” [生计模式]. The greatest impact of this technological wave is its assault on certainty, particularly the certainty of people’s livelihoods. Under these circumstances, precautionary saving becomes an even more pressing necessity. The real reason behind weak consumption is that nobody dares to spend money.

I therefore do not particularly favour an approach centred on liquidity. Under present conditions, even additional liquidity would struggle to perform its former function and would merely continue circulating within the economy’s “upper body” [在上半身循环]. I believe the crucial task is to change the model of development and give priority to people’s livelihoods [民生], employment and building a sound social-security system. On this foundation, the economy can be made to circulate in a genuine sense.

1. The main challenge facing China’s economy is not a K-shaped split, but a condition of running cold overall.

2. Emerging industries, usually described as the “upper arm” of the K-shape, are too small to replace the traditional growth engines of property and infrastructure.

3. This shows up in a broad unemployment rate of 10.2% (including the long-term unemployed or “discouraged labour force”) as well as a historically unprecedented contraction in fixed-asset investment.

4. During the two decades of China’s high-speed growth, local-government infrastructure investment and property were instrumental, with the former, alongside routine expenditure, averaging an estimated 41% of GDP.

5. The impact of the property downturn on consumption has been less catastrophic than expected, with households absorbing large losses without a corresponding collapse in consumption.

6. The most serious problem is therefore the contraction of local government finances, which are absorbing credit to finance debt repayments and acting as a blockage in the circulation of China’s economy.

7. Local-government debt has exceeded 100% of GDP, as borrowing to refinance debt and cover interest keeps liabilities rising despite repeated debt-resolution measures, turning local governments into economic “heat absorbers”.

8. The solution should be broad liquidity stimulus, increasing central bond issuance to refinance local-government debt, stabilise property and fund local expenditure.

Name: David Daokui Li (李稻葵)
Year of birth: 1963 (age 62)
Positions: Director, Academic Center for Chinese Economic Practice and Thinking (ACCEPT), Tsinghua University; Mansfield Freeman Chair Professor of Economics, School of Economics and Management, Tsinghua University; Co-President, Society for the Analysis of Government and Economics (SAGE)
Other: Former Standing Committee Member of the 13th National Committee of the CPPCC; former member of the Monetary Policy Committee of the People’s Bank of China; Founding Dean, Schwarzman College, Tsinghua University
Research focus: Government and economics; the Chinese economy; economic development; international economics; comparative economics
Education: BSc in Management Information Systems, Tsinghua University (1985); PhD in Economics, Harvard University (1992)
Experience abroad: Assistant Professor of Economics, University of Michigan, Ann Arbor (1992–1999); National Fellow, Hoover Institution, Stanford University (1997–1998)

THE BIGGEST PROBLEM FACING CHINA’S ECONOMY TODAY IS NOT K-SHAPED DIVERGENCE
By Li Daokui (李稻葵）
Published on Aisixiang on 12 July
From a speech given at a China Macroeconomic Forum seminar on 11 July
Human-edited machine translation

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I. The Problems: Weak Investment and Unemployment

My first central argument is this: the biggest problem facing China’s macroeconomy today is not K-shaped divergence, but that the economy as a whole is running cold [不是K型分化，而是整体偏冷] and has been doing so for three years. Why do I emphasise this? Because once we begin talking about a K-shaped divergence, it is as though we are placing our hopes in the upper arm of the K and expecting it to pull the entire Chinese economy upwards [拉动整个中国经济]. This actually diverts us from the real problem. I agree with all the views expressed just now by the previous speakers. However, that upper arm just cannot pull up the base of the economy as a whole. Regarding this issue, we must maintain a strong sense of alertness to crisis.

The first figure is the broad unemployment rate. Using the National Bureau of Statistics’ underlying data, we have reincorporated the people who have been unable to find work over the past two years and are therefore no longer statistically counted as part of the labour force. We term them “discouraged labour force” [受挫劳动人口]. They are not “lying flat”; they still want to find work. If we treat them as unemployed and add them back into both the numerator and denominator, the resulting broad unemployment rate is currently 10.2%. [Note: China’s official surveyed unemployment rate counts only those classified as part of the labour force, a measure from which the long-term unemployed are excluded, leading to an official rate averaging 5.2% from January to May 2026.] There are approximately 24 million members of the long-term discouraged labour force, which is very detrimental to social stability.

The second figure concerns fixed-asset investment. From January to May this year, cumulative fixed-asset investment fell by 4.1%. Private investment and manufacturing investment both registered negative growth, while cumulative fixed-asset investment recorded positive growth of only 0.4% [Note: possibly a transcription error for a fall in manufacturing investment by 0.4% during the same period]. In the statistical history of the People’s Republic, negative growth in fixed-asset investment has occurred only in 1961 and 1967, and the severity and intensity of this current cumulative contraction are unprecedented. We must pay very close attention to these two developments. Unless they are resolved, China will encounter difficulties in accomplishing its various economic objectives and tasks.

Of course, having said that, I need to emphasise that China’s economy has bright prospects and untapped potential. We have complete confidence in this, but the problems must be confronted directly.

If everyone agrees with the judgement above—that the economy’s overall frigidity has already created relatively serious problems for macroeconomic performance—we must next analyse what exactly has caused the economy to remain cold for three consecutive years, or operate below its potential GDP growth rate.

I shall first offer an overall assessment and then discuss the specific mechanisms.

My overall judgement is that new drivers of growth have not yet been created, while the old sources of growth of the past several decades have already withdrawn [新的增长动力尚未打造出来，而过去几十年的老增长点都已退出]. The flourishing [红红火火] of China’s economy over the past 20 years was not driven principally by household consumption—which accounted for approximately 35–38% of GDP, excluding services consumption here—but by two major engines. The first was large-scale infrastructure investment, sustained for nearly two decades and arguably representing the largest infrastructure programme in the history of the world economy. The second was the overall rise of the property market, which undoubtedly provided an enormous boost to the economy.

Local governments were the pillar supporting infrastructure investment. Our repeated calculations show that local-government infrastructure investment and routine expenditure have together averaged out at 41% of annual GDP. This far exceeds household consumption and has constituted the single largest driving force behind China’s economy. Infrastructure expenditure accounted for approximately 75% or even more of total local-government expenditure. A relatively small amount went towards routine operations, while the great majority was spent on construction. From construction, building materials, migrant labour and land development, to the transfer of income to households via land development, this exerted an enormous upward pull on the Chinese economy.

Today, however, property and infrastructure have both been “extinguished”. Let us begin with property. Lu Ting was entirely correct in what he said earlier about the effects of falling prices. I agree completely with his specific analysis. But I would like to add one more point: the impact of the property downturn on China’s economy has actually been far smaller than we expected three or five years ago, because households have absorbed a large part of the shock. Chinese households hold approximately RMB400 trillion in net housing wealth. Its value has fallen considerably, yet household consumption has not collapsed. That is no easy feat. Ordinary people have shouldered the pressure [老百姓承担了压力]: house prices have fallen, yet everyone has remained relatively calm. This deserves recognition. If this had happened in the United States or another Western country, after house prices had fallen by this much, people would long ago have handed their keys to the banks, stopped repaying their mortgages and “lain flat”. Overall, China has not experienced this problem.

As such, consumption has fallen only to a certain extent. The effect of the property downturn on local fiscal revenue is also far smaller than the impact of local-government debt, to which I shall turn shortly. The property downturn has had a substantial effect on fixed-asset investment—on housing construction—but even this decline is smaller than the effect of the contraction of local governments as a whole.

Therefore, the property market needs to be stabilised as soon as possible. However, the single largest reason for why China’s economy is currently running cold remains local governments.

As I said earlier, local governments accounted for expenditure equivalent to an average of 41% of GDP over the past 20 years. The problem today is that local governments have become a blockage [瘀堵点] in the operation of the economy. How has this “blockage” arisen? Let us begin with households. Increasing amounts of household income are being deposited in banks. The macroeconomic data clearly show that household deposits have increased in recent years. Some of this money has been used to repay mortgages early, but the total has continued to rise. As for companies, investment is weak and corporate leverage has remained broadly stable. Companies have both deposits and loans, and overall have not extracted a net positive in investment resources from the financial system.

Nevertheless, aggregate financing to the real economy is still rising. So where has the money gone?

Large volumes of funds are flowing to local governments for debt repayment. We have repeatedly calculated the figures, extrapolating from microeconomic cases to the macroeconomic level. Our conclusion is that total local-government debt has exceeded 100% of GDP. Historically, this borrowing has taken the form of short-term debt, with maturities of five years or even less than seven years. It must be repaid and carries high interest rates. Large volumes of bank and bond-market financing flow to local governments, which are issuing new debt to repay the old debt. Despite the debt-resolution measures of recent years and the special bond quotas provided by the central government, the level of local-government debt has not fallen, but actually risen—because interest rates are too high. Local governments already depend on fiscal transfers from the central government. If they do not repay their debts, they have difficulty maintaining normal operations, never mind paying the interest. As they issue more new debt to repay old debt, the volume of new borrowing greatly exceeds the debt being retired and the total volume of local debt continues to expand.

This has produced the following situation: households are unwilling to borrow to consume; companies are unwilling to convert financial resources into investment; and much of the money borrowed by local governments merely “circulates idly” [空转] as they issue new debt to repay old debt. This is the “blockage” currently visible at the financial level.

In the real economy, local governments’ total expenditure—routine administrative expenses together with capital expenditure—has fallen from 41% to 35% of GDP, reflecting a sharp decline in capital expenditure. Moreover, local governments are using every conceivable means to extract money from companies. They are clawing back tax concessions previously promised to businesses and even collecting taxes in advance. Consequently, local governments have become a heat-absorbing [吸热] part of the Chinese economy. Just as a chip must dissipate heat when it operates, local governments have instead become “heat absorbers”, black holes for [economic] energy. This is the fundamental reason why the economy is currently running cold.

In essence, the transition between old and new growth drivers has not been completed—China has failed to move beyond property and infrastructure onto a new growth path. The specific mechanism is that, after completing their infrastructure projects, local governments are anxious to repay their debts. Interest rates remain high and the more debt they repay, the larger their debts become. They absorb enormous quantities of economic and financial energy without converting them into actual work performed. They also impose numerous burdens on companies through payment arrears, advance tax collection and related practices.

What, then, should be done? If everyone agrees with the analysis above, I would like to make the following points:

First, we must treat the problem with great seriousness and maintain a strong sense of alertness to crisis. The economy as a whole is running cold. We must not focus exclusively on the small section that is rising, because it cannot pull the entire Chinese economy upwards.

Second, the crux of the problem is the “blockage” created by local-government debt. The answer is therefore readily apparent: the central government, and indeed the state sector as a whole, must increase its leverage. Central-government debt currently amounts to less than 30% of GDP, leaving considerable room for expansion, while local governments possess large volumes of commercial assets that can be monetised. The central government should issue an appropriately larger volume of debt. Approximately RMB12 trillion is planned for this year, but that is far from sufficient. The amount should be doubled or increased still further. After the bonds have been issued, local governments could propose projects for which the central government would allocate funding. Specific uses could include:

• Purchasing unsold properties locally and converting them into inexpensive housing or housing with an appropriate rent-to-price ratio, and then packaging them into REITs for commercial operation;

• Investing in projects centred on “people”, such as integrating migrant workers into urban communities, with the central government using additional bond issuance to finance transfer payments;

• Allowing eligible local governments to apply to the central government and sign undertakings promising to regulate their future borrowing and refrain from issuing debt recklessly, in exchange for replacing their existing high-interest debt.

These measures would significantly increase local governments’ capacity to assist the economic transition and create new sources of profitable growth. At the very least, they would transform local governments from a source of negative energy into a source of positive energy [从负能量转为正能量]. The money could be used to stabilise the property sector, invest in people, strengthen livelihood-related expenditure or provide local consumer subsidies, including by holding concerts and similar events. There are many ways through this. At present, however, local governments do not possess sufficient capacity to drive the economy.

If we can form a consensus around this approach, I believe the Chinese economy can emerge relatively quickly from its present cold and blocked state. I emphasise once again that the Chinese economy has a positive future, bright prospects and untapped potential. Once these problems have been resolved, the economy can rapidly return to an upward development trajectory and realise its growth potential.

That concludes my analysis. I welcome your criticisms and corrections. Thank you.

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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As ever, the US constitutes the main focus of China’s foreign-policy discourse in June. Yet there is a growing sense that, at least in the short term, America may no longer be Beijing’s principal source of strategic anxiety.

Today’s US–China section is still processing Trump’s May comments on Taiwan, widely read as favourable to Beijing, but interpreted in different ways: for Huang Jing, they mark the most significant shift in Washington’s Taiwan position since 1979; for Da Wei, they are better understood as tactical language rather than a fundamental change in US policy.

The Middle East section is overwhelmingly focused on the US–Iran memorandum of understanding signed on 17 June. The agreement is treated with caution, but broadly read less as a US victory than as evidence of, in Chen Qinghong’s words, “an empire’s twilight—fierce of face, feeble within”.

Meanwhile, Europe emerges as the more immediate economic-strategic worry. Concern over trade tensions continues, with one analyst noting that Europe’s China debate increasingly resembles Washington’s of a decade ago and warning that a tipping point into strategic competition may be approaching. Huang Yiping’s piece is deeply concerned about a trade war and, unusually for a Chinese scholar, sympathetic to European fears of a “China Shock 2.0”.

The domestic economy, covered in more detail in Sinification’s upcoming economics digest, helps connect these external trade tensions to China’s internal imbalances. Shen Jianguang identifies weak domestic demand as the fault line beneath China’s “three strongs and three weaks”; Justin Lin Yifu attributes the slowdown less to domestic failings than to weak global demand; and Jiang Xiaojuan warns against an AI transition that destroys jobs faster than it creates them.

This digest also includes a new cluster, “Going Out”: four articles on China’s outbound investment, prompted by State Council Order 837, which takes effect on 1 July. This prosaic-sounding regulation is highly significant, as Liu Jia shows in an official but helpful exegesis: it elevates two decades of NDRC/MOFCOM departmental rules into law and adds teeth—under Articles 24–25, foreign entities that discriminate against Chinese investors can be blacklisted, cut off from China-related trade and investment, and denied entry, work or residence.

The more analytically engaging writing on the new wave of “Going Out” comes from Shi Zhan, Liu Xiaochun and Li Wei, who argue respectively that renminbi appreciation would accelerate the going-global wave, that state support should in special circumstances extend as far as military means, and that firms are now exporting entire capability systems rather than mere products.

Xi’s 8–9 June state visit to North Korea is the month’s other major foreign-policy event, though analysis beyond the boilerplate is thin on the ground. Two pieces engage with the nuclear silence noted by Western analysts: Lü Chao observes that Pyongyang’s constitutional enshrinement of nuclear-weapon status sits uneasily with Beijing’s position, while Niu Xiaoping argues that crisis management has become more urgent than immediate denuclearisation. Elsewhere in East Asia, Wu Xinbo casts US–China stabilisation as a “second Nixon shock” for Tokyo, arguing that it unsettles Japan’s bet on prolonged confrontation as the route to strategic upgrading.

Following the Xi–Putin summit in May, Xiao Bin provides the more official reading, with one interesting admission: delimiting the relationship’s “essence and boundaries” was partly intended to send “a clear signal to the international strategic community”. Wang Jinguo and Xie Yushi offer the more heterodox account, arguing that the Ukraine war has turned Russia’s chronic demographic decline into a “demographic earthquake”, shrinking a full-spectrum great power into a narrower Eurasian one.

Turning to society and technology, writers focus on China’s domestic ills. Sun Liping argues a single pathology—over-competition—underlies everything from lying flat to industrial overcapacity. Zhang Guijin and Qian Chen show urbanisation reasserting the traditional gender order, while a pseudonymous author offers a fascinating field study of a hollowed-out central-western “small-population county”.

On AI, authors are more upbeat. Huang Ping argues the US–China G2 renders middle powers’ technological sovereignty illusory and that China should make its firms indispensable rather than dominant. Sun Haiyong, meanwhile, claims that the AI race now turns on energy: the front where US weakness meets Chinese strength.

Finally, two complementary articles on critical minerals in Southeast Asia and Central Asia are both surprisingly candid about Chinese vulnerability: Sun Zhi and Zheng Hua argue that China’s rare-earth dominance now coexists with real dependence on Southeast Asian supply, while Zhao Huirong argues that America’s de-Sinicisation push in Central Asia is unlikely to displace China but will raise costs and squeeze China’s position.

Taken together, June’s discourse is confident about relative American decline, but less complacent about the second-order problems of Chinese power: exposed firms, resistant partners, resource chokepoints, hollowed-out counties, weak domestic demand and a social model that cannot export its costs forever.

— Jacob Mardell

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1. US-China & Taiwan:

   1. Zhou Bo on Washington’s quiet downgrading of Taiwan.

   2. Li Cheng on strategic patience over Taiwan.

   3. Huang Jing on the biggest shift in US Taiwan policy since 1979.

   4. Da Wei on the lack of a fundamental US policy shift on Taiwan.

   5. Zhu Weidong on creating momentum for “de facto unification without formal unification”.

2. Middle East:

   1. Zheng Yongnian on the US–Iran agreement as a time-out, not a settlement.

   2. Senior CICIR experts on the US–Iran MOU as a fragile pause that favours Iran.

   3. Liu Zhongmin on the end of unipolar US hegemony in the Middle East.

   4. Niu Xinchun on another lost American regional war.

   5. Yan Xuetong on how the Iran war has lowered America’s strategic standing and raised China’s.

3. Europe:

   1. Huang Yiping on “China Shock 2.0” as a systemic challenge to Europe’s high-welfare model.

   2. Zhang Bin on Europe’s fragmented China debate and the over-politicisation of trade imbalances.

   3. Sun Chenghao on Europe’s China debate approaching its own strategic-competition tipping point.

   4. Lü Peng on Germany and China as opposite casualties of the same globalisation trap.

4. Going Out:

   1. Shi Zhan on RMB appreciation as an accelerant of Chinese firms’ going global.

   2. Liu Jia on China’s first outbound-investment regulation and its countermeasure “teeth”.

   3. Liu Xiaochun on making support for going-global firms a national strategy.

   4. Li Wei on the third phase of Chinese globalisation: exporting whole capability systems.

5. East Asia:

   1. Lü Chao on Xi’s Pyongyang visit and a “new stage” in China–DPRK relations.

   2. Niu Xiaoping on crisis management overtaking denuclearisation on the Korean peninsula.

   3. Wu Xinbo on US–China stabilisation as a “second Nixon shock” for Japan.

6. Russia:

   1. Wang Jinguo & Xie Yushi on Russia’s “demographic earthquake” and great-power shrinkage.

   2. Xiao Bin on the China–Russia joint statements as expectation management.

7. Economy:

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

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

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

8. Society & Local Governance:

   1. Sun Liping on over-competition as the root of China’s social and economic pathologies.

   2. Zhang Guijin & Qian Chen on Chinese urbanisation’s reproduction of the traditional gender order.

   3. Bai Che on why capable county cadres become rule-breakers.

9. Tech & AI:

   1. Huang Ping on an AI G2 and the illusion of middle-power technological sovereignty.

   2. Sun Haiyong on America’s electricity bottleneck in the AI race.

10. Critical Minerals:

    1. Sun Zhi & Zheng Hua on China’s rare-earth dependence on Southeast Asia.

    2. Zhao Huirong on Washington’s “de-Sinicised” Central Asian minerals push.

1. US-China & Taiwan

Zhou Bo (周波): The US Secretary of Defence’s omission of Taiwan at the Shangri-La Dialogue is of a piece with Trump’s deliberate playing-down of the issue during his Beijing visit—as Sino-American power converges, Beijing’s growing counter-leverage means each future arms sale to Taiwan will only come harder. More broadly, Trump’s Beijing visit, dismissed in the West as yielding little, was in fact historic: the “constructive strategically stable relationship” formula marks the first US acknowledgement of China as a power of equal, comparable standing, since strategic stability is by definition a relationship between equals. On the Strait of Hormuz, where the optimal resolution is a simultaneous, reciprocal reopening, one of the best roles China can play is to take custody of Iran’s enriched uranium—as Iran once entrusted its stock to Russia. — Senior Fellow, Centre for International Security and Strategy, Tsinghua University (观察者网, 1 June)

Li Cheng (李成): On Taiwan, time is on China’s side—Beijing should maintain strategic patience and is right not to rush into a so-called “fourth communiqué” with Washington, which would only mobilise anti-China forces. One leaders’ exchange does not change everything, but the US–China summit marked a dramatic reversal in strategic framing: from treating China as an enemy to presenting it as a friend. Trump’s thinking has been consistent since his first term—Taiwan is a pen-nib, China the desk it sits on—but America’s need for cooperation is now structural rather than merely personal to Trump. The United States faces severe domestic, financial and geopolitical difficulties; with the two powers now evenly matched [势均力敌], neither can prevail over the other and if war is avoided over the next decade, the relationship should settle into a durable pattern of competition and cooperation. — Professor and Founding Director, Centre on Contemporary China and the World, University of Hong Kong (广州粤港澳大湾区研究院, 15 June); Note: Shanghai-born, US-educated former Brookings scholar and US citizen

Huang Jing (黄靖): Trump’s statement that “Taiwan independence” means war marks the most fundamental shift in Washington’s Taiwan position since 1979, reversing the long-standing formula that a mainland “attack” on Taiwan would trigger war. The Beijing summit established US-China parity and replaced zero-sum rivalry with a “co-existing game”, underpinned by four Chinese red lines: Taiwan; “democracy and human rights”, with ideological attacks designated a forbidden zone for the first time since normalisation; China’s path and political system; and China’s right to development. Trump arrived in Beijing with no cards, yet Beijing declined to exploit his weakness. No trade agreement was signed in Beijing because Trump wants to bank the political capital at home when Xi visits the US ahead of the November midterms. — Distinguished Professor and Director, Institute of US and Pacific Studies, Shanghai International Studies University (上海全球治理与区域国别研究院, 8 June)

Da Wei (达巍): The stabilising framework established by the Trump-Xi summit has been reflected in Hegseth’s cooler tone at the Shangri-La Dialogue, especially his emphasis on military-to-military communication, but this does not signal any fundamental change in US strategy towards China or in its Taiwan policy. A few remarks by the US president do not mean policy immediately changes, and there remains a considerable distance between public comments about reconsidering arms sales and a substantive policy shift. Hegseth’s omission of Taiwan from the main speech, followed by his reiteration in the Q&A that the US position on the Taiwan Strait had not changed, reflected Trump’s lack of a final decision rather than a clear policy turn. — Director, Centre for International Security and Strategy, Tsinghua University (中评社, 1 June)

Zhu Weidong (朱衛東): The exceptional complexity and difficulty of the Taiwan issue mean that “the final resolution of the Taiwan issue will run through the entire process of national rejuvenation”, requiring Beijing to avoid both “impatience for unification” [统一急躁] and “passive waiting” [消极等待]. Reunification efforts must therefore resist both rash advance and delay, combining strategic confidence and patience with active efforts to shape the broader environment. The aim should be to create a momentum of “de facto unification without formal unification” [不统而统], recognising not only the risks and obstacles facing reunification, but also acknowledging the mainland’s growing advantages and the fact that time, momentum and legitimacy are on the mainland’s side. — Director, Institute of Taiwan Studies, Chinese Academy of Social Sciences (中评社, 10 June)

2. Middle East

Zheng Yongnian (郑永年): The US–Iran agreement is best understood as a time-out, not a settlement, and both sides needed an agreement: Washington was under international and domestic pressure, while Tehran could prolong the conflict through guerrilla tactics but had no fundamental prospect of victory. Both will claim victory because neither can afford to look defeated, but sustained implementation would make all sides better off. The Strait of Hormuz was never the prize, only leverage; the core issue remains Iran’s nuclear programme and the conflict was also a live test of AI-era warfare: Washington learnt both the uses and limits of AI-militarised force, while Tehran proved it could still resist a far stronger power. — X.Q. Deng Presidential Chair Professor and Dean, School of Public Policy, CUHK-Shenzhen (侠客岛, 22 June)

CICIR roundtable: Senior CICIR experts read the US–Iran MOU less as a US victory than as a fragile pause that largely favours Iran and leaves the next stage highly uncertain. Liao Baizhi (廖百智) says what the two sides give and receive is “almost wholly disproportionate”, as if America were “using an enormous carrot to coax Iran”. Qin Tian (秦天) says Iran led the tempo and outcome of the negotiations, and that the stabilisation of the Iranian camp marks the biggest reversal in Middle Eastern geopolitics in recent years. Chen Wenxin (陈文鑫) warns that every US concession is conditioned on Iranian “performance”, leaving Washington room to backtrack. Li Yanan (李亚男) adds that the hardest issues—the nuclear question, sanctions relief and Hormuz management—have simply been pushed into the next 60 days. Chen Qinghong (陈庆鸿) sees, on America’s 250th anniversary, “an empire’s twilight—fierce of face, feeble within” [色厉内荏]. — Directors and deputy directors, CICIR institutes of Middle East, US and World Politics studies (CICIR WeChat, 18 June)

Liu Zhongmin (刘中民): The “Islamabad Memorandum”, which for the first time recognises Iran’s regional influence through an international agreement, sends a clear signal that the era of unipolar American hegemony in the Middle East is drawing to a close. The war has left America’s Gulf alliance network in a severe crisis of trust, while Iran’s control of Hormuz marks the first substantive collapse of the postwar US maritime system in the Middle East. A new configuration composed of three centres of power—the Sunni Arab-Islamic states, the Shia camp and the Israel-led Abraham Accords states—is taking shape. The US-led Middle Eastern order is shifting from American dominance towards plural, regional autonomy, reflected in the Pakistan- and Qatar-mediated ceasefire and Iran’s proposal to coordinate management of the strait jointly with Oman. — Professor, Institute of Middle East Studies, Shanghai International Studies University (澎湃新闻, 24 June)

Niu Xinchun (牛新春): The US has lost another regional war—neither military superiority nor prolonged war can deliver final victory, and the only differences lie in the manner, timing and route of the war’s end. Iran’s blockade of Hormuz has proved an effective strategic threat against which America has no counter, leaving neither the region nor the US able to return to the pre-war status quo—Iranian primacy in the Gulf follows and the “freedom of navigation” principle upheld by the US since 1945 collapses. Trump saw “tariffs” and “war” as the two most effective and flexible instruments of foreign policy, but tariff increases have now been ruled “unconstitutional” by the US Supreme Court, while war has suffered a major reverse in Iran. The conflict may therefore prove the turning point of Trump’s tenure. — Academic Vice-President, Ningxia University; Executive Dean, China-Arab States Research Institute (世界知识, 17 June)

Yan Xuetong (阎学通): The Iran war has lowered America’s strategic standing and raised China’s: the old formula—China for the economy, America for security—is shifting, as countries begin to seek security cooperation with China too. Its aggregate impact may exceed that of the Russia–Ukraine war, intensifying the global arms race, placing greater pressure on the nuclear non-proliferation regime and raising the prospect of blockades of international waterways becoming a weapon of war. Regionally, the war is reshaping the security outlook of Middle Eastern states. It has deepened the US–Israel strategic rift and weakened regional trust in US security commitments and protective capacity, while more states explore more autonomous and diversified security paths, from Sunni military cooperation to Oman-style diplomatic balancing. Ultimately, the US and Iran have not reached a traditional armistice but an “agreement to negotiate” [同意谈判的协议], and Israel is the greatest obstacle to keeping the talks alive. — Honorary Dean, Institute of International Relations, Tsinghua University (凤凰新闻, 27 June)

3. Europe

Huang Yiping (黄益平): Europe’s fear of “China Shock 2.0” is not ordinary trade anxiety, but a systemic challenge bearing on the survival of its high-welfare model. If a broad and serious trade war or economic confrontation were to erupt between China and Europe, the shock to the global economy would be enormous. For China, the lesson is that a large economy cannot keep leaning on exports without testing its partners’ capacity to absorb them. Expanding domestic demand is therefore needed not only for China’s own rebalancing, but also to defuse external pressure. Concretely, there is still scope for China–EU cooperation: green transition, a clearer division of labour in high-end manufacturing, industrial AI and smart manufacturing, two-way opening in high-end services, and joint development of third-country markets in the Global South with individual EU states. — Boya Distinguished Professor and Dean, National School of Development, Peking University (爱思想, 13 June)

Zhang Bin (张斌): Europe’s anxiety about Chinese industrial competition is real, and not confined to a handful of protectionists, but Europe is far from monolithic. Business tends to be pragmatic, think-tank views are mixed, EU trade and investment officials are more confrontational, and Europe’s own problems—high energy costs, demography, weak investment and governance constraints—also matter. Trade imbalances have been over-politicised: structural factors such as import substitution play a role, but cyclical demand shifts may matter just as much. China should still do more to expand domestic demand, including through the exchange rate and other channels, but should frame its rise less as a “China shock” than a “China opportunity”. Its industrial ascent has lowered the manufactured-goods premium that long supported rich-country incomes, while forcing foreign firms to upgrade. — Deputy Director, Institute of World Economics and Politics, CASS (中国金融四十人论坛, 15 June)

Sun Chenghao (孙成昊): Europe’s China debate increasingly resembles Washington’s of a decade ago—the moment engagement tipped into strategic competition—but Europeans have not yet drawn America’s conclusion. Topics such as AI and digital infrastructure are increasingly treated as security questions rather than ordinary trade issues, while European anxiety has shifted from individual sectors to whole ecosystems. Greater European strategic autonomy may create more room for an independent China policy, but it will not necessarily make Europe more “pro-China”. The opening is that Europeans still talk about coexistence and practical cooperation, unlike the US debate after its own tipping point. China and Europe should therefore build working-level channels, crisis-management mechanisms and low-sensitivity cooperation in areas such as AI safety and food security. — Fellow and Head of the US–Europe Programme, Centre for International Security and Strategy (CISS), Tsinghua University (中美聚焦, 11 June)

Lü Peng (吕鹏): Germany and China sit on opposite sides of the same “Messina paradox” of globalisation: Germany is punished for being too costly—with €49-an-hour assembly labour and three-and-a-half-year approvals for a logistics centre—while China is punished for being too socially overstretched. China’s speed and cost advantage have rested on workers’ bodies and families absorbing costs that should have been socialised: long hours, weak welfare, high savings, high housing costs and little slack for consumption, fertility or innovation. The result is a cycle of razor-thin margins, weak demand and still fiercer involution. Yet although each side envies the other, neither should copy the other. China should instead enforce “time rights”—limits on working hours, paid leave and a crackdown on hidden overtime—while piloting tripartite “industry-welfare communities” in the Yangtze and Pearl River Delta clusters and rebuilding patient, relationship-based finance so industrial profits flow back into the “reproduction of people”. — Research Fellow, Institute of Sociology, CASS (FT中文网, 11 June)

4. Going Out

Shi Zhan (施展): RMB appreciation would help reduce China’s unsustainable US$1.2tn surplus and ease diplomatic friction, while lowering the cost of overseas investment and pushing Chinese firms abroad—much as yen appreciation after the Plaza Accord accelerated Japan’s outward investment. The process would carry Chinese industrial standards overseas, may seed a renminbi settlement zone, and could allow overseas RMB holders to help fund China’s social-security system through sovereign-bond purchases, creating an asset-rich “shadow China”. But the shift will mainly involve the “spillover” [溢出] of final-assembly “front-end” plants: China’s dense supply-chain “middle platform” [中台] is too embedded to relocate. Chinese firms therefore need Japanese sogo shosha-style “going-global partner” [出海合伙人] platforms that provide finance as well as logistics, and must move from taking rules abroad to helping shape them. — Professor, Institute for the Global History of Civilisations, Shanghai International Studies University (施展世界, 12 June 2026)

Liu Jia (刘佳): China’s first administrative regulation on outbound investment, in force from 1 July, writes the “holistic national security concept” into the governance of “going out”—and gives it teeth. Articles 24–25 create countermeasure mechanisms against foreign states, organisations or individuals that discriminate against Chinese investors or cut off normal transactions, including restrictions on China-related trade, investment, transactions and cooperation, and denial of entry, work, stay or residence. Article 13 closes a “human channel” of technology leakage, prohibiting transfer of export-controlled technology via seconded technicians, cross-border guidance or training. The regulation raises NDRC/MOFCOM/SAFE-led departmental rules onto a higher legal footing, keeps the filing-plus-approval framework, extends coverage in principle to Chinese resident individuals, and marks the 14th-to-15th Five-Year Plan shift from scale-and-opportunity to security-and-quality. — Research Fellow, Institute of Public Policy, South China University of Technology (IPP评论, 7 June)

Liu Xiaochun (刘晓春): Chinese firms have moved from passive respondents to active participants in global industrial restructuring—supporting their overseas expansion should now be treated as a national strategy. In certain countries and “special circumstances”, this may even require economic, financial and military means [军事等特殊手段] to protect Chinese enterprises and personnel. The current wave is historically unprecedented: thousands of firms of every size and sector are going global, across a far wider range of destinations, with entire industrial chains relocating in clusters. As these clusters expand, Chinese standards, rules and models are already spreading abroad spontaneously, though not yet in fully institutionalised form. Financial policy should adapt accordingly: unified management of cross-border RMB and foreign-exchange flows; building Shanghai into a service centre for going-global firms, covering financing, non-dollar FX trading, cross-border payments, SME treasury platforms and an “instant-response” decision-making mechanism for new demands. — Deputy Director, Shanghai Finance Institute; speech to a CF40 closed-door meeting, 12 June (CF40, 22 June)

Li Wei (李伟): Chinese firms are entering a third phase of globalisation: no longer just exporting products or building overseas channels, but exporting whole capability systems—design concepts, technical standards, supply-chain organisation, business models and long-term local operations. For firms targeting the US market, “connector countries” such as Vietnam, Indonesia, Malaysia, Thailand and Mexico are attractive first stops because they can help soften tariff and regulatory barriers. But this advantage depends on how the final market defines origin and eligibility, so firms need to turn short-term policy arbitrage into genuine local production and capability as rules-of-origin scrutiny tightens. Expansion now follows two complementary models: chain-style expansion [链式出海], in which anchor firms bring supplier ecosystems with them, and swarm-style expansion [蜂群式出海], in which SMEs use platforms, industrial belts and overseas warehouses to scale fast. — Professor of Economics and Associate Dean, Cheung Kong Graduate School of Business (FT中文网, 25 June)

5. East Asia

Lü Chao (吕超): Xi Jinping’s visit to Pyongyang marks a “new stage” in China-DPRK relations, resting not only on traditional friendship but also on shared strategic objectives: opposition to outside interference, support for multilateralism, and Pyongyang’s backing of Beijing on Taiwan, Tibet and Xinjiang. Future China-DPRK military cooperation could come to resemble China’s military cooperation with Pakistan, though closer military exchange is no alliance, is not third-party-directed, and does not breach China’s non-alignment principle. China’s denuclearisation stance remains unchanged and sanctions are a means rather than an end; yet North Korea’s constitutional enshrinement of nuclear-weapon-state status is at odds with China’s position. — Dean, Institute of American and East Asian Studies, Liaoning University; Research Fellow, Charhar Institute (察哈尔学会, from Kyunghyang Shinmun, 9 June 2026)

Niu Xiaoping (牛晓萍): On the Korean peninsula, crisis management is becoming more urgent than immediate denuclearisation. China’s formal position remains unchanged—denuclearisation through dialogue—but the practical difficulty of getting Pyongyang to give up its weapons has sharply increased. North Korea’s Ninth Party Congress made nuclear weapons the absolute core of national security and adopted a diplomacy of “interest-based pragmatism grounded in nuclear force”, seeking outside acceptance of its nuclear-state status, while South Korea’s debate over indigenous nuclear armament or nuclear sharing is also heating up. China now treats the DPRK as a key stabilising pivot on its periphery, whose strategic weight will keep rising. Pyongyang, embracing a multipolar world, is likely to pursue more active and diversified diplomacy. — Assistant Research Fellow, Institute for International Strategic and Security Studies and Centre for Northeast Asian Studies, SIIS (中评社, 10 June)

Wu Xinbo (武心波): US–China stabilisation is a “second Nixon shock” for Japan. Tokyo had bet on prolonged US–China confrontation as the route to its own military normalisation and strategic upgrading, but Washington’s move to manage rivalry instead leaves Japan strategically exposed. Full independence is blocked by three shackles—security dependence on the US, Japanese elite interests embedded in the alliance, and opposition from surrounding great powers—but full subservience is no longer viable either, because the shock has exposed the alliance’s hierarchy. Japan’s only rational course is limited autonomy within the US alliance: “security bound to America, diplomatic balancing, economic diversification”. A semi-dependent, semi-autonomous Japan cannot overturn the regional order, but it may become skilled at using—or quietly disrupting—US–China relations to regain leverage. — Professor, Shanghai International Studies University (上海国际战略问题研究会, 8 June)

6. Russia

Wang Jinguo (汪金国) & Xie Yushi (谢语诗): Russia’s war-driven demographic crisis is becoming a mechanism of great-power shrinkage. The Ukraine war has turned chronic population decline into a “demographic earthquake” [人口地震], leaving Russia “fewer, older and more unbalanced”. The strategic consequence is a Russia pushed from a full-spectrum great power towards a more selective and geographically narrower Eurasian power—still disruptive in security, energy, food and nuclear deterrence, but less able to sustain broad integration, European influence or global leadership. At home, population decline both exposes and accelerates weakening state capacity, producing “reverse modernisation” [逆现代化]: the modern tasks of identifying, managing, coordinating and redistributing across society are crowded out by coercion, extraction and ideological discipline, while social vitality, innovation and generational renewal ebb. Regionally, Russia’s Eurasian Economic Union-style dominance becomes harder to sustain as its demographic and economic pull fades, decaying from developmental integration into security-based control. — Wang: Professor, School of Politics and International Relations, Lanzhou University; Xie: PhD candidate, Lanzhou University (俄罗斯东欧中亚研究, via 时政国关分析, 18 June)

Xiao Bin (肖斌): The 2026 China–Russia joint statements are an exercise in calibrated expectation management: they delimit the partnership’s “essence and boundaries” [本质与边界]—non-alliance, non-confrontation and no third-party targeting—and send “a clear signal to the international strategic community” intended to reduce strategic misjudgement. With great-power uncertainty rising, “stable expectations” [稳定预期] have become one of the international system’s key public goods, which China–Russia ties are meant to help supply. The motives are asymmetric: for Moscow, the relationship answers immediate pressure and anchors national-system reshaping; for Beijing, deeper strategic alignment and “systemic integration” secure structural stability on its periphery. Investment co-operation remains “relatively narrow”, external risk costs are high, high-tech and SME co-operation is underdeveloped, and cross-border infrastructure cannot keep pace with trade. — Research Fellow, Institute of Russian, Eastern European and Central Asian Studies, CASS (世界知识, 20 June)

7. Economy

Shen Jianguang (沈建光): China’s economy is marked by three structural splits—strong supply but weak demand, strong external but weak domestic demand, and strong new-economy but weak old-economy sectors—reflected in the data of May’s month-on-month PMI fall, April’s near-stagnant retail sales and the sharp year-on-year contraction in fixed-asset investment. Domestic demand is the central weakness. Without stronger fiscal and monetary support, the gap may widen between successful export-oriented, high-tech manufacturing sectors and the lagging domestic economy. Even the stronger sectors are not immune: they remain exposed to external-demand shocks, depend on domestic demand to absorb capacity, and require the fiscal resources generated by a healthier broader economy. Higher transfer payments to rural residents could be especially effective, given their relatively high propensity to consume. — Vice-President and Chief Economist, JD Group (FT Chinese, 10 June)

Justin Lin Yifu (林毅夫): China’s slowdown should not be read through pessimistic claims of “state advance, private retreat” [国进民退], ageing or balance-sheet recession, since the deeper cause lies in weak global demand after 2008 rather than a domestic structural failure. Infrastructure stimulus after the financial crisis expanded the role of state firms, but also supported private producers through demand for materials, employment and consumption; ageing need not derail growth because effective labour can rise through education; and household caution reflects confidence rather than lack of savings. Policy should focus on restoring expectations and using China’s latecomer advantages, industrial upgrading space and new quality productive forces to take advantage of the fourth industrial revolution. — Dean, Institute of New Structural Economics, Peking University (观一线, 11 June).

Jiang Xiaojuan (江小涓): AI disruption differs from earlier technological shocks because it is shrinking the same categories of work across all industries at once rather than displacing workers into adjacent roles with similar skills, putting many educated young people at risk of being pushed out of regular employment. Since many displaced workers face the immediate reality of “if hands stop, mouths stop” [手停口停], social policy cannot wait for long-term adjustment: income relief, retraining and social security must be strengthened urgently. A better balance between capital expenditure and labour expenditure incentives should be established, rather than rewarding equipment purchases with tax rebates while offering no comparable incentive for hiring people. — Professor, University of Chinese Academy of Social Sciences; Chair, National Data Expert Advisory Committee (Caixin, 26 June)

8. Society & Local Governance

Sun Liping (孙立平): A single pathology—over-competition—underlies a startling range of China’s social and economic ills, from lying flat [躺平], involution [内卷] and non-marriage to industrial overcapacity. Having swung from the pre-reform absence of competition to the opposite extreme, China now treats competition as an end in itself, spread indiscriminately into domains that should resist it—public administration, basic education, healthcare, care for the elderly, public security—where doctors compete for patients and even fines become quota-contests, yielding systemic injustice and warped public services. Some managers even weaponise competition as a governance technique [治理术], cultivating a “wolf culture” of mutual trampling through ranking and last-place elimination. — Professor Emeritus, Department of Sociology, Tsinghua University (立平坐看云起, 6 June)

Zhang Guijin (张桂金) & Qian Chen (钱晨): In one Pearl River Delta city, women aged 27–40 outnumber men roughly two to one among principal hukou migrants—but this is less a story of female advancement than of the traditional gender order reasserting itself through urbanisation. The emerging pattern is “mothers migrate with the children” [母携子迁]: rural families deliberately split the household register [拆户], with mother and children taking urban hukou for school access while the father retains the rural registration, where male-skewed collective entitlements and patrilocal norms [从夫居] continue to define “home” as the husband’s village. State policy promotes gender-equal, people-centred urbanisation, but village self-governance can reassert the old order: women’s equal land rights exist in law, only to be voted away in practice. The remedy is to put women’s names on land, homestead and collective-share titles, and make marriage irrelevant to collective membership. — Zhang: Associate Research Fellow, Institute of Sociology and Population Studies, Guangdong Academy of Social Sciences; Qian: Teaching Assistant, United Front Theory Research Department, Guangdong Institute of Socialism (妇女研究论丛, Issue 2, 2026)

Bai Che (白车): In one central-western “small-population county”, capable cadres become rule-breakers because the system makes compliant action hard to square with superior-level demands. Showcase deadlines from above collide with project-compliance timelines, making irregular procedure routine, while grassroots cadres become convenient scapegoats when higher levels need a negative example. Quantified anti-corruption rankings also punish small counties for lacking the numbers to compete, and official “lying flat” spreads. Behind this is an economic hollowing: a third of residents have left since the pandemic; the county’s economy rests on 9,000 fiscally supported workers and retirees; retrenchment has choked consumption and project work, with tenders falling from over 100 last year to virtually none. E-commerce hollows out county retail, while the replacement digital-economy jobs stay in eastern industrial clusters. The unified national market accelerates this concentration, and debt-constrained local governments can no longer spend against it. — Pseudonymous field work (IPP评论, 12 June)

9. Tech & AI

Huang Ping (黄平): The AI race has settled into a US–China “G2”, leaving middle powers’ “technological sovereignty” in AI an illusion. Traditional US allies can only choose America; emerging partners are likely to do so too. Anything Chinese is treated as a potential “backdoor” [后门], and adopting it risks challenging Washington. China’s task is therefore not to make them choose China, but to stop them choosing sides: make Chinese firms indispensable across value-chain niches, not dominant. This should not be state-led or branded as an “AI globalisation initiative”. The method is market “inducement” [利诱]: high-value, localised enterprise-cluster solutions, with Beijing supplying the “certainty” [确定性] firms need abroad—policy consistency and backing, not subsidies. — Associate Professor and Assistant Dean, School of Public Policy, CUHK-Shenzhen (大湾区评论, 10 June)

Sun Haiyong (孙海泳): American AI is running into a structural electricity bottleneck, shifting the US–China AI race from chips to energy efficiency and capacity—the arena where US weakness meets Chinese strength. US net generation rose only about 6.3% between 2005 and 2024, even as data-centre demand has surged. The Trump-era answer—more fossil fuels and nuclear power—is itself supply-chain constrained, with key components in short supply. China has roughly 60% of global transformer capacity, while the US imports about 80% of its own transformers, making tariffs on Chinese kit self-defeating. Suppressing cheap, fast-build solar and storage through FEOC rules only worsens the shortfall. As US tech firms are pushed into building “shadow grids” [影子电网], capital that might have gone into chips and R&D is diverted into energy infrastructure, while a power-starved, “circular” AI economy risks becoming a bubble. — Research Fellow, Institute for Public Policy and Innovation Studies, Shanghai Institutes for International Studies (爱思想, 24 June)

10. Critical Minerals

Sun Zhi (孙帜) & Zheng Hua (郑华): China’s rare-earth dominance now coexists with real dependence on Southeast Asia: Myanmar and Laos supply over 91% of China’s major rare-earth oxide imports, while China’s proven terbium reserves would struggle to meet projected global demand even if fully mined. Southeast Asian states are pursuing neither exclusionary resource nationalism nor short-term self-sufficiency, but “embedded autonomy” [嵌入式自主]: tightening resource sovereignty through raw-ore export bans and local-processing mandates while courting rival investors to climb the value chain. As “new intermediate-zone” [新中间地带] actors, they seek Chinese processing technology and Western market access at once—Malaysia agreed not to restrict rare-earth exports to the US while still seeking Chinese know-how. Beijing’s April and October 2025 export controls further raise the strategic value of the region’s heavy rare-earth supply. — Sun: Doctoral candidate, School of International and Public Affairs, Shanghai Jiao Tong University; Zheng: Professor, School of International Relations, Sun Yat-sen University (国际论坛, via 爱思想, 19 June)

Zhao Huirong (赵会荣): America’s drive to build a “de-Sinicised” (去中国化) Central Asian critical-minerals supply chain is unlikely to displace China, which imports 70% of the region’s critical minerals and holds 35% of proven resources, 68.5% of mining capacity and 80% of output—but the attempt still squeezes the PRC. Washington’s bilateral deals, C5+1 and MSP/PGII platforms target scarce minerals—sponge titanium, chromium and rhenium in trade, tungsten and lithium in investment—while pairing resource access with corridor control, including a Kyrgyz railway keyed to the China–Kyrgyzstan–Uzbekistan Makmal node. US-led ESG and technical standards raise Chinese compliance costs; the “resource control” (资源控制) narrative attacks China’s governance discourse; and C5+1 mechanisms dilute BRI convening power. — Research Fellow, Institute of Russian, Eastern European and Central Asian Studies, CASS (国际论坛 via 爱思想, 15 June)

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Shao Yuqun on the Post-Summit Shift in Trump’s Taiwan Policy (24 June)

Shao Yuqun reads Trump’s post-Beijing remarks on Taiwan as more than loose talk. For her, his admission that arms sales were discussed with Xi Jinping weakens the Six Assurances, while his refusal to back ‘Taiwan independence’ inserts new clarity into strategic ambiguity: if Taipei provokes a war, Washington will not fight. The claim is contested, and US policy may not move as far as Shao suggests. But the piece matters because it shows how influential Chinese analysts are interpreting Trump’s transactional diplomacy—as evidence that Beijing can now shape the terms of US–China stability around Taiwan. Read here

Zheng Yongnian on Local Government Overreach and the Private Economy (22 June)

Zheng Yongnian uses the unlikely success of motorcycle entrepreneur Zhang Xue to ask a larger question: why does China still struggle to let private enterprise generate genuine vitality? The answer lies less in entrepreneurs themselves than in the local state. In sectors from EVs to chips and AI models, local governments treat private firms as instruments of growth, helping fuel duplication, wasted capital and thinly spread innovation. Zheng’s critique is careful—aimed at local excess, not central policy—but revealing. It shows how China’s industrial strength can coexist with a political economy that smothers the very SMEs it needs. Read here

Huang Qifan on China’s Trade Surplus Problem (16 June)

In this unusually direct speech, Huang Qifan treats China’s $1.2 trillion goods surplus not as a diplomatic talking point but as a structural policy problem. The former Chongqing mayor credits Made in China 2025, supply-chain localisation and foreign-invested firms for China’s export strength, yet accepts that the surplus now exceeds a sustainable range. More strikingly, his remedies—gradual RMB appreciation, cuts to export-tax rebates, lower tariffs, stronger wages and longer holidays—overlap with prescriptions more often heard outside China. The piece matters because it shows a senior establishment voice linking external trade pressure to domestic rebalancing and common prosperity. Read here

The End of Easy Capital | Economic Digest: May 2026 (9 June)

China’s May economic debate revolves around a hard question: how to keep industrial upgrading from becoming another debt-fuelled local-government binge. This digest tracks economists worrying that EVs, batteries, solar, AI and “future industries” are being pulled into the same old pattern: local overreach, bank-led finance, weak consumption and scarce patient capital. The most interesting thread is not stimulus versus restraint, but a deeper argument about state boundaries, equity markets and the end of easy collateral from land. Read together, these pieces show reform pressure moving from slogans about innovation to the institutional plumbing needed to fund it. Read here

Qin Hui on Why Condemning Trump Is Not Enough (8 June)

Qin Hui’s response to the Iran war is uncomfortable precisely because it refuses the easy moral division. Trump’s strike was reckless, unserious and institutionally suspect; Iran’s theocracy is brutal and its blockade turns retaliation into coercion against the world; Europe, Japan and regional states look paralysed by anti-Trump disgust. The result is a liberal critique aimed not only at American overreach, but at liberal passivity itself. Qin’s framing is debatable, especially on feasibility and Israel’s role, but worth reading because it asks whether condemning Trump can become an alibi for refusing to defend freedom of navigation and public order. Read here

Strategic Stability, Structural Strain | Digest: May 2026 (2 June)

May’s Sinification digest captures a Chinese debate caught between post-summit relief and deeper structural anxiety. The Xi-Trump meeting briefly revived talk of stabilisation, even G2-style parity, but analysts quickly return to harder questions: Taiwan risk, Japan’s role, AI exclusion, Europe’s trade defences and the durability of China’s export model. The most revealing pieces are less celebratory than diagnostic, tracing how “strategic stability” coexists with weak demand, academic dysfunction and uncertainty over talent and innovation. Read together, they show a policy-intellectual world testing whether China’s improved room for manoeuvre can survive its economic and institutional strains. Read here

The Three Kingdoms remains the obvious shorthand for the US–China–Russia triangle that recurs across Chinese writing, but in today’s piece, Zhang Jian (张健) includes Europe in the strategic calculus—a framing that might be welcome in Brussels, which is habitually overlooked as an independent power by Chinese analysis.

Europeans may find Zhang’s analysis itself less agreeable, not least the claim that Europe and Russia’s positions have “reversed”, with Russia’s improving. Readers may also feel that Zhang overstates European convergence with Russian and Chinese positions on “de-risking” from America.

However, the piece exemplifies a wider tendency in Chinese commentary to portray Trump’s second term as geopolitically favourable to Beijing. Many Chinese analysts now see China as occupying a relatively privileged position in global …

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Trump was quiet on Taiwan while in Beijing and there were probably sighs of relief on Capitol Hill as he boarded Air Force One. Yet moments later, Trump told reporters on board that he and Xi had discussed arms sales to Taiwan. Shao Yuqun (邵育群) in our translation below, reads this admission as a break with the Six Assurances that the US privately extended to Taiwan in connection with the August 1982 communiqué—specifically, the assurance that Washington would not hold prior consultations with Beijing over arms sales to Taiwan.

In his Air Force One comments, Trump also added that “the last thing we need right now is a war that’s 9,500 miles away”. He struck the same note in a Fox News interview with Bret B…

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Amid this, Zheng Yongnian offers a set of diagnoses and recommendations that are noticeably more pointed than his past prescriptions for lighter-touch governance. The core of his argument in this interview is that China now occupies a situation where across a range of sectors, “almost every private enterprise has some connectio…

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Since then, Huang has been able to draw on his credibility as an able economic administrator in Chongqing to maintain an active presence across issues such as rural economic reform, the property crisis, and economic rebalancing in favour of promoting consumption. In the following speech, delivered on 19 May at the annual Tsinghua PBCSF Forum, Huang addresses China’s US$1.2 trillion goods surplus in strikingly direct terms. Several of his observations and recommendations stand out.

First, he is unequivocal in his agreement with the analys…

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In this context, May’s policy guidance is being interpreted through the lens of disciplining local-government overreach. Recent official discourse on further developing the “unified national market” is explained by Yang Zhiyong, President of the Chinese Academy of Fiscal Sciences, as aimed at curbing hidden local protectionism and imposing greater budget discipline on localities. Likewise, the success or failure of the current push to develop “future industries” is read by Xu Zheng of the Jiangsu Party School as hinging on whether a growth model based more on “patient capital” than another round of local government-raised debt can be developed.

One culprit blamed by economists for the difficulty of economic reform is China’s indirect financing model, still based largely on bank loans and supply-chain finance. Renmin University’s Wu Xiaoqiu and CUHK’s Zheng Yongnian see the US system of equity finance as demonstrating its advantages for reducing reliance on state-backed finance and supporting a healthier market economy. KPMG China’s Wu Xuchu adds that an economy funded by equity investment would be more resilient to risk contagion in the face of market contraction.

However, the challenges of switching to equity markets are clear. The apparent optimism of last year’s “savings migration” [存款搬家] narrative, in which it was hoped savings might move from real estate to the stock market, is now confronted by what several refer to as an asset shortage: cash is abundant, but a lack of sufficient high-quality assets impedes the entry of large funds. There is also a demand-side dimension to the problem. Financial analyst Wang Jian sees China’s undeveloped equity markets as arising from the developmental-state model reaching its economic limits before citizens have accumulated enough capital to support private investment-led development—a case of “transition before wealth” [未富先转].

This narrower discussion of financing models also feeds into a broader criticism of the role of local governments in the private economy. Both Wu Xiaoqiu and Zheng Yongnian present the broad economic role of local governments and SOEs in many localities as both a constraint on innovation and a misinterpretation of what an “active government” [有为政府] should mean. Zheng’s emphasis on the under-appreciated importance of a “vibrant society” is particularly noteworthy.

Yet trends may be moving in precisely the opposite direction. As local governments face growing fiscal strain, the pressure to develop monetisable assets is increasing. Former urban planning official Zhao Yanjing describes the shift towards managing wealth-generating assets as the only viable pathway for local governments out of indebtedness. Coupled with the need to rescue distressed firms, this could risk making the line between the state and private economy even harder to draw: Liu Xiaoxia and Yang Yuanyuan’s Jiangsu survey of state capital taking stakes in private firms suggests that this phenomenon of “reverse mixed-ownership reform” [反向混改] is spreading for those very reasons.

—James Farquharson

1. Local Government:

   1. Wu Xiaoqiu on the need for local-government and capital-market reform for the age of the surplus economy.

   2. Zheng Yongnian on the need for greater social vitality to achieve entrepreneurial breakthroughs.

   3. Zhao Yanjing on land finance and the new fiscal model for local government.

   4. Liu Xiaoxia & Yang Yuanyuan on the spreading phenomenon of reverse mixed-ownership reform—the injection of state capital into private enterprise.

   5. Wang Qing on national market integration and breaking invisible local protection barriers.

   6. Yang Zhiyong on a proposed national negative list for local government subsidies.

2. Financial Reform:

   1. Wang Jian on how “transition before wealth” has caused underdeveloped capital markets.

   2. Wu Xuchu on why local government-backed indirect financing is ill-suited to riskier industries like AI.

   3. Li Yang on the paradox of plentiful money and scarce capital.

   4. Xu Zheng & Zhan Zhiyong on the challenges posed to the development of “future industries” by overcapacity and weak commercialisation.

3. Trade Surplus:

   1. Huang Qifan on China’s trade surplus and structural adjustment.

   2. Liu Yuanchun on China’s current-account imbalances and the need for demand restructuring.

4. Economic Stimulus and Rebalancing:

   1. Yu Yongding on why the Fifteenth Five-Year Plan is right to prioritise infrastructure stimulus.

   2. Li Xunlei on the limits of counter-cyclical stimulus.

   3. Liu Shijin on weak end-user demand as China’s growth bottleneck and why infrastructure money would be better spent on pensions.

   4. Lu Zhe on how population flows explain the consumption gap between first-tier and lower-tier cities.

1. Local Government

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If a label is needed, Qin is a left-leaning liberal, but his intellectual outlook is shaped above all by a fiercely critical spirit. He does not pull his punches against Western liberals or the left, either. In his account of global imbalances between consumption and labour, he has criticised the parochialism of the Western left’s focus on redistribution as a solution to economic stagnation and …

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Executive Summary

1. Chinese academic commentary on Trump’s Beijing visit is markedly upbeat, portraying the summit as evidence that US-China relations have entered a new phase.

2. Many authors go beyond official caution around a possible “new paradigm”, treating the summit itself as evidence of a paradigmatic shift.

3. The optimism is caveated: authors cite implementation risks, US domestic politics, midterms, future administrations, alliances and wider systemic uncertainty.

4. Some commentary frames the détente as tactical: Beijing gains “time and space”, while Washington gains “breathing space” [喘息之机].

5. Still, only six of 50 authors primarily emphasise fragility. Most frame the thaw as evidence of deeper structural change.

6. Wu Xinbo (吴心伯) is revealing: before the summit he described “fragile stability”; afterwards, he called the new stability “strategic and sustainable”.

7. The core structural claim is that the balance of power has shifted, forcing Washington into a more equal relationship with Beijing.

8. Zh…

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