The war in Iran predictably dominates commentary in March.

We covered initial reactions to the US-Israeli strikes in our briefing earlier last month, where we noted that assessments of China’s risk-opportunity balance hinged largely on Trump’s ability to turn action into success. We also featured a censored piece from the Intellisia Institute that pushed this logic further, arguing that a prolonged Middle East war could become a major strategic opportunity for China.

More than a month on, early scepticism about US regime-change prospects in Iran has hardened into a feeling somewhere between consternation and schadenfreude, with most analysts now framing the situation as a quagmire. The dominant motif is Trump’s “tiger-riding predicament” [骑虎难下]—meaning that it is easier to climb on a tiger than to dismount and easier to start a war than to end one.

Which makes it refreshing to read SISU professor Shi Zhan and former Brookings “returnee scholar” Li Cheng urging caution on US failure narratives and dismissing comparisons to the post-9/11 strategic distraction from China. On the more familiar hawkish side we have Wang Jiangyu, who calls this “the last war America can launch with any semblance of dignity”.

Meanwhile, Di Dongsheng argues that high energy prices are a net gain for China—a case he was apparently unable or unwilling to make on his WeChat blog on the same theme a few days earlier, which promised but conspicuously withheld the argument. The economic counter-case comes from Morgan Stanley Chief China Economist Xing Ziqiang, who warns that markets are underpricing the oil shock. His surprisingly stark warning is that $130 oil over a single quarter could drag China’s GDP growth to 3% or below.

Coverage of the Chinese economy is also weightier than usual, driven by the Two Sessions and the new Five-Year Plan. Direct FYP coverage was expectedly boilerplate, but the rural pension question (the FYP’s token increase was arguably the biggest social policy disappointment of the Two Sessions) prompted a more pointed debate. Against the many calls among Chinese economists for significant pension increases, Lü Dewen mounts an eight-point rebuttal, concluding that cash is not what the elderly actually need—and that pension transfers risk producing a “crowding-out effect” [挤出效应] on children’s sense of filial obligation.

Elsewhere, Zhou Tianyong puts a damning number on China’s reform deficit, forecasting an average growth of just 2.4% through 2035 unless institutional change occurs. Jia Qingguo and Wang Yiming both flag what Beijing is reluctant to concede—that the export model is generating resistance it cannot indefinitely absorb. Meanwhile, consumption-driven growth is challenged on three fronts: Zhu Tian argues that low consumption was a key driver of four decades of growth rather than a pathology; Yu Yongding rejects the existence of a coherent “consumption-driven growth” [消费驱动] category; and Lu Di and colleagues dismantle the “flawed arguments” for a consumption pivot. Among others, Wang Xiaolu takes a more consumption-friendly stance, arguing that government expenditure is devoted to investment and bureaucracy at the expense of a “livelihood-oriented fiscal policy”.

Beyond Iran and the economy, several pieces extend these discussions into broader questions of strategy. Wu Xinbo portrays a Beijing that increasingly regards tariffs as a secondary issue and appears prepared to retaliate against US interests in third countries. Zheng Yongnian, in turn, calls for an “Interventionism 2.0”, arguing that the PRC’s traditional non-interference doctrine no longer matches the scale of its global interests. And on Taiwan, Wei Leijie captures the bluntness with which some mainland voices now reject the case for continued delay in “cross-Strait reunification”.

— Jacob Mardell

1. Iran War:

   1. Shi Zhan on why it is too hasty to predict US defeat in Iran without first analysing Washington’s war aims.

   2. Li Cheng on why an Iran quagmire is unlikely to soften Washington’s China policy, and on China’s “many paradoxes and policy choices” over Iran.

   3. Wang Jiangyu on allies having now established a precedent of not following America, making this the last war America can launch with any semblance of dignity.

   4. Di Dongsheng on China profiting from war, as high oil prices improve the relative competitiveness of Chinese manufacturing while stretching Washington and its allies.

   5. Xing Ziqiang on markets severely underpricing the risk of a prolonged oil shock, with oil at US$130 for a quarter potentially dragging China’s growth to around 3% or lower.

   6. Li Fuquan on why the US-Israeli strikes make Iran’s abandonment of its nuclear programme a near-impossibility.

   7. Wu Hailong on why the US-Israeli strike is part of Washington’s broader strategic competition with China and Russia, requiring a coordinated Sino-Russian response.

2. Global Order & US–China Relations:

   1. Zheng Yongnian on China urgently needing an “Interventionism 2.0”—a revised doctrine permitting proactive intervention when overseas interests are threatened.

   2. Jia Qingguo on how China should adjust its model for overseas investment to reduce frictions in the host country.

   3. Zhang Yongle on the viral “kill line” discussion marking a shift in China’s cognitive positioning from “looking up” to “partially looking down” at the US.

   4. Zhao Dingqi on the current far-right wave marking a new “Polanyian moment” in which the United States is already operating a form of “anticipatory fascism”.

   5. Xia Liping on Trump’s revival of the G2 concept as an opening for greater Sino-American coordination on a more equal basis.

   6. Wu Xinbo on Beijing’s growing concern over US interference in its overseas economic interests and the broader agenda it wants to press beyond tariffs.

3. Taiwan:

   1. Chen Xiancai and Su Weibin on the mainland having established “overwhelming advantages” in sovereignty, governance and legitimacy, while identity remains the “deepest and most difficult obstacle”.

   2. Wei Leijie on the urgency of achieving “Taiwan’s recovery” at the earliest opportunity, and on why common arguments for strategic patience are fallacies.

4. Chinese Economy:

   1. Wang Xiaolu i) on government expenditure being devoted to investment and bureaucracy at the expense of a “livelihood-oriented fiscal policy”; and ii) on official income-distribution statistics understating the true extent of state economic control.

   2. Wang Yiming on China’s 30% share of global manufacturing meaning further export expansion risks provoking trade restrictions.

   3. Zhou Tianyong on China’s economy growing at only 2.48% in 2026–2030 without institutional reform—well below the 5% needed to meet the 2035 modernisation target.

   4. Tang Dajie on why significant increases to rural pensions are a necessity from the perspective of both economic stimulus and societal fairness.

   5. Lü Dewen on why increasing rural pensions is ill-suited to short-term stimulus, whereas the real problem for the very elderly is care rather than cash.

   6. Lu Di, Yu Shiwen and Gao Ling on why the case for consumption-driven growth rests on three flawed arguments.

   7. Yu Yongding on “consumption-driven growth” as a macroeconomic red herring, and why China should not treat the 3% deficit ceiling as binding.

   8. Zhu Tian on why China’s low consumption rate was a driver of high-speed growth rather than a structural problem.

5. Artificial Intelligence:

   1. Liang Jianzhang and Wang Ciqiao on AI as a fertility depressant operating through three channels, including competition for reproduction from low-cost entertainment.

   2. Zhuo Xian on AI producing three simultaneous decouplings that collectively undermine the three pillars on which social insurance was built.

   3. Yao Yang on AI as a massive bubble whose collapse may be triggered by a Chinese photonic or optoelectronic chip breakthrough.

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1. Iran War

Shi Zhan (施展): It is premature to predict that the US will lose the war without first analysing its objectives. If Washington’s aim is regime change, it is unlikely to succeed without ground forces; if its aim is only to destroy Iran’s nuclear capability and ability to project influence externally, that objective can probably still be achieved. The claim that a Gulf shock would collapse US AI financing, let alone US financial hegemony, is overstated: petrodollars account for less than 10% of AI financing, and the real transmission mechanism runs through higher oil prices, stickier inflation, tighter financing conditions, and rising electricity costs. Those pressures could still hurt the US economy, but they remain a long way from the disintegration of America’s financial hegemony. — Professor; Director, Research Centre on World Politics, China Foreign Affairs University (施展世界, 4 March)

Li Cheng (李成): The idea that the US being bogged down in Iran may cause it to soften its stance on China does not hold up—this is not the post-9/11 moment, when Bush recognised that the PRC was not the primary adversary. The Iran war itself is not in Beijing’s interests, but China also cannot accept Iran falling under US control or becoming pro-American. China faces “many paradoxes and policy choices” [很多悖论与政策选择] over Iran, and the impact of the war on US–China relations depends above all on the degree and direction of the conflict’s development. — Founding Director, Centre on Contemporary China and the World, University of Hong Kong (CCCW, 26 March)

Wang Jiangyu (王江雨): The refusal of US allies to follow Washington’s lead in the Strait of Hormuz sets a precedent that will make it much harder for America to rally allies in future wars—this may be the last war Washington can launch with any semblance of dignity. Trump is “riding a tiger and unable to get off” [骑虎难下]: he underestimated Iran’s resilience, but Iranian surrender is impossible without a large-scale ground invasion that he does not dare launch. The most likely outcomes are either a US declaration of victory followed by withdrawal, or a drawn-out low-intensity war. China’s tolerance for the damage the war inflicts on the world economy is the strongest, and China’s strategic environment may grow increasingly favourable as distrust of America deepens—including from Russia. — Professor, School of Law; Director, Centre for Chinese and Comparative Law, City University of Hong Kong (IPP Review, 18 March)

Di Dongsheng (翟东升): With the two Cold War superpowers now bogged down in quagmire conflicts, China is following the script the United States played in the early stages of World War One to profit from the war. Among the world’s major net energy importers, China ranks ahead of the United States in energy autonomy, meaning that higher oil prices improve the competitive position of Chinese manufacturing relative to more oil-dependent rivals. High oil prices also transfer wealth from energy-importing core economies towards peripheral ones, boosting purchasing power in Africa and the Middle East precisely where Chinese goods are most competitive, while stretching the fiscal and strategic resources of Washington and its allies. Chinese exports of new energy vehicles, storage, photovoltaics and wind power equipment will accelerate, while the defence industry and dual-use technology sectors stand to profit quietly. — Professor and Vice Dean, School of International Relations, Renmin University of China (Weibo, 30 March)

Xing Ziqiang (邢自强): If oil were to average around US$130 for a quarter—the threshold at which global demand would fall non-linearly—it would lead to both a direct oil shock and a collapse in external demand for China, meaning that real GDP growth could fall to around 3% or lower without policy intervention. Global markets are severely underpricing this risk: even after counting backup pipelines, additional Russian exports and full releases of strategic reserves, only around 7 million of a 20-million-barrel daily shortfall could be covered. Rather than carrying out fiscal tightening going into the shock—which would compound China’s demand problem without fixing the supply-side cause—the correct response is from the 2021 commodity spike playbook: ease credit conditions through reserve requirement cuts and re-lending to keep squeezed firms afloat, while expanding fiscal spending in the second quarter if conditions warrant. — Chief Economist, Morgan Stanley China (爱思想, 27 March)

Li Fuquan (李福泉): The US-Israeli strikes have made clear to Tehran that remaining non-nuclear did not buy security but instead invited catastrophic destruction, making any genuine abandonment of Iran’s nuclear programme increasingly unlikely. The strikes have sent a signal that any state judged to possess nuclear intent and capability—even without actual weapons—may face a military strike by a powerful state, destroying the cornerstone of the international non-proliferation system. Three scenarios could follow: prolonged stalemate; a negotiated compromise—requiring conditions that are almost impossible to satisfy; or the most dangerous possibility—Iran shifting toward a “more covert, dispersed and miniaturised” nuclear programme until it crosses the threshold and shatters the regional balance. — Professor, School of Area and Country Studies, Northwest University (世界知识, 25 March)

Wu Hailong (吴海龙): The US-Israeli strike is part of America’s broader strategic competition with China and Russia. Unwilling to confront either directly, Washington is instead moving against weaker aligned states one by one. This demands a coordinated Sino-Russian response: deeper bilateral strategic coordination, full use of the UN and SCO mechanisms, stronger Global South solidarity, and the building of hard power sufficient to deter American aggression. — Former President, China Public Diplomacy Association (北京对话, March)

2. Global Order & US-China Relations

Zheng Yongnian (郑永年): China urgently needs an “Interventionism 2.0” [干预主义2.0版]—a revised doctrine permitting proactive intervention when overseas interests are threatened by a host state or third party, or when external factors impinge directly on domestic interests. Non-alignment remains principally correct and has so far prevented a Sino-American bloc confrontation from tipping into world war, but China’s traditional non-interference principle must be updated to protect the country’s growing global footprint. — Professor and Dean, School of Public Policy, The Chinese University of Hong Kong, Shenzhen (大湾区评论, 9 March)

Jia Qingguo (贾庆国): As rising Chinese competitiveness drives resistance to Chinese investment abroad, Beijing should respond by shifting its default outbound investment model from wholly-owned to joint-venture structures. Amid geopolitical deterioration and nationalist tendencies, Chinese firms have grown larger and more competitive so that the wholly-owned outbound investment model has begun threatening local enterprises in ways it previously did not. Alongside the shift to joint ventures, China should improve its transparency and relax restrictions on people-to-people exchange, while also improving its institutional management of overseas relations by expanding internal intelligence-sharing among research institutions and diplomatic departments. — Professor, School of International Relations, Peking University; Standing Member, 14th National Committee of the CPPCC (iGCU, 9 March)

Zhang Yongle (章永乐): The viral Chinese internet discussion of the American “kill line”—the threshold below which a minor illness or unpaid bill sends a middle-class family into cascading collapse—marks a shift in Chinese netizens’ cognitive positioning from “looking up” [仰视] to “looking at the same level” [平视] and even “partially looking down” [局部俯视] at the US. Defenders of the American social model are now required to explain why the world’s wealthiest nation leaves its middle class fragile and lacking in a safety net, reversing the long-standing frame in which China had to justify its institutions against an assumed American standard. — Associate Professor, School of Law, Peking University (爱思想, 20 March)

Zhao Dingqi (赵丁琪): The current far-right wave marks a new “Polanyian moment”—a counter-movement against the structural crisis of neoliberal capitalism—but unlike the interwar period, there is no race between communism and fascism: far-right forces are developing with a strength far exceeding that of the left. The United States is already operating what David Hill calls “pre-emptive fascism” [先发制人的法西斯主义]: formal democratic institutions are maintained not out of commitment but because working-class weakness makes it unnecessary to discard them. The cause of the left’s weakness is its abandonment of class politics for identity politics, which in fact became an accomplice and abettor of capital—providing cultural legitimacy to neoliberalism while leaving working-class material interests unaddressed. — Researcher, Chinese Academy of Social Sciences (文化纵横, 16 March)

Xia Liping (夏立平): Trump’s revival of the “G2” concept should not be read as a call for Sino-American co-governance, but as an opening for greater Sino-American coordination on a more equal basis. Unlike earlier formulations, it reflects America’s grudging recognition of China’s strength and a move from denial and anger towards bargaining. China should seize the opportunity to institutionalise leader-level and cross-sector dialogue, secure tangible gains in 2026, and build flexible “China-US+” frameworks with other actors. Properly deployed, the G2 framework can help constrain US containment, increase China’s international weight, and check Japanese militarist revival. — Professor, Tongji University (CRNTT, 16 March)

Wu Xinbo (吴心伯): Beijing is increasingly concerned about US pressure on its overseas economic interests and could retaliate against US interests in third countries where China holds the upper hand. China also feels more confident in confronting the tariff challenge and will not treat it as a major concern at the upcoming Trump–Xi summit in May. Beijing will instead treat tariffs as secondary to technology controls, entity-list removals, investment restrictions, Taiwan—including restraint on future US arms sales—and the restoration of a working mechanism for people-to-people exchanges. — Professor and Executive Director, Centre for American Studies, Fudan University (Brookings, 27 March)

3. Taiwan

Chen Xiancai (陈先才) and Su Weibin (苏炜彬): Taiwan “reunification” is a question of modern state construction in which the mainland already possesses “overwhelming advantages” in sovereignty, governance capacity and legitimacy. The real obstacle is identity: after seventy-five years of separate development, divergent systems, memories and ways of life have been internalised by many Taiwanese as a durable “psychological barrier” [心理屏障]. The answer is a shift away from “blood-transfusion” [输血式] style preferential policies towards a “blood-generating” [造血式] model of “asymmetric integration” [非对称融合]—binding Taiwan into mainland sectors that are hardest to replace, so that decoupling becomes “economically irrational and practically unfeasible”. — Director (Chen); Doctoral Researcher (Su), Taiwan Research Centre, Xiamen University (CRNTT, 11 March)

Wei Leijie (魏磊杰): The case for “recovering Taiwan” [收台] sooner rather than later is a matter of strategic urgency, and the two most common arguments for waiting—that Taiwan will converge democratically with the mainland, or that time will resolve the issue naturally—are both fallacies that function in practice as indefinite delay. The status quo is not stable but rather drifting irreversibly towards de facto independence, while Taiwan’s population, after four centuries without major warfare, lacks the psychological preparation or geographic conditions for prolonged resistance. Beijing should set a concrete recovery timetable to generate a sense of inevitability among Taiwan’s population and foreclose the option of indefinite delay. — Professor, Xiamen University Law School (CRNTT, 6 March)

4. Chinese Economy

Wang Xiaolu (王小鲁): Despite the money supply reaching 2.3 times nominal GDP, consumer demand remains stuck at 37–39% of GDP—because China’s problem is not simply low aggregate demand but a structural imbalance, with government expenditure devoted to investment and bureaucracy at the expense of a “livelihood-oriented fiscal policy” [民生财政]. Public education, healthcare, and social security account for only 13.9% of GDP against an OECD average of 23.5%, while administrative expenditure runs at 9.7%—nearly double the OECD average. Roosevelt’s New Deal succeeded not through Keynesian expansion but through improving people’s livelihoods; China must extend unemployment insurance—currently reaching only 240 million of 470 million urban workers— while simultaneously reducing onerous enterprise contributions. — Deputy Director and Senior Research Fellow, National Economic Research Institute, China Reform Foundation (爱思想, 6 March)

Wang Xiaolu (王小鲁): China’s official income distribution statistics systematically undercount government resource control by excluding land revenues, unrepaid debt, and the effects of monetary expansion—meaning the government now controls over 40% of the economy, exceeding its pre-reform-and-opening-up share. Fiscal and monetary loosening was never withdrawn after the 2008 stimulus, and local governments borrowed massively through shadow financing vehicles, continuously expanding state resource control in ways not reflected in official figures. Households bear the cost: despite controlling a larger share of the economy than comparable governments, China directs only 33% of expenditure to social security, healthcare and education—half the OECD average—meaning expanded government spending has not translated into public welfare but into investment and administration. — Deputy Director and Senior Research Fellow, National Economic Research Institute, China Reform Foundation (爱思想, 8 March)

Wang Yiming (王一鸣): With China’s share of global manufacturing already at 30%, further export expansion will invite trade restrictions from a growing number of countries, making a fundamental shift in the development model unavoidable. At the same time, China is passing through the 60–80% of US GDP “critical threshold” of US-China rivalry even as it faces compounding domestic headwinds: weak productivity growth, an 8.5 trillion yuan hole left by real estate that the “new three” [新三样]—lithium batteries, EVs and solar panels—cannot fill, and the possible early arrival of the post-urbanisation era. — Vice-Chairman, China Centre for International Economic Exchanges; former Vice President, Development Research Centre of the State Council (新华文摘, Issue 4 2026)

Zhou Tianyong (周天勇): Without institutional reform, China’s economy will grow at only 2.48% in 2026–2030 and 2.42% in 2031–2035—well below the 5% needed to meet the 2035 modernisation target. Unlike traditional industries, technologically advanced new-quality productive forces actually reduce inputs of capital and labour—and may therefore hamper economic growth in the absence of redistribution. Misallocation of labour, capital and land—stuck in low-productivity agriculture and non-competitive enterprises—costs the economy approximately 30 trillion yuan annually. Thorough-going reform across the hukou system and rural land marketisation, capital reallocation from SOEs to competitive firms, and sharply raised welfare transfers is therefore needed to maintain the economic growth rate. — Director, National Economic Engineering Laboratory, Dongbei University of Finance and Economics; former Deputy Director, Institute of International Strategic Studies, Central Party School (爱思想, 8 March)

Tang Dajie (唐大杰): The current basic rural pension rate (143 yuan a month, increased to 163 yuan during the Two Sessions) is less than a quarter of the rural Minimum Living Security Standard (equivalent to 574 yuan a month): to consolidate rural poverty alleviation, the aim should be to reach this standard within three to five years. Given the high consumption propensity of rural residents, this adjustment would generate a high pay-off in consumption potential and drive GDP growth. From the perspective of fairness, this could be paid for by halving the annual pension increase rate for civil servants and state-owned enterprise employees and directing it to rural residents. Just as the social security protections of the New Deal helped the US emerge from the Depression, China needs a more ambitious approach. — Guest Researcher, Research Centre for Finance, Tax and Law, Wuhan University (Caixin, 7 March).

Lü Dewen (吕德文): The discussion of rural pensions contains several misconceptions, including ignoring the risk that pension increases may produce a “crowding-out effect” [挤出效应], weakening children’s sense of obligation to care for their parents. Pensions have the quality of “welfare inelasticity” [福利刚性]—once raised, they cannot be lowered—making them unsuitable as short-term demand stimulus. The historical contributions argument is morally understandable but operationally incoherent and what the very elderly actually need is not cash but care—fully dependent elderly need 5,000–6,000 yuan or more, so relying on pension increases alone to resolve elderly care is like “trying to catch fish in a tree” [缘木求鱼]. — Distinguished Research Fellow, Department of Sociology, Wuhan University (爱思想, 18 March)

Lu Di (卢荻), Yu Shiwen (于诗文) and Gao Ling (高岭): The case for shifting to consumption-driven growth [消费驱动] rests on three flawed arguments. Cross-national comparisons merely describe a structural feature of late industrialisation; the demand-constraint claim is empirically falsified by post-2014 data; and the sustainability argument underestimates China’s remaining industrialisation needs and institutional capacity for long-term investment. The debate is at its core a contest between the developmental autonomy of late-developing nations and Western-centric paradigms. The “overcapacity” narrative [产能过剩论] is hence a discursive instrument for constraining China’s capital accumulation. — Professor (Lu Di); Doctoral Candidate (Yu Shiwen); Associate Professor (Gao Ling), Lingnan College, Sun Yat-sen University (东方学刊, 2 March)

Yu Yongding (余永定): “Consumption-driven growth” does not exist in any strict sense: growth rests on savings-funded investment, while consumption can only fill a shortfall in effective demand. Overcapacity is a sector-level problem for market competition, not a macroeconomic policy target, and the 3% deficit ceiling is a European political construct with no relevance to Chinese conditions. With bond yields signalling ample fiscal space, the central government should raise the deficit ratio, issue long-term bonds and absorb infrastructure financing responsibilities from over-indebted local governments. — Academician and Research Fellow, Institute of World Economics and Politics, Chinese Academy of Social Sciences (Tencent Finance, 2 March)

Zhu Tian (朱天): China’s low consumption rate was never a structural problem—it was a key driver of four decades of high-speed growth; the current demand shortfall stems from an acute cyclical downturn triggered by the real estate crisis, not a fundamental structural imbalance requiring long-term reform. Since utilisation rates for infrastructure and productive capacity are already low, government investment cannot find high-return “effective investment” projects; large-scale fiscal stimulus directed at consumption—specifically 4 trillion yuan in consumer vouchers and government purchase of under-construction housing for conversion to welfare—is more direct, efficient and does not generate ineffective excess capacity. Concerns about debt are misplaced: as long as the debt interest rate remains below the sum of the growth rate and asset returns, stimulus is self-correcting. — Vice President and Co-Dean, China Europe International Business School (爱思想, 8 March)

5. Artificial Intelligence

Liang Jianzhang (梁建章) and Wang Ciqiao (王次桥): AI is a fertility depressant operating through three channels: it provides instant, low-cost entertainment whose “dopamine return rate” is more competitive than child-rearing’s delayed rewards; it intensifies the skills arms race, eliminating entry-level positions and forcing continuous upskilling precisely during peak childbearing years; and it drives up the educational arms race for children. A further three structural mismatches prevent market correction—the childbearing window overlaps with peak career pressure; families bear the full cost of raising children while society captures most returns; and 96% of education spending is local while talent flows elsewhere. China’s childcare subsidy at 0.07% of GDP is a fraction of Japan’s 0.99%, and without a major fiscal response, China risks losing the population-scale advantage in data and application scenarios that underpins its AI competitiveness. — Research Professor of Applied Economics, Guanghua School of Management, Peking University (Liang); PhD Candidate in Economics, Chinese University of Hong Kong (Wang) (统梁说, 8 March)

Zhuo Xian (卓贤): AI is producing three simultaneous decouplings—investment from employment, technological progress from human capital, and wages from productivity—that collectively undermine the three pillars on which social insurance was built. As AI-intensive sectors no longer bid for labour, the mechanism that historically transmitted high-sector wage gains across the whole economy has broken down and the “learning-by-doing” ladder through which junior associates become senior experts is being severed. Policy responses include a differential robot tax, exempting “labour-augmenting” technologies, shifting social security financing toward general taxation to capture AI-generated wealth, and treating sovereign AI computing infrastructure as a future financing vehicle analogous to Norway’s oil fund. — Director and Research Fellow, Department of Social and Cultural Development Research, Development Research Centre of the State Council (New Economist, 24 March)

Yao Yang (姚洋): AI is a massive bubble deliberately hyped up by Silicon Valley tech companies—the trigger for its collapse may come from a Chinese photonic or optoelectronic chip breakthrough within two to five years; the government’s most urgent task is not AI but boosting domestic demand. Discussing medium-to-long-term growth targets is meaningless and the “two elephants in the room” obstructing consumption are the real estate market’s sustained negative growth and collapsing local government expenditure. If the problem continues, China will become 90s Japan—everyone repaying debts, economic growth severely dragged down. The solution is the 1990s debt governance model—government capital injection to get triangular debt [三角债] (chains of unsettled arrears) circulating—not structural adjustment, and not infrastructure investment, which has itself already gone into negative growth. — Dean, Dishui Lake Advanced Institute of Finance, Shanghai University of Finance and Economics (经济观察报, 26 March)

He is not the only scholar calling for a recalibration of China’s foreign policy. Last month, we published Jin Canrong’s (金灿荣) argument that China will struggle to win true friends if it cannot offer support beyond economic engagement. We also observed similar calls in both our January and February digests.

These arguments remain heavily qualified, light on substance and notable precisely because they are unusual, but they do appear to be part of a nascent trend.

In the interview below, Zheng defends China’s non-alignment strategy, crediting it with helping to prevent both a new world war and a new Cold War. But he argues that the related doctrine of non-interference has not kept pace with the scale of China’s overseas interests.

He puts forward one of the more developed cases for recalibration that we have seen, providing both a name—“Interventionism 2.0”—and a set of conditions for more active intervention: namely, when host countries infringe on China’s overseas interests, when third countries threaten them, or when overseas factors profoundly affect China’s domestic interests.

— Jacob Mardell

1. The Strait of Hormuz crisis is no longer a regional conflict. It is reshaping global energy markets, supply chains and geopolitical alignments in ways that no major economy can insulate itself from.

2. A 1970s-style oil crisis is unlikely, but short-term shocks—especially for economies with limited supplies—will be severe.

3. Condemning Iran’s “weaponisation” [武器化] of the Strait while ignoring Western weaponisation of semiconductors, supply chains and trade corridors applies a double standard that fails to withstand scrutiny.

4. Iran’s most viable course is not a total shutdown of Hormuz, but a calibrated strategy of selective, step-by-step closure, tightening pressure on adversaries while avoiding the self-inflicted costs of severing its own export lifeline.

5. Diplomatically, Iran may seek to play on tensions among the US, Europe and Japan—a modern echo of Li Hongzhang’s late-Qing strategy of using great-power rivalries to preserve room for manoeuvre under pressure.

Face-Off: The U.S. vs China is a podcast about the turbulent relationship between the world’s two superpowers, the two men in charge, and the vital issues that affect us all. The show is hosted by Pulitzer-Prize winning journalist Jane Perlez, the former New York Times Beijing bureau chief. Listen here.

6. Russia’s consideration of cutting gas supplies to Europe is an act of opportunistic solidarity with Iran, but risks backfiring by pushing Europe toward US energy dependence or direct military involvement against Iran.

7. Today’s world reflects a Hobbesian state of nature in which the strong prey on the weak [弱肉强食] and historical experience suggests that the emergence of a new order will take decades.

8. Chinese traditional non-interference should be updated to “Interventionism 2.0” [干预主义2.0版]: active intervention [积极干预] is warranted when host countries infringe on China’s overseas interests, third countries threaten them, or overseas factors profoundly affect China’s domestic interests.

9. North-South antagonism stems from the West’s practice of “ladder-pulling” [抽梯子] after having reached development itself. China’s Belt and Road offers a countervailing model of open-source [开源式现代化], shared modernisation [共同现代化].

10. China should maintain strategic resolve [战略定力] and great-power responsibility to avoid being drawn into the logic of war, while actively pursuing its legitimate overseas interests through multilateral institutions.

Name: Zheng Yongnian (郑永年)
Year of birth: 1962 (age: 63/64)
Position: Founding Dean and X.Q. Deng Presidential Chair Professor, School of Public Policy, The Chinese University of Hong Kong (CUHK), Shenzhen; Founding Director, Institute for International Affairs, Qianhai (IIA), CUHK, Shenzhen
Formerly: Director, East Asian Institute, National University of Singapore (2008–2019); Founding Research Director, China Policy Institute, University of Nottingham (2005–2008); Researcher, East Asian Institute, National University of Singapore (1996–2005)
Research focus: International relations; Chinese politics and society; Nationalism
Education: BA (International Relations), Peking University (1985); MA (Political Theory), Peking University (1988); MA (Political Science), Princeton University (1992); PhD (Political Science), Princeton University (1995)
Experience Abroad: Postdoctoral Fellow, Harvard University (1995–1997); University of Nottingham (2005–2008); National University of Singapore (1997–2019)

DIALOGUE WITH ZHENG YONGNIAN: AS THE LAW OF THE JUNGLE PREVAILS, CHINA URGENTLY NEEDS A “NON-INTERVENTIONISM 2.0”
Zheng Yongnian (郑永年)
Published by Greater Bay Area Review, 9 March 2026
Translated by Cherry Yu
(Illustration by ChatGPT)

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The fires of war in the Middle East continue to burn. On one side, Iran has announced that Mojtaba Khamenei has been elected as the country’s new Supreme Leader; on the other, US President Donald Trump stated in an interview with ABC that Iran’s newly appointed leader “must get approval from us”, otherwise he “is not going to last long”. As the conflict spills over, oil prices surge, international trade is disrupted, and global energy and shipping markets convulse violently, this is no longer a “localised Middle Eastern” conflict—it is the eye of a storm that is reshaping the global economic and geopolitical landscape.

As the old order collapses and the law of the jungle [丛林法则] prevails, can China afford to stay on the sidelines [置身事外]? How can it build a “firewall” [防火墙] that both withstands external shocks and avoids missing out on opportunities from globalisation due to over-defensiveness? Following up on a previous conversation (see Dialogue with Zheng Yongnian: When War Begins, Who Really Wins?), Greater Bay Area Review once again speaks with Professor Zheng Yongnian.

Interviewer: Following Iran’s blockade of the Strait of Hormuz, Brent crude oil surged more than 8% in a single day, European natural gas futures spiked 40%, and war-risk shipping insurance premiums skyrocketed. Given how the war is developing, could we be looking at a repeat of the 1970s oil crisis? [Note: Sources give varying figures for the single-day spike in European natural gas futures on 2 March 2026, ranging from approximately 20% in early trading to approximately 50% by end of day.]

Zheng Yongnian: Looking at the global energy structure as a whole, the world is not short of oil—the Middle East, Latin America, and Russia are all producing. Although the United States is a major energy consumer, it has itself become an energy powerhouse, and the Trump administration has been actively developing domestic energy resources. Today’s economic structure is very different from the 1970s, so a similar crisis scenario is not necessarily going to recur; in the long term, the impact may not be transformative [颠覆性的]. That said, short-term impacts will certainly be felt, and they will be very significant. In recent days, not only have energy prices in Asia and Europe risen, but gold prices have also fluctuated sharply. There are several factors that deserve attention.

First, how long these changes last depends on the course of the war. If, as Trump suggested, it ends within one to four weeks, a major crisis is unlikely. At the very least, large economies have enough energy reserves to last several weeks or even longer, and once the war ends, oil supply can recover. However, we must also watch whether the US and Israel will strike Iran’s energy infrastructure. If such facilities are destroyed, the situation will deteriorate sharply. Although Trump’s stated targets are military facilities, Iran claims that civilian infrastructure—including desalination plants—has also been bombed. If this escalates into a prolonged war, Iran’s closure of Hormuz would severely disrupt energy supply chains. In that scenario, Trump might then shift strategy to “convoying” [护航] through the Strait, which would be an entirely different situation.

Second, Iran itself is an energy-based economy. For its own survival and development, the Strait of Hormuz will ultimately have to remain open. Blocking the Strait also prevents Iran from exporting oil, which would severely harm its own economy. In practice, Iran has been selectively blocking the Strait, targeting shipments from countries it considers hostile, while allowing others through. The current situation is that Iran’s leader has been “decapitated” [斩首]—Iran is in the heat of anger and will need some time to recover its rationality. Put yourself in their position: if this were to happen to any other country, would it act rationally?

Third, once war breaks out, normal market functioning is disrupted and speculators multiply, which affects economies around the world. Overall, the crisis is not as severe as some media portray it; however, the short-term shocks are inevitable, especially for economies with limited oil reserves, which will be hit hardest.

Interviewer: The Strait of Hormuz is widely seen as Iran’s ultimate trump card [终极王牌]. How do you view Iran’s “weaponisation” [武器化] of the Strait?

Zheng Yongnian: Of course, we do not wish to see energy corridors “weaponised”. But we should assess this objectively. Have not the United States and other Western powers also “weaponised” supply chains? Have they not “weaponised” trade and commerce? Are US chip restrictions not a form of “weaponisation” against China? And have China’s new rare earth regulations not been criticised by the US and some Western countries as “weaponisation”? By the same logic, why should Iran not be able to “weaponise” the Strait?

We should not apply double standards when criticising others. Ideally, people would hope that the rules of the game do not change with every shift in geopolitics. But in a state of war, when Iran faces such a hostile external environment, it is unreasonable to expect it to keep the passage fully open. If an enemy is coming to attack your home, are you supposed to leave the door wide open?

Therefore, the first priority is to stop the war. Without an end to the war, talk of peace is meaningless. Under the logic of war, what matters is hard power and Iran has ample justification to “weaponise” the Strait. The question is whether it has the capacity to sustain this approach. How will the United States respond? How will European countries and Japan react? All of this is unpredictable.

What will Iran do next? It cannot completely block every corridor, but it may impose gradual, selective closures—and to a considerable extent it is already doing so. This is a true test of Iran’s strategic judgement. The diplomacy Iran now needs brings to mind the late Qing statesman Li Hongzhang. Li did not seek a diplomatic breakthrough by going outward; rather, he leveraged the rivalries among foreign powers within China to balance them against each other, preventing China from becoming fully colonised. Iran may adopt a similar approach in dealing with the West—manoeuvring among the competing interests of the US, European countries and Japan. If outward diplomacy is difficult, then it must wage a “war of attrition” [持久战] on its own soil. [Note: Li Hongzhang (1823-1901) was a late-Qing senior statesman, associated with China’s early self-strengthening reforms and with its crisis diplomacy under mounting foreign pressure. He is often linked to the formula “外须和戎，内须变法”—externally, seek accommodation with foreign powers; internally, pursue reform—which captured a broader late-Qing logic of survival under conditions of weakness].

Interviewer: After the outbreak of the Iran war, Russian President Vladimir Putin indicated that he may consider halting natural gas supplies to Europe. How do you view the connection between the US–Israel–Iran conflict and the Russia–Ukraine war? What strategic calculations lie behind Russia’s position?

Zheng Yongnian: Russia has obviously spotted its opportunity. It is deeply mired [深陷泥潭] in the Russia–Ukraine war and has had limited capacity to act elsewhere. Now that Iran is in crisis, Russia hopes to use this situation to advance its own interests.

Before the Russia–Ukraine war, Europe relied heavily on cheap Russian energy to sustain its economic prosperity. Since the war began, Europe’s economy has already suffered severe damage. Should Iran’s energy supply now also be disrupted, it will deal another heavy blow to Europe. In this context, Russia’s consideration of cutting off supplies at this moment can be seen as another way of supporting Iran, which is understandable.

Interviewer: If Russia does indeed cut off supplies to Europe, will European countries become more dependent on US gas, or will they make political and military concessions to Russia?

Zheng Yongnian: From the current perspective, several scenarios are possible. One is that Europe turns to dependence on American energy—perhaps what Trump would prefer. Another is that European countries, when pushed into a corner, may act out of desperation [狗急跳墙] by joining the United States in striking Iran, as evidenced by France’s aircraft carrier already moving into the region. So if Putin misplays this move, his intention to help Iran could backfire and instead push Europe and the United States into a joint military action against Iran. We should not underestimate that possibility.

Interviewer: You previously said that the old order has already collapsed, while a new one has yet to be established. In just the opening months of this year, we have seen the United States carry out decapitation strikes against Iran and Venezuela. Do you think this kind of “anarchy” is becoming the “new normal” [新常态]?

Zheng Yongnian: The old order is continuing to disintegrate and fragment. Countries are increasingly self-centred, seeking to build regional orders that serve their own interests. The establishment of a new global order remains a distant prospect [遥遥无期]. The world today resembles what the British philosopher Thomas Hobbes described as the “state of nature”—a lawless condition of anarchy marked by a ruthless, predatory logic in which the strong devour the weak [弱肉强食].

Historical experience shows that the establishment of a new order often takes decades. How many years did it take to establish the European order? The postwar order after World War II was only established after decades of catastrophe spanning the First and Second World Wars. Humanity has no memory—or rather, memory simply does not matter. Every order is only established after unbearable disasters and losses. Therefore, we must be mentally prepared for the long haul ahead before any new order is consolidated.

Today, in what is a “de facto G2” [事实上G2] world, the interaction between China and the United States is of vital importance. Although the United States is advancing its own vision of order, China’s role remains crucial. If China had, as the US and some Western countries feared, sided entirely with Russia and formed a bloc against America and Europe, a world war might well have broken out easily. It is precisely because China has adhered to a policy of non-alignment [不结盟政策] that this outcome has so far been avoided. The same applies to the current situation in Iran. We must maintain strategic resolve [战略定力] and shoulder the responsibilities of a major power—both to safeguard our own interests and to preserve world peace. We must not fall easily into the logic of war.

Interviewer: Behind this military strike lie surging international energy prices, disrupted supply chains, and soaring shipping insurance costs. These external risks are spreading rapidly across the world through channels such as trade, finance, and market expectations. For China, the question is how to protect its overseas interests while preventing external risks from spilling over into the domestic economy. How can it build a “firewall” that is strong enough to withstand external shocks, yet not so defensive that it causes China to miss the opportunities of globalisation?

Zheng Yongnian: China has extensive interests overseas, including in places such as Venezuela and Iran. As Chinese companies internationalise and economic globalisation deepens, our overseas interests will only continue to grow. In the past, we have consistently adhered to the principles of “non-alignment” [不结盟] and “non-interference” [不干预]. I believe the stance of non-alignment is the right one—this independent foreign policy has helped prevent the world from slipping back [重蹈覆辙] into the full-scale confrontation between two rival blocs that defined the Cold War. If China and the United States were each to rally allies into opposing military alliances, the result could well be a new world war.

That said, I believe [our] traditional doctrine of “non-interference” urgently needs to be reexamined and adjusted. What we need now is a new version of “interventionism 2.0”. We must continue to uphold the basic principle of not interfering in other countries’ internal affairs—we must never behave like the United States by pursuing regime change or inciting so-called colour revolutions. But there are at least three major circumstances in which we need to adopt a strategy of “active intervention” [积极干预] or “positive intervention” [正面干预].

The first is when China’s overseas interests are violated by the host country; the second is when those overseas interests are infringed upon by a third country; the third is when overseas factors significantly affect China’s domestic interests. The first scenario is a common one: some countries, for a variety of reasons—such as regime change or a change in political leadership—often fail to honour the agreements they have signed with China, or they descend into domestic instability and even violence. The second scenario is also becoming increasingly common, as seen in Washington’s coercive attempts to reclaim control over the Panama Canal or [to reassert its position on] narcotics treaties. The third scenario is even more common: for instance, if a country supports separatist forces or terrorist activities directed against China from abroad, then of course we must intervene. Likewise, we must also step in to deal with overseas telecom fraud schemes targeting Chinese citizens.

As Chinese companies continue to “go global” [“走出去”], China’s overseas interests are expanding accordingly. We must absolutely not mimic the American hegemonic practice of arresting foreign heads of state, but we should protect our own legitimate rights and interests through proactive means. This is something that calls for serious rethinking.

Interviewer: At the diplomatic level, China has long advocated active economic engagement while maintaining a limited military footprint. How do you view this approach?

Zheng Yongnian: At the international level, military force is one means of addressing problems, but its application often creates bigger and more numerous problems. We therefore need to look for the root causes of issues and explore whether more effective solutions can be found.

Why has such sharp antagonism emerged between the Global North and the Global South? At its core, this stems from an imbalance in development models and modernisation paths. Once the United States and other Western countries had developed themselves, they pulled away the ladder by which they had climbed, depriving latecomers—particularly countries in the Global South—of the means to follow the same path. As a result, many countries have found it difficult to escape poverty. Where there is exploitation, resistance is bound to follow.

What China advocates is “open-source modernisation” [开源式现代化]. Having achieved development itself, China seeks to extend the ladder outward, allowing and helping other countries to climb as well—through initiatives such as the Belt and Road, which promote infrastructure development and create opportunities for growth in other countries. This is the idea behind “shared modernisation”, that when all countries are able to develop, the international community will naturally become more harmonious. The same holds true within a society: when common prosperity is achieved, social harmony becomes possible, but when extreme wealth for some coexists with extreme poverty for others, any talk of harmony rings hollow. At the international level, we are fully capable of pursuing a model of development that is more sustainable and more peaceful.

At a time when the law of the jungle prevails, how should China play a constructive role [有所作为]? [Note: 有所作为 carries the sense of not merely standing back, but taking purposeful, meaningful action. It also echoes the long-running foreign policy formulation associated with the Deng Xiaoping era, 韬光养晦，有所作为—often rendered as “hide one’s capabilities and bide one’s time, while also accomplishing something”].

Of course, the kind of “hegemonic” [霸权式], “bandit-style” [强盗式] intervention practised by the United States is fundamentally wrong and something we must avoid. But we need to free ourselves from rigid thinking [解放思想] and avoid mechanically insisting on “absolute non-interference” [绝对不干预]. Whenever states interact, they inevitably affect one another.

The “active intervention” or “Interventionism 2.0” I described above is something China has in fact already been putting into practice in certain respects. For instance, combating telecommunications crime through bilateral cooperation to speed up the intervention process is itself a form of active intervention. In Central Asia, we have helped build the Shanghai Cooperation Organisation as a platform for open and legitimate [光明正大] multilateral cooperation, enabling countries to work together in addressing shared threats such as terrorism and extremism—all of which are viable approaches.

The essay below, by senior establishment economist Xia Bin (夏斌), is an unusually candid, systematic articulation of a broader Chinese instinct about finance—that it is inherently unstable, politically consequential, and useful only if bound by the needs of the real economy. It is introduced by Alicia García-Herrero, who makes a sharp case for the opposing view from a liberal-financial perspective. Alicia is the Chief Economist for Asia-Pacific at Natixis. She is also a Senior Fellow at the European think tank Bruegel, a non-resident Research Fellow at the National University of Singapore’s East Asian Institute, and an Adjunct Professor at the Hong Kong University of Science and Technology. In addition, she serves on the Advisory Committee for Economic Affairs of the Spanish Government and advises the Hong Kong Institute for Monetary and Financial Research (HKIMR). We are very grateful to her for her generous contribution to this newsletter. — Jacob

Xia Bin’s call for “full domestic marketisation paired with limited cross-border globalisation” rightly identifies China’s structural vulnerabilities—currency mismatch, RMB non-convertibility, and exposure to dollar hegemony. Yet his analysis rests on a flawed premise: that finance (“the xū”) must remain subordinate to the real economy (“the root”), serving only as a cautious tool to avoid external shocks. This view underestimates finance’s autonomous strategic value. A developed financial system is not just supportive infrastructure; it is a core instrument of national power, sovereignty, and self-reliance—especially by breaking dependence on foreign currencies.

History demonstrates this truth. Britain’s 19th-century financial supremacy and America’s post-1945 “exorbitant privilege” arose from bold monetary internationalisation, not insulation. Dollar dominance grants the United States seigniorage revenue, sanction leverage, and immunity to external monetary shocks—precisely the autonomy Xia Bin seeks for China. By contrast, his strategy of managed floats, phased capital controls, and RMB “regionalisation” (rather than full internationalisation) perpetuates the very “financial weakness” he diagnoses. Gradualism keeps China tethered to dollar liquidity, foreign reserve accumulation, and external pricing power over commodities and energy. True self-reliance requires the opposite: decisive opening that transforms the RMB into a genuine reserve currency, allowing China to finance its growth on its own terms, recycle surpluses globally, and insulate domestic policy from U.S. Federal Reserve decisions.

Xia Bin’s metaphor—“use the xū to strengthen the root”—is elegant but one-sided. A strong financial sector does not merely “support” the real economy; it generates independent power that strengthens the root in turn. Deep, liquid capital markets attract global savings, lower borrowing costs for strategic industries, and create network effects that reinforce geopolitical leverage. Limited globalisation, by design, caps these benefits. It risks locking China into perpetual “lame giant” status—large in output, yet vulnerable to dollar volatility and capital-flow reversals.

China’s rise demands a bolder vision. Full financial internationalisation is not reckless exposure; it is strategic sovereignty. Only by embracing finance as a primary source of national power—rather than a secondary servant—can China achieve genuine self-reliance and reshape the global monetary order in its favor. Cautious incrementalism may feel safe, but it delays the very financial superpower status Xia Bin himself endorses. The real economy thrives when finance leads, not follows.

— Alicia García-Herrero

1. During periods of great-power transition, financial strategy cannot be reduced to economics alone—policy competition between governments, shaped by differing democratic development, demands analysis of the full spectrum of interactions emerging from interstate competition.

2. Strategy need not be adversarial: China should pursue a clear, “harmonious” financial strategy that advances its own interests while sustaining globalisation and inclusive global growth.

3. China’s financial sector faces contradictory demands: economic opportunities require financial globalisation, but external instability means it cannot be rushed. China therefore needs financial globalisation, albeit limited in scope.

4. Despite impressive achievements, China remains a “weak financial power”—a “lame giant” unable to freely convert its currency, price commodities, or shape the dollar-centred system it depends on.

5. The only viable path is full domestic marketisation combined with limited cross-border globalisation—domestic reform being the prerequisite for exchange rate flexibility, capital account opening and RMB internationalisation.

Face-Off: The U.S. vs China is a podcast about the turbulent relationship between the world's two superpowers, the two men in charge, and the vital issues that affect us all. The show is hosted by Pulitzer-Prize winning journalist Jane Perlez, the former New York Times Beijing bureau chief. Listen here.

6. In Traditional Chinese Medicine terms, China’s financial weakness is itself a strategic asset: “using deficiency to ward off harm” shields against external shocks while strengthening the real economy.

7. The real financial world cannot be captured by mainstream Western textbooks: finance is systemic, innately unstable, dynamic and structurally unequal—analysing it issue by issue, in a “bookish” manner, misses the whole.

8. China should adopt a managed floating exchange rate: neither a hard peg nor a free float suits a rising but financially weak major economy, and no existing currency bloc fits China’s scale.

9. Capital account opening must be proactive, gradual and controlled—coordinated with domestic reform, RMB regionalisation and stronger macroprudential regulation, and shifting from administrative to price-based instruments as liberalisation advances.

10. RMB internationalisation is a defensive necessity, not an aggressive ambition—the flawed dollar-dominated system forces China’s hand. The realistic near-term target is regionalisation, using centres such as Hong Kong as the key offshore hub.

Name: Xia Bin (夏斌)
Age: 74 (May 1951)
Position: Chairman, China Chief Economist Forum (CCEF); Honorary Director and Researcher, Financial Research Institute, Development Research Center of the State Council.
Other: Former State Council counsellor.
Previously: Director, Financial Research Institute, Development Research Center of the State Council (2002–2012); Director-General, Non-Bank Financial Institutions Supervision Department, People’s Bank of China; Deputy Director, Policy Research Office, People’s Bank of China
Research focus: Macroeconomic policy, monetary policy, financial regulation and the development of China’s capital markets.
Education: MA, Graduate School of the People’s Bank of China (1984)
Experience abroad: Research fellow, Nomura Securities Research Institute, Japan

SOME QUESTIONS CONCERNING CHINA’S FUTURE FINANCIAL DEVELOPMENT STRATEGY
Xia Bin (夏斌)
Republished by Guancha on 3 February 2026
Translated by Ameerah Arjanee
Illustration by ChatGPT

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When human society finds itself at a protracted historical turning point [漫长历史转折], one marked by the rise and fall of great powers, major shifts in national economic strength can no longer be attributed to only a handful of fundamental economic principles (even if ultimately, economic factors remain decisive). Sporadic incidents and the accumulation of contingent factors become impossible to ignore.

In the face of an uncertain future external environment, policy competition among governments, especially between major powers, will determine the course of history. In addition, differences among countries in the strength of democratic forces and the degree of democratic development increase the uncertainty over whether policies emerging from interstate competition will deviate from basic economic principles.

In this sense, the challenge in studying a country’s financial strategy lies in analysing the full spectrum of complex interactions that may emerge from interstate competition.

It may therefore be argued that, in a period of profound transformation marked by major shifts and reconfigurations in the global balance of power, what is urgently required is not merely the mainstream theories of modern economics, but also a guiding theoretical framework that is capable of adapting to changes in the distribution of global economic power while maintaining the international economic order. What is needed is a political economy framework that reflects the dynamics of the rise and decline of major powers [反映大国兴衰更替的政治经济学].

There is a particular analytical requirement when studying the financial strategy of a major economic power that is both undergoing transition and rising to global prominence. That is, it is especially necessary to address the particularity [特殊性] and the tactical nature [策略性] of its financial strategy—that is, how the country can pursue its national economic interests to the fullest extent while adapting to shifts in the global distribution of economic power, and ensure that the trend of globalisation, which underpins global economic growth, is not interrupted.

A strategy does not have to be adversarial. A strategy is a plan devised to secure certain interests, and it can be realised without fundamentally harming others and in a harmonious way. Historically, Britain and the United States before the 1970s illustrate this point: the economic development of both countries served to advance the wider global economy. Today, at a time when the world harbours considerable "uncertainty" and "unease" about the prospect of China becoming the world's leading power by the mid-21st century, China has all the more reason to set out a clear and harmonious financial strategy [清晰的和谐金融战略] for all to see—one that offers a credible answer to the question of how to sustain economic globalisation and promote inclusive growth across the globe.

China's prospects for future growth rest on four main favourable circumstances: the first is a high savings rate, the second is ongoing industrialisation and urbanisation, the third is globalisation and the fourth is room for institutional reform.

At the same time, the country faces many serious challenges. Broadly speaking, these challenges arise from multiple directions, including geopolitical tension between major powers; issues of territorial integrity and sovereign security; climate change and carbon emissions; domestic income inequality and corruption; issues around democratic reform and soft power; as well as a range of other domestic and international economic, political, and social concerns.

If the analysis is confined solely to the trend in economic growth, the key challenges can be summarised in four aspects: the first is an ageing population, the second is resource and environmental constraints, the third is structural imbalances within the economy, and the fourth is instability accompanying the reconfiguration of the international financial order.

What do these four opportunities and challenges mean for finance? In short, from the perspective of opportunity, the imperative is for China's financial sector to globalise as rapidly as possible. From the perspective of challenge, the imperative is also to accelerate China's financial globalisation. However, in the face of a turbulent and unpredictable future external landscape, China's financial globalisation must under no circumstances be rushed. The country needs to preserve the necessary buffers for “risk insulation” [“风险隔离”] and “shock absorption” [“减震”]. The path towards financial globalisation must be trodden with care.

When all the relevant contextual factors are weighed together, the objective demands on China's financial sector are inevitably contradictory: the sector must globalise, yet that globalisation must remain limited in scope.

An analysis of China’s future financial environment is, in essence, an analysis of demand. What can China’s existing financial system realistically provide? What are its defining characteristics? These may be distilled into two overarching phenomena: “financial lag” [“金融滞后”] and “weak financial power” [“金融弱国”]. While the former is generally accepted, the latter may invite disagreement.

As early as 2007, I introduced the concept of a “weak financial power”, primarily based on the observation that, from an international comparative perspective, a country’s financial system and its operational mechanisms are unable to secure a dominant position [“上风”] in global financial markets and are instead influenced by other countries. On this basis, it is possible to highlight several key phenomena.

The RMB exchange rate is still not permitted to float freely, and the RMB is still far from being a freely convertible international currency—this is a defining feature of a “weak financial power.” This gives rise to a range of weak institutional mechanisms, including the so-called “original sin” [“原罪”] phenomenon, whereby a country’s macroeconomic policy remains subject to external constraints.

At the national level, there is a pronounced “currency mismatch” [“货币错配”]. In terms of pricing power over bulk commodities and energy, China remains a “lame giant” [“跛足巨人”]. The internationalisation of its financial markets, both in depth and breadth, is still at an early stage, and [the authorities] still dare not allow overseas capital to flow freely in and out of the country. When we also consider a series of domestic administrative controls, the seemingly dynamic “financial development” of China and its “impressive results” remain, in practice, at a preliminary and superficial stage—one of mere self-congratulation [自娱自乐].

The preceding analysis covers two dimensions: on the demand side are four major opportunities and challenges, and on the supply side are the realities of China’s “financial lag” [“金融滞后”] and “weak financial power” [“金融弱国”]. Both theory and practical reality point to the conclusion that China has no other alternative. During the strategic transitional phase ahead, the only viable general direction for China’s financial strategy is the full marketisation of its domestic financial system combined with limited globalisation of cross-border finance.

The full marketisation of domestic finance means that, in meeting the challenge of sustaining stable growth, China’s financial system must shift—across market access, capital pricing, micro-level governance and overall financial operations—towards market-driven resource allocation, and it must do so within the shortest feasible timeframe. Limiting the globalisation of cross-border finance means that, on core issues such as the exchange rate, capital management and RMB internationalisation, it may not be possible to adopt the conventions and institutional frameworks of mature, developed economies in a single step. Moving too fast to open up China’s “financial gates” [“金融国门”] and integrate fully into the global financial system would be both strategically wrong and highly dangerous.

More specifically, China's financial strategy has four core components: the RMB exchange rate, capital account management, RMB internationalisation and domestic financial reform.

Among these four elements, domestic reform is the foundation and prerequisite for the other three. Without further domestic financial (including broader economic) reform, it will be difficult to advance any form of financial opening. The full marketisation of the domestic financial system is the fundamental prerequisite for meaningful integration into the global financial system.

The internationalisation of the RMB is a hallmark of a rising economic power and, therefore, is at the heart of China’s financial strategy. It is only by advancing the RMB’s internationalisation in a phased and measured way that greater exchange-rate flexibility and the liberalisation of capital controls can be pursued without losing sight of China’s fundamental economic interests.

RMB internationalisation, however, requires the substantial liberalisation of capital controls as a prerequisite. Capital controls in turn work in coordination with exchange-rate policy, which itself serves a dual role: it is both a lever for driving structural reform and stable development in the domestic economy, and a reflection of the progress made through gradual domestic economic and financial reform. Exchange rate policy is thus a continuously evolving process of adaptation, and it is equally subject to the constraints imposed by the other three elements.

The key to implementing the overall strategy lies in carefully calibrating the pace and sequencing of these core components. For example, advancing the internationalisation of the RMB requires coordination with domestic reforms that allow greater exchange-rate flexibility and liberalise capital controls. At the same time, accelerating RMB internationalisation can reduce the pressure to increase exchange-rate flexibility. A gradual move towards greater exchange rate flexibility requires domestic reform to proceed in tandem, while also easing the pressure to ease capital controls and creating the conditions for further RMB internationalisation, and so on.

“Limited globalisation” [“有限的全球化”] thus refers to an interlocking pattern of development in which exchange rate, capital management, renminbi internationalisation and domestic reform are each advanced gradually and in mutual reinforcement. It is a dynamic process of progressive convergence towards full participation in financial globalisation.

We need to “take one step back” in order to “take two steps forward”. It may be said that “limited globalisation” is an unavoidable choice during the strategic transitional phase. The aim is to maximise opportunity while containing risk, build resilience at home alongside development, lay the groundwork for a strong financial sector, and pave the way for a more ambitious liberalisation in due course.

Borrowing loosely from the language of traditional Chinese medicine, the core intent of the “full marketisation and limited globalisation” [“充分市场化和有限全球化”] strategy may be expressed as follows: “use the xū to ward off harm [与虚避邪]; use the xū to strengthen the root [以虚固本]; strengthen the root to support the xū [固本扶虚]; and use the xū to restraint the xū [以虚制虚].” Here, xū is used primarily as a metaphor for finance, while “the root”, refers primarily to the real economy. [Note: The author is borrowing the traditional Chinese medicine term xū [虚], usually rendered as “deficiency”, and repurposes it as a metaphor for finance or financial weakness. The point is that China’s relative financial weakness can itself serve as a protective buffer against the risks of full financial globalisation.]

Use the xū to ward off harm [与虚避邪]. China is not only a participant and driver of economic globalisation but also a beneficiary. To continue benefiting from economic globalisation, China must participate in financial globalisation. However, under a flawed international monetary system dominated by the US dollar, the global financial system faces multiple risks. As China participates in financial globalisation, it must mitigate the risks and shield itself from the impact of market turbulence on its financial stability. In effect, China’s participation in financial globalisation is a limited, insulated form of participation that is shielded by a “firewall” [“防火墙”].

Use the xū to strengthen the root [以虚固本]. Through limited financial globalisation, China can improve the efficiency of its financial system, support economic restructuring, as well as bolster the strength and competitiveness of its real economy.

Strengthen the root to support the xū [固本扶虚]. Strengthening the capacity and competitiveness of the real economy creates greater demand in the financial sector, which will boost the overall competitiveness of this sector.

Use the xū to restrain the xū [以虚制虚]. Through active participation in financial globalisation to strengthen the real economy, China should improve the systemic competitiveness of its financial sector, deepen financial liberalisation across a wider front, gradually consolidate its position as a “major financial power”, and assume a more proactive role in reforming the international economic and financial order.

Whether viewed from a historical or contemporary perspective, a proper understanding of any financial issue, or of the role of the financial system within the broader economic system, requires a thorough grasp of the following four dimensions.

1. The financial system must be understood as a large, interconnected system.

All financial products derived from money, regardless of how complex their forms or functions, are, at their core, expressions of “trust between people” [“人类之间的一种信任”]. The existence of this trust, and the realisation of its functions, depends first and foremost on a large system of its own. This system has four specific characteristics.

First, it is a four-dimensional system.

Four factors merit consideration to assess the stability and soundness of a financial system: monetary policy, financial regulation, micro-level financial behaviour [微观金融行为] and financial openness (which includes external dimensions such as exchange rates and capital flows). The state of a financial system at any point in time is the product of the interaction between these four factors. Each carries a different weight, and their interaction can give rise to a wide range of complex configurations, which manifest as various forms of financial instability.

Second, the effective functioning of the financial system depends on its proper alignment with the real economy. The following three points warrant attention.

(1) “Financial supression” [“金融抑制”] is harmful, but so is “overdevelopment” [“过度发展”]. Different stages of economic development place markedly different demands on a financial system. For an economy at any given stage of development, the so-called optimal financial model, however widely endorsed, is not necessarily the best fit, nor the only viable one.

(2) Whether a country’s financial system is market-based or bank-based depends partly on its historical path dependency and partly on the structure of its economy at the time. There is no clear winner between the two models. Historically, countries with dominant reserve currencies tended to favour a market-based system, as their financial stability depended on drawing as many other countries as possible into their own market framework. Britain in the 19th century and the United States in the 20th century are prime examples. Germany and Japan, by contrast, despite joining the ranks of developed economies, found themselves locked into the dollar-dominated monetary system and the orbit of the New York financial market, and gravitated instead towards bank-based models.

(3) Likewise, there is no absolute case for or against universal banking [混业经营] versus separate banking [分业经营] [Note: Universal banking, where commercial and investment banking are combined, versus separation of the two.] The appropriate approach depends on the structural equilibrium required across the four financial factors at different stages of economic development, and cyclical shifts in emphasis between the two models may occur over time. The US experience—from the Glass–Steagall Banking Act of 1933, to the Financial Services Modernization Act of 1999, and the Dodd–Frank Act of 2010— stands as a telling refutation of any theoretical bias towards either model, universal banking or separate banking. [Note: The Glass-Steagall Act (1933) separated commercial and investment banking following the 1929 crash; the Financial Services Modernization Act (1999) repealed it; the Dodd-Frank Act (2010) reintroduced significant regulatory restrictions on banks following the 2008 financial crisis.]

The third point is something that mainstream economists are reluctant to acknowledge, yet one that centuries of financial history confirm. It is that the normal functioning of a financial system depends heavily on a country’s political governance framework and the development of democratic forces. The ability of financial policy alone to stabilise economic development must not be overestimated.

Fourth, as a logical extension of this, since the financial system is an organic whole, any signal that emerges within it is a reflection of the whole. Which signals capture the most attention simply varies from one period to the next.

2. Finance is “innately” [“天生的”] unstable and prone to expansion.

There are four reasons for this. First, money has a “public goods” [“公共物品性”] aspect, while its use in finance is “private” [“私人性”]. This combination inevitably leads to the “tragedy of the commons” [“公地悲剧”] and moral hazard. [Note: “Tragedy of the commons” refers to the tendency of individuals to overexploit shared resources for personal gain, ultimately depleting them to everyone’s detriment.] Second, the “public good” character of money and finance rests on a relatively fragile, intangible psychological factor of “generalised trust” [“普通信任”], which results in a fragile risk–return trade-off. Third, asymmetries in responsibility and obligation tend to fuel monetary and financial overexpansion. Fourth, the real economy, the ultimate object of the financial system—is itself subject to inherent cyclical and structural distortions. For these reasons, financial instability and overexpansion are recurring features across different countries and periods.

3. The financial system is a dynamically evolving system.

This is not merely a philosophical observation that “all things are in motion” [一切事物都是运动的], but a judgement grounded in an understanding of the financial system’s “innate” (天生的) instability and expansionary tendency. It is precisely these “innate” characteristics that give rise to economic fluctuations, and it is in response to these that the financial system must be continually reformed and improved.

Recognising this point helps clarify the relationship between systemic reform and established macroeconomic policy. It also serves as a particular reminder to countries in transition that no reform or liberalisation measure starts from a zero point in a nation’s financial history. In pursuing reform and opening up, one must not overlook subtle shifts within the original system—particularly those dimensions undergoing a transition from quantitative to qualitative change [量变到质变]—and the effect these shifts have on the interconnected “essence” [“本质”] of the system as a whole. [Note: The transition from quantitative to qualitative change is a concept from Marxist dialectics, referring to the point at which gradual incremental changes accumulate to produce a fundamental transformation in the nature of a system.]

In other words, the introduction of a new system effectively disrupts the old system’s balance and moves it toward a new equilibrium. It is a way of combining old and new elements. The tendency is to focus on what is new in this “recombination” [“重新组合”] while overlooking whether, and how, the old elements continue to exert influence.

It is also worth noting that reform and opening up are directed by the human mind. Given the inescapability of human cognitive “bias” [认知“偏见”]—or, in the language of George Soros’s “reflexivity theory” [“反射理论”] the way historical facts themselves are coloured by human perception—, all theories to date are at best approximate, imprecise reflections of historical reality and practice. This means that a financial system can only ever be a dynamic, evolving one.

4. Structural inequality is a defining feature of the modern financial system.

Global finance is a world in which multiple currencies and financial systems coexist. Within this overarching system, individual currencies and financial systems occupy different positions and play distinct roles. Because financial systems have self-reinforcing (or self-weakening) features—driven by scale economies, scope economies, or network effects—”core currencies” [“中心货币”] and the financial systems of countries issuing them naturally enjoy a “head-start” [“领先”] and the dominance that comes with being a major power. Such core currencies not only create room for domestic financial expansion beyond their borders, but simultaneously shape the monetary and financial frameworks of countries with “non-core currencies” [“非中心货币”]. This was equally true under the gold standard.

Highlighting this characteristic serves as a warning to countries undergoing economic transition that have a “non-core currency” status. They would do well to proceed with utmost care in formulating external financial liberalisation strategies (mainly exchange rate and capital management policies).

In highlighting these characteristics, the aim is not to lend credence to “conspiracy theories” [“阴谋论”], but to caution well-meaning readers that financial systems and real-world financial issues are complex. It would be naïve to analyse any given financial issue in isolation or in a bookish manner [书呆子式]; a systemic and dynamic perspective is essential. That said, given the limits of human understanding, our grasp of the true nature of finance remains incomplete.

A country’s choice of exchange-rate regime is in effect a search for the optimal currency area boundaries that best serve its own interests. Large and small economies, developed and developing countries alike, will approach this choice from different perspectives, and there is no single theoretically correct answer. Economies of different sizes exert entirely different effects on global supply and demand, and a large economy cannot “free-ride” [“搭便车”] within a currency area.

From a historical perspective, major economies have always confronted choices over exchange rate regimes. At different stages of development, the regime adopted—driven by the need to maintain both internal and external balance—has in practice shaped the defining features of the international monetary system of the time. Whether under the gold standard era, the Bretton Woods system, or the present floating exchange rate regime, major economies have tended to occupy what might be described as a “market-maker” [“坐庄”] position in the provision of monetary stability.

By contrast, due to network and scale effects in currency systems, small countries, especially those with a high degree of openness, have limited flexibility in choosing their exchange rate regime. They are effectively positioned within the international monetary and exchange rate framework established by major powers, and they must choose from a narrow set of regimes that are relatively suited to their circumstances. Moreover, under normal market conditions, both speculative capital and international cooperation tend to reinforce the stability of major powers’ “core currencies”. Hence, small countries with “peripheral currencies” [“外围货币”] face not only difficulty in obtaining monetary cooperation but also the challenge of pro-cyclical speculative pressures.

Therefore, for currencies issued by small economies, additional stabilising mechanisms beyond the exchange rate (such as capital account management) are often required to maintain macroeconomic stability. Compared to developed countries, developing countries are disadvantaged by their position in the international division of labour, their imperfect domestic markets, currency mismatches, and the status of their currencies as “weak currencies” [“弱币”]. These factors further complicate their choice of an exchange rate regime. To complement their exchange-rate system, they often implement some degree of capital account control.

Which exchange-rate regime is preferable: fixed or floating? Historically, Western scholars such as Kindleberger and Friedman have taken opposing views, without reaching a clear consensus. In practice, both approaches have been applied in different countries, each with advantages and disadvantages, and their suitability depends on the specific context. In reality, intermediate exchange-rate regimes—a hybrid of fixed and floating arrangements—are commonly implemented. No current theory of exchange rates denies that a country can adopt a target zone regime with moderate fluctuations, nor can any theory claim that a single regime is suitable for all countries at all times. Williamson’s research also indicates that corner solutions, such as currency boards or fully floating regimes, are likewise unable to fully prevent financial crises. [Note: Kindleberger favoured fixed exchange rates, Friedman floating; their debate is a touchstone in exchange rate economics. “Corner solutions” refers to the two extremes of that spectrum — hard pegs and free floats. Williamson, who coined the term, argued instead for intermediate “target zone” regimes with defined fluctuation bands.]

In the next five to ten years, which exchange-rate regime should China adopt? Fundamentally, it should choose a monetary policy framework suited to a rising major economy capable of maintaining stable economic development. Simply pegging to another currency or adopting a fully floating regime would not serve China’s interests. Pegging to another country’s currency does not align with the strategic requirements of a rising major power.

In the long term, there are almost no countries comparable to China in terms of economic scale and structure, and the renminbi is therefore not suited to fully joining any existing international currency bloc. Since the 1990s, China’s economic cycles have grown increasingly independent, and the influence of external volatility has gradually diminished; using another country’s monetary policy as a nominal anchor for China’s own would be detrimental to economic stability. Moreover, China’s macroeconomic management capacity and level of market maturity do not support a fully floating exchange rate regime.

Meanwhile, a substantial body of international research indicates that, given the depth of trade linkages and similarity of economic cycles among Asian economies, Asia stands to benefit in the medium-to-long term from establishing a distinct regional currency area, within which the RMB could play a pivotal role. At the present stage, however, the conditions for the RMB to serve directly as Asia’s key currency are not yet in place.

Therefore, during the strategic transitional period, adopting a managed floating exchange-rate regime is in China’s best interests.

The first advantage is that, although US monetary policy is far from perfect, the international credibility it commands remains unmatched by any other currency (despite short-term depreciation risks during crisis recovery). By maintaining relative stability against the US dollar (important to note: relative), the RMB can “free-ride” [“搭便车”] on the credibility of the dollar area. This allows China to “import” the dollar’s influence while “borrowing a boat to go to sea” [”借船出海”].[Note: Idiom that means using someone else’s resources for one’s own goals]. This gives the international community the opportunity to become familiar with, and begin using, the RMB. In the process, dependence on the dollar can gradually be reduced, allowing the RMB to emerge as an independent, globally accepted currency.

Second, a managed float helps relieve appreciation pressure on the renminbi in a timely fashion. The regime strikes a balance between “managed” [“有管理”] and “floating” [“浮动”], which reflects the real exchange rate appreciation that China’s still relatively high potential growth rate warrants.

Third, adopting this exchange rate regime would provide appropriate conditions and sufficient time for domestic structural adjustment and economic transformation. For a country such as China, both a major economy and one undergoing a complex transition process, the prudent and gradual selection of an exchange rate regime is all the more important.

Fourth, even with the adoption of this regime, the post-crisis context requires China to maintain a clear understanding of the supporting policies necessary for exchange rate reform and to establish appropriate institutional arrangements in a timely manner.

It should be emphasised that the proposed managed floating exchange rate regime is broadly aligned with current policy, though not identical in certain specific aspects.

First, a central exchange rate [中心汇率] should be established for a defined period, although it need not be publicly disclosed. [Note: The “central rate” is the reference rate set by the central bank around which the currency is permitted to fluctuate within a defined currency band.] One-off adjustments may be made at the authorities’ discretion as and when deemed appropriate.

Second, the composition of the “currency basket” [“一篮子货币”] should initially be heavily weighted towards the US dollar, with the weights adjusted as circumstances evolve. Over time, once these adjustments have been implemented to an appropriate level, the concept of a central exchange rate becomes largely redundant, and the regime gradually converges towards the real effective exchange rate (REER) [实际有效汇率]. [Note: The real effective exchange rate (REER) is the weighted average of a currency’s value against a basket of trading partners’ currencies, adjusted for inflation differentials.]

Third, in operating a central rate regime, the currency band should be widened gradually as conditions allow. By progressively and continuously widening the band, the need for discrete one-off adjustments to the central rate is gradually reduced.

Fourth, these operational steps and technical arrangements must be aligned with the process of RMB regionalisation. Only through such alignment can capital account restrictions be eased more rapidly, thereby creating greater room for exchange-rate flexibility.

Fifth, throughout the process of moving towards a more flexible floating exchange rate regime, the RMB, as a rising “weak” [“弱势”] currency, should maintain a mild appreciation bias, or at the very least sustain broad exchange rate stability.

Many international scholars, often more firmly than their domestic counterparts, hold that capital account liberalisation can indeed promote economic development. This view, however, is conditional. Where the necessary prerequisites are not in place, its effect on economic growth becomes uncertain. The relationship between capital account liberalisation and financial crises is not a simple matter of the former “promoting” [“促进”] or “preventing” [“阻止”] the latter, but liberalisation can act as a catalyst [催化作用] when financial crises do occur.

China must press ahead with capital account liberalisation for several reasons. Economic globalisation requires a corresponding liberalisation of the financial system. The major challenges bearing down on China’s economy and financial sector—resource and environmental constraints, and the need to generate returns on the country’s accumulated household wealth— can only be addressed within the global financial market. RMB internationalisation, too, demands further liberalisation of capital controls. And as markets become more liberal, the effectiveness of those controls will continue to erode, which makes liberalisation an unavoidable choice.

The conditions for full liberalisation of capital accounts in China are not yet in place, and simply advancing market liberalisation will not in itself generate efficiency gains in the domestic market. Without proceeding “on its own terms” [“以我为主”], China risks being forced into other countries’ market structures on unfavourable terms, an outcome that would do nothing to improve domestic market efficiency and could well prove counterproductive.

The core principles governing China's capital account liberalisation are therefore a proactive stance [主动性], a phased approach [渐进性] and the retention of control [可控性]. These find expression in five main areas.

First, a degree of control over inward and outward capital flows should be maintained until the RMB’s exchange rate band has been sufficiently widened and that rate has broadly reached its market-clearing level [Note: The rate at which supply and demand for a currency are in equilibrium without government intervention].

Second, capital account liberalisation must be closely aligned with the pace of domestic market reform—spanning factor price reform [要素价格机制改革], services sector reform, restructuring of government functions, tax reform and the full marketisation of the financial sector—so as to keep the externalities inherent in financial markets, particularly those arising from information asymmetries, within bounds that the market can absorb.

Third, capital account liberalisation should be coordinated with the progress of RMB regionalisation. While capital account liberalisation cannot take RMB regionalisation as its sole objective, the two can advance gradually in tandem, with RMB regionalisation as the guiding thread. In the coming years, capital account liberalisation may unfold in a foreign currency-dominated environment or, alternatively, in one where the RMB is gradually taking on a greater role. This may be what sets China’s approach apart from that of other transition economies. As a general principle, any category of cross-border capital transaction permitted in foreign currency should equally be permitted in RMB.

Fourth, capital account liberalisation must be accompanied by stronger macroprudential supervision and greater flexibility in macroeconomic management. As the process of liberalisation advances, the large-scale cross-border flows and arbitrage pressures that follow tend to erode the effectiveness of the quantitative and administrative controls that have historically underpinned China’s macroeconomic framework. Policymakers must therefore be well prepared for a shift towards price-based and indirect instruments (grounded in incentive-based mechanisms rather than administrative controls).

Fifth, different regulatory approaches are warranted for different types of cross-border capital flows at different stages. Inward and outward flows driven by illegal activity or political considerations, in particular, fall outside the scope of standard capital controls and should instead be addressed through anti-money laundering frameworks.

Were China operating in a world with a stable exchange-rate system and an equitable, well-functioning international monetary order, there would be little need to actively pursue the internationalisation of the RMB as part of its rise to global prominence. The difficulty is that today’s financial world is anything but stable and is beset by problems. In that context, internationalising the RMB is an unavoidable decision in order to shield China’s development from the negative impacts of the modern global financial system.

Of course, achieving full internationalisation of the RMB as a sovereign currency, i.e., making it a major global reserve currency, is a long-term process. Nevertheless, based on long-term trends in domestic and international economic development, starting this process now is an essential move [重要一着棋] for China’s future financial strategic framework. Its significance can be summarised in six points.

First, from China’s perspective, the current pursuit of RMB internationalisation can sustain economic globalisation and safeguard both global and Chinese economic growth.

Stable exchange rates between currencies are a fundamental prerequisite for sustaining economic globalisation. Calls for reform have intensified in response to the deep-seated problems in the US economy and the shortcomings of the international monetary system. Yet under current conditions of dollar dominance, there is no straightforward path to reform. Pursuing a more diversified international reserve system is therefore an unavoidable course for the global economy for a long period to come.

Against this backdrop, it is little wonder that China, as the world’s second-largest economy, commands global attention. Its economy continues to grow rapidly, its trade volumes rank first in the world, and within Asia—a region on its way to becoming the “main driver” [“主要驱动力”] in the global economy—China’s trade has expanded at a remarkable pace. RMB internationalisation would therefore meet a widely felt need among countries that are seeking stable economic development, serve as a boon for the Asian economy, and advance global economic interests at large. This is the primary message China must communicate to the world in pursuing RMB internationalisation.

Second, for China’s economy to maintain balanced and sustained growth, RMB internationalisation is equally necessary.

Since the 1980s, China has been facing capital shortages, which has made an export-oriented strategy and the build-up of foreign exchange reserves essential for the take-off of its economy. What followed was a combination of factors—the euphoria of rising power, inexperience in managing growth, and the sheer momentum of an expanding economy—that drew China, through policy negligence [政策的疏忽] or simple inadvertence, into the global “over-prosperity” [过度繁荣] of the preceding two decades that was the product of misguided US policy. It led to a vast accumulation of dollar reserves, deep structural imbalances and underlying vulnerabilities that would ultimately make growth unsustainable both in China and beyond.

On the other hand, given China’s substantial production capacity and the post-crisis collapse of US consumption, sustaining relatively high growth and realising China’s potential growth rate—thereby contributing more to global economic expansion—will require a measured expansion of the Chinese government’s global policy influence through RMB-denominated foreign investment, buyer’s credit and RMB clearing arrangements [Note: Buyer’s credit refers to loans extended to foreign buyers to purchase Chinese goods and services; RMB clearing arrangements are systems enabling cross-border transactions to be settled directly in RMB]. By channelling excess capacity towards emerging economies in Asia, Africa and beyond, and by nurturing new investment and consumption capacity in these countries, China can help stabilise growth across Asia and the wider world. This is quite similar to the role played by the United States and the dollar economy in the years immediately following the Second World War, and it reflects the needs of global economic development.

Third, pursuing the internationalisation of the RMB can comprehensively improve the efficiency of China’s financial system.

RMB internationalisation requires further opening up of China’s financial sector, which will place strong pressure on this sector to address its current state of “financial lag” and “weak financial power”. History has shown that such pressure can drive reform and opening up in the financial sector, which will lead to improvements in financial efficiency.

Fourth, from the perspective of financial history, the rise of a major power urgently requires the support of an internationalised currency commensurate with its degree of economic openness and international influence.

Historically, the currency of a rising economic power often becomes an international currency. In particular, in the era of fiat money, the rise of a major power is almost impossible to fully achieve without the internationalisation of its own currency.

Fifth, pursuing the internationalisation of the RMB is also essential for managing economic risk.

Against the backdrop of today’s flawed, dollar-dominated international monetary system, the internationalisation of the RMB would help the major economy [that is China] mitigate at least three risks. The first is liquidity risk: the Chinese government is, after all, the “lender of last resort” [“最后贷款人”] for the RMB. The second is the risk of market value swings caused by currency mismatches, because assets denominated in foreign currencies reduce the control of domestic authorities over their own financial markets. The third is pricing power risk [定价权风险]: issuers of currencies whose supply is largely unconstrained enjoy a relative funding advantage and are, in the short term, better able to avoid the risk of pricing power in relevant world-market transactions falling into others’ hands.

Sixth, the internationalisation of the RMB is also a powerful means of addressing the shortcomings of the current international monetary system.

The dollar is currently issued virtually without constraint, and the dollar-dominated international monetary system has serious flaws, which explains the growing worldwide calls for reform. From the perspective of the long-term evolution of the international monetary system, a “supranational currency” [“超主权货币”] would be ideal. However, the road to such a system is likely to be very long. When national self-interest comes into play, it is unclear when—or even whether—such a system might ever be implemented. It may well only remain an ideal, for as Robert Mundell put it: “There is a tendency for the dominant country to reject the world currency. The basic fear is that the global currency represents a threat to the position of its own currency. The counterpart of the conjecture is that actual or potential rivals try to pursue international monetary reform to clip the wings of the dominant power and to redistribute power.”

Therefore, the more realistic choice is to establish multiple international currencies of comparable strength, to create a constrained and balanced system through mutual competition. The RMB has already come to be seen by relevant international organisations and experts around the world as a potential counterweight.

Although RMB internationalisation is both objectively necessary and holds vast potential for development, it cannot be achieved overnight. At present, however, the RMB already meets the basic prerequisites for regionalisation. During the strategic transitional period, the immediate objective of RMB internationalisation should be regionalisation. Regionalisation simply denotes a geographic limitation on the use of an international currency; it does not imply any qualitative difference in the currency’s functions.

How can regionalisation be achieved? In recent years, I have repeatedly stressed that the key lies in implementing three approaches.

First, every possible measure should be taken to channel the RMB into offshore markets, for example through RMB-denominated foreign investment, buyer’s credit, foreign aid, central bank swap agreements, and by raising RMB quotas under Qualified Domestic Institutional Investors (QDIIs) [Note: QDII schemes allow approved domestic institutions to invest client funds in overseas markets.]

Second, as China’s capital account is not yet fully liberalised, the RMB can initially operate offshore like other freely convertible currencies, providing a full suite of services—deposits, loans, payments and settlements, asset management and currency hedging—to build a self-sustaining offshore circulation.

Given that the RMB needs to become regionalised and the capital account remains partially closed, channels between onshore and offshore markets can only be developed gradually and on a limited scale. Strategically, it is therefore feasible to establish an offshore RMB market in locations under Chinese government control, such as Hong Kong, making it a key pillar of the national financial strategy. This is a relatively favourable option, albeit one adopted out of necessity under the framework of “limited globalisation” [“有限全球化”].

Finally, it is equally important to note that, while the internationalisation of the RMB is one measure to address shortcomings in the existing international monetary system, the Chinese government should, from the same strategic perspective, pay full attention to, and support, all other developments conducive to this objective. Such developments include reforms to the International Monetary Fund (IMF), an increase in the RMB’s weighting within the Special Drawing Rights (SDR) basket, efforts in other parts of the world to develop “regional currencies”

What makes this short, memo-like analysis especially striking, however, is not just its argument but its fate: it was swiftly censored after publication. Chinese commentary has often framed US policy mistakes as strategic opportunities for China, but the live war in Iran seems to be more politically delicate terrain. Presumably, any suggestion that a prolonged Middle East war could amount to a strategic opportunity for China sits awkwardly with Beijing’s preferred self-portrait as a neutral mediator and responsible great power.

In past newsletters, we have noted cautious arguments for a more proactive and assertive foreign policy, but the prevailing strategic instinct in the volatile early months of Trump 2.0 has been that “China should keep doing China well” while chaos unfolds elsewhere.

The Intellisia piece pushes that logic a step further, arguing that chaos is not simply something for China to endure, but something from which it can profit.

The article argues, predictably enough, that “a protracted Middle East conflict would systematically drain the military, diplomatic and financial resources of the United States”. But it also advances a more developed case that protracted war in Iran will reroute capital, energy routes, and supply chains in Beijing’s favour.

Its closing prescription is “trading with the sword in hand”: a somewhat harder-edged version of “China doing China well”, even if the “sword” here is not military force but Beijing’s command of new energy and manufacturing.

— Jacob Mardell

1. A protracted Middle East war would be a “period of strategic opportunity” for China—one that drains US resources while pushing global capital, industry and trade routes towards China as the “next best option”.

2. Turmoil at sea leaves US allies—dependent on seaborne energy—vulnerable, expanding demand for alternative land routes and accelerating China’s “revival of continental power”.

3. Capital will initially flee to the US dollar, but as war drags on, it will seek new safe havens. Hong Kong has already emerged as a preferred destination for Middle Eastern money.

4. The war will accelerate the shift towards a global industrial chain resting on US demand, China as the hub, and the rest of the world in supporting roles, handing China pricing power and rule-setting authority.

5. This is a stress test for the petrodollar and US military credibility. The US is signalling that interests take precedence over allied security, while trade settlements are using the renminbi to hedge risk.

Name: Intellisia Institute (海国图智研究院)
Founded: 2015
Founder and President: Chen Dingding (陈定定), Professor of International Relations, Jinan University; Associate Dean, Institute for Belt and Road Initiative and Guangdong–Hong Kong–Macao Greater Bay Area Studies, Jinan University
Research focus: International affairs, especially US–China relations, Chinese foreign policy, risk forecasting, and AI / new technology in international relations
Other: Named after Wei Yuan’s Haiguo Tuzhi (海国图志), a landmark 19th-century work widely regarded as one of China's first serious studies of the Western world and an early call to learn from Western military power. Recent profiles describe the institute as having around 20 full-time researchers.

IF THE MIDDLE EAST WAR LASTS TEN YEARS, IT WILL CREATE CHINA’S GREATEST PERIOD OF STRATEGIC OPPORTUNITY
Intellisia Institute (海国图智研究院)
Published by Intellisia, 17 March 2026
Lightly edited machine translation
(Illustration by ChatGPT)

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As global attention fixes on the smoke of war above the Persian Gulf, a quiet yet profound reconfiguration of global power has already begun. Mainstream narratives portray a protracted Middle East war as nothing but risk and crisis. Yet viewed through the lens of long-term history and geoeconomics, it may instead provide China with a crucial lever with which to prise open the “changes unseen in a century” [百年变局], offering a strategic time window of maximum pressure and long duration.

Our assessment is that the core dynamic is as follows: a protracted Middle East conflict would systematically drain the military, diplomatic and financial resources of the United States as China’s primary strategic competitor, while forcing global capital, industry and trade routes—amid pervasive fear—to seek the “next best option”. China, by virtue of its uniquely vast scale, the completeness of its industrial chain and the rapid transformation of its energy mix, is emerging as the option offering the greatest certainty.

This is not schadenfreude, but a cold structural reality. What follows is our four-dimensional analysis, supplemented by the latest data and case studies since the beginning of 2026.

China’s “Malacca dilemma” still echoes in policy discourse, yet the script is being rewritten. Conflict in the Middle East is driving up the risk premium on maritime shipping and accelerating a route revolution [路径革命] in global energy trade. Two main trajectories are set to become increasingly pronounced:

Opening the north–south land bridge: the multimodal corridor linking the Middle East (the Persian Gulf), Pakistan (Gwadar) and China will shift from conceptual blueprint to an economically urgent lifeline.

Integration of the continental hinterland: the vast pipeline network connecting Russia, Central Asia and China will see its strategic value—and the demand for its expansion—rise sharply.

Key data and case studies:

The vulnerability of Japan and South Korea laid bare: in March 2026, shipping volumes through the Strait of Hormuz fell sharply, leaving more than 40 Japanese oil tankers stranded. [Note: Media report that 40 Japan-linked vessels “including oil tankers” are stranded.]

In response, the Japanese government urgently released 80 million barrels from its strategic petroleum reserves—the largest drawdown since the reserve system was established in 1978. South Korea, meanwhile, was compelled to implement its first “oil price cap mechanism” in nearly three decades. With dependence on Middle Eastern oil reaching 95.1% and over 80% respectively, the two economies were among the first to be hit. [Note: While the figure for Japan is broadly supported, Reuters reports that Korea gets about 70% of its oil from the Middle East, rather than over 80%.]

The Nomura Research Institute forecasts that if oil prices rise to US$140 per barrel, Japan’s economic growth rate could be reduced by 0.65 percentage points, bringing it close to stagnation. [Note: The Japanese analysis goes further, warning that US$140 per barrel would raise the possibility of recession.]

America’s inflation dilemma: according to an analysis by China International Capital Corporation (CICC), if conflict in the Middle East pushes the oil-price baseline higher, US year-on-year CPI inflation in 2026 could rise from 3.1% under the baseline scenario to 3.9%. This would intensify “stagflation” risks and place the Federal Reserve’s monetary policy in a dilemma. [Note: The CICC report treats both 3.1% and 3.9% as post-conflict scenarios at different oil-price levels, rather than a baseline and an upside case.]

Conclusion: while the flames of war burn at sea, they also pour tar on China’s “revival of continental power” [陆权复兴], placing US allies—heavily dependent on seaborne energy—in a precarious position. Energy security is thus shifting from the passive defence of “securing sea lanes” [保航线] to the proactive strategy of “building corridors and controlling hubs” [建走廊、控枢纽]. [Note: The Chinese is ‘浇上了焦油’—literally “poured tar on”. The image inverts the more familiar idiom “pour oil on the fire”: tar burns slowly, clings, and is hard to extinguish, so the metaphor is one of entrenchment.]

In the early stages of a crisis, capital will inevitably flee to the US dollar. But this is only the first act. A protracted war will bring on the second and third acts, and capital flows in the first quarter of 2026 already offer early signs:

Act I (panic): capital flows back to the United States in search of currency safe havens.

Act II (pain): soaring energy and logistics costs steadily erode profit margins in the real economies of Europe and the United States.

Act III (choice and return): capital searches globally for a “port in a storm” [避风港] that combines production stability, cost competitiveness and market depth.

Hong Kong is emerging as a preferred destination for Middle Eastern capital.

Key data and case studies:

Middle Eastern capital stages a forceful return to Hong Kong: since March 2026, enquiries from Middle Eastern clients about investing in Hong Kong equities and establishing family offices in the city have surged by more than 50% month-on-month. Hong Kong media report that nearly 30% of these enquiries come from large Middle Eastern families that had previously relocated to Singapore or Dubai and now plan to reallocate 15–20% of their assets back to Hong Kong. A report by Citigroup likewise notes that geopolitical instability is driving capital rotation towards “neutral” Asian financial centres such as Hong Kong. [Note: The 50%, 30%, and 15–20% figures all originate from unnamed financial industry sources cited in PRC media coverage in March 2026.]

The redefinition of “safe assets”: Hong Kong’s Financial Secretary, Paul Chan Mo-po, has publicly stated that geopolitical tensions are driving capital inflows into Hong Kong as a safe haven, adding that Middle Eastern funds may choose the city in search of a greater sense of security. Behind this lies growing distrust generated by the “weaponisation” of the US dollar, as well as the distinctive advantages Hong Kong enjoys under “one country, two systems”, including the rule of law and the free movement of capital.

Implication: the current withdrawal of certain capital is, in fact, a prelude to a larger and more strategic wave of return in the future. Positioning in Chinese assets is essentially a move to secure a place at the core nodes of the global division of labour in the post-crisis era.

War is the most powerful catalyst for the relocation of supply chains. Two major trends are set to accelerate:

The targeted relocation of “energy-intensive industries”: Europe’s high energy-consumption sectors—such as chemicals and non-ferrous metal smelting—face a dual blow from elevated domestic energy costs and supply chain disruptions. As a result, the pace at which capacity shifts towards lower-energy-cost locations such as China and Central Asia will accelerate dramatically.

The “China market” as the ultimate counterweight to “friend-shoring”: the US-led push for “de-risking” is forcing its allies to seek alternative production capacity in Southeast and South Asia. Yet these alternative production bases remain heavily dependent on China for upstream equipment, key raw materials and even financial services.

Concrete scenarios and data:

European chemicals industry: conflict in the Middle East has led to the suspension of nearly 20% of global liquefied natural gas (LNG) export capacity following attacks on facilities in Qatar, triggering a 70% single-day surge in European natural gas prices. This will compel major firms such as BASF and Lanxess to further assess shifting production capacity towards locations with more stable energy supplies, including China. [Note: Media reporting indicates a roughly 70% increase in European natural gas prices over several days, rather than a single-day surge.]

Japanese and South Korean automotive industries: amid conflict-related concerns, Japan’s stock market saw the Nikkei 225 Index plunge by 3.61% in a single day on 4 March—the steepest decline in a year. The risk of supply chain disruption will draw the sector closer to China’s more complete electric-vehicle supply chain.

Insight: the future global industrial chain will rest on a deeper structure: US demand, China as the hub, and the rest of the world in supporting roles [美国需求、中国枢纽、全球配套]. To control the hub is to control pricing power and rule-setting authority.

Conflict in the Middle East is an extreme stress test for the petrodollar system, as well as a public test of the credibility of the US military security umbrella.

On the monetary front: China’s strategy is clear and pragmatic—it does not challenge dollar hegemony directly, but quietly cultivates alternative options. When Middle Eastern countries increasingly use renminbi in trade and channel investments through Hong Kong’s financial markets, this signals a loosening of the system’s foundations.

On the military front: the United States’ global military deployment is falling into the predicament of “robbing Peter to pay Paul” [拆东墙补西墙]. In March 2026, the US “THAAD” missile defence system stationed in South Korea was urgently redeployed to the Middle East to fill air-defence gaps following Iranian strikes. [Note: THAAD redeployment was reported by the Washington Post on 9 March 2026, citing two unnamed US officials, and corroborated by Korean media. The Pentagon has not confirmed specific asset movements.]

This move clearly signalled to allies such as South Korea that US core interests take precedence over allied security. At the same time, Gulf states including Saudi Arabia and the United Arab Emirates have publicly refused to allow their territory or airspace to be used for attacks on Iran. [Note: Public refusals by Gulf states to allow their airspace or territory to be used for attacks on Iran predated the U.S.-Israeli strikes of 28 February 2026.]

With 27 US bases in the Middle East coming under attack and core command hubs damaged, its military presence has been exposed as a security liability [安全负资产]. [Note: The figure of 27 US military bases comes from Islamic Revolutionary Guard Corps (IRGC) claims rather than US confirmation.]

The principal battlefield for renminbi internationalisation lies not in the trading floors of New York or London, but beside the oil wells and ports of Dhaka, Dubai and Riyadh—in the many thousands of trade settlements that choose the renminbi to hedge risk. This is a bottom-up, pragmatism-driven revolution. The loosening of US military hegemony is meanwhile reducing external resistance to this process.

Conclusion

In an age of great contention [大争之世], the opportunities that shape national fortunes are often concealed beneath turbulent waves. Prolonged conflict in the Middle East constitutes a quagmire that drains US strength, a nightmare on Europe’s doorstep and a direct economic shock to [US] allies such as Japan and South Korea.

But for China, provided it maintains sufficient strategic clarity and resolve, this may well constitute a systemic and structural period of strategic opportunity. It is already creating strong external pressure that forces change [倒逼压力] and a valuable strategic time window [时间窗口] for addressing core strategic priorities such as securing energy transport routes, advancing industrial upgrading and promoting renminbi internationalisation.

At this moment, “trading with the sword in hand” [持剑经商] means holding the “sword” of new energy and manufacturing while doing the “trading” of continental integration and supply-chain hub-building. It means not fretting over the gains and losses in any one place, nor being swayed by the temptations of short-term deals, but ensuring that when the balance of history ultimately tips, we are already standing on the side of greatest weight.

— Jacob Mardell

1. The Zagros–Hindu Kush–Himalaya chain links the Iranian Plateau to China’s western frontier, making Iran the outermost shield of China’s western security.

2. Iranian Plateau states, not India, historically absorbed and blunted west-to-east pressure from outside powers before it could reach China’s western approaches.

3. Afghan resistance and the Himalayan barrier are proof that even British India could not effectively project land power into China’s western frontier.

4. India, lying outside this highland barrier and dominated by lower terrain, is more vulnerable to invasion and less strategically consequential for China’s security.

5. Today, the Iranian Plateau states are resisting and wearing down “NATO’s eastward expansion” (北约东扩), giving them greater strategic value for China than India.

Name: Zhang Wenmu (张文木)
Year of birth: 1957 (age: 68-69)
Position: Researcher at Beihang University’s Strategic Issues Institute; and an executive director of the World Socialism Research Centre of the Chinese Academy of Social Sciences (CASS)
Other: Sent down to the countryside in 1975 after graduating from middle school, resumed education in 1979 at Northwest University in Xi’an after resumption of the Gaokao
Research Focus: National security strategy; naval power; comparative development (with a focus on India-China comparisons)
Education: Northwest University, Tianjin Normal University, Shandong University (PhD in law, 1997)
Foreign Experience: Visiting scholar in 2000-2001 at India’s Jawaharlal Nehru University’s international relations faculty

THE IRANIAN PLATEAU: A “BRIDGEHEAD” FOR THE SECURITY OF CHINA’S WESTERN FRONTIER
Zhang Wenmu (张文木)
Published by Xinhua, 21 April 2013
Lightly edited machine translation
(AI-generated illustration; not a precise map)

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Iran is the front-line state of the Iranian Plateau. It is located in south-west Asia, bordered to the north by the Caspian Sea and to the south by the Persian Gulf and the Arabian Sea. To the east, Iran adjoins Pakistan and Afghanistan; to the north-east, it borders Turkmenistan; to the north-west, it neighbours Azerbaijan and Armenia; and to the west, it borders Turkey and Iraq. The great majority of Iran’s territory lies on a plateau, at elevations generally ranging from 900 to 1,500 metres. Its west and south-west are dominated by the broad Zagros mountain system, which accounts for roughly half of the country’s land area. The centre consists of arid basins forming a number of deserts, including the Kavir Desert and the Lut Desert. Only along the south-western coast of the Persian Gulf and the northern coast of the Caspian Sea are there small areas of alluvial plain.

The most historically significant phenomenon in South-west Asian geopolitics is that the Zagros Mountains run east into the Hindu Kush and then into the Himalayas north of India, and together with the Iranian Plateau and the Qinghai-Tibet Plateau form the world’s most imposing natural strategic barrier—the “Zagros–Hindu Kush–Himalaya” barrier—which, from west to east, safeguards the “pivot area” [枢纽地带] of the Asian continent. It is precisely because of this strategic barrier that, apart from the period of Arab rule in the Middle Ages, and although Iran in ancient and modern times was fragmented into a number of Iranian Plateau states (including all of Iran and parts of Afghanistan and Pakistan), these states nevertheless succeeded in resisting the incursions of the Western powers and thereby avoided the fate of India, which was completely colonised. India, by contrast, lay outside this strategic barrier and in modern times was subjected to prolonged British colonial rule, ultimately becoming a kind of “London orphan” abandoned in South Asia by its imperial metropole, Britain.

Iran’s geopolitical position and strategic posture give it immense significance as a “bridgehead” [桥头堡] for the security of China’s western frontier. Historically, the security of China’s western frontier has long faced pressure from successive eastward expansions out of Europe: from Alexander’s eastern campaign in the age of ancient Greece, to the Roman Empire’s eastward expansion, to the Crusades of medieval Europe, and then to the forceful incursions launched by modern and contemporary European powers, Tsarist Russia, the Soviet Union, and even, in the 21st century, the United States, against the states of the Iranian Plateau. Without exception, these invasions by outside great powers were either blocked outside the Iranian Plateau or heavily worn down within it.

More than that, the states of the Iranian Plateau and China’s western frontier are closely bound together by the “Zagros–Hindu Kush–Himalaya” strategic barrier. In this sense, Iran, the state at the barrier’s westernmost end, has in effect become the first “firewall” for the security of China’s western frontier. Their fate in resisting the Western powers is as closely bound up with the security of China’s western frontier as lips and teeth [唇齿相依]: if Iran were crushed, then powerful Western forces advancing eastwards by sea or by land would, via the ancient Silk Road crossing the Iranian Plateau (on this, the geographical foundation of today’s “Eurasian Land Bridge” has taken shape), bear down on China and pose a major threat to China’s western frontier.

During China’s Han dynasty, the force of the Roman Empire’s eastward expansion was checked at the western frontier of the Parthian Empire, greatly easing the strategic pressure on China’s western borderlands. Perhaps driven by the same strategic imperative, Zhang Qian, the envoy to the Western Regions dispatched by Emperor Wu of Han, specifically sent his deputy in 119 BCE to visit the Parthian Empire (Parthia, that is, the region of present-day Iran). The Parthian king, in evident excitement, dispatched 20,000 cavalry to welcome the Chinese envoy from afar. This suggests that Parthia and China already had mutually dependent strategic needs at the time.

Likewise, it was because the Afghan people in modern times, making use of the forbidding terrain of the Hindu Kush, mounted extraordinarily tenacious resistance to the British colonisers that Britain was unable to push northwards, still less penetrate the vulnerable zone of China’s western frontier—namely the western borderlands of Xinjiang—and collude with the Yaqub Beg puppet regime to wreak havoc in China. Meanwhile, the barrier posed by the Himalayas, the world’s highest mountain range, meant that during Britain’s more than one hundred years of rule in India, it was likewise unable to intervene effectively in Tibetan politics from India’s northern frontier: on 3 August 1904, Britain did capture Lhasa, but by winter the British were forced to withdraw to India because they could not endure the extreme cold at high altitude. From this the British drew the lesson that “Tibet’s inaccessibility makes it impracticable [to] do anything [to] stiffen military resistance to China.” [Note: Britain did enter Lhasa in August 1904. However, the quotation about Tibet’s inaccessibility appears to derive from a British communication of June 1950.]

Nor was this lesson entirely lost on the United States, Britain’s successor as global hegemon: in 1950, the Americans wanted to provide Tibetan rebels with enough combat equipment for six months [of fighting], but [the logistical obstacles were formidable since] “pack animals were the only practical means of transport, and the quantity of ammunition in question would have required some 7,000 mules. Since so many mules were not available, some or all of the three-inch mortars and ammunition might not be moved out of India”, the United States later came to realise that supporting the Dalai clique [达赖集团] would “require a very considerable expenditure of funds over a long period”. [Note: The point that sustained U.S. support for Tibetan exile and resistance activity required substantial long-term funding is supported by a 1964 CIA memorandum. The passage appears to compress that later assessment together with earlier 1950 U.S. discussions of the logistical difficulty of aiding Tibet.]

The deep defensive belt formed for China’s western frontier by the “Zagros–Hindu Kush–Himalaya” mountain chain on China’s western frontier meant that, even after occupying India, the modern Western powers were still unable to pin China down effectively from the south-west by land, and were therefore forced to detour by sea into the East China Sea in pursuit of their objective of imposing forceful control over China. In other words, this protective barrier not only greatly delayed the timing of the West’s full-scale invasion of China since the Roman Empire, but also, compared with India, weakened the degree of its influence over China. By the same logic, it was precisely because the Xiongnu, advancing westwards from the commanding heights of Xinjiang, faced no such plateau barrier along the way that they were able to move into Europe ahead of Rome’s eastward advance, forcing the Germanic peoples, who might otherwise have moved east, southwards and ultimately bringing down the Roman Empire. [Note: The identification of the Xiongnu with the later Huns remains disputed among historians, as does the claim that their westward movement ultimately brought down the Western Roman Empire.]

By comparison, India, which lies outside the sheltering screen of the “Zagros–Hindu Kush–Himalaya” barrier and has relatively low-lying terrain, has been more vulnerable to external invasion. The Indian plains account for a little over two-fifths of the country’s total area, while mountains make up only one quarter and plateaus one third, but most of these mountainous and plateau areas lie at elevations of no more than 1,000 metres. Low, gently sloping terrain predominates across the country: it is not only easy to traverse, but also fertile. This low-elevation, level terrain greatly weakened India’s ability to resist foreign invasion, and as a result it endured prolonged occupation by foreign peoples.

What scholars of China’s frontier history should note is that neither Alexander the Great, who once penetrated into India, nor the Mongols and British, who occupied India in the medieval and then modern periods, nor even the Indians themselves in 1962, long after independence, were able, at the foot of the towering Himalayas, to shake China’s south-western frontier.

This historical experience supports the conclusion that what matters most for the security of China’s western frontier is the plateau states with Iran at the front line, not India: yesterday it was the Iranian Plateau states, not India, that successfully resisted the eastward expansion of the Roman Empire; today it is they, not India, that are resisting and wearing down “NATO’s eastward expansion”.

It follows that the anti-hegemonic struggle of the Iranian Plateau states, and not merely that of India, carries major and far-reaching significance for China’s national security. If one further takes into account China’s heavy dependence on crude oil imports from the Iranian Plateau states, then—provided, of course, that Central Asia does not come to exhibit historical conditions comparable to those of the medieval Arab Empire—the security of the Iranian Plateau states has greater strategic value for China than India’s, in a true lips-and-teeth sense [唇亡齿寒].

Executive Summary

1. Chinese expert commentary largely recommends pursuing a position of neutrality and mediation in the Iran-US war, with only two senior academics making subtle arguments for a more assertive posture.

2. Zheng Yongnian writes that Beijing should “demonstrate the strength and policies befitting a great power”.

3. Zheng Ge claims that the sustainability of China’s “active neutrality” depends on the war’s direction, noting that meaningful mediation “requires China to transcend its traditional ‘non-interference’ principle”.

4. Legal condemnation of the strikes coexists with something closer to strategic respect, with several authors arguing that China must learn from this demonstration of American power.

5. Several authors read the operation through the lens of US “offshore balancing”, with one warning that the Middle East template could be replicated in East Asia with Japan playing Israel’s role.

6. Others view the conflict as a strategic opportunity for China, with several predicting that the US will become entangled in the Middle East.

7. Authors broadly agree that the strategic implications for China hinge on how the war ends: US success would challenge China’s vision of declining American hegemony, while a quagmire would accelerate it.

8. Commentary is sceptical that regime change is achievable without ground troops—a red line all authors agree Trump will not cross.

9. Most analysts view US-Iran nuclear negotiations as cover for a premeditated attack—though many of the same analysts simultaneously portray the war as primarily Israel-driven.

10. One author argues that China’s overriding priority should be preventing the Iran crisis from spilling over into the US-China bilateral agenda.

• On 28 February 2026, the United States and Israel launched coordinated strikes on Iran. Supreme Leader Ali Khamenei was killed, and Iran responded by firing hundreds of missiles and drones at US bases across the Gulf and at Israel.

• The strikes followed the collapse of indirect nuclear talks in early February and came one day after Oman’s foreign minister declared a breakthrough “within reach”.

• China signed a comprehensive strategic partnership with Iran in 2021 and holds an equivalent partnership with Saudi Arabia, maintaining relations with all sides in the Middle East despite deep regional divisions, most visibly brokering the Saudi-Iran normalisation in March 2023.

• Since US sanctions were reimposed in 2018, Beijing has been Tehran’s economic lifeline while also benefiting from Iran’s ostracisation in terms of pricing: China is Iran’s largest oil buyer, absorbing roughly 80% of its exports, while 13% of China’s seaborne crude imports come from Iran.

• Beijing’s initial reaction expressed being “highly concerned” about what it called a “grave violation of Iran’s sovereignty and security”. The killing of Khamenei drew a separate, standalone condemnation—China “firmly opposes and strongly condemns it.”

• The official narrative highlights the war’s illegality and foregrounds a sense of diplomatic betrayal. MFA statements emphasise the absence of UN Security Council authorisation, while state media editorials highlight that the strikes occurred during active negotiations. Xinhua states that the talks “function less as a genuine pathway to peaceful resolution than as a tactical pause before the resumption of military attacks”.

• Wang Yi called the strikes “unacceptable” and outlined a three-point position: stop operations; return to dialogue; and jointly oppose unilateral actions.

Another of China’s close partners is under attack from the US. The consequences for the region—and the wider world—are immense, but the context of US-China strategic competition has also drawn significant attention to Beijing’s response.

Earlier this year, we noted several calls from Chinese establishment intellectuals for a more proactive Chinese foreign policy. As with Chinese expert commentary on the US operation in Venezuela, these calls are conspicuously muted in analyses of the US-Iran war and its impacts on China.

Zheng Yongnian (郑永年) and Zheng Ge (郑戈), both senior academics, make subtle nods to the need for greater assertiveness, but the dominant prescription is neutrality and mediation. Although no author says so directly, the corpus is consistent with a reading of Beijing’s priorities in which the costs of more active intervention outweigh the downsides of the regime falling—particularly with US trade talks looming.

Beyond this, the corpus is notable for two points that sit in tension: a broadly sceptical assessment of US chances of achieving regime change, and something verging on respect among several authors for this renewed demonstration of American power—and an accompanying conviction that China must learn from it.

Rhetoric familiar from Sinification’s Venezuela briefing—namely, that the attack on Iran confirms the cold, realist nature of international order—runs through the corpus. Zheng Yongnian, one of China’s most prominent public intellectuals, declares that the rules-based order is functionally dead, replaced by what he calls a Hobbesian “fear-based international order” [基于恐惧的国际秩序]—a structural fact that China must reckon with rather than merely deplore.

The baseline framing across the corpus is legal condemnation—Gao Zhikai (高志凯), former Chinese diplomat turned hardline international affairs commentator, calls the targeted killing of a head of state “typical state terrorism” [国家恐怖主义], a charge repeated in various forms by several authors.

For some authors, condemnation coexists with something closer to strategic respect. Zheng Yongnian claims that the attack proves the US is still “number one”, his tone verging on admiration, while Niu Tanqin (牛弹琴)—not an academic, but one of China’s most widely-read opinion leaders on foreign affairs writing under a pen name—is more candid, admitting he “cannot but admire” US operational precision. Gao Zhikai occupies an interesting middle position, explicitly condemning Chinese commentators who “greatly praise” the strikes, yet calling on China to “seriously study” US military methods.

Three authors—Gao Zhikai, Zheng Yongnian and Zhao Jian (赵建)—ultimately draw the conclusion that China has lessons to learn from this exercise of US power. Zheng is the most prominent. Referencing the use of artificial intelligence in the attacks, he warns that China must not fall into the “trap of excessive moralisation and self-restraint” [过度道德化的陷阱], invoking the historical analogy of China inventing gunpowder but using it for fireworks while the West made cannons. His formulation is blunt: “not using it is equivalent to not having it” [不用等于没有].

There is near-consensus that negotiations were cover rather than a genuine diplomatic process—a “smoke screen” [烟雾弹] designed to buy time for military positioning while creating a pretext for war. This aligns with Beijing’s official framing of the attack as a major act of diplomatic betrayal, and most authors embrace it without apparent discomfort. A small number of authors, including Wang Jin (王晋), Director of Northwest University’s Centre for Strategic Studies in Xi’an, argue that the US was genuinely frustrated when negotiations failed to produce acceptable terms.

A separate cluster of authors foregrounds US domestic politics as the primary driver—the Iran strikes as political theatre ahead of the midterms and a quick win mirroring success in Venezuela.

Many of the same authors who claim that the attack was premeditated also argue—with some apparent tension—that it was fundamentally Israel-led. Shen Yi (沈逸), a Fudan University professor and popular nationalist commentator, puts it most bluntly, stating that Israel has achieved effective command over US military assets. In one piece, Li Shaoxian (李绍先) and Liu Zhongmin (刘中民), two prominent Middle East scholars, offer divergent readings—the former attributing unilateral initiative to Israel, the latter arguing the two acted in concert from the start.

In a separate piece, Zheng Yongnian offers a unique reading: this is not primarily a strategic operation or an Israeli project but the latest chapter in a civilisational and religious confrontation between the West and political Islam.

Chinese expert commentary is broadly sceptical that the US and Israel can achieve their stated objective of regime change. The dominant view is that this would be extremely difficult without ground troops—something all authors agree is a red line for Trump. Notably, Ding Long (丁隆), a professor at Shanghai International Studies University, dissents, arguing that new warfare models may make regime change achievable without large-scale ground deployment.

Several authors point to US constraints, including domestic political opposition and munitions shortages. A striking number of authors also make a positive case for Iranian resilience, noting the regime’s decentralised collective leadership structure and the probability that Khamenei’s death is more likely to harden popular resistance than fracture it.

Most authors are nonetheless candid about the high degree of uncertainty, mapping several potential paths: regime survival, gradual collapse, or internal fracture. A pro-US successor government features as a scenario, but no author treats it as a likely outcome.

On the broader question of the war’s strategic implications, the corpus is genuinely divided. The most analytically rigorous treatment comes from Zheng Ge, who frames the question with a simple but important observation: the strategic outcome for China is entirely conditional on how the war ends. Zheng writes that if the US succeeds in reshaping the Middle East order, it could reverse China’s vision of gradually declining American hegemony and rising regional autonomy. If the US gets bogged down in a quagmire, the reverse holds: American overextension accelerates the shift.

Several pieces highlight negative strategic impacts. Qian Yaxu (钱亚旭), a relatively junior scholar at Southwest Jiaotong University, contends that regime change would free US resources for the Asia-Pacific, increasing containment pressure on China, while Ye Weimian (叶卫冕) and Li Zheng (李征) argue that the operation falls within a window created by Russia’s attrition in Ukraine and that the strategic space available to both China and Russia is being further squeezed.

Zheng Yongnian and Guo Hai (郭海), a researcher at South China University of Technology, read the operation through the lens of US offshore balancing [离岸制衡], arguing that Iran is not an isolated case but part of a consistent US strategy of reshaping regional orders through proxies. Liu Zhongmin directly identifies Israel as the main instrument of that strategy in the Middle East.

Zheng Yongnian explicitly outlines the concern that the US might replicate this model in East Asia—with Japan playing Israel’s role and Taiwan and the Philippines serving as two other offshore balancing instruments against China.

However, several authors read the same entanglement as an opportunity for China. Zhu Zhaoyi (朱兆一), Executive Director of the Institute of Middle East Studies at Peking University HSBC Business School, argues that a US bogged down in the Middle East would relieve pressure on China in the Indo-Pacific. Li Nan (李楠) and Chen Kaiyu (陈开宇), two researchers at Shanghai Jiao Tong University, make the same point while warning that the opportunity only holds if China stays out—intervention would simply create another drain on Chinese resources that the US could exploit. Chen Jiahui (陈佳慧), a junior researcher at South China University of Technology’s Institute of Public Policy (IPP), argues explicitly that the attack is not directed at China and that the two theatres should be kept analytically separate.

A significant portion of the corpus predicts the war will ultimately backfire on the US. Views range from dramatic to measured: the popular nationalistic blogger Zhan Hao (占豪) warns it could drag American hegemony “into a bottomless abyss”; while scholars Liu Zhongmin and Ding Long (丁隆) note that both backfire and strengthening of the US position are both live outcomes—successful political realignment in the Middle East could strengthen rather than erode US regional dominance.

This tension—backfire or success—mirrors the unresolved conditionality that Zheng Yongnian identifies as the central question. Ultimately, whether this war proves strategically beneficial or not for China cannot be answered until it is known whether Trump’s gamble succeeds or fails. None of these authors treat Iran’s collapse as the most likely outcome—but the weight of the concerns they raise about energy security, Chinese investments, and regional realignment underscores that a Trump success would carry a serious cost for China.

Energy is the most discussed immediate risk, but the dominant assessment is that disruption is manageable in the short term, with most referencing China’s reserve accumulation over the past two years as a meaningful buffer.

Qin Jinghua (秦菁华), researcher at the Southern Power Grid Energy Development Research Institute, is a notable dissenting voice, arguing that this is not merely a short-term supply shock but “a structural challenge that [China’s] mid-to-long-term energy security strategy must confront”.

Two authors flag BRI exposure. Zhu Zhaoyi notes that short-term shocks to energy costs and BRI investments are real; Zheng Ge goes further, warning that if the regime falls, Chinese investments will “turn to ash”—making the war’s outcome directly consequential for China’s economic interests.

The roundtable piece featuring Ye Weimian and Li Zheng raises the possibility that the decapitation operation may ultimately strengthen US hegemony through political realignment, the demonstration of power, they argue, may produce a “chilling effect” [寒蝉效应], pushing Global South states into diplomatic wait-and-see postures and alignment shifts.

The largely passive and legalistic recommendations that emerge from commentary on the US-Israeli strikes on Iran will be familiar to readers of Sinification’s Venezuela briefing. The dominant cluster concerns risk mitigation: energy diversification; advancing China’s payment system and cross-border currency settlement to reduce dollar-denominated exposure; and protecting stranded Iranian assets through contractual documentation and preparation for international arbitration.

Several authors identify the opportunity for China to pursue the role of mediator in the conflict—and that analysis has since been validated by Beijing’s announcement on 4 March that it would dispatch Special Envoy Zhai Jun to the region. Echoing discussions around Ukraine, one author even looks ahead to a potential Chinese role in Iran’s post-war reconstruction.

The dominant prescription is continued non-alignment: China’s response should mirror its posture on Russia-Ukraine—no capacity or interest in direct involvement; refraining from taking sides; maintaining active neutrality [积极中立]; and preserving the advantages that comes from de-ideologised economic relationships with all regional parties.

Zheng Ge stands out from the neutrality crowd with his prediction that China may ultimately be forced to take sides and that the sustainability of “active neutrality” will depend on the war’s trajectory. He explicitly notes that meaningful mediation “requires China to transcend its traditional ‘non-interference’ principle” [超越传统不干涉原则]—a significant ask, given how central that principle is to Beijing’s self-presentation. Zheng Yongnian is the only other author who calls for a more assertive Chinese foreign policy in light of the attacks, in the subtle but significant line: “In the next phase of action, we must demonstrate the strength and policies befitting a great power”.

One piece, from Chen Jiahui, illuminates Beijing’s risk calculus and geopolitical priorities. She argues that China’s overriding priority should be preventing the Iran crisis from spilling over into the US-China bilateral agenda. Although she is a junior figure and the only one to make this point explicitly, the Foreign Ministry’s refusal to confirm or deny the upcoming US-China trade meeting—while continuing to field questions about it—does signal Beijing’s preference to keep the bilateral track insulated from the Iran crisis.

However, the dominant sentiment in the corpus is reflected in Li Nan and Chen Kaiyu’s blunt formulation: “The world is a ramshackle theatrical troupe; let the world remain in chaos—China should keep doing China well” [世界就是个草台班子，让世界继续乱吧，中国继续做好自己].

— Jacob Mardell

Today’s briefing draws on fifty-three articles published between 28 February and 3 March. The full bibliography is available here.

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What is China’s place in a post-US-led global order? That question—given new urgency by the US–Israeli strikes that killed Iran’s Supreme Leader on 28 February—runs through this month’s digest, which was largely compiled before these events unfolded.

In January’s edition, we highlighted the emergence of more assertive calls to recalibrate China’s diplomatic posture. Those calls persist—in Chen Wenling’s proposal that Beijing articulate “untouchable” red lines in the economic realm with the same clarity it reserves for Taiwan and in Tian Feilong’s combative insistence that China maintain an “escalatory” posture over Panama’s voiding of CK Hutchison’s canal contract. However, the corpus remains divided over the nature of the emerging global order and how China should navigate it.

Some of the more concrete proposals for innovation in the international system involve mechanisms to address global trade imbalances. Former MOFTEC official Ma Xiaoye argues that the post-free-trade era will be defined by “managed trade”, with framework agreements setting volumes and values by product category. Meanwhile, Jin Canrong and Di Dongsheng, alongside Ding Yifan of the State Council’s Development Research Centre, sketch out a system of global trade based on collective regulation of trade surpluses and deficits.

Commentary on the Iran conflict from four prominent international relations experts spans the days before and after the US–Israeli strikes. Pre-strike analyses express concern over political rupture, surging religious extremism and the weakening of the “Axis of Resistance”, with Niu Xinchun framing the US–Iran impasse as an irresolvable “mini-Cold War”. Jin Liangxiang describes the nuclear negotiations as a calculated “trap” designed to provide pretext for military action, while noting that China’s strategic oil reserves are sufficient to weather short-term disruption. Zheng Yongnian, writing after the killing, casts the assassination as a “Religious War 2.0” and warns that international order is shifting from one based on rules to one governed by fear.

Japan also receives renewed attention—unsurprisingly given Takaichi’s landslide re-election—but much of the coverage will be familiar to readers of our November briefing: Japan as an unreconstructed right-wing power, constitutional revision on the horizon, and the US-Japan alliance as a vehicle for containing China. One genuine point of contention lies in the question of urgency: while most voices treat Japan’s military modernisation as an unstoppable trajectory, two—Jin Canrong and Zhang Wenmu—stand out for their explicit calls for China to resolve the Taiwan issue before Japan completes its rearmament.

Coverage of Europe centres on musings about the decline of the transatlantic relationship, prompted by the Munich Security Conference and the visits of Western leaders to China, with a particularly strong call from Zhang Jian for Europe to “abandon NATO”.

Turning to the Chinese economy, two themes—capital account liberalisation and property sector management—come to the fore, including provocative heterodox arguments from Li Xunlei and Zhao Yanjing.

On the capital account issue, Li Xunlei argues that the prevailing consensus—that free convertibility would crash the RMB—is mistaken, and that the currency is undervalued by roughly half, while Miao Yanliang of CICC dismantles seven “outdated assumptions” underpinning resistance to opening. Others are more cautious: Zhang Chun of SAIF, for example, insists full onshore opening will not occur over the next two decades.

On the property question, Zhao Yanjing offers a sharp heterodox defence of land revenue as equivalent to municipal equity, arguing that the government’s property crackdown rested on a category error, while Sheng Songcheng outlines a more orthodox approach to stabilising the real estate market.

Finally, discussion of the socio-economic impacts of AI include Cai Fang’s warning of a deepening “reverse-Kuznets process” as labour migrates to lower-productivity sectors, alongside Zhang Dandan’s advocacy of an early-warning system to allow timely retraining and support for employees hit by AI uptake.

A debate over proposals to abolish the High School Entrance Exam (中考) has also been in the air: Yao Yang frames its abolition as essential for shifting away from China’s high-pressure development model, while Chen Zhiwen defends the exam as a core pillar of social governance.

— Jacob Mardell

1. Global Order & US–China:

   1. Ma Xiaoye on the post-free-trade era being defined by framework agreements that set target volumes and values by product category.

   2. Zheng Yongnian on the Davos Forum marking the death of the “Global North” as a concept.

   3. Wu Baiyi on US financial hegemony unravelling and emerging economies laying the foundations for future de-dollarisation.

   4. Ding Yifan, Jin Canrong & Di Dongsheng on the international system facing not “China + 1” but a “World - 1” as US retrenchment accelerates.

   5. Chen Wenling on the need for China to articulate economic red lines with the same clarity it reserves for Taiwan.

   6. Wang Jisi and David Lampton on the emergence of a rare window for a “new normalisation” of US–China relations.

2. Japan:

   1. Li Yongjing on Japan being a right-wing nation-state rather than a country with a right wing.

   2. Zheng Yongnian on the simultaneous collapse of the three constraints that once held back Japan’s militarisation.

   3. Shen Yi on Takaichi exploiting the “window of opportunity” created by America’s relative decline.

3. Taiwan:

   1. Zhang Wenmu on the conditions for reunification with Taiwan being at their most favourable.

   2. Jin Canrong on China needing to resolve the Taiwan issue before Japan completes its military modernisation.

   3. Liu Guoshen on why China’s national rejuvenation will naturally dissolve, rather than depend on resolving, the Taiwan issue.

   4. Wang Hailiang on Beijing’s growing leverage requiring Washington to adjust and accommodate tougher Chinese demands.

4. Middle East:

   1. Jin Liangxiang on the US–Israeli strikes as a premeditated “trap” and the adequacy of China’s strategic oil reserves.

   2. Liu Zhongmin on the “two Middle Easts” and the risk of surging Islamic extremism amid US withdrawal from counter-extremism

   3. Niu Xinchun on the irresolvable Iran-US impasse and the likelihood of a regional “mini-Cold War”.

   4. Zheng Yongnian on the killing of Khamenei as a “Religious War 2.0” and the erosion of the rules-based order.

5. Europe:

   1. Zhou Bo on Europe’s attitude towards China entering a “second phase”, with European leaders now visiting the PRC en masse.

   2. Zhang Jian on it being time for Europe to let go of its NATO obsession.

   3. Jiang Feng on Europe “shifting from defence to offence” and moving beyond deep anxiety towards “strategic composure”.

6. Latin America:

   1. Sun Yanfeng on China’s willingness to inflict economic pain on Panama to defend overseas interests.

   2. Tian Feilong on China needing to maintain an “escalatory” posture over Panama’s voiding of CK Hutchison’s canal contract.

7. Chinese Economy:

   1. Xia Bin on why China must prioritise financial security and RMB regionalisation over premature capital account opening.

   2. Li Xunlei and Zhang Deli on China’s share of global exports not yet peaking.

   3. Miao Yanliang on fears surrounding capital account opening being based on seven outdated assumptions.

   4. Li Xunlei on the RMB’s undervaluation and the mistaken consensus that free convertibility would crash the currency.

   5. Zhang Chun on China’s onshore capital account opening not happening for at least twenty years.

   6. Zhao Yanjing on the government’s property market crackdown being built on a category error.

   7. Sheng Songcheng on China needing to stabilise real estate within one to two years.

8. Technology & Society:

   1. Cai Fang on artificial intelligence deepening China’s employment challenges, accelerating the movement of labour from high-productivity to low-productivity sectors.

   2. Zhang Dandan and Li Jia on the likelihood of AI rapidly impacting employment and the need to establish a data-fuelled early-warning system.

   3. Yao Yang on the need to abolish the High School Entrance Exam (zhongkao) and rethink China’s utilitarian development model.

   4. Chen Zhiwen on why the proposals to abolish the zhongkao rest on faulty assumptions about its role.

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1. Global Order & US–China

Ma Xiaoye (马晓野): The post-free-trade era will be defined by “managed trade” [管理型贸易]—framework agreements that set target volumes and values by product category. The post-war economic order was built on US debt claims and designed to absorb American overcapacity—now that the US is a thirty-nine-trillion-dollar debtor nation pursuing reindustrialisation, the economic logic underpinning that order has reversed. Middle powers like Canada and the EU are racing to strike managed trade deals with China ahead of a US–China framework agreement—securing a seat at the table before the two largest trading partners set the rules without them. — Former Director of US Affairs, MOFTEC; Founding Director, Academy for World Watch, Shanghai (FT中文网, 8 February)

Zheng Yongnian (郑永年): The Davos Forum marks the death of the “Global North” as a concept: Western allies were “beaten awake” [打醒] by Trump’s stick, and the old order has collapsed because America can no longer sustain the costs of empire. A new order has not yet emerged, but the international system is already undergoing “feudalisation” [封建化] as each great power builds a regional order centred on itself. While Trump revives neo-colonialism in Latin America—retrenchment not as retreat but consolidation for future expansion—China, as the “key variable” in international relations, should hold the banners of free trade and multilateralism that America has dropped. — Founding Director, Institute for International Affairs, The Chinese University of Hong Kong, Shenzhen (侠客岛, 29 January)

Wu Baiyi (吴白乙): The core of US hegemony—its “super financial imperialism” [超级金融帝国主义]—is unravelling as Trump abandons “great power self-discipline” [大国自律] for transparent self-interest and utilitarian alliances, destroying the stability upon which this financial hegemony relies. Amidst unsustainable national debt threatening dollar confidence, Carney’s proposed “middle power front” constitutes a hedging strategy by traditional allies against Washington-related risk. Although the ultimate catalyst for transforming the global financial order remains unknowable, the structural basis for future de-dollarisation is being laid as emerging economies develop a “trinity” [三位一体] of currency swaps, digital currencies and alternative domestic payment systems. — Professor and Director, Institute of Latin American Studies, Chinese Academy of Social Sciences (海外看世界, 23 February)

Ding Yifan (丁一凡), Jin Canrong (金灿荣) & Di Dongsheng (翟东升): As US strategic retrenchment accelerates, the international system faces not “China + 1” but a “World - 1”. China, tempered into an “indestructible body” [金刚不坏之身] by years of pressure, now finds itself at the top table, with the US effectively conceding its peer status. Yet China cannot simply take the baton from America or it will repeat the same structural mistakes; it must build a fairer system of “common finance” [共同财政] in which both surplus and deficit countries bear adjustment responsibility, addressing international concerns—acknowledged as legitimate—that China is “walking its own road yet leaving no road for others”. US–China relations have entered a “bargaining” phase in America’s five stages of grief over China’s rise, but China’s own psychological readiness for leadership has not yet caught up with its material strength. — Development Research Centre of the State Council; Renmin University of China (观察者网, 28 January)

Chen Wenling (陈文玲): China needs to articulate economic “bottom lines” [底线] with the same clarity it reserves for Taiwan, establishing four untouchable red lines. These are: the inviolability of overseas investment rights (citing the forced Nexperia divestment as a precedent that “must not recur”); the preservation of normal trade with partners including Venezuela, Iran and Russia; protection of supply chains Chinese enterprises have built abroad; and equal access to international straits and sea lanes. US strategy is not contraction but “strategic refocusing” [战略再聚焦], with greater precision and intensity than before. Yet the US-Western bloc is undergoing a “landmark fracturing”, and China should seize this moment to use its comprehensive national strength to “form necessary pressure” on those who harm its interests. — Chief Economist, China Center for International Economic Exchanges (北京对话, 29 January)

Wang Jisi (王缉思) and David M. Lampton: A rare window exists for a “new normalisation” of US–China relations, which should begin with Taiwan, the most dangerous flashpoint—and one where de-escalation may be more achievable than assumed, given that Beijing’s own Anti-Secession Law criteria for military action are not currently met. Signs of an opening already exist and the Fourth Plenum’s emphasis on re-energisation through openness echoes Deng Xiaoping’s logic of pacifying the outside world to focus on domestic strength. Beyond Taiwan reassurances, concrete steps include reopening China’s Houston and Chengdu consulates, dramatic mutual tariff reduction, and relaxing constraints on journalists. — Professor, School of International Studies, Peking University (Foreign Affairs, 12 February)

2. Japan

Li Yongjing (李永晶): Japan is not a country with a right wing — it is a right-wing nation-state [右翼民族国家]. Conventional frameworks that treat Japan’s right wing as one pole in a left-right contest exaggerate the left’s influence and obscure the reality that right-wing thought, anchored in Emperor-system nationalism [天皇制民族主义], has constituted the defining character of Japanese political life since the Meiji era. Today’s right wing, however, faces an “intellectual hollowing-out” [思想空洞化]: unlike pre-war predecessors who offered sophisticated if dangerous theoretical frameworks, the contemporary right lacks ideological depth yet retains its proven capacity for action. — Associate Professor, Department of Political Science, East China Normal University (文化纵横, 10 February)

Zheng Yongnian (郑永年): The three constraints that once held back Japan’s “normalisation” [正常国家]—constitutional limits, American restraint and domestic pacifist sentiment—have all collapsed simultaneously, clearing the path for an accelerated rightward shift. Japanese society’s deep conformism [顺从和从众性] makes far right’s capture of the state apparatus far more likely than in Europe, where citizens openly resist. Japan’s framing of Taiwan as a domestic concern [内政化] reflects not merely geopolitical calculation but an unresolved colonial mentality [殖民心态]. If Japan continues to provoke, China should consider reopening the never-settled question of Ryukyu’s status. — Founding Director, Institute for International Affairs, The Chinese University of Hong Kong, Shenzhen (大湾区评论, 13 February)

Shen Yi (沈逸): The Takaichi Taiwan remarks are not another cyclical China-Japan flare-up but a structurally different event: Japan’s right wing is exploiting the “window of opportunity” created by America’s relative decline to shed its defeated-nation status, while the US pushes allies to the forefront to assume more forward-deployed roles. China’s response should not be confined to bilateral Sino-Japanese relations—it must seize the moral high ground of defending the post-war order, connecting China’s growing strength with a narrative that revisits the shared US-China history of fighting militarism and fascism. Concretely, China should activate the UN Charter’s “enemy state clauses” [敌国条款] against Japan and reopen the never-settled question of Ryukyu’s legal status. — Professor, Department of International Politics, Fudan University (观察者网, 2 February)

3. Taiwan

Zhang Wenmu (张文木): The conditions for reunification with Taiwan are at their most favourable and most mature—but by dialectical logic, peak maturity also means peak fragility, and the window is fleeting. Every previous attempt at reunification was derailed by unexpected events, from the Korean War in 1950 to Chiang Ching-kuo’s death in 1988. Today history has again placed a favourable opportunity before China, and delay invites disruption. — Professor, School of Strategic Studies, Beihang University (张文木战略, 9 February)

Jin Canrong (金灿荣): China should resolve the Taiwan issue before Japan completes its military modernisation and breaks through existing constraints. Japan’s comprehensive rightward shift is now a fait accompli: the centrist opposition was routed, the far right is ascendant, and Takaichi will accelerate the transformation from “peace state” to “normal country”. However, Japan’s internal problems remain severe and election victory does not guarantee smooth sailing for Takaichi. Moreover, today’s China, possessing the largest industrial system in human history, means Japan can no longer “gamble on national fortune” [赌国运] at China’s expense. — Professor, School of International Relations, Renmin University (胡锡进观察/金金乐道, 9 February)

Liu Guoshen (刘国深): China’s growing strength demands a fundamental rethinking of the Taiwan question. Rather than scrambling anxiously over every provocation, Beijing should manage Taiwan from a position of calm, confident superiority — letting structural gravity do its work. The sovereignty debate is already in “garbage time”; 183 nations have settled it. The priority is therefore to deepen cross-Strait integration, shape the international order, and build long-term gravitational pull, allowing unification to emerge as a natural outcome of China’s rise rather than through costly confrontation. — Director, Collaborative Innovation Centre for Peaceful Development of Cross-Strait Relations, Xiamen University (中评社, 24 February)

Wang Hailiang (王海良): China’s position on Taiwan has never been stronger, and Washington must reckon with this reality. February’s Xi-Trump phone call was a strategic warning shot: Beijing is drawing a thick red line (很粗重的红线) ahead of any April summit, covering not just arms sales but political commitments. Trump understands the transactional logic: stable China relations require handling Taiwan carefully. His “America First” arms strategy will inevitably prioritise Taiwan, but Chinese pressure remains a counterweight. Lai Ching-te’s “four unchangeds” are self-delusion. Given shifting power balances, Beijing can now demand (提高要求), not merely request. The US may need to make more substantive statements on Taiwan. — Director, Shanghai Institute for East Asian Studies (中评社, 11 February)

4. Middle East

Jin Liangxiang (金良祥): The US–Israeli strikes were premeditated, not a response to failed diplomacy—the nuclear negotiations were a mutual "stalling tactic" [缓兵之计], with the talks ultimately serving as a calculated "trap" [局] by the US and Israel to provide pretext for military action. Israel's ultimate aim is to permanently eliminate Iran as a strategic threat in pursuit of a "Greater Israel" [大以色列], while America was drawn in partly by overconfidence following the Venezuela operation. Without ground troops, the conflict will settle into prolonged strikes and confrontation, with China's strategic oil reserves and energy diversification sufficient to weather short-term disruption to imports via the Strait of Hormuz. — Director, Centre for Middle East Studies, Shanghai Institutes for International Studies (南方+, 28 February 2026)

Liu Zhongmin (刘中民): Iran's fragile position and the Iran-aligned Assad regime's defeat to the Hayat Tahrir al-Sham (HTS) highlight the decline of the "Axis of Resistance" amid Israel's rising primacy in regional security. Within this reshaping of regional power, America's departure from counter-extremism—epitomised by its de-sanctioning of HTS—and support for Israeli expansion risk regional destabilisation and surging non-state Islamic extremism. Hence, the US–Iran conflict forms part of a widening "two Middle Easts" [两个中东] phenomenon, further splitting the region between state and non-state actors, secular and Islamist ideologies, and US/Israel-anchored security frameworks versus the "Axis of Resistance". However, instability will likely remain concentrated in the Eastern Mediterranean, with a broader Persian Gulf conflict constrained by US aversion to full-scale war. — Director, Middle East Studies Institute, Shanghai International Studies University (观察者网, 23 February)

Niu Xinchun (牛新春): For the Iranian regime, softening its ideological stance to accommodate Washington poses a greater existential threat than confrontation itself, rendering the US–Iran diplomatic impasse “irresolvable” [无解] except through regime change. The conflict is structurally a regional “mini-Cold War” [小冷战]—fusing great power competition with irreconcilable ideological opposition between secular capitalism and political Islam—that can only end with the transformation or collapse of one side’s system. Both sides wish to avoid catastrophic hot war, making the persistence of this standoff at an increasingly dangerous level the likeliest outcome. — Researcher, China-Arab States Research Institute, Ningxia University (文化纵横, 27 February 2026)

Zheng Yongnian (郑永年): The killing of Khamenei is not merely a geopolitical event but a "Religious War 2.0" [2.0版宗教战争] between irreconcilable absolutes, driven by Trump's deep religious values—a dimension Chinese analysts, as products of a secular civilisation, have widely underestimated. Trump's "hit-and-run" strategy deliberately avoids the occupation trap of the Bush era, but the broader consequence is the erosion of rules-based order, replaced by a "fear-based jungle world" [基于恐惧的丛林世界] governed by raw power. Critically, Israel's role as America's Middle Eastern "strategic pivot" has a direct East Asian parallel: if Japan similarly leverages US power to pursue its own objectives, how is China to respond? — Founding Director, Institute for International Affairs, The Chinese University of Hong Kong, Shenzhen (大湾区评论, 1 March 2026)

5. Europe

Zhou Bo (周波): Europe’s attitude towards China has entered a “second phase”: the first-phase campaign to pressure Beijing over Russia–Ukraine has failed, and European leaders are now visiting Beijing en masse with a far more pragmatic focus on trade. Rubio’s Munich speech was a “sugar-coated apple” [糖霜苹果]—beneath the flattery, US demands remain unchanged, but Europe’s thinking remains that “if we can avoid divorce, let’s avoid it”. If a Ukraine ceasefire requires peacekeeping, China could potentially lead a Global South-majority force, supplemented by non-NATO European states like Ireland, Austria and Switzerland. — Senior Fellow, Center for Strategic and Security Studies, Tsinghua University (观察者网, 15 February)

Zhang Jian (张健): It is time for Europe to abandon its NATO obsession and move towards genuine independence and autonomy. NATO expansion has worsened Europe’s security environment by provoking hostilities with Russia, limited its capacity for independence by locking it into dependence on American-led military systems and procurement, and exacerbated tensions between Atlanticists and Europeanists. The Greenland affair crystallises this contradiction—time is running out for Europe, but it is not too late to abandon NATO. — Vice President, China Institutes of Contemporary International Relations (环球时报, 4 February)

Jiang Feng (姜锋): Europe is “shifting from defence to offence” [转守为攻], moving beyond deep anxiety towards “strategic composure” [战略定力] and serious reflection on its own security and development. This year’s Munich Security Conference displayed a historic reversal in the subject-object relationship: America was no longer setting the agenda but was itself discussed as a problem. Meanwhile, a nascent “middle-power alliance movement” shaped the discourse and China-related discussions were constant, with participants expecting China to play a role and offer solutions. — Former Party Secretary, Shanghai International Studies University (环球时报, 13 February)

6. Latin America

Sun Yanfeng (孙岩峰): China possesses the resolute “determination and strength” [决心和实力] to counter any infringement upon its overseas interests in the Panama Canal, threatening to inflict “serious damage” [伤筋动骨] on Panama through trade and investment restrictions—and, in the long term, even diverting trade routes towards the South American Bi-Oceanic Railway or a revived Nicaragua Canal project. This posture responds to Panama acting as a geopolitical “pawn” [马前卒] in the cancellation of Hong Kong company CK Hutchison’s port operating licences. By sacrificing the diplomatic neutrality underpinning its prosperity as a global logistics hub, Panama imperils its hard-won sovereignty, risking domestic economic erosion and a regressive transformation into a colonial-era banana republic. – Director, Institute of Latin American Studies, China Institutes of Contemporary International Relations (环球时报, 9 February)

Tian Feilong (田飞龙): China must maintain an “escalatory” posture over Panama’s voiding of CK Hutchison’s canal contract—including secondary sanctions on American overseas interests, and potentially postponing Trump’s planned visit to China. A defeat in this “geopolitical legal war” would devastate the Belt and Road’s global credibility, and pro-American proxy forces in Panama must be made to pay a heavy price to deter imitators. This is a crisis event for the PRC’s national rejuvenation that demands China unite with the Global South and “awakened” Western countries, while strengthening its own foreign-related rule of law [涉外法治] capacity. — Deputy Dean, School of Law, Minzu University of China (观察者网, 8 February)

7. Chinese Economy

Xia Bin (夏斌): China remains a “financially weak nation” [金融弱国] and must continue prioritising macroeconomic control rather than prematurely carrying out capital account liberalisation. Strategic financial development requires a limited, measured globalisation anchored firmly in the real economy, maintaining protective financial firewalls whilst systematically cultivating the real economic strength needed to shape a new international financial order. Rather than aiming straight for RMB internationalisation, “RMB regionalisation” [人民币区域化] represents the most realistic near-term objective, to be achieved through developing offshore RMB markets and controlled financial pipelines to direct offshore RMB capital into domestic investments. – Honorary Professor, Department of Finance, Nankai University (观察者网, 3 February)

Li Xunlei (李迅雷) and Zhang Deli (张德礼): China’s share of global exports has not peaked and is projected to reach ~17% by 2030, up from around 14–15% today. The headline value share appears to have plateaued, but this is an illusion created by aggressive price cuts and RMB depreciation—strip these out and the volume share has already surged from 13.2% to 17.0% since 2019. Unlike Japan and Germany—whose export shares peaked then declined through industrial hollowing—China remains the “terminal station of global manufacturing transfer” [全球制造业转移的终点站], with no economy able to replicate its supply chains and scale. The price drag is now reversing as government rebate cuts put a floor under export prices and $960 billion in unconverted exporter dollar holdings could trigger self-reinforcing RMB appreciation. — Chief Economist, Zhongtai Securities; Head of Macro Research, Zhongtai Securities (李迅雷金融与投资, 13 February)

Miao Yanliang (缪延亮): Fears surrounding capital account opening rest on seven outdated assumptions and cognitive biases, and the real risk lies not in potential outflows but in foreign underallocation—foreign holdings of Chinese government bonds account for just 5.9% of the market, compared with 31.5% for US Treasuries. The conditions that drove the 2015–16 capital flight have largely disappeared, while China’s halfway position is becoming untenable: once the current account is open, capital controls are progressively eroded as firms disguise capital movements as trade, “borrowing the road” [借道], just as Europe found after 1958. With the dollar weakening and the RMB appreciating, this represents a strategic window to increase openness. — Managing Director and Chief Global Economist, CICC (中金点睛, 9 February)

Li Xunlei (李迅雷): The current consensus that free convertibility would crash the RMB is wrong—the currency is undervalued by roughly half and opening up would cause appreciation, not depreciation, by shrinking the liquidity and credit discounts that keep the RMB trading far below its purchasing power. China’s vast money supply is not a flood waiting to escape—it is bloated precisely because the closed capital account forces the central bank to create base money passively from reserve accumulation; opening would shrink it while attracting foreign capital into an undervalued currency. The RMB remains a “local grain coupon” [地方粮票] not a “national grain coupon” [全国粮票]—76.5% of offshore payments stay in Hong Kong—and “problems of development cannot be solved by development alone; only by advancing reform.” — Chief Economist, Zhongtai Securities (李迅雷金融与投资, 5 February)

Zhang Chun (张淳): Full onshore capital account opening will not occur for at least 20 years, and the goal is not to replace the dollar—currency hegemony would bring the same industrial hollowing that afflicts America—but to become the leading second-tier currency at ~20% global share within 5-10 years. China is pioneering an offshore-first pathway, building RMB financial infrastructure in “financial special zones” [金融特区] like Shanghai Lingang and Hong Kong, modelled on how Shenzhen’s SEZ piloted economic reform before it went nationwide. The immediate bottleneck is not trust or geopolitics but financial plumbing: countries receiving RMB through trade lack offshore equity, bond, or derivatives markets in which to invest it, so they convert back to dollars. — Professor of Finance, Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University (观察者网, 29 January)

Zhao Yanjing (赵燕菁): The crackdown on China’s property market was built on a category error—land revenue is not fiscal revenue but financial capital, equivalent to a city issuing equity in itself, and “without these bubbles there would have been no success of reform and opening up, still less any so-called China miracle.” Suppressing house prices to reduce dependence on land sales is equivalent to crashing a company’s share price to reduce reliance on IPOs: the equity that collateralises all existing local government debt is destroyed, forced asset sales eliminate liquidity, and the economy descends into involution. Chinese real estate prices can and must return to pre-2021 levels—America’s subprime crash was no smaller than Japan’s, but decisive intervention enabled recovery in years, whereas Japan’s indecision prolonged stagnation for three decades. — Professor, School of Architecture, Xiamen University (爱思想, 3 February)

Sheng Songcheng (盛松成): China must stabilise its real estate sector within one to two years — with over 90% of residents owning property, falling prices erode household wealth on a vast scale, amplified by leverage, and deepen the broader problem of insufficient domestic demand. The 15th Five-Year Plan sets a two-stage pathway: first, “scrape the poison from the bone” [刮骨疗毒] by de-risking real estate and local government debt; then, build a tiered supply system—subsidised housing for disadvantaged families and market housing for upgrading demand, with restrictions removed. The housing provident fund should be decoupled from property and redirected—following Singapore’s example—towards healthcare and care for the elderly. — Professor, CEIBS; former Director-General, Survey and Statistics Department, PBoC (财新, 11 February)

8. Technology & Society

Cai Fang (蔡昉): Artificial intelligence is poised to deepen China’s existing unemployment challenge, accelerating an ongoing “reverse-Kuznets process” in which labour shifts from high-productivity to lower-productivity sectors. The current paradox of high youth unemployment coexisting with a highly qualified workforce will thus worsen. Left unchecked, AI adoption will widen income gaps between high- and low-skilled workers in the near term, although the eventual arrival of AGI may render skill differentials largely irrelevant. In response, Chinese policymakers should learn from high-income countries and adopt a mindset shift that: (1) reconceives the purpose of employment as lower-productivity sectors absorb more workers; and (2) decouples labour remuneration from individual productivity through stronger redistribution mechanisms. — Chief Expert, National High-End Think Tank(s), Chinese Academy of Social Sciences (中国金融四十人论坛, 12 February)

Zhang Dandan (张丹丹) and Li Jia (李嘉): Given the likelihood of AI rapidly impacting employment, China must establish a data-driven early-warning system to track granular shifts in specific tasks and skills, ensuring sufficient lead time for strategic policy intervention. By integrating high-frequency data from recruitment and flexible employment platforms, the state can then better facilitate the forward adjustment of national education and training frameworks. This proactive approach will ensure that the speed of workforce retraining and redeployment keeps pace with the broader economic transition, avoiding the emergence of long-term structural unemployment. — Vice Dean, National School of Development, Peking University; Dean, School of Economics, Singapore Management University (中国金融四十人论坛, 10 February)

Yao Yang (姚洋): Genuinely implementing the policy of “investing in people” [投资于人] requires rethinking China’s social model, which still reflects a utilitarian development pathway in which individuals are viewed as mere tools for boosting GDP and achieve national catch-up—a mindset rooted in China’s Legalist political tradition. However, pursuing efficiency without considering human costs has allowed algorithm-driven labour exploitation and inequality of opportunity to flourish, particularly disadvantaging rural children. The current education system “ruins” [毁掉] rather than “cultivates” [培养] students, heaping on the pressure and emphasising “selection” [选拔] over real education and learning. As an important driver of the social pressure and educational inequality that this engenders, the High School Entrance Exam [中考] should be abolished alongside an expansion of compulsory education. — Dean, Dishui Lake Advanced Finance Institute, Shanghai University of Finance and Economics (观察者网, 5 February)

Chen Zhiwen (陈志文): With a projected decline in the number of school pupils and a resulting surplus of educational resources, proposals to abolish the Senior High School Entrance Exam [中考] have gained traction but rest on faulty assumptions. These examinations operate primarily as instruments of social governance rather than mere educational checkpoints, upholding transparent and fair school selection. Despite the limitations of a score-centric system, transitioning towards project-based evaluations or more subjective assessments would likely create additional competitive “tracks” more susceptible to elite manipulation, undermining the institutional foundations of equity and social justice without meaningfully reducing competition. — Academic Committee Member, China Association for Educational Development Strategy (财新, 14 February)

Zhang does not dispute that Chinese research is flourishing in quantitative terms. His concern is a deeper cultural decay produced by “resource-driven research”: the mass mobilisation of academic talent through hyper-bureaucratised funding and assessment, prestigious titles and shiny new institutes. Funding shapes research everywhere, but Zhang’s target is more specific: the concentrated channelling of resources into extravagant research projects controlled by powerful academic “oligarchies” and intellectually aloof committees.

Rather than …

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Recently there has been much debate within Chinese industry and academia over how the country stands with respect to the United States in developing and deploying AI. A recent commentary by Hou Hong, titled Personal insights on the US-China AI gap, falls on the side of a group, including within large Chinese AI companies, who hold that major structural issues will keep Chinese companies behind their Western, mostly US counterparts. They hold that especially as competition shifts from “who has the best model” to “who builds the strongest ecosystem for deployment and compounding usage”, Chinese companies will be at a disadvantage.

The Pessimists: China’s Disadvantage in Compute and Commercialisation

For Hou, China is not portrayed as losing primarily because it cannot produce strong models. Rather, the author’s main thesis is that factor conditions, demand conditions, and competitive structure are interacting in a mutually reinforcing negative cycle—keeping China on a lower trajectory in agent deployment and especially in building an Internet-of-Agents-style ecosystem, while the US compounds advantages through faster deployment, stronger rivalry dynamics, more open ecosystem surfaces, and heavier infrastructure/ecosystem investment.

In a recent roundtable, technologists from Alibaba, Tencent and Zhipu also converged on a pragmatic view of what still holds China back from “catching up” with the US: the constraint is no longer just model ideas, but the surrounding system—compute supply chains and commercialisation.

One argued that once a technological approach is proven, China can reproduce it quickly and even optimise locally, but that there are hard bottlenecks both upstream and downstream. Upstream, China has limitations in advanced lithography/capacity and in the broader software ecosystem if compute becomes the binding constraint. Downstream, the US has a much more mature “to business” market, where firms will pay a clear premium for the best model because productivity gains map directly to economic value. By contrast, “business to business in China is hard”, and many productivity/coding-agent plays end up forced into overseas markets, while consumer AI has a lower “felt need” for ever-stronger intelligence—especially in China, where it’s often used as a search upgrade rather than a deep productivity tool.

The Optimists: The Role of Talent and a Complete Industrial System

The other camp, which includes academics at Tsinghua University, points to the advantages China has in some parts of the AI stack, such as a talent advantage in terms of both the quantity and quality of its higher education students, the data advantage with a significant lead in the number of AI applications deployed, and the advantage of a well-developed industrial and power infrastructure and a complete industrial chain. Another part of this argument is that as the pace of development of things such as cutting-edge semiconductors slow, Chinese firms will be able to catch up more quickly. The adherents of this argument typically hold that the current US model of enterprise-led, scale-up computing power is encountering difficulties as returns on increasing computing power—so-called scaling—provide diminishing gains.

A Third Perspective: Managing Agentic Development and the Closing Compute Gap

My view is that while there is some truth in the arguments on both sides, there are significant gaps in the analysis that need to be touched on. First, Hou’s argument on agentic AI is not likely to hold up. The emergence in December of the first agentic AI smartphone from ByteDance and ZTE highlights the dangers of assuming that China is behind on things like agentic AI development and deployment. In fact, Chinese consumers and companies appear to be much more likely to embrace an agentic AI future than US companies and consumers. The ByteDance/ZTE concept is very compelling, but will require new regulatory structures that protect data and privacy, and anti-trust frameworks that will allow agents from various platforms to interact with applications that are controlled by big tech firms such as Tencent and Alibaba, who will want to keep users within their own gardens and agentic platforms. But make no mistake, China will be the first to deploy smartphone-based agentic platforms at scale.

Second, the more negative views on China’s AI development tend to harp on access to advanced compute and lack of AI readiness in China. On the first of these, my sense is that there will be major breakthroughs within the domestic semiconductor industry over the next two to three years that make this issue less salient, and the ability of Huawei and other AI hardware startups to develop a viable alternative hardware and software ecosystem that can match Nvidia and CUDA will mean that the compute gap is likely to become much narrower and much less of a factor over time, particularly as we move into the age of inference. In the meantime, if both sides are able to approve and commence shipments of H200-class AI hardware to Chinese firms, in the short to medium term the compute capacity issue will be much more tractable.

I do agree that the lack of AI readiness at the enterprise level is significant, but this issue is not restricted to China. A recent survey on AI uptake in the US showed that when AI deployments failed, it was more due to the corporate culture than the capabilities of the models and applications. While the use of AI coding assistants has soared in the US, uptake in other business operations has been much slower. In China, after the DeepSeek moment in early 2025, the word went down from central authorities to get serious about AI deployments, but as Hou and others point out, Chinese enterprises have still not gone through an intense period of digitalisation.

Yet this disadvantage could ultimately turn into an advantage, as the combination of signals from central and local governments and increasingly competitive market conditions begins to push faster uptake of AI applications at the enterprise level. The challenge in this debate is that capabilities are growing rapidly and inference costs are being driven down, which will further accelerate adoption, but questions remain around revenue generation for model/platform developers. China’s model of innovation and diffusion, set against US strengths in scaling, will produce many winners. This is not a zero-sum race to the finish, but a marathon in which both countries will achieve significant economic and technological gains.

— Paul Triolo

1. Despite advantages in hardware, power, and telecoms, China’s relative weaknesses in compute and commercialisation are causing its AI industry to trail the US in AI adoption, user growth and token consumption.

2. AI competition spans three trajectories: large models, agentic AI and the Internet of Agents, with progress in higher agentic levels driving improvements in large models.

3. The Internet of Agents trajectory is particularly crucial for the overall AI economy, enabling large-scale deployment, lowering transaction costs and expanding innovation beyond the reach of standalone models.

4. China remains competitive along the large-model trajectory through DeepSeek’s open-source efforts, but it is at a disadvantage along the higher agentic AI trajectories, where it has far fewer unicorn start-ups than the US.

5. Largely, this is because China’s manufacturing-dominated economy, lower profitability and limited consumer power constrain demand and innovation for service-oriented AI, particularly in the Internet of Agents.

6. Prioritising AGI research over service innovation, DeepSeek cannot disrupt China’s tech ecosystem, while its open-source software benefits established platform companies to the detriment of potential unicorns.

7. Furthermore, transitioning to an open Internet of Agents is stalled by China’s closed, app-based ecosystem (shaped by state-aligned platforms like WeChat), contrasting with the US’s open internet architecture.

8. Conversely, the US is advancing rapidly in the Internet of Agents, merging large-scale infrastructure investment with a paradigm shift from “humans using AI” to “AI using AI”.

9. While platform monopolies stifle “creative destruction” in China, the US industry benefits from intense competition between disruptive entrants—such as OpenAI—and tech giants.

10. To escape this low growth trajectory, China must curb platform monopolies, expand risk capital and develop a domestic Internet of Agents ecosystem leveraging its strengths in telecoms infrastructure and manufacturing-embedded edge devices.

Name: Hou Hong (侯宏)
Born: Information not available publicly (age: likely early 40s)
Position: Assistant Professor in Management, National School of Development, Peking University; Academic Director of Chengze Entrepreneurs Training Program
Previously: Held various strategic roles in China's high-tech industry (2007–2017), including Strategy Consultant, Strategy Manager, Strategy Director, and CEO’s Strategy Assistant
Other: Winner of the Best Paper Award at the World Open Innovation Conference 2020; serves as an advisor to several major Chinese companies, including China Mobile
Research focus: Corporate strategy; business ecosystem evolution; business model innovation; digital transformation
Education: PhD (Management/Strategy), University of Cambridge (approx. 2017–2021); undergraduate and master's degrees obtained in China prior to 2007

HOU HONG: SOME PERSONAL INSIGHTS ON THE US-CHINA AI GAP
Hou Hong (侯宏）
Published on his WeChat Public Account (侯宏文存) on 6 November 2025
Thank you to Hou Hong for allowing us to share this article
Translated by Ameerah Arjanee
Illustrated by OpenAI’s DALL·E 3

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The gap between the AI industries of China and the US continues to widen, even as China has made progress in other technologies, such as semiconductors. In the B2B sector, only 8% of Chinese businesses have adopted generative AI, which is far below the global average of 21%. In the B2C sector, monthly active users of Chinese AI applications grew by just 7% year-on-year in the third quarter of 2025, compared with a global growth rate of 19% over the same period. Reports also show that, by the end of June 2025, China was processing only 30 trillion tokens per day. Meanwhile, in the US, Google alone processes up to 980 trillion tokens per month. These disparities warrant close attention, and the forces driving them warrant close scrutiny.

This article is based on the view that competition between the AI industries of China and the US will move beyond input-driven technological catch-up [技术追赶] and evolve into systemic competition across the entire industrial ecosystem. Porter’s Diamond Model of National Competitiveness [Note: a model to explain what makes a country internationally competitive in a specific industry—see below] can be applied to examine this shift and compare the two countries’ AI industries. The analysis shows that, although China has multiple advantages in its supporting industries, the interaction of the factor side, the demand side and the competitive landscape has created a vicious cycle [恶性循环] that traps its AI industry on a lower growth trajectory [较低发展轨道上].

Competition in the AI industry is unfolding along three trajectories: large models [大模型], agentic AI [智能体] and the Internet of Agents (IoA) [智能体互联网]. Large models deliver intelligence at scale and compete to be the first to achieve artificial general intelligence (AGI) at the technological frontier. Agentic AI focuses on the targeted application of intelligence. It rapidly integrates products across a range of use cases. The Internet of Agents, meanwhile, enables the large-scale application of intelligence by establishing network effects and innovation ecosystems on a broader level.

It is important to highlight that these three trajectories are not merely sequential; they also influence each other in a top-down fashion. Agentic AI drives the improvement of large models, while the Internet of Agents promotes the widespread adoption of agentic AI. As a result, the Internet of Agents represents the high ground [制高点, literally “commanding heights”] in the competition between the Chinese and American AI industries.

In early 2025, DeepSeek burst onto the scene [横空出世] in the large-model space. It became the key player in China’s open-source efforts to compete against closed-source models in the US. To date, it shows no signs of losing momentum. However, China faces a less favourable competitive landscape for agentic AI. The recent surge in American agentic AI unicorn start-ups [智能体独角兽] points to a flourishing application ecosystem underpinned by strong infrastructure, whereas China has only a handful of such start-ups.

Moreover, the US has recently gained momentum along the Internet of Agents trajectory. OpenAI has made substantial investments in AI infrastructure through strategic partnerships with Nvidia, AMD, Oracle and other companies. At the same time, the launch of OpenAI’s product suite and public statements by Meta’s CEO regarding superintelligence signal a major shift in their AI business model. It is transitioning from tool-based agentic AI to the Internet of Agents. Early developments are laying the groundwork for this transition, and the move from “humans using AI” [人用AI] to “AI using AI” [AI用AI] is expected to drive exponential growth in token consumption. OpenAI has thus evolved from a leader in large-model technology into a leader of the Internet of Agents ecosystem, which pushes the American AI industry onto a higher growth path.

The Internet of Agents essentially represents a new form of economic organisation suited to AI as a new factor of production. Large models and agentic AI possess, respectively, the economic characteristics of zero marginal cost of cognition and zero marginal cost of generation. The Internet of Agents, meanwhile, is characterised by zero marginal cost of connectivity. Its widespread deployment would reduce transaction costs across the economy, as well as reinforce and scale up existing platform-based business models. In doing so, it could unlock additional potential for innovation and consumption, which would generate broad societal benefits. If China fails to act decisively along the Internet of Agents trajectory, it will struggle to fully exploit the potential of AI as a driver of economic growth [驱动经济增长的潜力].

In the 1980s, several key US industries lost ground to competitors in Japan and the Four Asian Tigers [Note: Hong Kong, Singapore, South Korea and Taiwan]. The American political and business establishment urgently needed new theoretical guidance. President Reagan invited Michael Porter to join the President’s Commission on Industrial Competitiveness, based on Porter’s expertise in competitive strategy. The Diamond Model emerged from his research on the commission. This model attributes industrial competitiveness to the broader national environment in which businesses operate, which is why it is called the National Competitiveness Model. It is particularly well suited to this study, as competition between the Chinese and American AI industries is driven primarily by innovation rather than by [lower] factor costs.

The Diamond Model consists of four determinants and two external variables. Together, they determine a country’s competitiveness and capacity for innovation in a specific industry. The first determinant is factor conditions [要素条件], which refer to the state of a country’s production inputs, such as the technical workforce or infrastructure required for competition in a particular industry. The second determinant is demand conditions [需求条件], which refer to the nature of domestic demand for that industry’s products or services. The third determinant is related and supporting industries [相关及支持产业], which considers whether internationally competitive supplier industries and other related sectors exist domestically. The fourth determinant is firm strategy, structure and rivalry [企业战略、结构与竞争]. It considers how companies are established, organised and managed, as well as the nature of domestic competition.

In addition, the government [政府] influences the interaction of these four determinants through its policies, investment and regulation. Chance [运气] represents unpredictable external events, such as technological breakthroughs or geopolitical shifts, which can alter the trajectory of an industry’s evolution. In the analysis that follows, I will apply this framework to examine the AI industries of China and the United States.

AI development in China has lagged on both the business and consumption sides. Strictly speaking, this is not simply a gap between the AI industries of China and the US. It is an inevitable consequence of structural differences between the two countries’ economic systems.

At a macroeconomic level, the Chinese economy is dominated by manufacturing, while the US economy is primarily service-oriented. Current AI technologies, largely based on transformer architectures, are inherently better suited to service-sector applications than to production lines. Manufacturing requires high precision, stability and absolute certainty, whereas large models operate as probabilistic systems, which makes their integration into industrial environments challenging.

In the Chinese industrial sector, progress in mechanical engineering continues to drive embodied intelligence, with AI only playing a supporting role [锦上添花]. Notably, AI is absent from the section of China’s 15th Five-Year Plan [十五五规划建议] that addresses “building a modernised industrial system and reinforcing the foundations of the real economy” [“建设现代化产业体系，巩固壮大实体经济根基”]. By contrast, the US service sector is well positioned to benefit from the current wave of AI innovation. Concepts driven by venture capital, such as Service-as-Software, seek to replace traditional service models with AI-powered alternatives. This divergence helps explain why unicorn start-ups in this area are overwhelmingly concentrated in the US, while China has very few.

At a microeconomic level, Chinese businesses lag behind their American counterparts in both their willingness and their capacity to invest in AI. The difference in willingness can be partly attributed to a disparity in digital infrastructure [数字化基础]. American businesses benefit from strong digital foundations and higher levels of data readiness [数据准备], which bring them closer to realising returns from AI deployment and, in turn, increase their incentive to invest. By contrast, Chinese businesses face weaker digital foundations and lower data readiness. As a result, they require more time for preparatory work and remain further from value capture, which reduces their incentive to invest.

The gap in financial capacity reflects a pronounced divergence in profitability. Evidence from listed companies shows that American businesses significantly outperform Chinese ones in terms of margins. In addition, the average lifespan of small and medium-sized businesses in China is only three years, compared with eight years in the US. This implies that the typical Chinese business is nearly always struggling to survive, which leaves it little room to invest in digitalisation or AI.

China’s consumer purchasing power continues to be constrained by relatively low per-capita disposable income. This is a structural reality that is hard to dispute. However, a more encouraging trend is emerging: AI applications are delivering tangible productivity gains, which have significantly increased Chinese consumers’ willingness to pay for them. In practice, the distinction between consumer-oriented and business-oriented productivity tools is becoming increasingly blurred.

The AI industry has three layers: hardware (GPU chips and computing centres), software (large models and agent protocols) and services (comprehensive agent offerings for consumers and businesses). China has achieved notable progress in hardware, particularly chips, and maintains significant advantages in upstream power infrastructure.

This analysis focuses on four key industries in the service layer from a comparative US–China perspective: the cloud (internet services), management (telecommunications), the edge (edge devices) and applications (software services). Currently, AI models are delivered via the internet and are complemented by user-side customisation. However, as AI integration deepens and expands, smart telecom networks and edge devices could provide critical channels for the delivery of AI services [Note: Hou does not elaborate here on software services, having discussed this aspect earlier in the piece]:

1. Internet Services: Companies such as Alibaba, Tencent, ByteDance and Baidu have made invaluable contributions in AI chips, large models and computing infrastructure. However, the internet industry [for our purposes] does not refer to internet firms that have expanded into core [infrastructure and technology] segments of the AI industry, but to the internet as a platform for AI service delivery—namely, over-the-top (OTT) media services. To a certain extent then, the “dual towers” [双塔] of the Chinese and American AI industries reflect continuity in the global configuration of the internet industry. However, this is not a simple case of history repeating itself. China’s internet, dominated by closed apps [封闭App], is facing significant internal inertia in the transition to the Internet of Agents. By contrast, the American internet, characterised by an open web [开放web], maintains a substantial share of independent platforms that respond to the “catfish effect” [鲇鱼效应] triggered by OpenAI and support the growth of the Internet of Agents. For example, OpenAI’s agentic commerce initiatives receive strong backing from platforms such as Shopify.

2. Telecommunications: Telecommunications form the backbone of network infrastructure and provide the ubiquitous, heterogeneous and secure connectivity essential for agentic services. On 28 October, Nvidia announced a US$1 billion investment in telecom giant Nokia to install AI-native wireless access networks (AI-RAN) in its base stations, which turns each station into an intelligent hub. China is pursuing similar initiatives. Recently, Huawei collaborated with the three major carriers [Note: China Telecom, China Mobile and China Unicom], UnionPay and the ANP open-source community to publish a white paper titled Intelligent Internet Architecture and Key Technologies [《智能体互联网架构与关键技术》], which sets standards for the Internet of Agents in the 6G era. Compared with the US, China’s telecom industry benefits from operators that are trusted forces in advancing national strategy. The three major carriers can construct foundational networks for the Internet of Agents, and use their reach and user base to provide core services such as personal data hosting and agent identity authentication, setting a reliable foundation for the ecosystem’s flourishing.

3. Edge Devices: Edge devices [Note: Devices where the AI computing is done in proximity to the data source, rather than on the cloud] have a pivotal role in the AI industry’s transition from agentic AI to a fully developed Internet of Agents. Its role extends beyond cost and performance optimisation in moving computing power from the cloud to local devices. More importantly, it also supports a key component of the Internet of Agents: demand-side agents (or personal agents) that act on behalf of internet users. Hardware manufacturers have clear advantages in promoting these agents, including portability, contextual data collection, the seamless integration of software and hardware, and strong local data security. Their profitability model further reassures users about data use. China’s hardware ecosystem, which encompasses smartphones and PCs, has substantial advantages over the US. Without a domestic equivalent to OpenAI, this sector could become the cornerstone of a distinctive path for China’s Internet of Agents.

In the Diamond Model, firms serve as the primary drivers of innovation. Intense domestic competition encourages industrial upgrades and international competitiveness. An industry may have superior factor conditions and strong supporting sectors, yet it cannot achieve global prominence without healthy domestic competition. From this perspective, when examining the AI industries of China and the United States, it is not difficult to see that China’s AI industry faces constraints along the Internet of Agents trajectory because its monopolistic platform companies limit the country’s ability to compete with the US.

The competitive landscapes in China and the US differ markedly. The American AI sector thrives on dynamic interactions between established companies and new start-ups. OpenAI is a disruptive force that supports infrastructure investment and encourages innovation in B2C business models. It challenges well-established platform giants [老牌巨头] such as Google, Amazon and Meta. Among the mainstream large models, only Google’s Gemini was created by a platform giant. In contrast, China’s AI industry mirrors the country’s existing platform internet structure. Apart from DeepSeek, all the mainstream players in its AI industry, that is, ByteDance, Alibaba and Tencent, are platform giants [Note: Doubao, Qwen and Hunyuan/Yuanbao are their respective flagship AI models], while five of the six AI “young dragon” start-ups [Note: AI创业六小龙, i.e. DeepSeek, Zhipu AI, MiniMax, Moonshot AI, Zero One AI and Baichuan Technology] have lost their momentum [风头不再]. As for DeepSeek, its focus on AGI means that it has scant interest in business model innovation, and has not been able to play a disruptive role [Note: In terms of monthly active users, DeepSeek ranked fourth place in November 2025 among Chinese large language models].

These structural differences shape the nature and intensity of competition. The Internet of Agents brings “creative destruction” [创造性破坏] to the American AI industry. Conversely, China’s AI industry operates under platform dominance. This does not completely preclude innovation. For example, Meituan has launched an AI-enabled food delivery app, Xiaomei, and [ByteDance-owned] Doubao has tested AI-driven commerce. However, such efforts quietly take place within platform ecosystems, both lacking internal prioritisation and unable to trigger competitive pressure outside the company. Without disruptive external challengers, Chinese platforms compete mainly on traditional dimensions such as subsidies and user acquisition, which provide little incentive for industry-wide innovation.

The question of why China is yet to produce an equivalent to OpenAI cannot be answered without touching upon the distinction between open-source [开源] and closed-source models [闭源]. Without DeepSeek’s early advocacy for the development of open-source models, AI adoption in China would be even slower today. Yet DeepSeek’s substantial contributions mask that simple fact that it has cut off the possibility of countless other AI “young dragons” [小龙] from evolving into a Chinese equivalent of OpenAI, as investors will not assign high valuations to companies that perform below freely available models. In this sense, the impact of DeepSeek has been a double-edged sword for China’s competitive landscape, with [existing] platform companies becoming the main beneficiaries [of its open-source software].

The analysis of the four determinants in the previous section leads to a pessimistic assessment. The factor conditions, demand conditions and competitive conditions of China’s AI industry have formed a mutually reinforcing negative cycle that is locking the industry into a relatively low growth trajectory. This explains the substantial gap between China and the US mentioned at the outset of this article. It also suggests that the gap is likely to continue widening.

On the agentic trajectory, China’s structural limitations on the demand side are unlikely to change in the short term. Just as the US has had to grudgingly accept that its industrial robot deployment lags behind China’s, China may need to accept without misgivings [心安理得] that its deployment of service robots (i.e. agents) lags behind the US. Through learning-by-doing [干中学], China is likely to surpass the US in robotics technology through large-scale deployment, while the US may use its early lead in agent deployment to further extend its advantage over China in model capabilities.

The Internet of Agents could have represented a major strategic opportunity for China. Just as China outpaced the US in mobile internet, our globally competitive telecoms and edge device industries were [projected] to provide a sturdy support [for its development]. However, stymied by scarce venture capital and a market dominated by massive platform companies, the rapid innovation cycle of the mobile internet era is unlikely to return. The largest companies, though flush with innovative resources, do not prioritise breakthrough innovation. Meanwhile, promising start-ups lack the necessary funds to scale.

The Internet of Agents could, in principle, harness network effects to offset the weak incentives that often limit the deployment of individual agents. As consumers adopt agents on the demand side, businesses on the supply side gain stronger incentives to participate. These dynamics generate additional momentum, which can be further reinforced by competitive pressures. In fact, the Internet of Agents does offer a low-cost pathway [轻量级路径] for businesses to adopt AI at scale. Under the current market structure, however, this outcome appears unlikely, as dominant platforms maintain a monopoly and restrict the independence of individual businesses.

It is difficult to argue that the situation described above bears no relation to government action.

The government’s relationship with platform companies is nuanced and has evolved into a form of mutual dependence. It is well known that Chinese platform companies operate cautiously and adhere closely to regulatory requirements. What receives less attention is the degree to which government departments rely on these companies as delivery partners or outsourced providers for regulation and public services. In practice, public authorities often depend on platform companies to carry out their administrative and regulatory functions.

As the Internet of Agents and the agent-based economy emerge, the government may not be fully prepared for this transition. It may continue to rely on existing platform companies out of a sense of inertia [惯性]. A market dominated by these companies may not only be tolerated but actively preferred. This preference manifests both subjectively and objectively: platform companies support the government in regulatory enforcement, while the government, in turn, favours them in the issuance of statutory licences. Regulatory requirements that platform companies can easily meet often represent major barriers to entry, or “mountains” [大山], for start-ups. These barriers act as gatekeepers for AI innovation. As such, entrepreneurs are left with a stark choice: bow down to platform dominance [成为平台顺民] or flee overseas [远遁海外] [for opportunities].

If circumstances were to prove more favourable, the issues outlined in this article would have no bearing. [It’s possible that] competition between China and the United States could be resolved relatively quickly. If Taiwan’s status were resolved, China could exert decisive leverage over the US through TSMC. This possibility may also help to explain the United States’ substantial investment in AI infrastructure. From a broader strategic perspective, the issues discussed here might be seen as minor “ailments” [癣疥之疾] and scarcely warrant attention.

Finally, three policy recommendations merit consideration. First, efforts should be made to encourage DeepSeek to take on a role similar to that of OpenAI (this could be challenging). Second, capital markets should be encouraged to adopt a greater risk appetite, and the regulatory burden on innovation should be reduced (in effect two separate measures). Third, support should be provided for the development of an Internet of Agents ecosystem focused on edge computing and network-level capabilities. This would be promoting an approach to the Internet of Agents with Chinese characteristics [中国特色的智能体互联网].

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Today’s edition opens with an introduction by Max J. Zenglein, Asia-Pacific Senior Economist and Centre Leader, Asia Economy, Strategy and Finance, at The Conference Board of Asia. He is also Chair of Sinification’s board of trustees. Max was previously Chief Economist at the Mercator Institute for China Studies (MERICS). His research focuses on economic systems, industrial policy, labour markets, and the evolving dynamics of globalisation and economic security. Max is one of those people without whose support my professional path would have taken a very different turn, and to whom I remain deeply indebted. — Thomas

2025 marked another year of a record trade surplus, driven by surging exports and weak imports. For some, the surplus reflects China’s manufacturing competitiveness and is seen as vital to securing national interests amid a rapidly shifting geopolitical backdrop. For others, it points to domestic imbalances and subdued consumption, which in turn risk triggering backlash fro…

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What is friendship with China truly worth? This question has been weighing on my mind ever since Trump’s surgical strike against Iran in June 2025, and it became more pressing still following the US military operation to capture Nicolás Maduro.

With the exception of North Korea, Beijing does not make alliances in the traditional sense of the word. Instead, it forms flexible, commitment-light “partnerships”, organised according to a complex, hierarchical taxonomy. This preference is explicitly articulated as a policy of “partnership, not alliance” (结伴不结盟).

That approach made sense as China embarked upon reform and opening up and sought to navigate post-Cold War politics: it preserved an independent foreign policy while creating room to concentrate on development. But as China’s power grows and America’s unipolar moment fades, I’ve wondered how long this model can hold in an era of naked power.

Our briefing on the Venezuela operation was titled “All-Weather Partner, Fair-Weather Response” because even the more strident nationalists were conspicuously quiet about what, in practice, Beijing could do to defend its considerable interests in Latin America. The prevailing mood was one of resignation—an acceptance that felt discordant with the confident, sometimes belligerent tone that often comes through in contemporary Chinese discourse.

At the time, Jin Canrong (金灿荣) stood out from the crowd in calling for retaliation in Asia should Washington interfere with Chinese investments in Latin America. Jin is popular with nationalist audiences and is known for his sometimes unconventional takes, but as a prominent senior scholar at Renmin University, he is worth paying attention to. In a short piece—translated in this edition—he makes the bolder claim that China’s model of economic engagement without security commitments is hitting its limits.

Jin is clearly aware he is on politically shaky ground, going out of his way to praise China’s diplomatic achievements while reaffirming that the “partnership, not alliance” paradigm remains relevant.

Yan Xuetong (阎学通) was arguing in 2011 that China might reconsider its non-alignment strategy, but that line of argument has been conspicuously muted in more recent discourse. As noted in Sinification’s latest digest, January saw a tentative re-emergence of this logic—not in the form of calls for formal alliances, but in arguments for a recalibration of China’s diplomatic posture beyond its long-standing “commitment-light” model.

— Jacob Mardell

1. Trump’s belligerence has left countries deeply uneasy, prompting them both to appease Washington and to seek support elsewhere.

2. Many countries’ posture towards both the US and China is marked by ambivalence: wary of American power yet reluctant to antagonise it, seeking China’s help yet uneasy about China itself.

3. Taken as a whole, China’s foreign policy has been a success.

4. But China will struggle to win genuine friends if it cannot offer support beyond economic engagement.

5. Alliances are premised on targeting a third party and are therefore not a suitable model for China; instead, Beijing should seek a middle ground between the kingly way (王道) and the hegemonic way (霸道).

Name: Jin Canrong (金灿荣)
Born: Dec. 1962 (age: 63)
Position: Wu Yuzhang Chair Professor, School of International Studies, Renmin University of China (RUC); Director, Centre for China’s Foreign Strategy Studies, RUC
Other positions: Special research fellow at the Research Office of the Standing Committee of the National People’s Congress; Consulting expert for various ministries and government departments; Director of the China International Public Relations Association (the list goes on)
Previously: Researcher at the Chinese Academy of Social Sciences (1987-2002)
Research focus: American politics; US-China relations; Chinese foreign policy
Education: BA Fudan University (1984); MA University of Chinese Academy of Social Sciences (1987); PhD Peking University (1999)
Experience abroad: Several stints in the United States as a visiting scholar (1990s)

JIN CANRONG: NON-HEGEMONIC STRENGTH INSPIRES NO FEAR—MY MODEST PROPOSAL FOR CHINA’S FOREIGN POLICY
Jin Canrong (金灿荣)
Published on Jin Canrong’s Public Account (金金乐道编辑部), 16 January 2026
Translated by Jan Brughmans
(Illustration by OpenAI’s DALL·E 3)

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Recently, Trump has been highly active across the Western Hemisphere, striking a brazen, bullying posture of “I’m a thug—who’s there to fear?” [“我是流氓我怕谁”]. This display has left many countries deeply uneasy.

Given the sheer preponderance of US power, many of these countries find themselves pulled in two directions. On the one hand, there is a strong temptation to appease Washington proactively [主动取悦]—to avoid direct confrontation and, above all, to ensure they are not singled out as the next convenient sucker [“冤大头”] hauled out to “make an example of” [“祭旗”]. On the other, it is only natural that they begin to look for safety in numbers, or to seek support from outside. Some Latin American countries have already begun to band together for self-preservation, while others have turned their gaze towards China, viewing it as a power they can lean on [依托]. This, in turn, has produced a series of recent developments: Latin American states joining forces with Spain, the Canadian prime minister embarking on a visit to China, and Argentina’s president, Javier Milei, announcing that he too plans to travel to China this year. One small but telling detail is worth noting. When journalists asked China’s foreign ministry spokesperson to comment on Milei’s proposed visit, the response was that there was, for the time being, no information to share. This makes me believe that the arrangements for Milei’s trip have, in all likelihood, yet to be finalised.

The global order is entering a period of deep turbulence, and many countries appear to be struggling to find their bearings [六神无主]. Their posture towards the world’s two great powers, the United States and China, is marked by ambivalence: they are wary of American power, but reluctant to antagonise it; they seek China’s help yet remain uneasy [心存疑虑] about China itself. Even states with relatively close ties to Beijing display this same inner tension—a paradox that invites the author to a deeper reflection.

Taken as a whole, China’s foreign policy has been a success. Since the advent of the new era, major country diplomacy with Chinese characteristics [中国特色大国外交] has delivered remarkable achievements: it has played a crucial role in extending the window of strategic opportunity [战略机遇期] and in grasping historical initiative [历史主动] for the great rejuvenation of the Chinese nation [中华民族伟大复兴]. For decades, a defining feature of China’s external policy has been its emphasis on economic and trade cooperation—without, however, offering other countries what might be described as “protection” [“保护”]. In my view, this model is strategically sound, but it requires timely subtle tactical adjustments. If we confine ourselves to trade and commercial engagement, and the pursuit of material gain, yet are unable to offer even limited support [一定的支撑] when other countries face existential crises [生存危机], we will struggle to win genuine friends [真正的朋友]. For individuals, survival comes before all else; for nations, the same principle applies. As the saying goes, the greatest tragedy is to be “in heaven while one’s money sits unused in the bank” [“人在天堂，钱在银行”]—to die with wealth unspent, the sense of loss and regret is plain to see. A country that cannot even secure its own survival will hardly have the nerve [底气] to talk business with others. Under such circumstances, can any commercial relationship truly be stable or reassuring? For these reasons, I believe that, from the standpoint of safeguarding China’s national interests, a measured recalibration of China’s foreign policy is both necessary and timely.

This then raises the question: how should such adjustments be made? Should China establish alliance relationships [结盟关系] with other countries? In a certain sense, alliances represent the highest form of cooperation between states. However, I do not believe this approach is suitable for China. Alliances do have their advantages, but they also contain a fundamental flaw: they are, by nature, premised on targeting a third party. To win one ally often means making an enemy elsewhere. If an alliance is poorly chosen, it may even drag a country into irreparable disaster [无法挽回的灾难]. The outbreak of the First World War is a classic example of smaller states pulling major powers into war. For this reason, alliances should not be viewed only through the lens of their benefits; the enormous risks they conceal must also be treated with due caution. On this point, I firmly support the central leadership’s policy of not entering into overt alliances.

At the strategic level, we must continue [仍需] to uphold the valuable legacy left by Chairman Mao and Premier Zhou, adhere to the principle of non-interference in other countries’ internal affairs, and hold high the banner of international morality [国际道义]. The more than five centuries spanning the Spring and Autumn and Warring States periods built up a rich experience for China; even then, there were debates between the kingly way [王道] and the hegemonic way [霸道]. History has already shown that pursuing blatant hegemony is bound to be unsustainable, while rigidly clinging to a purely kingly way may also ultimately end in failure. [Note: In classical Chinese political thought, “kingly way” denotes rule grounded in moral authority and benevolent governance; “hegemonic way” denotes rule grounded in coercive power.]

How should China’s foreign policy proceed from here? In my view, it should continue to be guided by the principle of “a blend of kingly and hegemonic approaches” [“王霸杂之”]. As for the specific tactics this would entail, I would rather not spell them out here.

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China is not the only country facing a demographic cliff-edge, but as with many aspects of China’s political economy, the scale and speed of the shift are remarkable. This edition’s author, Zhang Junni (张俊妮), notes that China’s total fertility rate fell from 1.3 to 1.01 in just three years, whereas South Korea took 17 years to drop from 1.3 to around 1.0.

China’s controversial legacy of family planning made this a politically fraught conversation for many years, but in 2021 Beijing formalised the turn from birth restriction to encouragement through the three-child policy.

A sign of how far the conversation has moved into the open is Xi Jinping’s Qiushi article on the topic, published in November 2024. Still, the official framing remains notably non-alarmist, treating population decline as a new normal to be managed—with downsides, but also potential upsides. Cai Fang (蔡昉), in a March 2023 speech summarised by Sinification, typifies this mainstream, technocratic approach.

Zhang is notably more concerned, treating demography as a strategic constraint on China’s innovation capacity, economic output, and even its international “discursive power” (话语权), and arguing that the window for gradualism is closing.

Other prominent voices in China’s pronatalist debate, such as Huang Wenzheng (黄文政) and Liang Jianzhang (梁建章), also sit on the more alarmist side. In a separate article, they argue that the long-run national impact of ultra-low fertility “far exceeds that of war and economic crisis”. They also advocate a radical package of fiscal incentives, arguing that spending might need to rise as high as 10%—or even 20%—of GDP.

Zhang’s speech, however, is especially interesting because it largely sidelines the popular idea of fiscal incentives. It belongs to the more “socio-cultural levers” camp in the demography debate, focusing on disincentives rooted in China’s high-pressure education system. In doing so, she borrows the term “involution” (内卷), which readers will recognise from debates on overcapacity, to describe wasteful, zero-sum competition in China’s education and employment system.

Zhang’s speech also stands out for its rare call for China to consider immigration—a topic she herself notes is acutely sensitive.

— Jacob Mardell

1. China’s demographic decline is accelerating. After three consecutive years of population contraction, the total fertility rate has fallen from 1.3 to 1.01 in just three years—a decline that took South Korea 17 years.

2. On unchanged fertility and mortality rates—excluding migration—China’s population would fall to around 400 million within 83 years, producing a sharply inverted population pyramid.

3. A shrinking and ageing population will weaken China’s innovation base, undermine long-term macroeconomic stability and erode its international “discursive power” (话语权), including its status as the world’s largest market.

4. To fix this, economic incentives are insufficient: pronatalist efforts in South Korea have largely failed because they do not address societal barriers such as inflexible employment practices and gender-unequal care responsibilities.

5. Much of China’s post-2000 generation grew up amidst intense competition and loneliness, negatively influencing their future willingness to marry and build families.

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6. Hence, to give young people the space to build the real-world relationship skills needed for marriage and childrearing, policy should focus on reducing societal involution (内卷) by making education less competitive.

7. Basic education should offer a less pressurised environment, enabling children to spend more time on deep reflection, collaborative exploration, and even some degree of innovation.

8. Streaming into academic and vocational schools should be postponed until after the Gaokao, so choices are made later and under less pressure, giving young people time to mature and develop learning and social capabilities.

9. To make opportunities less scarce for young people, China’s demographic strategy should also include fostering a more favourable business environment and expanding opportunities through the private economy.

10. Immigration planning should be put on the table despite political sensitivities—Japan’s gradual shift away from a closed, homogeneous society towards greater openness to immigration offers a relevant precedent.

Name: Zhang Junni (张俊妮)
Born: 1978 (age: 47-48)
Position: Associate Professor of Statistics, National School of Development, Peking University
Previously: Assistant Professor of Statistics, Guanghua School of Management, Peking University (2002 to 2006); Associate Professor of Statistics, Guanghua School of Management, Peking University (2006 to 2019)
Other: Entered the University of Science and Technology of China’s Special Class for the Gifted Young in 1993 (aged 15)
Research focus: Bayesian demography; causal inference; data and text mining
Education: BSc (Computer Software), University of Science and Technology of China (1998); PhD (Statistics), Harvard University (2002)
Experience Abroad: Visiting Scholar, University of California, Berkeley (Spring 2025)

ZHANG JUNNI: DEMOGRAPHIC TRENDS AND RELATED POLICY RECOMMENDATIONS
Zhang Junni (张俊妮)
New Economist Think Tank × TAIXUE (November 2025)
Translated by Cherry Yu
(Illustration by OpenAI’s DALL·E 3)

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China’s population will return to around 400 million in 100 years, returning to the “four hundred million Chinese compatriots” spoken of a century ago. This was a projection I made four years ago, which faced some scepticism at the time.

Four years have passed and new data have been released. If there is any need to revise that initial prediction, it is that it was overly optimistic. Assuming age-specific fertility and mortality rates remain at their 2023 levels and international migration is not taken into account, then 83 years from now China’s population will have fallen back to about 400 million, with the population structure presenting a sharply inverted-pyramid shape. Children aged 0 to 14 will account for 6.4% and people aged 65 and above will account for 45.7%.

If we compare this with the current global situation: in 2024, among countries with populations exceeding 40 million, South Korea has the lowest share of people aged 0 to 14, at 10.6%, while its population aged 65 and over accounts for around 20%. Japan has the highest share of people aged 65 and over, at 29.6%, and its share of children aged 0 to 4 is 11.4% [Note: International datasets put Japan’s 0 to 4 share far lower. 11.4% roughly corresponds to the 0 to 14 share, suggesting this is a slip.]

In other words, 83 years from now, the proportion of people aged 0 to 14 in our population will be even lower and the proportion of those aged 65 and above will be even higher, which is an extremely serious situation.

At present, our country has already experienced three consecutive years of population decline and the pace of demographic change is particularly rapid. For instance, the number of marriage registrations has declined for nine consecutive years from 2013 to 2022. In 2013 there were 13.469 million registered couples, but by 2022 this number had fallen to 6.835 million couples. By 2023, because of the pandemic, there was a post-pandemic compensatory wave of marriages and the number of marriages rose to 7.682 million couples. However, in 2024 this figure had re-entered a downward trend, falling to only 6.106 million couples.

Let us now look at the total fertility rate, which refers to the average number of children a woman bears over her entire childbearing period, from ages 15 to 49. Internationally, 2.1 is generally regarded as the level required for generational replacement, meaning that only when women have an average of 2.1 children over their reproductive years can the total population size remain stable, given that only women give birth and the risk of death must also be considered.

What is the level in our country? At the time of the Seventh National Population Census in 2023 [sic], our total fertility rate was only 1.3, already at the ultra-low fertility threshold set by the United Nations, a figure which did not yet mark the lowest point. [Note: The Seventh Census was conducted in 2020 and results were released in May 2021.] Three years later, by 2023, our total fertility rate had fallen further to 1.01. At the current pace, this may still be the most favourable figure we will see for many years to come. It is worth noting that in South Korea it took 17 years for the total fertility rate to fall from 1.3 to around 1.0, whereas in our country this process has taken only three years.

In 2024, our total population stood at 1.41 billion, and those aged 65 and above accounted for only 15.6%, so many people may not yet have fully felt the impact of population decline and the onset of an ageing society. This is because from 1962 to the early 1970s we experienced a peak in birth rates and those born during that period have not yet reached 65. Once this cohort enters the 65-and-over group, the degree of population ageing in our country will rise sharply, and when they eventually pass away, the total population will decline accordingly. This is an undeniable demographic law.

Let us now consider the challenges posed by a declining total population and population ageing. Auguste Comte, the French sociologist known as the father of sociology, once remarked that “demography is destiny”, meaning that for a country, its population determines its fate. Over the long term, a shrinking and ageing population is unfavourable to innovation. Sectors such as DeepSeek, AI agents and related fields are currently driven overwhelmingly by young people; if, in future, there are too few of them to “take up the baton” [接棒], where will our dynamism and capacity for innovation come from?

A reduction in total population and population ageing will also inevitably affect and shock the total economic output. On the one hand, the labour force contracts; on the other, aggregate demand declines. At the same time, ageing will drive a sharp increase in expenditure on pensions, medical insurance and care services. Our social security system currently operates on a “pay-as-you-go basis” [现收现付制], so without a sufficiently large labour force and enough young people, it will come under enormous pressure.

More crucially, if a country’s total population is no longer so large and it is in a state of severe ageing, its “discursive power” [话语权] across various spheres will be greatly diminished. For example, although we often say that China is the world’s largest market, in the future it may be difficult to maintain this status, raising the question of what we should do in such a situation. Since a country’s total population is determined only by births, deaths and migration, and life expectancy cannot be increased without limit, if we do not treat large-scale admission of international immigrants as an option, the only step we can take is to raise the fertility rate, which is the only national policy available to us.

International experience shows that raising the fertility rate requires a whole set of coherent and mutually compatible policies across areas such as family and labour, markets, education and health care. These policies must be responsive to the diverse needs of the public and must also remain relatively stable over time.

Let us look at examples from East Asian countries such as South Korea, Japan and Singapore, which have cultures quite similar to ours, also exhibit ultra-low total fertility rates, and have in fact adopted highly proactive measures to encourage childbearing. One example is childcare enrolment: in our country, only 6% of children aged 0 to 2 were enrolled in childcare institutions in 2023, whereas in South Korea the enrolment rate is 24.9% for zero-year-olds, 86.2% for one-year-olds and 92.8% for two-year-olds. Despite this, their gains are still limited, because these countries have not achieved certain fundamental changes, such as addressing a highly competitive education system, long working hours, inflexible employment conditions, gender inequality in family and childcare responsibilities, and the instability of employment contracts, which further exacerbates these difficulties.

In June 2024, the South Korean government declared a demographic state of emergency and announced the launch of a full-scale response mechanism, which is to remain in place until the problem of low birth rates is resolved. Yet resolution is defined only as raising the total fertility rate to 1.0. To this end, the government has identified three core tasks: reconciling work and family life, improving the child-rearing environment and addressing housing problems, while also resolutely advancing structural reforms in areas such as balanced regional development, education and health care.

Previously, South Korea’s Presidential Committee on Ageing Society and Population Policy functioned only in an advisory role, with no authority to design policy or implement budgets. This time, the South Korean government has announced the establishment of a new deputy prime minister-level body, the Ministry of Population Strategy and Planning, tasked with formulating a medium- to long-term national development strategy on population issues, including responses to low fertility and population ageing, as well as the design of immigration policies.

We should take [South Korea’s experience] as a lesson. While our country’s demographic situation is not yet as severe, we should already be elevating population issues to a higher strategic level. I will now put forward several specific policy recommendations.

My first recommendation is to change the highly competitive educational environment and place strong emphasis on encouraging cooperation in education. This matters because the factors that affect demography, including forming families and raising children, are all behaviours that require tolerance and cooperation. Today’s children grow up in an environment of intense “involution” [内卷], and they rarely have the opportunity or the time to play freely, to cooperate with, or to learn to build long-term, affectionate relationships with their peers. Quite a number of middle and high school students have already clearly stated that they do not want to marry or have children in the future, and as they enter adulthood, they are likely to face even greater difficulty in successfully forming families and raising children.

The post-2000s generation has grown up in loneliness, even though they have been raised in collective settings, in reality they face many things on their own in the absence of an environment that fosters cooperation. Today some gaming companies and AI chat providers design customised characters specifically for these lonely post-2000s youth, catering to their emotional needs and providing personalised emotional value, but this is merely a form of virtual emotional support and cannot help young people successfully form families, have children and raise them in real life. In reality, people differ from one another in many ways, and forming a family and raising children requires greater compromise, tolerance and cooperation, which in turn take time and opportunity to accumulate and cultivate.

Here I should touch on the policy of “general and vocational streaming” [普职分流], now referred to as the “coordinated development of general and vocational education” [普职协调发展]. Ideally, some children, those with strong practical skills and a preference for vocational education, might be suited for vocational high schools, while others who are more inclined to engage with theoretical questions might be better placed in general high schools. In both cases, the aim is to help children find a development path according to their own interests and characteristics. However, in reality, if a child receives a low score on the high school entrance exam [中考], they are often directed toward vocational high schools. This creates a perception that general and vocational streaming is essentially a form of hierarchical stratification, thereby fostering an intensely anxious atmosphere.

Compared to the general high school system, our vocational high school system is less well-developed and much of the vocational curriculum does not yet align with society’s future needs. Under these circumstances, when some children are effectively forced into vocational education, they and their families come under immense pressure. This pressure can provoke anxiety even among primary school pupils and drive involution from kindergarten onwards, turning education into a “utilitarian zero-sum game” [功利性的零和游戏].

Even though we have already implemented the “Double Reduction” policy, the actual curriculum content is becoming ever more extensive and challenging. Because parents know their children will later be subject to general and vocational streaming, many feel compelled to personally tutor their children’s homework or enrol them in numerous extracurricular classes. As a result, children are required to “work through large volumes of practice exercises” [刷题], leaving them with little time for deep thinking, socialising or meaningful engagement with their peers.

Fundamentally, basic education should provide a less pressurised environment, enabling children receiving basic education to have more time for deep reflection, collaborative exploration and even some degree of innovation. Yet the inertia of intensive practice-exercise work and involution formed at this stage often carries over into university. In theory, the university phase should be when students engage with more advanced knowledge while also considering their future paths. In reality, however, many remain trapped in an involuted mode of behaviour, taking numerous courses, accumulating large numbers of credits, constantly chasing higher grades and striving for all-round excellence.

Furthermore, some students have already exhausted so much mental energy during middle and high schools that, once they enter university and are free from parental supervision, they simply want to “lie flat” [躺平]. Others, having become accustomed to intensive practice-exercise work, remain fixated on whether they can improve themselves by doing more practice problems, often without developing the awareness needed to construct their own knowledge frameworks from the subjects they study. Yet truly mastering advanced knowledge and transforming it into creativity or productive capacity depends not on exam-oriented techniques, but on the ability to synthesise knowledge, think independently, and collaborate meaningfully. All of these capacities take time to cultivate and accumulate and rely on appropriate guidance and a supportive foundation laid during basic education.

From another perspective, a child’s brain only reaches a relatively mature stage at around age 15. Yet our current general and vocational streaming policy is implemented at the stage of the high school entrance examination. This means many children have to face this choice precisely at 15, and are required to determine their future educational and career paths just as their cognitive capacities are still developing and before they have gained much real-world experience.

Therefore, I find it difficult to discern any sound rationale for implementing general and vocational streaming at the stage of the high school entrance examination. By comparison, our general high school education system is relatively mature and much more developed than the vocational education system, and our country’s online-education technologies are also highly advanced. If China so wished, it could bring high school education fully within the scope of compulsory education and shift the point of general and vocational streaming to after the “national college entrance examination” [高考]. By that stage, young people would be more mature, more capable and qualified to make life choices about their own future. As the level of knowledge required for future work continues to rise, quality vocational education in fact should be built upon the foundation established during secondary education.

My second recommendation is to create an environment that fosters diverse forms of development and cooperation, and to reduce involution. Educational reform alone is not sufficient, because if future pathways and opportunities remain scarce, parents will still invest considerable money and time in their children. Under these circumstances, raising children becomes a burdensome task; it is hard enough raising one child and considerably harder with two. As previously mentioned, a woman needs to have an average of 2.1 children over her reproductive years to maintain a stable total population, yet if most families can only manage to raise one child at most, this goal is hardly attainable. Therefore, we need to build an environment that enables diverse development and cooperation for children. In terms of opportunities, we should foster a favourable business environment and promote the growth and strengthening of the private economy. In this way, more opportunities will be created, so that even those who are made redundant can find new employment relatively quickly.

South Korea provides a telling example. As the country with the world’s lowest total fertility rate, the South Korean government has adopted all kinds of measures, some of which even seem rather unconventional, to encourage childbirth. Yet involution remains intense, and the fertility rate still has not risen. South Korea has also carried out roughly 60 years of educational reform, attempting to reduce involution through various means, but without success. A key reason is that the most desirable opportunities are largely concentrated within large conglomerates and the civil service, and from a young age everyone competes fiercely for these limited pathways. This is why creating an environment that supports diverse development and expands opportunities is so important.

My third recommendation is to formulate forward-looking plans for immigration, a highly sensitive subject that nevertheless demands strategic forethought. The ongoing “talent wars” [抢人大战] among provinces and cities already reflect development anxieties at the local level; at the national level, therefore, [immigration] should not be ruled out as a possible move. Japan’s society is even more ethnically homogeneous than ours and was once almost entirely closed to immigration. Yet, faced with population ageing and low birth rates, it too has been compelled to gradually increase its intake of foreign immigrants.

In recent years, Japan has, in effect, already become a major destination for immigrants. In 2024, the Japanese government launched a new plan to increase the total number of foreign workers with specific skills to 800,000 over the next five years. China can certainly take this as a reference. Beyond attracting high-level talent, we could also consider specific sectors, such as the domestic service sector. While our per capita income is far lower than Hong Kong’s, the price of domestic services here is higher and the quality lower, largely because Hong Kong employs Filipino domestic workers. If our country wishes to consider large-scale immigration in the future, it would be advisable to prioritise countries with closer ethnic and cultural affinities, in order to mitigate potential social tensions. This topic is relatively sensitive and involves many layers of consideration, so I will not elaborate here. I hope our country can respond in a timely manner to the challenges of low fertility and population ageing and promote high-quality demographic development.

Today’s edition opens with an introduction by Kristin Shi-Kupfer, Professor for Contemporary China Studies at Trier University. Kristin is also a Senior Associate Fellow at the Mercator Institute for China Studies (MERICS). Following the conclusion of a joint University of Trier–MERICS project on Chinese debates, “China Spektrum”, Kristin’s most recent interdisciplinary project, “Chinaratrack”, focuses on analysing policy narratives across different Chinese media channels. Very grateful to her for contributing to this edition. — Jacob and Thomas

China has been pushing and applying artificial intelligence (AI) on a scale—and across a spectrum of domains—unmatched by any other country. Nevertheless, Chinese cadres, scholars and practitioners have raised concerns about the challenges posed by AI.

Chinese entrepreneurs have warned against the known and unknown harm of AI systems, with some even joining the international open letter calling for a pause in training advanced AI systems in March 2023. On platforms such as the Q&A forum Zhihu, Chinese internet users discuss scenarios in which AI turns against humans—sometimes even framed as a form of “salvation” amid a morally degenerate human society.

Taking a similarly critical stance on human nature, Tao Dongfeng offers a unique perspective on AI as both a path to, and tool of, a new techno-totalitarianism and fascism. This will come as no surprise to those familiar with Tao, a professor for contemporary Chinese language and literature with an extensive body of sharp-penned, politically liberal leaning essays and articles. In the context of Xi Jinping’s regime surveilling and cracking down on people like Tao, his essay is courageous, deeply moving and disturbing at the same time.

“If one wants to make someone submit to a certain ideology, a certain doctrine, or to the absolute rule of a certain ruler, and maintain absolute loyalty, there is no need for ideological education or threats of violence; simply implanting a tiny, completely invisible chip is sufficient.”

One may wonder how, and why, a sentence like this—indeed, an article like this—can be published and, at the time of writing, remain accessible on the Chinese internet. One explanation might be that the authorities want to observe how people comment on and react to it. Certainly, Tao is a master of “playing edge-ball” [擦边球] a metaphor for the skilful art of pushing the limits of what is politically permissible without crossing the boundaries.

Tao predominantly references foreign examples and works, including publications on Nazi fascism, and fiction such as Aldous Huxley’s Brave New World. The only direct Chinese reference is to the obviously absurd Cultural Revolution era claim that someone with a “proletarian worldview” should find cow dung fragrant and roses foul-smelling.

Picking up on Yuval Noah Harari’s question,“Why fascism is so tempting?”, he points to the disturbing nature of algorithms—and to the future troubles they may pose for democracies, offering common ground for the Chinese leadership without compromising on his viewpoints.

Tao’s authenticity and humility—on display at the very beginning of his essay with his humorous self-reflections—triumph over any AI system or one-party-dictatorship, because they ignite the soul’s capacity to overcome fear and despair.

— Kristin Shi-Kupfer

1. Algorithmic systems no longer merely observe what we do; they can also track emotional shifts and even bodily signals such as heart rate, enabling prediction and manipulation that can outstrip self-knowledge.

2. Technologies marketed as therapeutic fixes, such as the “sobriety chip” [戒酒芯片], can serve as a soft entry point for a new mode of governance.

3. Unlike classical ideological work, which operates through language, persuasion and coercion, AI-era governance can bypass consciousness and intervene at the level of physiology, sensation and feeling.

4. In Foucauldian terms, this can be understood as biopolitics [生命政治]: rule exercised through the administration and management of life itself.

5. Medicine and “health” become key instruments of power, entailing both the politicisation of life [生命的政治化] and the vitalisation of politics [政治的生命化].

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6. Nazi fascism shows how biopolitics can become lethal when political power fuses with biological rationales and governance becomes the “scientific” management of life and death.

7. Within this framework, technology does not replace political authority; it enables, amplifies and optimises it, allowing power to act with greater reach, efficiency and precision.

8. Brave New World offers a stable variant of such rule: order sustained not through repression alone, but through engineered satisfaction, emotional pacification and the erosion of genuine human bonds.

9. The core danger is not “technology” itself, but authoritarian power empowered by technology [技术赋能的极权主义].

10. As data replaces land and machinery as a resource of power, politics increasingly becomes a struggle over data flows, turning information concentration from a liability into an advantage.

Name: Tao Dongfeng (陶东风)
Born: July 1959 (age: 66)
Position: Professor, School of Humanities, Guangzhou University
Previously: Professor, Capital Normal University
Other: Editor-in-chief of the Cultural Studies (文化研究) series; Vice Chair of the Chinese Association of Literary and Art Theory
Research focus: Contemporary Chinese Literary Thought and Cultural Studies; Literary Theory
Education: PhD Beijing Normal University (1991); BA Zhejiang Normal University (1982)
Experience Abroad: Centre for Strategic and International Studies (CSIS) in Washington, D.C.; German Development Institute (Deutsches Institut für Entwicklungspolitik); India’s National Institute of Public Finance and Policy (NIPFP); Pakistan’s Institute of Strategic Studies Islamabad (ISSI)

TAO DONGFENG: BEWARE THE BIOPOLITICS OF THE AI AGE
9 December 2025
Tao Dongfeng (陶东风)
Published in Essays (随笔), Issue 6, 2025
Translated by Cherry Yu
(Illustration by OpenAI’s DALL·E 3)

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Algorithms can record precisely my every utterance and action, even every emotional fluctuation and every heartbeat. They understand me better than I understand myself. Such algorithms can not only predict each individual’s decisions but also manipulate their emotions.

Recently, I came across an “encouraging” [令人振奋] piece of news on a WeChat public account called News Breakfast: Hangzhou has completed its first implantation surgery of a “sobriety chip” [戒酒芯片], after which a recipient claimed that “seeing alcohol is like seeing plain water”.

I call this piece of news “encouraging” because I, too, struggle with alcohol [consumption] and often harbour thoughts of quitting. Although my dependence has not reached the point of drinking to excess every time, I do frequently end up drinking more than I should or getting tipsy. Given my family history of hypertension and heart disease, this behaviour is not merely unhealthy but life-threatening, effectively “playing with fire” [玩命]. Yet, as the old saying goes, “ingrained habits are hard to change” [积习难改]. If, as News Breakfast claims, implanting a chip can effortlessly and completely eliminate alcohol cravings, should one consider giving it a try?

If the “sobriety chip” pertains to the control and modification of physiological and lifestyle habits, then another equally “encouraging” piece of news touches on psychological and emotional regulation. Allegedly, a recent brain experiment conducted at Stanford University has demonstrated that AI combined with brain‑computer interfaces can treat depression: “As long as a ‘seed of happiness’ is planted in the brain, a person’s soul can be cured. In the age of AI, it is possible not only to shape the intelligence of the world, but also to completely control human emotions.” [Note: It is unclear which study the author is referring to here.]

This news also made my heart race [怦然心动]. Whether due to temperament or some other reason, I unfortunately find it hard to shake off negative emotions. I am not immune to what might be called a petty bourgeois sentimentality [小资产阶级情调], feeling moved to tears by the passage of time or saddened by parting, much like in the line, “where sorrow prevails, flowers weep; where parting pains, birds startle” [Note: 感时花溅泪，恨别鸟惊心, a line from Tang-dynasty poet Du Fu, commonly used to express heightened emotional sensitivity to political turmoil and personal separation].

Although it has not reached the level of clinical depression, I am still far from that “brave new world” of being happy every day. Should one try an AI-brain computer interface to sweep away one’s negative emotions once and for all, bidding farewell forever to anxiety, low mood, melancholy and resentment, and live forever in the “sunlit days” [阳光灿烂的日子]?

Modern technology is indeed astonishingly powerful [神通广大] and seemingly omnipotent [无所不能]. Today’s life sciences, artificial intelligence and digital technologies have developed to the point where they can, through methods such as chip implantation, genetic modification and organ transplantation, completely control or alter human skin colour, gender, bodily sensations, tastes and preferences, biological or natural attributes once thought to be bestowed by “Heaven” [老天爷] and merely accepted as given. Quitting alcohol or smoking has become a breeze [易如反掌]; altering sex or species is now a piece of cake [小菜一碟]; even eternal youth, immortality and perpetual happiness no longer appear to be pure myth.

But is this truly a desirable “brave new world”? Who can guarantee that it will not turn out to be an upgraded version of fascism in the age of AI?

The concept of “biopolitics”, first proposed by Swedish political scientist Rudolf Kjellén in the 1920s and later developed by Foucault in the 1970s, refers to the fusion of politics (the state) and life (the organism), signifying the politicisation of life (生命的政治化) or the biologicalisation of politics (政治的生命化). It describes how political power intervenes in the care and governance of life, becoming what is termed “biopower”. Biopolitical theory embodies the intersection and integration of biology (the theory of organisms) and political science (the theory of the state). Here, “life” typically does not refer to individual lives, but to life in the demographic sense of a state’s population.

In works such as Society Must Be Defended, Security, Territory, Population and The Birth of Biopolitics, Foucault pointed out that various signs in the eighteenth century indicated that the state had begun to treat the life of the entire population as an object of governance. At the same time, medicine moved beyond a purely professional concern with population health and became a tool for managing the population in line with the political needs of state development, a technology of power that Foucault termed “biopolitics”.

Nazism represents modern racist biopolitics, a form of biologised racism that transformed the historical discourse of racial struggle by assigning state power the responsibility for the life of the entire population. As Foucault noted in Society Must be Defended: “It is indeed the emergence of this biopower that inscribes [racism] in the mechanisms of the State”.

The primary function of this form of racism was “to introduce a break into the domain of life … [namely] the appearance within the biological continuum of the human race of races”—that is, to divide the population into the healthy and the disabled, those who should live and those who should die, on the basis of purported biological and medical criteria.

In the early years of Nazi rule, this biopolitical power was not primarily used to exterminate Jews, but rather to “deal with” [解决] those within Germany deemed “unworthy of life”. Through measures such as “forced sterilisation” and “euthanasia”, the regime accelerated the deaths of those regarded as “burdens” (whether physical or mental) to the nation and the race. These acts of killing were euphemistically described as “liberation”, “merciful death”, or “assisted dying”, and glorified as a grand historic undertaking [千秋伟业] for the “purification of the people”.

As documented by Götz Aly in Hitler’s Beneficiaries: Plunder, Racial War, and the Nazi Welfare State, between 1939 and 1945 approximately 200,000 Germans with disabilities or mental illnesses (labelled as “useless eaters” and “empty human shells”) fell victim to forced euthanasia, with an average age of forty-five.

Robert Jay Lifton’s The Nazi Doctors reveals that many of the “screeners for the life-and-death selection process” [生死队伍的筛选者] in Nazi concentration camps—those who decided which Jews should be sent directly to the gas chambers and which should be subjected to forced labour—were professional doctors devoted to science. They were also “the key figures behind various cruel human experiments” and “technicians who calibrated the lethal gas”.

They believed that both disabled Germans and Jews were the dregs of humanity, viruses, or bacteria, whose elimination was necessary for the improvement of human life. Framed in terms of national hygiene, this was presented not as discrimination but as science: a matter of state hygiene.

It is therefore hardly surprising that Nazi Minister of Propaganda Goebbels himself was an accomplished medical and biological scholar, or that SS Chief Heinrich Himmler went so far as to proclaim: “National Socialism is nothing but applied biology”. [Note: The passage reflects the regime’s habit of framing politics in biological terms; however, Goebbels was not a medical or biological scholar by training, and the ‘applied biology’ formulation is more commonly attributed to Rudolf Hess (1934) than to Himmler.]

From a biopolitical perspective, Nazi totalitarianism was not only committed to destroying the old world and creating a new one but was particularly obsessed with destroying the old human and creating a new one. As Hannah Arendt observed, the ultimate goal of totalitarian ideology is not to transform the external world or bring about revolutionary social change, but to transform human nature itself.

The “transformation of human beings” [改造人] involves no more than two aspects: the transformation of the body or physical being and the transformation of the mind or spirit. Eliminating old forms of life and creating new ones is undoubtedly a more radical utopian project than creating a new state or a new society.

The practice of ideological remoulding [思想改造] (the so-called “revolution in the depths of the soul” [灵魂深处闹革命]) has a long historical tradition, involving the transformation of people’s worldviews, political beliefs, objects of loyalty and emotional experiences. [Note: “revolution in the depths of the soul” is a Mao-era slogan referring to continuous, intensive ideological remoulding during mass political campaigns, aiming to enforce both ideological and emotional conformity]

Historically, however, such efforts largely remained at the level of language and consciousness, manifesting primarily as indoctrination and propaganda, without penetrating the physical, biological or corporeal level. The means employed were typically limited to carrots (inducement through benefits) and sticks (coercion through violence).

As for the actual effectiveness of this kind of ideological remoulding, I have always harboured doubts, for humans are, after all, creatures capable of lying. Who could truly know whether those who shouted “Heil Hitler” were not, in their hearts, cursing for his early death?

To take another example, during the Cultural Revolution there was an absurd claim that a person who had established a “proletarian worldview” [无产阶级世界观] ought to find cow dung fragrant and roses foul-smelling. If someone said that cow dung smelled bad, this meant that their thinking and worldview had not been properly remoulded and that they had yet to rid themselves of bourgeois tastes.

But if a person verbally declared that “cow dung smells nice”, had they truly been remoulded? Not necessarily. They were quite likely lying. At the physiological level, they still possessed a bourgeois sense of smell: cow dung still smelled foul to them—they simply dared not say so.

The mark of a thoroughly remoulded worldview, then, is not that one recognises at the level of consciousness or reason that cow dung is fragrant, but that one’s nose and sense of smell tell them that cow dung truly is fragrant (and that roses are foul).

For this very reason, ideological remoulding is a long, arduous, and perhaps even impossible process. As the Soviet writer Alexei Tolstoy wrote in the epigraph to The Eighteenth Year, the second novel in The Road to Calvary trilogy, the ideological remoulding of intellectuals requires being “soaked three times in clear water, bathed three times in blood, and boiled three times in lye”. [Note: Tolstoy opens the novel with this folk saying; the application to intellectuals is the author’s interpretation.]

The situation is now different. With advanced technological means at our disposal, all it takes is implanting a chip or injecting a certain substance into a person to fundamentally alter their biological and physiological attributes, including their sense of smell and other perceptions, not to mention their thoughts, beliefs or political stance. In this way, cow dung could be made to smell genuinely fragrant.

This represents the highest stage of ideological remoulding: completely transforming a person’s physiological structure, biological traits and bodily sensations. In other words, it grounds spiritual and intellectual transformation at the biological, physical and physiological level, thereby solidifying its material foundation, for thought without such a foundation has always seemed inherently unstable.

It is thus evident that high-tech methods such as chip implantation truly push ideological remoulding to the level of biopolitics. Foucault once defined the characteristic of biopolitics as the incorporation of human biological traits into political considerations, into the very core of political strategy and political power.

Achieving ideological remoulding through biological methods (a non-ideological approach) constitutes biopolitics in the age of AI and is also an upgraded version of fascism in the AI era.

If one wishes to make a person submit to a particular ideology or doctrine, or submit to the absolute rule of a certain leader with unwavering loyalty, there is no longer a need for indoctrination or violent threats. All that is required is the implantation of a chip so small as to be completely invisible.

In fact, the very situation we face today was already foretold with startling prescience by Aldous Huxley in his 1932 novel Brave New World.

This famous work of political satire (which is also a dystopian novel and a work of science fiction) depicts a chilling biopolitical landscape in a future world.

Set in the year 2532, the world Huxley portrays is one of highly advanced science and technology, abundant material comfort and a populace free from worries about food and clothing. People live in contentment, their every desire instantly and freely satisfied, and life unfolds amid “sunlit days”.

What is frightening, however, is that everything in this world is regulated, standardised, and homogenised. No one is permitted individual personality, emotion, personal belief or private morality, making genuine human connection non-existent.

There are no families here, nor any sexual relationships based on love. Individuals are not even allowed to choose their own sexual partners, as all partners are assigned at random.

What is particularly noteworthy is that this orderly “brave new world” is engineered through high‑tech means, especially biotechnology.

For example, in Brave New World, babies are entirely conceived in test tubes and cultivated in laboratories, eliminating the need for natural childbirth. From the embryonic incubation stage, individuals are biologically designated into five rigid social classes: Alpha (α), Beta (β), Gamma (γ), Delta (δ) and Epsilon (ε).

These constitute social strata akin to five rigid “castes”, fixed and unalterable.

Alphas and Betas are the highest ranks, trained to become leaders and elites who govern and control the other classes. Gammas form the ordinary tier, equivalent to common citizens. Deltas and Epsilons are the lowest and most degraded, intellectually limited and capable only of performing simple manual labour.

Before developing into embryos, fertilised eggs designated for the lower classes are subjected to large-scale replication through a method known as the “Bokanovsky Process” and only survive after undergoing a series of brutal “competitive” eliminations.

Likewise, scientific methods are used to endow each social class with fixed and immutable habits and preferences. Lower classes are not permitted to have higher-class tastes.

For instance, the novel describes a detail in which Delta and Epsilon infants are subjected to electric shocks when they touch flowers (a metaphor for beauty) so as to destroy their aesthetic capacity, as they are deemed unworthy of such ability.

This is a form of “education” (brainwashing) that combines violence with high technology.

Even more cruelly, the lowest Epsilons are kept in a state of chronic cerebral hypoxia through artificial means, turning them into docile, cognitively impaired labourers who remain content with a lifetime of low‑grade physical work.

Moreover, in Brave New World, people are not only assigned their social rank and behavioural patterns from birth, but administrators also employ so‑called “scientific” methods—such as test-tube cultivation, conditioning, hypnosis, sleep‑teaching and Pavlovian training—to exercise strict control over preferences of each caste. This ensures that they willingly and even joyfully adhere to their predetermined lifestyles, consumption patterns, social roles, occupations and even habitual tastes, forever shielded from any “negative” or “depressive” emotions.

Human emotions can also be controlled through a hallucinogenic drug called “soma”: whenever distress, pain or anxiety is about to arise, swallowing a tablet delivers instant euphoria. Every emotional problem is resolved with “soma”.

In short, in Brave New World, ideological education has moved beyond traditional indoctrination or coercion and has been replaced by biotechnology.

I refer to this startling vision of totalitarian rule as “biopolitics” precisely because governance here—including control over private life, thought, spirit, emotion and taste—is achieved through biological and medical means. This is biopolitics in its truest form: the politicisation of life and the vitalisation of politics.

Ideological education through language or other traditional disciplinary methods used in traditional societies finds no place, or has lost its effectiveness, in this world.

In his 2024 new book Nexus: A Brief History of Information Networks from the Stone Age to AI, Yuval Noah Harari introduces the concept of a “totalitarian network”, stating:

In his TED talk “Why Fascism Is So Tempting”, Harari again warns that fascism and dictatorial rule may return.

They will, however, appear in new guises, one that is “more relevant to the new technological realities of the 21st century”, such as digital and life-science technologies, and especially the convergence of the two.

Harari’s warning [in Nexus] rings out with a deafening force [振聋发聩], yet the so-called “[threat of] the totalitarian potential of nonhuman intelligence” ultimately remains a threat from humans, not from technology itself. After all, artificial intelligence and other forms of “nonhuman intelligence” are still human inventions and, to this day, remain under human control.

Therefore, the nightmare of network totalitarianism or digital totalitarianism that Harari describes is not merely technological or digital tyranny, but a convergence of technological and political totalitarianism—a form of totalitarianism empowered by technology. Its control over human beings is comprehensive: from politics to culture, from the body to the mind.

As Harari further notes, data are replacing land and machinery as the most important resource in today’s world, and politics has become a struggle over the control of data flows. Dictatorship today thus entails the concentration of vast quantities of data in the hands of a small number of power groups. Harari warns: “The greatest danger that now faces liberal democracy is that the revolution in information technology will make dictatorships more efficient than democracies”.

The concentration of information, long a principal limitation on authoritarian power, has in the present era ceased to be a constraint and may instead serve as its most formidable asset. In Nexus, Harari writes: “Suppose someone wants to know your political views. Your smartphone monitors which news channels you are watching and notes that you watch on average forty minutes of Fox News and forty seconds of CNN a day”. Algorithms can record precisely my every utterance and action, even every emotional fluctuation and every heartbeat. They understand me better than I understand myself.

Once such algorithms exist, an external power system, such as a government or a large corporation, can not only predict every individual’s decisions, but also manipulate their emotions. A dictator may be unable to provide high-quality public services yet still succeed in making us love him infinitely and hate his opponents infinitely.

If a government (or a corporation) understands me better than I understand myself and can manage all my behaviour and thoughts at the micro level, this amounts to a form of social control refined down to every single cell.

In Harari’s view, in an era where even every individual’s emotions and feelings can be controlled, democracy may struggle to survive. This is because, under such conditions, what liberal democracy’s adversaries are invading is no longer our email or bank accounts, but our emotions. They exploit our fear, hatred and arrogance, and then use these emotions to divide us and destroy democracy from within. This method in fact originated in Silicon Valley, where it was initially developed to sell products.

Now, however, the enemies of democracy use the same methods to sell us fear, hatred and arrogance. They cannot manufacture these emotions out of thin air [凭空制造], so they must first understand our weaknesses, then turn them against us. So what can we do today to prevent the return of fascism and the rise of new dictatorships?

Harari is neither a simple optimist nor an absolute pessimist. He still holds hope for democracy and rejects fatalism [宿命论] and inaction [不作为]: “It is a mistake, however, to imagine that just because computers could enable the creation of a total surveillance regime, such a regime is inevitable. Technology is rarely deterministic.”

In the twenty-first century, rapidly developing digital technology may indeed enable the continuous surveillance of all citizens, but this does not mean that states have no alternative choices. Harari points out that when it comes to such new surveillance technologies, “democracies can choose to use the new powers of surveillance in a limited way, in order to provide citizens with better health care and security without destroying their privacy and autonomy.”

Of course, this is not a task that technology alone can accomplish—it requires forces beyond technology.

This emphasis frames Yan’s assessment of the implications for “the West” of Trump’s newly revamped version of the Monroe Doctrine. Reflecting on what he regards as an “imperialist” and “semi-dictatorial” turn in the American polity, he concludes that the collective identity of the West is in steep decline and potentially heading for a fall—particularly if Trump follows through on his stated ambition to conquer Greenland. Attacking the territory of an allied state would dismantle the conceptual foundation of the Western alliance: the “democratic peace theory”, according to which democratic states do not attack one …

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Today’s briefing draws on a body of more than sixty articles and is followed by a short selection of views—representative, thought-provoking, or otherwise notable.

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This is the second part of our briefing on China’s end-of-year academic and policy discourse, focusing on society and economics where part one delved into foreign policy.

The end of 2025 produced many reflections from China on the nature and limitations of reform—both on the institutional and economic side.

In terms of institutions, the heterodox sociologist Zhao Dingxin uses his prior attempts at reforming Zhejiang University’s sociology department to analyse a pattern of institutional inertia: early attempts to increase one’s competitiveness by imitating the trappings of Western institutions eventually become an “irrational iron cage” that further weakens substantial progress. Lü Dewen notes a similar irrationality in the persistence of pandemic-era controls within the local government of an unnamed northern city, which persist out of stasis rather than genuine need.

The question of economic reform is currently dominated by the dilemma of how to boost services and domestic consumption…

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In contrast to this transactional view, Da Wei of Tsinghua’s CISS reappropriates the logic of the Cold War “Long Peace” to characterise a messier equilibrium of “mutually assured disruption”, which could eventually develop into a situation of more stable coexistence between the US and China. More confrontationally, Renmin University’s Jin Canrong frames the US-China competition in terms of a contest over networks of “friends”, emphasising the importance of China leveraging trade links for political influence and the cen…

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Today’s edition opens with an introduction from Rogier Creemers, an Assistant Professor in the Law and Governance of China at Leiden University. His research focuses on China’s digital technology policies and on the country’s growing role in global digital affairs. He is also a co-founder of DigiChina, a joint initiative with Stanford University and New America. Very grateful to him for his contribution to this newsletter. — Thomas

US-China technology rivalry is often viewed through the metaphor of a race. This can be attractive: it is a simple narrative within which a winner prevails at the end. Take the space race for example: the goal, as John F. Kennedy put it, was to put someone on the moon and return them safely to earth by the end of 1969.

In the current moment, however, a series of follow-up questions arises immediately. In an AI race with China, for instance, where is the finishing line? What is the prize? How do we know what “winning” means, and how do we get there? Unsurprisi…

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Sinification has grown tremendously this year and there’s much more to come. We look forward to bringing you many more fascinating translations, exclusive interviews, valuable monthly digests and essential hot-topic briefings in 2026.

We hope you’ve had a wonderful year and that you’ve enjoyed exploring these ideas as much as we’ve enjoyed curating and translating them.

— Jacob Mardell

In February, Sinification republished a censored interview with the prominent historian Xu Jilin (许纪霖).

In a country that relentlessly promotes “positive energy” and patriotic fervour, Xu’s depiction of the “post-90s” (90后) and “post-00s” (00后) generations as politically apathetic Epicureans is appealingly discordant. Shadowed by insecurity and ennui, Xu’s youth care more about individual rights, self-centred interests and emotional needs than they do about China, politics or any of their country’s “grand narratives”.

Xu: “What we are witnessing today is the beginning of a new cycle, the onset of a new era of disorder [乱世的来临]. This kind of phenomenon tends to be observed in such periods of turmoil; it is practically a historical law [一个规律]. However, this new cycle is just beginning, and I do not expect it to be short. We had an era of revolutionary zeal [热血沸腾的革命年代] before, and though it is probably not gone forever [不能说一去不复返], it is unlikely to return any time soon.”

Read more here.

In March, Thomas interviewed Mao Keji (毛克疾), an up-and-coming India specialist at China’s influential National Development and Reform Commission (NDRC).

Mao’s takes, including his comparison between the Trump administration and the Cultural Revolution, are highly engaging and the interview offers a fascinating insight into the worldview of a young, establishment-adjacent but unusually expressive analyst.

Mao: “From a dialectical perspective, the most beneficial thing Trump did for China during his first term was launching the trade and tech war. This was a wake-up call that made China realise the urgency of developing independent and controllable technological pathways [技术路线] and accelerating its transition towards smart technologies [智能化].”

Read more here.

III. Why China Is Winning the Chip War Against the U.S.

Also in March, Sinification had the honour of publishing a piece introduced by the wonderful Kyle Chan, who writes the newsletter High Capacity.

The essay, by He Pengyu (何鹏宇), argues that the “chip war” story isn’t just about cutting-edge nodes. Kyle’s introduction, worth reading in its own right, also generalises the lesson that latecomers can sometimes “overtake on the curve” in an evolving industry.

He: “Since the U.S. has imposed a "chokehold" on advanced chips, China could likewise apply a “chokehold” on traditional chips as a strategic countermeasure [中国也可以对等在传统芯片“卡脖子”，形成战略反制]. China can also continue to develop and strengthen its domestic [chip] supply chain [做大本土产业链], keeping traditional chips as its foundation.”

Read more here.

IV. Russia-Ukraine War: Why China Chose Interests Over Values by Cheng Yawen

In April, Sinification translated a piece by Shanghai International Studies University scholar Cheng Yawen (程亚文), arguing that, on the topic of Russia’s invasion of Ukraine, China can’t afford “values-first” posturing. Survival and great-power balance have to come before moral grandstanding.

The piece is an unusually insightful window into the strategic pressures that influence Beijing’s support for Russia, which Cheng frames as dictated by a hard-nosed strain of PRC realism. The essay is also rich in historical analogy.

Cheng: “Between interests and morality, a nation must first consider its interests, because, for a nation, survival is paramount. Individuals may “sacrifice their lives for righteousness” [杀身取义，舍身成仁 , a quote from Confucius’s Analects], but a nation cannot afford to do so. A nation that cannot even guarantee its own survival has no place to bluster about morality [奢谈道义是没有意义].”

Read more here.

V. Industrial Maximalism: Lu Feng on Manufacturing, AI and US-China Rivalry

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Finally, we bring you another strong tech piece introduced by Kyle Chan. Published in June, this newsletter translates an interview with the renowned professor Lu Feng (路风).

Rejecting narratives of industrial “overcapacity”, Lu argues that what China needs is more industrial development, not less. For Lu, a broad industrial base is both a source of national strength and a driver of technological innovation—an argument that seems to explain and flesh out Beijing’s policy instincts.

Lu: “As long as China stays committed to the path of industrialisation, insists on “broad-based” [基础广泛] industrial upgrading, and maintains a socialist system that guarantees financial support for the real economy, Trump will find himself trapped in an irresolvable paradox [无解的‘悖论’].”

Read more here.