Services without Deindustrialisation and Japan’s Chip Leverage | Society and Economy Digest (December 2025)

State and Society | Chinese Economy | Technology (Chips and AI) | Renminbi Internationalisation and the Dollar | Stablecoins and E-CNY

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 without weakening China’s structural advantages in manufacturing and investment. This debate generally takes place within the bounds of a wider consensus on the need for a transformation of China’s prior high-speed development model.

On the one hand, Tsinghua’s Sun Liping diagnoses a “circulation blockage” in the Chinese economy between the capital-intensive “upper body” of high-tech manufacturing and the employment-and-consumption needs of the “lower body”, with Qian Junhui analysing how low consumption of services has become the main drag on the Chinese economy. The Hayekian economist Zhang Weiying critiques presentations of a distinct “China model” as an epistemic trap harmful to China’s future reform.

From the opposite perspective, Renmin University’s Yang Guangbin is wary of the financialisation and deindustrialisation that previous global economic powerhouses once underwent, while researcher Chen Chen argues that any shift towards services in the economy must be embedded in China’s manufacturing supply chains in order to prevent their loss. Another Renmin University professor, Mao Zhenhua, is sceptical of the short-term success potential of expanding domestic demand, and argues China must strengthen its shaping of global trade rules to protect its exports.

Gu Wenjun’s analysis of AI and chipmaking trends looks at China’s strategic response to the removal of H200 controls and the risk of Japan targeting China’s chipmaking by placing export controls on photoresists. Hu Yanping cautions against drawing too much satisfaction from bubble narratives around the US AI sector, while Lin Boqiang suggests China’s advantage in AI is its ability to marry clean energy with grid efficiency for supporting data centre growth.

Narratives on RMB internationalisation and US dollar hegemony grapple with the dilemma of current structural constraints on renminbi internationalisation alongside a perceptible weakening of the dollar. Gold is presented as the main alternative to dollar holdings in the near term, as China seeks to reduce its dollar exposure in the face of implosion risks and the expected possibility of financial sanctions. In the absence of major financial liberalisation, a “one country, two currencies” system built around Hong Kong and Shanghai’s financial centres is proposed as a way to improve the renminbi’s global convertibility.

Finally, analysts note that the People’s Bank of China’s upgrading of the digital renminbi’s functions will optimise monetary regulation and provide a digital currency alternative to dollar stablecoins without compromising sovereignty—resolving a debate which we analysed in September last year.

—James Farquharson

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1. State and Society:

   1. Zhao Dingxin on why institutional reform in China tends to drift from competitive imitation to hollow legitimacy-seeking.

   2. Lü Dewen on how pandemic-era controls have quietly turned into everyday governance practice.

   3. Ma Rong on the dangers of populist online history narratives surrounding the Ming and Qing dynasties.

2. Chinese Economy:

   1. Sun Liping on the structural blockages lying beneath China’s high-tech success and everyday economic malaise.

   2. Qian Junhui on how China’s high savings rate and inflated property values transformed from a growth engine into a drag.

   3. Luo Zhiheng on the signals that expanding domestic demand will be a top strategic priority in 2026.

   4. Zhang Weiying on how presenting the PRC’s growth story as a “China Model” weakens domestic reform and distorts global perceptions.

   5. Cai Fang on inequality reduction as a key driver of consumption-led growth.

   6. Yang Guangbin & Wan Zeyu on China’s bid to avoid the institutional capture by finance and deindustrialisation of previous world powers.

   7. Chen Chen on why any shift of the Chinese economy towards services must remain embedded in the manufacturing sector.

   8. Mao Zhenhua on the need to double down on Chinese exports and tighten global linkages during the long process of domestic demand expansion.

   9. Lin Yifu on the future of economic interdependence in the Sino-US relationship.

3. Technology:

   1. Gu Wenjun i) on the limits to Japan’s semiconductor materials leverage and why cut-offs remain unlikely; ii) on managing dependency risks while accessing Nvidia’s H200s.

   2. Hu Yanping on AI “bubbles” and China’s currently missing foundations for long-term AI competitiveness.

   3. Lin Boqiang on AI–green energy integration as a distinct avenue for Chinese success in the global strategic competition.

4. Renminbi Internationalisation and the Dollar:

   1. Miao Yanliang on gold’s rise and fractures within the dollar system.

   2. Yu Yongding on reducing China’s exposure to dollar assets.

   3. Wu Xiaoqiu on credibility gaps constraining ambitions for China to become a global financial centre.

   4. Cui Zhiyuan on the likely shift from a trade war to a financial war and alternatives to dollar dominance.

   5. Luo Kangrui on establishing a dual-centre renminbi architecture in Shanghai and Hong Kong for Belt-and-Road finance.

5. Stablecoins and E-CNY:

   1. Gao Huasheng on upgrading the Digital Yuan to a deposit-based currency, responding to dollar stablecoins without compromising financial stability.

   2. Wang Yongli on preserving sovereignty and monetary order through strengthening the Digital Yuan.

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1. State and Society

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Zhao Dingxin (赵鼎新): China’s reform experience shows a pattern whereby technically enforceable rules and practices can be superficially introduced (“thin mimesis” [薄同构]), while deeper changes, which require changes to institutional culture and underlying political arrangements, tend to falter. Using the tenure-track reform of Zhejiang University [Note: where Zhao previously directed and carried out reforms to the sociology department, resulting in an institutional backlash and high-profile controversy] as a case study, one observes that performance-oriented competitive imitation of institutional modes easily transforms into a legitimacy-seeking “irrational iron cage” [非理性铁笼] where layered procedures, repetitive anonymous voting and administrative intrusion weaken peer authority and hollow out substantive evaluation. – Director, Centre for Advanced Studies for Humanities, Zhejiang University (《二十一世纪》, Issue 5)

Lü Dewen (吕德文): In an unnamed city in northern China, pandemic-era controls have passed into routine governance, with “leaving-the-city reporting” [离城报备] outside public holidays and similar restrictions institutionalised through bureaucratic inertia and risk-avoidance rather than clear functional need. Enforcement is slack in normal times but tightens abruptly under inspection, creating an arbitrary compliance regime whereby approval sometimes needs to be obtained at three different administrative layers. Though convenient for the state, the tendency risks solidifying a social psychology where closure and permanent vigilance are deemed normal. – Professor, School of Sociology, Wuhan University (观察者网, 30 December)

Ma Rong (马戎): Recent online narratives such as the “1644 historical perspective” [1644史观] and “lament for the Ming theory” [悼明论] [Note: A popular online reading of the Qing dynasty-era classic Dream of the Red Chamber partially based on early 20th-century scholarship] recast the Ming-Qing transition as a rupture in Chinese civilisation and risk undermining modern conceptions of ethnic solidarity, national unity and territorial integrity. These views rest on a category error that projects modern nationalism onto premodern dynastic change and obscures the “correct historical view” of “pluralistic unity” [多元一体] arising from China’s long process of civilisational integration, overlooking that “Chinese-Barbarian” [华夷] distinctions in Chinese history primarily marked ethical-cultural differences rather than fixed ethnic frontiers. – Boya Chair Professor, Department of Sociology, Peking University (环球网, 22 December)

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2. Chinese Economy

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Sun Liping (孙立平): Widespread public pessimism and low confidence reflect a genuine post-pandemic structural downturn, not a popular “illusion” [错觉]. A sharp bifurcation has emerged: rapid high-tech upgrading and globally competitive supply chains coexist with visible malaise in jobs, incomes and street-level commerce, rooted in “broken circulation” [无法实现循环] between the capital-intensive “upper body” [上半身] and the employment-and-consumption “lower body” [下半身]. In the context of deflation and overcapacity, policy tools such as traditional stimulus and monetary “pumping” [大水漫灌] are increasingly ineffective, so the priority is structural “repair” [修复] of circulation linkages to rebuild growth mechanisms. – Retired Professor, Department of Sociology, Tsinghua University (老孙荐读, 28 December)

Qian Junhui (钱军辉): China’s persistently high savings rate has flipped from a driver of capital accumulation into a macroeconomic drag [拖累], as income inequality and high housing costs suppress consumption, thereby intensifying “involution” [内卷] and deflation. Despite the property slump, house prices remain high relative to average incomes and contribute to the situation of “forced savings”. Rebalancing requires timely action to raise disposable income through expanded rural pensions and public services while improving housing affordability through mortgage support and tax deductions. – Professor, Antai College of Economics and Management, Shanghai Jiao Tong University (财新, 17 December)

Cai Fang (蔡昉): Unequal access to housing, education, healthcare, and social security raises precautionary saving and suppresses consumption among lower- and middle-income urban households, so that “sharing the cake” [分好蛋糕] becomes a mechanism for “growing the cake” [做大蛋糕]. Removing the constraints of inequality on the economy requires raising labour income shares, expanding progressive taxation and transfers, equalising public services, and investing in human capital and lifelong training. – Chief Expert, National High-End Think Tank(s), Chinese Academy of Social Sciences (New Economist, 18 December)

Luo Zhiheng (罗志恒): China’s 2026 macro stance is set to elevate the building of a strong domestic market to the top strategic priority, continuing a “more proactive and effective” [更加积极有为] fiscal posture with a moderate loosening of monetary policy. New targeted tools might include shifting “trade-in” [以旧换新] subsidies for goods consumption to services support, exploring a central Property Stabilisation Fund [房地产稳定基金] for land and real estate, and mobilising SOE resources via “state assets–fiscal–social security” linkage reform [“国资—财政—社保”联动改革] to shore up pensions without increasing direct fiscal outlay by the state. – Chief Economist & President, Yuekai Securities Research Institute (财新, 8 December)

Zhang Weiying (张维迎): “China model” interpretations that attribute China’s economic success to a strong state, dominant SOEs and industrial policy have fed misreadings of China’s economic success and exacerbated a hostile international environment. In fact, inter-regional data linking stronger private-sector development and reform to faster growth and innovation show that marketisation and learning from accumulated global technology were the main drivers of China’s economic success—similarly to previous rising economies. Mis-representing these drivers as a unique Chinese success story is doubly corrosive, both pushing domestic policy towards strengthening SOEs and doubling down on industrial policy, as well as heightening international wariness of China. – Boya Distinguished Professor, National School of Development, Peking University (智观社科, 3 December)

Yang Guangbin (杨光斌) & Wan Zeyu (万泽雨): Throughout history, cyclical hegemonic decline has been triggered when financial interests capture politics and institute a “shift from the real to the virtual” [脱实向虚] that drains industrial competitiveness. The empires of Spain and Britain both exhibited a policy pattern of pulling capital out of industry and into finance, with the result that financial power captured political power. The US has displayed a similar tendency in recent history, but China’s modernisation trajectory—through policy guidance, regulation and long-horizon “patient capital” [耐心资本]—targets new quality productive forces to upgrade manufacturing while avoiding the “self-disarmament” [自废武功] of deindustrialisation. - Dean, School of International Studies, Renmin University of China; PhD Candidate, School of International Studies, Renmin University of China (观察者网, 17 December)

Chen Chen (陈琛): Any shift from manufacturing to value-added services must ensure that services stay tightly anchored in manufacturing value chains, with historical experience from the US showing the effects of excessive service-orientation [过度服务化] in hollowing out industrial capability. Heeding this lesson, China’s most competitive manufacturers are upgrading by deepening value-chain specialisation and adding digitally enabled services that enhance product performance as “production-oriented services” [生产型服务业]. Policy priorities lie in guarding against de-industrialisation and building global service networks to support manufacturing. – Director, Advanced Manufacturing Development Research Institute, Machinery Industry Information Research Institute (CWM50, 16 December)

Mao Zhenhua (毛振华): Export resilience is anchored in China’s complete industrial chain and scale capacity, reinforced by firms’ overseas footprint deepening the binding between domestic industry and global markets. Consolidation requires continuously optimising the external trade environment through stronger soft power in international rules and standards-setting and expanded professional service capacity. Given the likely slowness of expanding domestic capacity, Chinese firms “going out” [出海] and setting up production abroad will be a crucial component of tightening global trade linkages and supporting domestic growth. – Co-Director, Institute of Economic Research, Renmin University (中国宏观经济论坛, 29 December)

Lin Yifu (林毅夫): The ongoing “great changes unseen in a century” [百年未有之大变局] mark an economic power transition from a G8-weighted order toward a G20-centred governance reality, a transformation that will stabilise once China has reached roughly half of the US’s per-capita GDP. This will translate into an economy with mobilisable resources about twice that of the US, narrowing the scope for effective chokepoint constraints and eroding the practical edge of US technological dominance. The logic of trade will thus shift from rivalry to dependence and mutual benefit, making access to China’s demand a core profit condition for US firms and turning a larger China into a valuable trade partner for the US. – Dean, Institute of New Structural Economics, Peking University (New Economist, 12 December)

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3. Technology

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Gu Wenjun (顾文军): Although raw trade data suggests that Japan’s grip over photoresists and other critical semiconductor materials poses a threat to China, the risk of Japan cutting off exports is mitigated by certain factors. Alternatives are emerging as European, South Korean and US firms are scaling supply, China has increased its resilience through years of technological pressure, and Japan’s economic interdependence with China is likely to lead to Japanese restraint. In the interests of “worst-case scenario thinking” [底线思维], however, China should diversify its sourcing to South Korea and Europe, build up strategic inventories, carry out multi-path R&D mobilisation rather than picking a few winners, and further encourage foreign suppliers to localise in China. – Chief Analyst, ICwise (芯谋研究, 8 December)

Gu Wenjun (顾文军): The US approval of Nvidia’s H200 AI chip exports to China signals a strategic recalibration to managed access, presenting China with both immediate opportunities and long-run dependency risks. In the short term, imports would alleviate critical compute shortages for AI end-users but simultaneously apply competitive pressure on domestic chipmakers like Huawei’s Ascend, necessitating strict import controls to prevent market disruption and protect China’s “domestic substitution industrial chain” [国产芯片替代产业链]. The deeper, structural challenge lies in resolving bottlenecks in domestic manufacturing equipment and building an independent software ecosystem comparable to CUDA. – Chief Analyst, ICwise (财新, 15 December)

Hu Yanping (胡延平): AI “bubbles” are a sign of capital’s forward-looking nature rather than irrationality: though the development of AI is an “endless frontier” [无尽的前沿] that will unfold over decades, its current stage of development is one of “sink or swim” [要么升维发展，要么降维依附]. The long-term success of an economy in adopting AI is shaped by its ability to concentrate resources and allow “long innovation” [长创新]—thus is the reason for the success of US tech firms and something which China currently lacks. To create the conditions for long-term growth and innovation, China needs growth in SMEs and genuine “upward mobility opportunities” [跃迁机会] for young people. – Professor, Digital Economy Research Institute, Shanghai University of Finance and Economics (盘古智库, 15 December)

Lin Boqiang (林伯强): The integration of AI and green energy is a strategic imperative under China’s “energy power construction” [能源强国建设] mandate and a core arena in the strategic US-China competition over computing power, energy use and decarbonisation. The current constraints lie in AI’s soaring computational demand and renewables’ grid volatility, and an outdated energy consumption structure. In response, China should leverage its strong power system and manufacturing base to facilitate a mutually reinforcing cycle [互促的循环] where AI improves green-power production and grid efficiency, while green electricity reliably supports AI growth [AI 赋能绿电生产、绿电支撑 AI 发展]. – Dean, China Institute for Energy Policy Studies, Xiamen University (环球网, 16 December)

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4. Renminbi Internationalisation and the Dollar

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Miao Yanliang (缪延亮): Gold’s surge and its apparent “de-anchoring” [脱锚] from US real-yields do not herald a return to the gold standard, but signal a widening split in confidence within the dollar-centred system and the early contours of a multipolar currency system. The resulting “one gold, two worlds” [一个黄金，两个世界] paradigm sees dollar-trusting economies continuing to treat Treasuries as the core safe asset, while de-dollarising actors accept the opportunity cost of holding gold as an insurance premium against financial weaponisation and reserve-asset vulnerability. – Chief Economist, Research Department, China International Capital Corporation (中金点睛, 10 December)

Yu Yongding (余永定): The unsustainable US “twin deficits” in its budget and current account reflect a debt-dependent model resembling a Ponzi scheme, whose eventual confidence shock could trigger a dollar crisis with global spillovers. For China, the key issue is structural exposure to the dollar system, as its persistent trade surpluses signal competitiveness yet also deepen external dependence. Avoiding a dollar trap therefore requires early contingency planning [未雨绸缪], accelerating the shift toward domestic-demand-led growth under the “dual circulation” strategy and reducing reliance on the US market through more expansionary fiscal policy. - Director, Institute of World Economics and Politics, Chinese Academy of Social Sciences (爱思想, 21 December)

Wu Xiaoqiu (吴晓求): China’s ambition to become a global financial centre is constrained by credibility gaps, specifically limited transparency, uneven rule fairness and weak legal enforcement, preventing RMB assets from acquiring the liquidity and trust for global competitiveness. While recent regulatory moves mark progress, closing the gap requires sustained, rules-based reform that “clears mines” [扫雷] through enforceable rules and credible judicial punishment, so that RMB internationalisation can rest on trusted pricing and predictable governance rather than episodic policy support. - Professor, School of Finance, Renmin University of China (经济观察报, 29 December)

Cui Zhiyuan (崔之元): As the US tariff campaign runs into supply chain constraints and mounting self-harm, its strategic pivot will likely be from a trade war to a financial war that targets cross-border capital and tests the dollar’s value storage function. China’s strategic response should be to reduce dependence on US Treasury markets by developing a BRICS bond fund system to create a reserve-like alternative to the dollar. This will gradually weaken the dollar’s monopoly as a value store and advance a genuinely multipolar international monetary system. - Professor, School of Public Policy and Management, Tsinghua University (文化纵横, 16 December)

Luo Kangrui (罗康瑞): Belt and Road financing increasingly points to the need for expanded non-dollar financing channels and greater renminbi internationalisation. With full renminbi convertibility unlikely in the near term, a dual-centre architecture is proposed in which Shanghai anchors onshore RMB issuance and cross-border financial instruments, while Hong Kong provides offshore convertibility, legal certainty and capital mobility, enabling a “one country, two currencies” [一国两币] investment platform. – Chairman, Shui On Group (底线思维, 3 December)

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5. Stablecoins and E-CNY

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Gao Huasheng (高华声): The 2.0 roll-out of China’s digital renminbi (e-CNY) is deposit-based [存款化]: the e-CNY can now accrue interest, is partially reserved rather than fully reserved, is recorded on commercial banks’ balance sheets and protected by deposit insurance. As a central bank digital currency, this strengthens the regulatory capacity of the central bank and sidelines non-bank actors, in contrast to US dollar stablecoins which optimise liquidity and cross-border operability but lack comparable public governance and crisis-stabilisation capacity. Reform to the e-CNY signals not a blanket rejection of stablecoins, but a refusal to outsource monetary sovereignty, with coexistence confined to clear and regulated functional boundaries. - Vice Dean, International School of Finance, Fudan University (复旦金融评论, 31 December)

Wang Yongli (王永利): China’s firm rejection of stablecoins reflects a strategic decision to avoid replicating the US dollar-centric model and instead prioritise a deposit-based digital renminbi. With dollar stablecoins already dominating global crypto markets, renminbi stablecoins would offer limited practical advantage and risk subordination to US-controlled infrastructure, undermining capital controls, tax enforcement and monetary sovereignty. By contrast, accelerating the e-CNY’s regulated deployment at home and abroad offers a more secure development path, preserves national financial security, and positions China to contribute to a more orderly and balanced international monetary system. – Senior Research Fellow, Chongyang Institute for Financial Studies, Renmin University of China (人大重阳, 6 December)

SINIFICATION’S DECEMBER POSTS IN REVIEW

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