Today, I’m happy to announce that I have partnered with Global Dispatches to offer a special benefit: paid subscribers to Sinica can now get a 50 percent discount on a one-year subscription to Global Dispatches. I’m delighted to share that the proceeds from this partnership will be divided between the two of us.

This collaboration is part of the NonZero Network, of which both Mark and I are proud members.

To kick off our new partnership, before I head back to Beijing this weekend, and before I pack my computer up, Mark and I will be sitting down for a livestream today at 12:30 PM EDT. We’ll be having a wide-ranging dialogue about how China is responding to its fast-changing international environment, including its evolving strategic relationships in the region and its shifting posture on the global stage.

Paid subscribers to Sinica can take advantage of the special Global Dispatches offer —and I hope to see you on our livestream later today!

I want to highlight one more thing I’m particularly excited about: once I land back in Beijing, I’ll be publishing a nearly two-hour interview with our colleague, Robert Wright, regarding his forthcoming book, The God Test: Artificial Intelligence and Our Coming Cosmic Reckoning. It’s a fascinating conversation, and not surprisingly, it has quite a bit to do with China’s trajectory in the coming years.

• Beijing has famously deployed these levers as retaliatory weapons in its tech war with Washington.

But there’s a parallel, less headline-grabbing export control system that rarely makes the news.

• And new research from some of China’s top state scientists suggests that Beijing’s senior technical advisors are fundamentally rethinking how China manages its industrial technology exports.

The details: The paper — titled “Framework and Empirical Study on the Selection Framework of Export-Restricted Technology in the China-U.S. Technology Landscape” — was published in March by researchers from four of China’s leading government-affiliated science and engineering institutes.

• The South China Morning Post brought public attention to it in a June 1 report.

To be clear, this is a technical research paper; it is not official government policy.

• But in China’s Political system, research like this doesn’t get published unless leadership wants options on the table.

• We therefore expect it to directly inform the highest levels of debate on export control strategy.

To understand why this matters, it helps to understand the distinct purposes that China’s parallel export control systems serve.

The first system is the one that makes headlines: The dual-use export control system, established under the 2020 Export Control Law.

• This is the mechanism Beijing has used to impose retaliatory restrictions on critical minerals and materials amid U.S.-China trade tensions — a tool of economic statecraft deployed in pursuit of geopolitical objectives.

The second is far less well known: The industrial technology restriction system, which has been quietly operating since 2001.

• Governed by a document called the Catalogue of Technologies Prohibited or Restricted from Export, this system manages civilian technologies — process know-how, licensing, and technical transfers — wherever they are relevant to China’s industrial competitiveness.

• Think advanced cathode production, high-value crop breeding techniques, and cutting-edge metallurgy.

• Critically, most technologically advanced economies, including the U.S., have similar mechanisms.

• This is routine industrial policy, not economic warfare.

The new research focuses entirely on the second system — and its diagnosis is blunt.

• China’s management of the Catalogue is, in the authors’ own words, “weak.”

• The system is opaque, slow, and more reactive than strategic.

• That was perhaps acceptable when China was still catching up technologically. But it is no longer acceptable now that China has become a global leader in frontier technologies — and faces what the authors describe as “systemic suppression” and “comprehensive containment” from the West.

The solution the researchers propose is a structured, three-test framework for deciding which technologies should be restricted — explicitly modelled on how the U.S. manages its own technology export controls.

Under the proposed framework, a technology earns a place on the restricted list only if it clears all three tests.

• Necessity: Is the technology strategically important to China, and does China genuinely lead the world in it? Both must be true.

• Feasibility: Is the technology mature enough to actually control, and can buyers not easily source it elsewhere? Again, both must hold.

• Impact: Would restricting it cost China more than its rivals in lost innovation, jobs, or trade?

It is a rigorous framework that prioritizes leverage over reflexive protectionism. A technology only gets restricted if China actually leads in it, if the restriction is enforceable, and if the costs to China are manageable.

• That last test is a built-in check against the kind of overreach that would harm China’s own innovators and exporters.

In a pilot implementation, the researchers identified 63 technologies where China either leads or is contending for global leadership.

• Technologies were categorized into three tiers: “urgent” candidates for near-term restriction, “forward-looking” technologies worth monitoring, and “reserve” technologies not yet ready for controls.

So could the results of this pilot indicate how Beijing will govern future industrial technology export controls, as it looks to lock in future industrial advantages?

• Well, maybe — but there are important caveats.

First, the pilot was incomplete.

• Recall that the three-test framework requires each technology to clear three hurdles: necessity (strategic importance to China plus Chinese global leadership), feasibility (technological maturity plus limited substitutability elsewhere), and impact (net cost to China of imposing controls).

• In the pilot, the researchers could not assess substitutability or impact due to time and data limitations.

• That means the 63 technologies identified are not a rank-ordered menu of proposed new controls, even by the authors’ own standards.

Second, it’s critical to note that the logic under which the researchers propose this framework — preserving China’s industrial competitive advantages — is fundamentally different from the logic that drives China’s retaliatory dual-use controls on critical minerals.

• Those latter controls are geopolitical weapons, and their use is assessed on the basis of a given material’s strategic importance to other countries, often as a form of retaliation.

• That means anyone trying to predict what comes next in China’s retaliatory toolkit should not be reading this research as a guide.

But what the research does tell us is something genuinely important: China’s approach to protecting its industrial technology base is being rethought from the ground up.

• The framework being proposed openly reverse engineers the U.S.’s own approach, and may signal that Beijing intends to be far more systematic and forward-looking about where it draws the line for industrial tech export controls.

That means, while this research is not a list of controls to come, it is a serious public signal that the governance logic underpinning China’s industrial technology export controls is changing — and that the 63 technologies identified by China’s own experts as areas of strength are exactly where foreign companies and governments should be paying attention.

Cory Combs, Head of Supply Chains and Critical Minerals Research, Trivium China

What you missed

U.S.-China

On May 30, U.S. Defense Secretary Pete Hegseth delivered a speech at the Shangri-la Dialogue (SLD) in Singapore.

• Beijing couldn’t have asked for a more gratifying speech: Hegseth’s language on stability mirrored Xi Jinping’s own rhetoric on U.S.-China relations and his non-mention of Taiwan suggests Trump is taking China’s concerns seriously.

On Tuesday, the office of the U.S. Trade Representative (U.S.TR) announced the results of its Section 301 investigation into the alleged failure of 60 U.S. trade partners to prevent the import of products made with forced labor — with China being subject to a 12.5% tariff rate as a result.

• China’s foreign ministry didn’t mention potential Chinese countermeasures, likely due to the understanding Beijing reportedly reached with Washington about maintaining tariff rates at or below the levels agreed at the Busan meeting in October.

Foreign affairs

On Thursday, EU Trade Commissioner Maroš Šefčovič met with China’s top trade negotiator Li Chenggang in Paris.

• Šefčovič said that the EU planned to engage in “meaningful discussion” with Beijing to address “what is becoming an unsustainable trade deficit with China.”

On Tuesday, British Foreign Secretary Yvette Cooper kicked off a three-day visit to China.

• Anglo-Chinese relations had a breakthrough back in January when British Prime Minister Keir Starmer paid a visit to Beijing — Cooper’s visit was more about making sure the ice stays broken rather than major deliverables.

Econ and finance

Beijing is massively underestimating the scale of local government hidden debt.

• Huaxi Securities estimated that by March 2023, total interest-bearing debt of local government financing vehicles (the main holders of hidden debt) stood at RMB 54.7 trillion — 3.8 times the hidden debt level recognized by Beijing.

In May, local governments issued RMB 141 billion worth of infrastructure special-purpose bonds (SPBs), down 59.1% y/y, marking the third consecutive month of decline.

• The continued slump in infrastructure SPB issuance does not bode well for the Q2 infrastructure investment print, adding another downside risk to an economy already reeling from the Iran war.

Corporates

SAIC — China’s second-largest automaker — is building a EUR 200 million auto plant in Galicia, Spain.

• The plant is expected to produce up to 120,000 vehicles annually under the MG brand when it comes online in 2028.

Business environment

China’s listed firms are being forced to pay back taxes — so far in 2026, 69 listed companies have disclosed that they owe back taxes, totaling over RMB 4.9 billion.

• Cleaning up the myriad local government tax breaks will help weed out the unproductive overcapacity that bedevils many sectors.

• However, a government retroactively demanding money from firms will not help business confidence.

China has established its first comprehensive national framework for overseeing outbound direct investment (ODI), replacing a patchwork of lower-level ministerial rules.

• The rules explicitly authorize Beijing to take countermeasures against discriminatory foreign restrictions on Chinese investment, as well as against foreign organizations or individuals that “unreasonably” restrict their legitimate overseas investment rights.

Agriculture and rural affairs

The State Council published the 15th Five-Year Plan (FYP) for Accelerating Agricultural and Rural Modernization on Tuesday.

• The plan calls to “significantly improve the level of self-reliance in agricultural science and technology and make major breakthroughs in developing new agricultural productivity” by 2030.

Politics

On Tuesday, the Party’s disciplinary commission (CCDI) announced that Li Xiaohong, former head of the office of the Central Leading Group for Inspection Work, is under investigation for “serious violations of discipline and law.”

• As former head of the office of the CCDI, Li ran the machine that drove then-CCDI head Wang Qishan’s anti-corruption campaign between 2012 and 2017.

• Our question: Is the net closing in on Wang Qishan himself?

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.

Our phrase of the week is: “a crushing blow” (当头一棒 dāng tóu yí bàng)

Context

On May 22, the China Securities Regulatory Commission launched investigations into three of the country’s largest internet brokerages — Futu (富途), Tiger Trade (老虎) and Longbridge (长桥).

All three were also hit with fines totalling 2.3 billion yuan (around $320 million dollars).

These online brokerages allow mainland Chinese retail investors to trade overseas stocks, including Hong Kong and US-listed shares, directly and easily via an app. This is something that is otherwise tightly restricted inside China, with the likes of Futu operating in what is often described as a “grey area” (灰色地带).

On the same day as the CSRC announcement, Hong Kong introduced the toughest cross-border account-opening rules in its history, making it much harder for mainlanders to open bank accounts in the jurisdiction.

This pressure on brokerages is also concerning the millions of Chinese who have invested their hard-earned cash into them, as one commentator put it:

This regulatory storm also dealt a crushing blow to the mainland retail investors.

这次监管风暴，对内地散户也是当头一棒。

And with that, we have our Sinica Phrase of the Week.

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What it means

“A crushing blow” (当头一棒 dāng tóu yí bàng) is a classical Chinese idiom. The individual characters mean: “right at” (当), “head” (头), “one” (一), “club” (棒) — literally, a club brought down straight on the head.

The phrase comes from the Compendium of the Five Lamps (五灯会元), a major collection of Chan — or Zen (禅宗) — Buddhist lineage records compiled around 1252 by the Song-dynasty monk Puji, (释普济).

The work gathers the biographies and sayings of generations of Chan masters, and is one of the defining records of the tradition.

The idiom appears in the section on Linji Yixuan (临济义玄), the Tang-dynasty master who died in 866. He gave his name to the Linji school of Chan Buddhism, which is the lineage that became Rinzai Zen in Japan.

Linji was known for a deliberately jarring teaching style, designed to jolt students out of intellectual hair-splitting and into a sudden awakening.

In the passage, a monk puts a lofty question to him:

A monk asked, “What is the great meaning of the Buddha’s teaching?”

The master raised his fly-whisk; the monk gave a shout; the master shouted back.

As the monk hesitated, the master struck him.

上堂，僧问：”如何是佛法大意？”

师亦竖拂子，僧便喝，师亦喝。僧拟议，师便打。

In Chan practice, a sudden shout or a blow from the master’s whisk, which is known together as “stick and shout” (棒喝 bàng hè), was meant to short-circuit rational thought and shock a student into thinking differently.

This story eventually became the four-character idiom, “a crushing blow” (当头一棒), which everyone in China with a high school education will know about.

Over the centuries the phrase moved out of the monastery and into everyday language. It appears, for instance, in the Qing-dynasty (1644–1912) novel Flowers in the Mirror (镜花缘) by Li Ruzhen (李汝珍):

Although the joke is only told in jest, to those who are ignorant and self-opinionated, it serves as a crushing blow that might just jolt them awake.

这个笑话虽是斗趣，若教愚而好自用的听了，却是当头一棒，真可猛然唤醒。

It recurs through later writers too, including Lu Xun (鲁迅), modern China’s most influential author.

In contemporary Chinese, “a crushing blow” carries two linked senses. It can mean a sudden, unexpected blow that comes out of nowhere. And, keeping to its Buddhist roots, it can also mean a sharp warning that forces someone to wake up to reality.

For the 5 million mainland investors who poured their money into offshore brokerages, China’s crackdown on those companies is both at once: a sudden financial shock, and a hard lesson in how fast the rules can change.

Andrew Methven is the author of RealTime Mandarin, a resource which helps you bridge the gap to real-world fluency in Mandarin, stay informed about China, and communicate with confidence—all through weekly immersion in real news. Subscribe for free here.

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Read more about how this story is being discussed in the Chinese media in this week’s RealTime Mandarin:

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#279: Beijing’s blow to cross-border retail trading

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6 days ago · 2 likes · Andrew Methven

On this week’s Trivium China Podcast, host Andrew Polk is joined by Trivium’s Head of Markets Research Dinny McMahon to discuss one of the most important — and least understood — developments in China’s fiscal landscape: asset revitalization.

The two unpack how local governments are increasingly turning underutilized state-owned assets into new revenue streams, and why the strategy may become a key pillar of Beijing’s broader effort to stabilize local finances.

Their conversation covers:

• Why local governments remain under severe fiscal pressure after the collapse of the property market

• What “asset revitalization” actually means in practice

• How provinces are monetizing everything from mining rights and industrial land to transport hubs and public facilities

• How several local governments are already generating meaningful new revenue from the strategy

• The role asset revitalization could play in easing local government austerity and supporting domestic demand

• The risks of self-dealing, hidden leverage, and unsustainable one-off transactions

• Whether asset revitalization can become a durable solution to China’s local government debt and revenue challenges

While asset revitalization is unlikely to solve China’s fiscal problems on its own, Andrew and Dinny argue it may be emerging as one of the most important pieces of the local government finance puzzle — and a development investors and China watchers should be following closely.

Transcript

Andrew Polk: Hi everybody, welcome to the latest Trivium China podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium co-founder Andrew Polk, and I am joined today once again by Trivium’s Head of Markets Research, Dinny McMahon.

Dinny, how are you doing?

Dinny McMahon: I’m doing good, mate. Good to see you.

Andrew: Yeah, great to see you as always. It’s been a bit of a quieter week, at least on the news front and the geopolitics front, and even the policy front out of China. So, we’re going to step back a little bit today and talk about a bit of a broader issue. Often when we do that, it’s fiscal reform or fiscal issues. Today is no different really, but we’re going to talk about a subset of that which is a bit more interesting than just the China’s fiscal challenges. It’s specifically what’s happening at the local government level and an interesting new revenue stream. Specifically, it’s asset revitalization or state asset monetization.

Basically, it’s ways that states are using their assets to get new cash flow. And this is something Dinny’s been looking at closely, and we think it’s a pretty significant piece of the fiscal equation. I’ll give a little bit more of an intro here in a minute. But anyway, that’s why we have Dinny on today to talk a little bit more in depth about this issue, which we’ve been writing and thinking a lot about for clients. So, it’ll be a good discussion. I’m sorry to do a step back, which, you know, because of the news flow, we often don’t have as much of a chance to do.

But of course, before we get into the meat of it, Dinny, we have to do the customary vibe check. How’s your vibe today?

Dinny: I’m a bit frazzled. Me and the family got three weeks to go before we up stakes and moved to North Carolina. So, I’m just running around. Everything that’s been broken or I’ve been meaning to fix in the house for the last five years is sort of getting done in like a two-week period. I’m sort of stepping back. I wouldn’t mind actually staying here. But that’s me at the moment, between work and the kids finishing school and starting the school holidays, and just getting the house ready. Man, I just feel like I’m being pulled in all directions at once.

Andrew: Yeah, man, I hear you. I actually sort of am on the back end of it. We just moved houses over the weekend. And so, we did all the packing and stuff last week. We’re in our new house. There’s just boxes everywhere. It’s great to be here, but I think it’s just way more exhausting than I think I expected it to be. Maybe that was naive of me, but I am very tired. And then also, again, so I just went for a long run. I’m not going to say how long it was because when I talked about my last long run on the pod with Cory, it was by far our most controversial vibe check people have talk to me about.

There’s a lot both positive and clear negative. So, anyway, I went for a long run, whatever that means to you, is how long it was, and so with a combination of the move and this exercise has got me a little low energy. But we are going to pick it up for the podcast or the pod listeners today. So, don’t think that we’re not going to bring our…

Dinny: Bring the thunder.

Andrew: That’s right. So, excited to have you on and get into it today. But also, Dinny, quickly, we got to go through the housekeeping. A quick reminder, first, that we’re not just a podcast here. Trivium China is a strategic advisory firm that helps businesses and investigators navigate the China policy landscape. That, of course, includes domestic policy in China, but also policy towards China out of western capitals like D.C., London, Brussels, and others. So, if you need any help on that front, please reach out to us at hq@triviumchina.com. We’d love to have a chance to talk to you about how we can support your business or your fund.

Otherwise, if you’re interested in receiving more Trivium content, again, check out our website, triviumchina.com. That’s where you can find our subscription products. These are mostly email products that give daily updates in most cases on key developments out of China. So, just updates and analysis. It’s more than just a newsletter. It’s really our take on what’s happening that you really need to know whether you’re an investor who needs to know market stuff or a policymaker who needs to know key developments, whether that will affect businesses or the tech sector, or you’re a business executive.

So, check out our site, triviumchina.com. You will definitely find the China policy Intel option that you need. And then finally, as always, please tell your friends and colleagues about Trivium. It really helps us to grow the business and to grow our listenership so that we can keep bringing you this free content. All right, that’s it. Dinny, you ready to get into it? That energy up? Are you ready to bring the thunder?

Dinny: Absolutely, mate. Let’s get into it.

Andrew: That’s what I like to hear. All right. Everybody will be ready for this. Okay. We are going to talk, as I said, about something called asset revitalization. What we’re going to talk about, or the framing for this comes from a report that we published about a month ago. When I say we, primarily Dinny and his team, again, on this concept of asset revitalization, or as Caixin financial reporting or financial media in China, as they call it, state asset monetization.

So, on a very basic level, this is really taking unused, underutilized or mispriced state assets, whether that’s land or a factory or mineral or fishing rights, concession rights, whatever, concession rights to run like train station, for example, all kinds of different assets that a state would own, especially that are revenue-driving, and redeploying them in a way that allows the state to extract greater value from them. So, it’s not privatization of assets, but it’s a way that the state can actually retain ownership and generate income.

The State Council now first started encouraging local governments to do this kind of thing back in 2020. And at that time, as often, when the new policy directive comes out, we were a little cynical, a little skeptical about it because you never know how much energy the State Council is going to put behind a new effort, but we’ve really kind of changed our tune, I would say, especially based on your report Diny, on this whole process. And we now see it as really a major and highly significant, even you would say, I would believe, game-changing development towards the financial quagmires that local governments have been in really since the collapse of the housing market it in 2021, right?

So, everyone knows local governments are in desperate need of new sources of income. And in 2025, for a few provinces, this asset revitalization push has absolutely been. And one of the reasons we want to talk about now, even though we wrote about a while back, is that we’re seeing more references to this program in the Chinese press and Chinese commentariat. And so, we know that it’s starting to get on folks’ radar, even among Western analysts. So we thought it was a good moment to kind of jump in because not only have we been thinking about it for a while but the scale and the exact process of what’s going on isn’t really well documented or well understood.

So, we thought we’d take the chance to really get into this significant fiscal local government debt and local finances development. Yeah, like I said, it has the potential to be a game-changer. So, Dinny, why don’t you do a little bit of scene setting for us. Give us context about why local governments so desperately need new sources of income, which some listeners will generally be aware of, but it’d good to kind of set the stage before we dive into this new and pretty complex topic.

Dinny: Yeah, absolutely. So, this stuff’s going to sound pretty familiar to a lot of people out there, but here’s a basic rundown of the problems facing local government finances. So, local governments have been chronically underfunded for decades. And so, the way that they traditionally made up the difference was by taking land from farmers and rezoning it and then selling it to property developers for much higher prices.

And they sort of walked away from that, well, with profit, right? So, they use the money in four key ways. The first was well that the land that they took needed to be cleared, you need to compensate the farmers, the land needed to be leveled and connected with road and power and sewer infrastructure. And that was a much bigger expense than it sounds because a relatively small portion of the land that local governments were taking from farmers was actually being sold to developers.

In any given year, maybe it was 25%, maybe it was 30% in a big year. Most of the land was being sold cheaply or sometimes just given away for free to manufacturing and industrial firms to build factories. So, effectively, it was a subsidy. And those land transactions really weren’t generating revenue for local governments as well, but they were still involved these costs of compensating farmers, clearing the land, leveling the land and whatnot.

So, that was one way that the money was being used for. The money they earned from selling the land was being used really to clear the land or prepare the sort of the next generation of land to be sold. The second source of the revenue was it allowed local governments to build infrastructure. So, typically, you’d have like a local government financing vehicle would build public works with debt, and then the local government would pay them some sort of management fee or operating fee, some sort of subsidy.

There’d be some sort of arrangement where the government would provide income to the local government financing vehicle. But ultimately when you stripped all that back, what was happening is that you had infrastructure funded with debt and the local government was using revenue from the land sales to service that debt. Even though the servicing was ultimately being done by an LGFV, the money was coming from land sales.

The third thing the money from land sales was being used for was servicing explicit government debt. So, since 2015, local governments have been able to issue their own special-purpose bonds to fund infrastructure. Well, that’s what the money was being used for as well. And then finally, a portion went toward paying for government services. And so, this is where things get a little bit confusing because the Chinese government, pretty much at all levels of government, they have four different budgets.

And one of those budgets is called the government fund management budget. And this is where all the revenue from land sales and funds raised from issuing special purpose bonds, that’s where it goes. And they go into this budget to effectively ring-fence the use of these funds to make sure that they are used for funding public works only. But if there is a surplus, if there is kind of money left over that they don’t need for servicing debt or building public works or whatever, there’s a surplus, it gets transferred into the general public budget, right?

So, that’s another one of these four budgets. And that’s the one where all the tax revenue goes. It’s the one that’s used for education and funding the police and health, and public services. And so there was an incentive for local governments to sell more land than was needed for infrastructure so that it could top up public spending.

And certainly, in the years before 2021, when the housing market hopped, this became a marginal but an increasingly important source of revenue for local governments. And so then, of course, the housing bubble popped in 2021, and all of this unraveled. So, land sales collapsed, which meant there was less revenue to service the debt and less revenue to transfer into the general public budget. The problem wasn’t just coming from a collapse in land sales.

Tax revenue fell as well because so much tax revenue that was being collected by local governments was either directly or indirectly linked to housing construction or sort of the property market more broadly speaking. Now, the consequence of all this has been austerity. And I think we’ve talked about this a little bit before, but austerity that we’ve been seeing with Chinese local governments is not quite in the same form as we’re used to from Greece and the UK, although there are similarities.

So, in Greece and the UK, the central government, when they had excessive debts and they needed to ensure that, you know, they decided to prioritize debt repayment, that resulted in cutting funding to public services. So, there was less money for education and for the police and whatnot. But in China, those types of expenditures on public services at a local level have typically gone up.

So, in 2025, provincial expenditures from the general public budget were typically 15% higher than they were in 2021. Now, there’s a big range. Some provinces have done better than others. But broadly speaking, spending from the main budget for local governments has increased over the last four years. Instead, austerity turned up elsewhere. It turned up in local governments not paying their bills — to contractors, to suppliers, to what they owed to LGFVs.

And that doesn’t show up in the general public budget, but it would probably show up in one of the other budgets, the government fund management budget, if only we had more transparency on what was sort of going on inside it. So, the consequences of these unpaid bills, these unpaid arrears, are, in many ways, far more consequential for the economy than an unpaid loan to a bank.

With a loan the bank takes the hit, but it has capital put aside for that right, and it can always raise more capital. It can exercise forbearance if the regulators permit it, but more or less life goes on, but unpaid arrears, they ricochet through the local economy. When firms don’t get paid by the local authorities, that firm then can’t pay its own suppliers, which then can’t pay its suppliers, and so on and so forth. And the money isn’t there for bonuses or for firms to take on new staff or even to keep their existing staff.

And so just as land sales supercharged local economies, the collapse in land sales sent it into reverse. And this is one of the key reasons why domestic demand in China is so weak. We constantly hear, “Domestic demand is weak. How do we revive it?” This is one of the reasons. And you’re not going to revive that domestic demand until you fix local government finances, until you can reverse these sort of austerity practices.

Now, austerity is turning up elsewhere as well with pay cuts to state employees, with arbitrary fees and fines. But the big one is arrears. So, local governments need a solution. And often when people talk about what needs to be done, the conversation always comes back to the central government. Well, the central government has helped out to a certain degree. It helped out in 2022 and 2023 when it increased transfers to local governments by about 20%.

Now, that helped plug the fiscal hole. The money that wasn’t ending up in local government budgets anymore because of lower land sales because of lower tax revenue, Beijing stepped in and helped plug that hole at least partially. But over the last couple of years, those transfers have actually declined. Now, it’s also often argued that the only way out of the whole local government debt thing is if Beijing takes over the local government debts.

But then again, that’s incredibly unlikely to happen because Beijing has been adamant that it’s not going to do it and has repeatedly said that responsibility for the debts must be resolved at the local level. Beijing’s not transferring as much money as it used to. And it’s saying, “No, we’re not going to bail anybody out.” So that’s where we are. The collapse in land sales has left local governments chronically short of funds, which has resulted in austerity.

The central government has helped out a bit, but it’s been explicit about no bailouts. And that means the only solution left for local governments is to raise more revenue. Now, they can’t raise taxes. That right resides almost exclusively with the central government. And even if they could, in this economic environment, higher taxes would probably do more harm than good anyway.

Andrew: Just a different form of austerity.

Dinny: Yeah, exactly. This is the other thing that they’re doing. They’ve been imposing arbitrary fees and fines. Exactly the same thing. It’s effectively a deflationary practice in this sort of constrained demand environment. Now, the thing about fees and fines is that it’s such a tiny part of local government’s overall revenue that it’s not meaningfully moving the needle anyway. Now, there’s a couple of other things that it can do. SOE profit remittances, you know, they can ramp that up. And that is an area we’re watching very closely. And Andrew, we should really talk about that over some other podcast in the future.

Andrew: For sure. Yeah, yeah, yeah. I know you and the team have been doing good work on that.

Dinny: Yeah, absolutely. We’re all over this. But then the big one, the one that’s already helping plug that fiscal hole, at least in a number of provinces, is asset revitalization.

Andrew: All right. Excellent table setting. Now that you’ve gotten us to this point, the obvious next question, of course, is what is asset revitalization?

Dinny: In its sort of purest form, you kind of want to sum up the idea. It is about turning state assets into a recurring revenue stream. In particular, it’s not just any state asset. It’s assets that aren’t being utilized to their full potential already. And the idea isn’t unique to China. I mean, throughout the developed world, we’ve seen variations of municipal governments really doing this everywhere.

I mean, you see it particularly with old derelict industrial sites, you know, old ports, abandoned piers, unused train yards, they get turned into cafe and shopping districts or into new office space or new housing. Sometimes you see cities dredge old industrial canals and harbors to create more valuable shorefront. Developments like the High Line in New York City as well, same sort of thing.

It’s about taking something that was an eyesore and revitalizing them and turning them into a source of economic vitality. Now, China’s done the same sort of thing with these sort of historic and abandoned industrial assets, turning them into art galleries and shopping districts and whatnot. But China differs from developed economies in the sense that many underutilized assets are owned directly by government agencies and institutions such as hospitals, schools, regulators.

You’ll have the NDRC or the People’s Bank of China. They actually own assets, physical assets on a scale that you wouldn’t expect in any other economy.

But so often the assets that these sorts of institutions hold, they were never really intended for commercial purposes in the first place. And so, they might be underutilized or they might not be used at all. And certainly, no one has really thought, no one in sort of a staid bureaucracy has ever really thought creatively about putting them to different uses, certainly not to a commercial use because there was no incentive there to do it.

And so, that’s kind of what this is all about. And in the Chinese context, what we’re kind of seeing is the way that they’re sort of pushing forward with this, it broadly falls into four buckets. It is things like selling concessionary rights and generating royalties from allowing firms the right or the exclusive right to perform a service or access a resource. So, for example, many local governments, they own mining or forestry rights. They own the rights to billboards along municipal roads, or they own the rights to all the stores at a train station or an airport, or they generate fees from water companies. And they have the right to charge fees for entrance into like popular scenic spots, right?

There is all these sources of potential revenue generation over which local governments have the right, and then can sell those rights to other firms. And so local governments are looking to deploy these sorts of concessionary rights, these existing assets in creative new ways that might generate revenue. So, for example, that might look like taking a small piece of land that isn’t being used, like perhaps under an underpass, and turning that into a for-free parking lot or an EV charging site.

Or in some parts of the country, I mean, we’re seeing this a bit in Chongqing, or authorities are selling rights to manage affordable housing, either in return for like an annual fee or an upfront sum. But ideally, authorities are looking to sell concessions for assets that haven’t previously been monetized or for assets that have changed in some way, either because the authorities themselves have made a certain investment or because technology has changed or some sort of asset consolidation has made them more valuable, right?

So, for example, one local government we’ve been reading about, you know, amalgamated all the fishing rights in a local lake and sort of took them away from small-scale fishermen, consolidated the rights, sold them to a large firm, which is far more efficient, has greater capital investment. It’s generating more revenue and it’s paying more to the local government and fishing rights. Or elsewhere, we saw a local government sold the rights to an advertising company to advertise on light poles around the city.

Now, traditionally, that advertising may have looked like banners, but the company installed LED screens, which generated more revenue and also allowed the local government to charge more for the concession. So, that’s one way that local governments are generating more revenue. It’s all about concessions and royalties and trying to think creatively about what they have the right to sell and how they can extract greater value out of it.

Andrew: 1Can I ask a quick question on that?

Dinny: Yeah, shoot.

Andrew: When they’re selling these rights, it sounds like the mechanism is they’re not selling them outright for a one-off fee. They’re sort of, I guess, must be that the purchaser is purchasing the right to sort of manage the asset, but then some slice of the revenue still goes back to the local government. How is it that this isn’t just a one-off in some of these that you’re just describing? Does that make sense?

Dinny: Well, and sometimes it is. I mean, that’s kind of one of the big concerns about this. And we can get into that a little bit later. But the best structured deals are the ones where what you’re selling is a concession for 10 years, 15 years, maybe even 20 years. But as part of those concession rights, you have sort of baked into it an enduring ongoing revenue stream. So, every year, the concession holder promises to pay a certain amount.

Some of the deals we’ve seen, it’s a combination between upfront and recurring fees. But ultimately, there’s also a sense of trying to get who gets to buy the concession. Typically, these are done through an auction. So, the concessions are marketed publicly sold publicly and they’re done over online auctions. So, there is an expectation or a hope that by doing it that way, local governments will be able to get the highest price for them. But you’re right, a lot of it comes down to how it is structured.

If there isn’t a recurring revenue stream, and it’s just an upfront payment, then that certainly raises a few questions.

Andrew: Yeah, I mean, I don’t know exactly how they’re doing this. I’ve seen this actually done in the States before, where a private equity company or whatever will come in and buy the rights to manage some utility, for example. And the argument or the pitch from the private equity firm is we can actually make this so much more profitable, not by necessarily raising people’s utility costs, but by cost-cutting, which often means, of course, layoffs and stuff like that.

But that’s their pitch is we can do it so much more profitably that you won’t have to incur the costs. So, your costs go away as a state government or whatever. We will incur the costs and then we’ll give you X amount of money each year as a slice of the revenue. And we’ll still make money on it because we can do it so much more profitably. It sounds like that’s sort of maybe the idea that they’re kind of going for in some…

Dinny: Not quite, I don’t think. I mean, maybe. But in the instances I’ve seen, it’s not necessarily the private sector stepping in to say, “Hey, we can do it more cheaply than the state sector, and everybody wins.” The creation of additional value still seems to be generated or the idea behind how additional value will be generated seems to come from the state itself.

So, the state says, “Oh, we’ve worked out how to make this asset more valuable. We’ve done a certain amount of investment. So we’ve invested in this port.” So it’s been dredged. It’ll take deeper ships. It’s got better facilities. We’ve built this building. We will sell the rights to you, private sector firm, to manage a regional fish market, wholesale fish market. And you have to pay a certain amount up front, we expect certain fees every year. And so it’s not the private sector coming to the local authorities going, “Hey, we see what you’re doing and we can do it cheaper.” It’s more the state going, “Oh, we’ve worked out how to create to take this asset, which is being underutilized and deploy it in a more effective way. Hey, private sector, what firms out there are interested?”

And it’s not just private sector as well. I mean, often it’s state firms as well, which are ending up with the concessions.

Andrew: But still it stands that there are some commercial opportunity for the private sector company to be gained that is large enough, seems, must be large enough that they can also then pay an annual fee for the rights, right?

Dinny: Absolutely. Absolutely.

Andrew: All right. Sorry, I interrupted your flow. Keep going.

Dinny: Yeah, no, no, not at all. Well, I was saying there’s a couple of other ways that local governments are sort of generating value from asset revitalization. One of them, assetization, sort of taking assets and securitizing them, so securitization of assets. So, the idea being in recent years, Beijing’s been trying to encourage firms to take data resources and turn them into a viable financial asset or to take forests and turn them into carbon sinks.

And then you can raise money out of that through carbon credits. That sort of thing is sort of part and parcel of this as well. And then there is taking existing land and either leasing it or repurposing it. So, one example that I think sort of sums it up really quite well, although it’s a slightly older example, is a few years back, the Beijing municipal authorities looked at a sort of a wholesale clothing market, which was across the road from the zoo.

And once upon a time, this market was, it was the wholesale clothing market for pretty much all of northeast China. And yet, as time went on and Beijing became more developed and the city became bigger and bigger, what had been a wholesale market, more or less on the periphery of the city, had turned into a wholesale market on prime real estate. And it was using it as a clothing market. It wasn’t necessarily the most valuable use of the land.

And so, they bought it up, tore it down, not tore it all down. Some of it, they sort of retrofitted the buildings, but they repurposed it all, turned a big chunk of it into a fintech sector. They’ve got a whole lot of fintech clients who’ve moved, firms moved in there that are paying significantly higher rent than was ever possible from wholesale clothing firms. And so that’s kind of part of the idea as well, kind of looking around, looking at land, looking at factories, looking at the physical assets that local governments own, and try and work out if there is a better way to use it.

That also includes taking sort of empty, unused factories, retrofitting them so that they’re better equipped for more technologically advanced, autonomous tech manufacturing firms. We’ve seen this happen in a bunch of places. They update the factories and then effectively they move in ready for firms that are looking to sort of expand. So, that’s kind of the other thing that’s going on here.

And so, yeah, it’s kind of moving in a whole lot of different directions at once. But at the end of the day, it’s really about local governments looking at what assets they own, work out how they can be used more effectively. And that really requires a sort of degree of creativity about how to use them that they’ve never really had to deploy before.

Andrew: So, it sounds like a sort of loosely organized kind of push. We mentioned the State Council has kind of given the directive to at least assess whether or not this is possible in various jurisdictions. But beyond that, where did this idea really kind of germinate?

Dinny: Yeah, I mean, it really did kick off with the State Council in May 2022. It was very explicit about asset revitalization and a bunch of different areas, water conservation and transport, and all sorts of things. But the focus was a little bit different back then. It was very much about creating sustainable funding sources for investment.

So the idea was like, okay, well, investment has been driven by debt for such a long time. Probably not a good idea if that’s the way it goes. Can we use the existing asset base to kind of create opportunities for investment that are sort of, you know, less debt heavy? And so, it was all about project construction. But even then, when the State Council first talked about it, it included this caveat about government funding.

And it said, “For regions with high local government debt ratios and significant fiscal pressure, funds recovered from revitalized public assets may be appropriately used for three guarantee — expenditure, debt principal and interest repayment.” So, the three guarantees is sort of the state’s guarantee to provide funding for people’s basic well-being, to provide public sector wages and run bureaucratic operations.

So, what it was saying is like, hey, you know, for those provinces that are really over-indebted, the money you raise from this can be used to help sort of plug the fiscal hole. And very quickly, that sort of focus on heavily indebted provinces kind of went out the window. So, by the end of that year, Hunan province had a blueprint built around asset revitalization. And it laid out the steps for how they were going to pursue it. I mean, the first step was to identify what assets there were, you know, go throughout the entire province, work out exactly what the state owns, because there are so many levels of government.

It’s not immediately clear at a provincial, head provincial level, exactly what they own. The second thing was to value the assets. Third was to identify which government agency or body actually owned it, whether they were overlapping claims, because it was only once you have a clear idea as to who controls an asset, can you actually do with it? And then the fourth step was to find better ways to utilize the asset.

And the way, sort of the guiding principle of Hunan province was kind of summed up in this sort of pithy one liner, which is use what state assets can be used, sell what cannot be used, lease what cannot be sold and finance what can be financed. And since then, other provinces have gotten on board, a bunch have rolled out their own blueprints. But all of them, whether they’re heavily indebted or not, the big focus, or at least a big element of what they’re doing with asset revitalization, comes back to generating fiscal revenue.

Andrew: Yeah. Well, I said at the top that this is a big deal, and we think it’s one of the major planks and kind of the plan to get little government finances on board. But I said that because you told me to say it. So, why don’t you explain to the listeners why we think this is such a big deal?

Dinny: You’re giving the magic away. Okay, well, so in 2024 and 2025, asset revitalization became a major source of income for a small handful of provinces, specifically Chongqing, Shandong, Jilin, and Hubei. Now, that revenue turns up in the general public budget as a type of non-tax revenue called charges on the usage of state resources.

And in short, that captures revenue generated from the sale or commercial use of state assets that are owned by government institutions and agencies, like, as I said, hospitals, universities, village collectives, or government agencies like municipal finance bureaus. But what it doesn’t capture is assets owned by state-owned enterprises. You know, revenue generated by assets owned by SOEs, that turns up elsewhere in the budget, a completely different budget.

So, we’re talking about specifically government assets that are not owned by SOEs. And those state agencies and institutions, they don’t have to generate the revenue by using the asset themselves. They can sell the rights to use an asset like concessions and royalties, all that sort of stuff, as I was talking about before. So, just how significant is it? So, Chongqing has kind of been the leader with this.

Revenue from charges on the usage of state assets was equivalent to 6.8% of the city’s expenditures in 2021. Four years later in 2025, it was 15.1%. So, when you take into account all the revenue sources that go into funding the Chongqing budget, the taxes, the non-tax revenue like fees and fines, the money earned from land sales, the transfers from the central government, and bonds issued by the city to help fund its budget, when you take all of that together, charges on the usage of state resources, asset revitalization, accounted for 15.1% of those resources, up from 6.4% four years earlier.

And crucially, over that period, it’s not that Chongqing spending stagnated or that it’s flat. Over that period, spending by Chongqing municipality increased 17%. So, charges, this sort of where this asset revitalization revenue was ending up, these charges were rising as a share of a rising budget, and rose to a level, 15%, which is hugely, I mean, that’s a really significant chunk of where all of its revenue was coming from.

Now, in Shandong, in 2025, charges funded, so I’m just using shorthand now. When I say charges, I mean charges on the usage of state resources. So, these charges funded 12.9% of the budget, up from 5.3% four years earlier. And again, the budget was expanding. It was up 13% over that period. In Jilin, charges funded 9.2% of the budget in 2025, up from only 2.4% in 2021. And in Hubei, they were 8% of the budget up from 2.2%. And I think the real standout here is Jilin.

Because over the past four years, the general public budget has grown more strongly than perhaps anywhere else. So, the general public budget in 2025 was 30% higher than it was in 2021. Moreover, Jilin was one of the 12 provinces designated as being heavily indebted a few years back. And that designation imposed certain constraints on borrowing and what else it can do with its finances.

The central government, the Ministry of Finance, dropped Jilin from that list at the beginning of this year. It was only the second province to be removed from the list after Inner Mongolia, which is a very different situation. I mean, it’s having a bit of an economic renaissance at the moment because of renewable energy.

But with Jilin, we don’t think G-Lin could have exited that list without the revenue that it generated from asset revitalization. And there’s one last thing that’s worth mentioning here as well.

Now, when talking about the significance of this as a development, I focused on how it’s generating a particular type of non-tax revenue, it’s some charges on the usage of state resources. And that’s because it’s easy to track, right? It is almost exclusively leading to the expansion of charges, this non-tax revenue. But there are plenty of statements from local governments suggesting that asset revitalization is generating revenue that’s turning up elsewhere on the balance sheet as well.

But that’s much harder to track. So, the fiscal implications of asset revitalization might go well beyond the data we’re seeing in the increase in charges. But if it does, it’s very difficult to be able to measure how much of an impact that is.

Andrew: Yeah. Yeah, that makes sense. I guess that brings up the question, especially when you talk about the growth, sort of how sustainable is this expansion of revenue, or how sustainable is this as the solution, I guess, to government funding problems? I mean, the great thing about land sales, which is the big previous funding channel, was that it was replicable, right? Local authorities could do the same thing year after year after year, generating more and more revenue.

This sounds like there’s some one-offs. It sounds like it requires a lot more sort of creativity from local governments, requires looking at their assets and trying to figure out what they can do with them. So, the question is, is this sustainable in multiple aspects? One, outside the four provinces you highlighted, but also even in those provinces, can they continue not only growing it, but even just maintaining it at the current level of as a proportion of spending, as you already kind of laid out?

Dinny: Yeah, it’s a great question because in some ways it’s too early to tell. I mean, as I said, the state council started pushing this in 2022. It started building momentum in 2023. It was only in 2025 that we could step back and go, oh, wow, this is having a really big impact on the budgets of some provinces. There’s two ways to look at it. Firstly, beyond those four provinces I identified, for most of the other provinces, they’ve still got a long runway.

So if they start ramping this up, there’s real potential there for them to kind of increase their revenue. The question then becomes, looking at those four, how much longer can they either maintain growth or maintain these levels? And I worry that maybe they’ve already picked the low-hanging fruit. So there’s no doubt, there’s more potential to kind of look around at their assets and kind of work out how they can use it. But I can’t help thinking, surely it’s going to get harder.

Of course, the other side of the equation is that after, what, three, four years of doing this, they’re starting to get a sense of what’s feasible and what’s possible. So maybe they can kind of take that expertise and leverage it into new ideas. Now that said, Shandong, which as I said, is one of the leaders in this, is certainly worried.

So when it was talking about this in its 2025 budget report, it said, and this is a quote, “The space for revitalizing existing assets and resources is narrowing, constraining fiscal revenue growth.” That’s pretty explicit. They’re starting to worry. So, it is a case of like, okay, watch this space, but we’ll see. It really could go either way, I think.

Andrew: Well, I mean, sort of related question, but, you know, so the sustainability still a question mark, but then also what about the unknown unknowns, right?

Like what are the risks of this path that maybe local government officials and even state council officials aren’t thinking about this? Are there ways that they may be just generating more financial risks that will in the butt down the road? I mean, we’ve seen that movie before, right? In terms of like local government fundraising attempts.

Dinny: Yeah, absolutely. I think one of the things to worry about is we see a repeat of what we saw with land sales to LGFVs after the housing bubble burst in 2021. For the first few years after that, local governments seeing the collapse in land sales, trying to come up with new revenue sources, they sold lands to LGFVs rather than property developers, which meant they were effectively selling land to themselves. LGFVs borrowed money, used the money to buy land, but because they’re not developers and because there wasn’t really any demand for the land, they just kind of warehouse it.

They were stuck with debt. The asset that they bought wasn’t doing anything. And they really had no way of servicing the debt other than sort of hoping the local government kind of came up with the cash. And so, there is a risk that this happens here, that there’s a degree of self-dealing going on, that local governments sell a concessionary right to an LGFV, or another locally owned state enterprise. And that state enterprise borrows the money and makes the purchase and it ends up being a non-performing asset. That is definitely possible, largely because, as you said, I mean, we’ve seen this particular movie before.

Now, there’s other risks here as well. I think it comes down to three things, pricing, sustainability, and management. So, pricing is key. Now, as I said before, it’s great that there’s a kind of an open auction market so that the local governments get the best price. But if a state entity wins an auction and overpays for it, if it underpays for it, that’s fine, right? It ends up with more revenue. Local government might be a little bit disappointed that it didn’t maximize its fiscal gains.

The real problem is if a locally owned state-owned enterprise overpays because then, probably, you know, paid for the rights in debt, and then all of a sudden isn’t able to service its debt, and it ends up as, effectively, a hidden debt that the local government needs to sort of keep afloat. The other issue is something that you raised earlier, and it’s the whole sort of sustainability issue, sustainability of this as a recurring source of fiscal revenue. And that comes down to how the deal is structured.

Now, as I said, we’ve seen a bunch of deals that involve both an upfront payment and a recurring income stream. But I think there have been deals as well, which have just been an upfront payment. Now, that’s great for the government looking for a sugar high now. I’m trying to sort of cover a fiscal hole, you know, it’s like fantastic. We’ve got the money. We desperately need it. Great. But it makes it difficult, then, for asset revitalization to be an ongoing source of revenue. And it could mean that revenue not only just flatlines, but it could actually drop off in a few years if local governments can’t keep coming up with new deals.

And then the third thing to worry about is the management of the asset. So, even if an asset is potentially highly productive, well, who’s buying it? If it’s a state firm, there’s not necessarily a guarantee that it’ll realize the potential. And where a county outside of Jinan, in Shandong province, sold 30-year rights to the operation and maintenance of a low altitude economic zone for almost a billion renminbi, not only to a locally owned state-owned enterprise, but a state-owned enterprise that was, I think, incorporated the day of or the day before the auction of the rights.

Effectively, it created its own firm to buy the rights to a completely untested business. And we’re not entirely sure where the billion renminbi came from, but it’s got to be leveraged on some level.

Andrew: That smells fishy.

Dinny: It does. I mean, so even if it turns out that this asset is incredibly productive, if the low altitude economy in China turns out to be a real winner, there’s no guarantee that a state firm, particularly one that is formed for this purpose, will be capable of realizing the potential. I mean, where does the expertise come from? So, there are sort of real questions here about self-dealing in terms of the pricing, in terms of the structure, in terms of the expertise about making this work. But for the time being, the numbers are really encouraging.

So, it’s only in the longer term do we see the structure of the deal start to unravel.

Andrew: Yeah. Well, speaking of that, it’s probably a good place for us to look next and to wrap it up, which is we talked about whether or not it’s sustainable. You just kind of highlighted some of the risks, but where do you think this is going? How do you think it evolves in the future as local governments kind of become more creative, pursue this path more aggressively as we think they will?

Dinny: Well, I think it’s pretty clear that Beijing is behind this. Even though the way that it first envisioned asset revitalization wasn’t as a fiscal crutch, I think the degree to which local provincial governments have embraced it and been quite vocal about its fiscal contributions and the degree to which you still see central government documents talk about asset revitalization. You do see the party publications not just talk about asset revitalizations, but also talk about the contribution to sort of fiscal resources. I think Beijing is behind this. That said, this isn’t a full court press at the moment.

We’ve got a handful of provinces which are clearly the forerunners. They are the experiment. Beijing can then look at how things are performing there, how things are being pursued. It can choose what to crack down on and what aspects of it to promote. And other provinces, they can pick and choose what works for them. And so, I expect we’ll see this increase as a source of revenue for other provinces.

Now, that’s going to take a couple more years to build because local governments, as I was saying before, they need to have a full inventory of their assets. They have to have a fair sense of what they’re worth and they need to know who owns the rights. That’s quite an undertaking, particularly for some of these larger, not just physically large provinces, but the ones with large economies, that’s a real effort. So, once that’s cleared up, then I think authorities can work out how to turn those assets into cash. But I think it’s going to spread.

And I think it’s going to become a more important source of revenue elsewhere. And it will help revive domestic demand. It’s not going to happen overnight. But I think we’re going to see it pick up momentum over the next couple of years.

Andrew: Well, we will be watching it closely. Your team will be not only kind of keeping tabs on it, but analyzing whether it’s working, looking at some of the risks. And yeah, I mean, I think we will see more commentary about this in the press. It’s always interesting when you kind of see a thing happening officially early on in the policy space, and then it gets a little traction and people start commenting on it, especially locally in China, usually means it’s getting a little bit of traction.

But certainly like this, and as it relates to local government issues and local austerity more broadly, we will be watching closely and following. And, of course, it all ultimately impacts the macro economy and businesses and investors and all that stuff. So, Dinny, great idea. Also, we should definitely do the SOE remittances thing. I know, like I said, you guys are doing great work and have some really interesting findings there. And that, combined with this, could also, I mean, they’re related issues and could fit in, could make a powerful kind of one-two punch, right?

Dinny: Yeah, absolutely. I don’t think anyone should be looking for a single solution for local government financing problems. It’s the sort of thing where I think you’re right. This asset revitalization will help. SOE dividends potentially will help. In a perfect world, they’ll finally be able to start boosting corporate tax revenue. That would hugely start to help. So, if they can manage to pull a whole lot of different sources of support together, that’s what a solution is going to look like. There’s not going to be a one-size-fits-all bailout, or Beijing reaches down and fixes everything. That’s not how this is going to work.

Andrew: Yeah, for sure. That is how it tends to happen. Well, Dinny, I really appreciate the time. Thank you for bringing the energy today and for walking us through this complex but fascinating and important topic. Always good to get a chance to step back and let you cook a little bit on the stuff you’re really good at. So, thanks, man. I appreciate it.

Dinny: Thanks, man. I appreciate it.

Andrew: Yeah. Thank you. And thanks, everybody, for listening. We’ll see you next time. Bye, everybody.

The transcript of their interview below was translated from Chinese by Google’s Gemini.

Dowson Tong: Today, I have specially invited Tencent’s Chief AI Scientist, Shunyu Yao, to chat with everyone about Tencent’s thinking and progress regarding large models and AI products. Let me briefly introduce Shunyu. In academia, Shunyu proposed the ReAct framework, and at OpenAI, he was involved in cutting-edge Agent products like Operator and Deep Research. Since joining Tencent, he has spearheaded the architecture of the Hunyuan large model. He not only understands frontier technology but is also deeply rooted in the front lines of business, so I believe he will bring unique insights. Let’s welcome Shunyu.

Host: Please welcome Tencent’s Chief AI Scientist and Head of Tencent Hunyuan Large Language Model and AI Infra, Mr. Shunyu Yao.

Dowson Tong: A very warm welcome, Shunyu.

Shunyu Yao: Hello everyone. I usually spend my time in Haidian District and rarely come to Chaoyang District, so I’m very glad to be here.

Dowson Tong: Our conversation today might take a relatively new format. If anything unexpected happens, I suppose we can consider it a surprise for everyone. Shunyu, before you joined Tencent, I remember asking you a few questions—specifically, why did you choose Tencent for the “second half” of the AI race? And what do you think is most important in this second half?

Shunyu Yao: First, let me explain what I mean by the “second half.” Lately, I feel this term has been a bit overused. This concept actually came from a blog post I wrote last year. What does it mean? I feel that before last year, AI had already been developing for decades, but the focus was heavily on how to solve problems—on finding good methodologies. Recently, it has become very obvious that while our methodologies have become highly mature, finding the right problems to solve has become much harder.

For example, in the past, we invented methods like AlphaGo to play Go, but that method was only suitable for Go or similar board games. You would build a specific model for translation, but it could only do translation and nothing else. However, with pre-training and post-training, we found that we now have a universal hammer that can strike any nail. It is a general methodology capable of solving all kinds of problems. Paradoxically, the harder part now is figuring out which good problems to solve.

A big reason I joined Tencent is that there are so many great problems and so many products here. I believe this aspect will become increasingly vital moving forward. On one hand, good products solve the first question: where exactly do we apply pre-training and post-training to generate real value? On the other hand, the environment is critical. Without a good environment, an Agent cannot perform various actions. For instance, if there is no food delivery tool available, it cannot order food; many things simply become impossible.

I believe the most critical factor is context. Whether for enterprises or individuals—as I mentioned last time at AGI-Next—context is becoming increasingly crucial. Because models are getting better at turning a highly complex input into an output, your competitive moat often boils down to whether you possess the raw, original input. Do you know what a user is actually doing? Do you have access to an enterprise’s diverse streams of information? I think Tencent holds a massive advantage here.

However, that is actually only the second biggest reason. The most important reason is the culture. I remember my first chat with you, as well as with other leaders in the Administration Office (General Office). My first impression was that everyone was incredibly honest—very straightforward about what was going well and what wasn’t, without trying to cover things up. That candor left a deep impression on me.

Secondly, Tencent as a whole is a company that runs on trust rather than just metrics. I believe this is crucial for doing AI. Our culture has a very low-ego, highly solid side to it, and these traits are vital for building a long-term AI organization, including our commitment to long-termism.

So, what matters most in the second half of AI? Personally, I think it’s about establishing a long-term, AGI-based organization in China. Today’s AI primarily consists of three parts:

1. Foundation: How we make the most basic elements of pre-training and post-training incredibly solid.

2. Product: How we take this technology and truly generate value for people and society.

3. Frontier: How we explore new research paradigms and hunt for new opportunities.

I believe the most critical task is to build a highly balanced, triangle-like organization. For the foundation side, the most important things are having ample resources and the right way of doing things, which aligns with the culture I just mentioned. For products, having a strong product sense and the right product people is paramount. Lastly, regarding the frontier, we aren’t doing enough frontier exploration in China today, so I hope to inject more of that spirit into our organization.

Dowson Tong: The sincerity and pragmatic atmosphere you felt during our chats is feedback I also frequently get from clients. I think our way of doing things and our product philosophy are quite realistic. After all, the AI track is a marathon. Sometimes awareness is very important—we have to own up to what we do well and what we don’t. But ultimately, this is a multi-dimensional competition. We see a lot of progress in models now, and our products are taking on more and more forms to meet different needs in various scenarios. I think the future remains highly promising.

You just mentioned models and products. You could say products provide an environment that feeds context to the model. I wanted to ask: a phrase we use quite a lot in our meetings is Co-Design—how to tightly integrate products with models. This is especially true today with such a rich array of products, from chatbots like Yuanbao, which we work closely on, to AI search, and enterprise deployments like intelligent customer service and smart marketing. Additionally, products like CodeBuddy and WorkBuddy have become incredibly hot lately and rely heavily on models. How do you view this approach of Co-Design?

Shunyu Yao: There are three main points. First, the prerequisite for Co-Design is that the model itself must be solid; a lot of foundational work has to be done right. I view pre-training as a relatively product-agnostic process. When done solidly, it provides a powerful foundation. Its greatest characteristic is that it’s a generalizable learning process, meaning its advancements can continuously elevate the value of various downstream tasks.

For post-training, I believe the most critical thing is establishing the correct Evaluation (Eval). In China, there is an unfortunate tendency where people love to game leaderboards (刷榜). But I believe it is far more important to be realistic and construct truer Evals based on actual products and real-world applications.

Second, we must realize that “practical value” outweighs leaderboard-climbing value. We have done a massive amount of work on this, engaging in deep Co-Design with various products. A crucial element of Co-Design is building mutual trust. We worked incredibly hard to achieve this mutual trust—figuring out how to utilize product data effectively, handle data flywheels (回流), and set up proper Evals. There are many details here that I won’t get bogged down in.

Third, I want to say that the most fundamental difference between the LLM era and past AI is generalizability. Before LLMs, if you were building a translation product, you just needed to curate excellent translation data. If you were making a Go program, you just needed great Go data. Today, however, even if you want to build a pure Coding Agent, you’ll find that you need far more than just coding data. You need excellent conversation skills, strong search capabilities, robust instruction-following, and deep reasoning. It requires a highly complex data taxonomy, and you need a real taste for it.

The corollary to this is that systematic product ecosystems hold a major advantage. For example, our Co-Design with Yuanbao endowed our model with strong chat and search capabilities, which can then be transferred to other products like ima and WorkBuddy. So, while these products provide different types of data, the data can cross-generalize. It forms a network-like ecosystem, and the value of this is becoming increasingly important.

Dowson Tong: Right. External leaderboards are a type of Eval, so what is the difference between our internal Evals and those external leaderboards?

Shunyu Yao: First of all, benchmarks still have value; they aren’t entirely useless. It’s just that these leaderboards are highly prone to overfitting. Relying on real-world data helps model R&D in a few ways:

• Discovering baseline flaws: One of the main reasons we release a Preview model is to gather real-world feedback to fix baseline issues that leaderboards miss. This leads to massive improvements in the official version.

• Deeper understanding of the actual prompt distribution: For example, benchmark questions are usually highly precise with long, concrete descriptions, and typically consist of a single question. In real scenarios, however, user queries are often vague—just a sentence or two—and involve continuous follow-up questions. These scenarios inspire us on how to train models better.

• Finding inspiration to push new domains: We can spark ideas from these products to advance benchmarks or domains that don’t even exist yet. For instance, we’ve done a lot of work on in-context learning recently, and feedback from Yuanbao has given us tremendous inspiration and help. So, the way products and models empower each other is becoming an increasingly vital topic in AI.

Dowson Tong: I remember when we were developing Yuanbao in the early days, we ran into issues with multi-turn instruction following. The way users iterate on prompts in a live product is quite different from a benchmark. The capabilities required in a real product genuinely seem to differ significantly from benchmarks.

Shunyu Yao: You’ve asked me so many questions, let me ask you one.

Dowson Tong: Go ahead.

Shunyu Yao: I remember our very first chat where you shared a lot about your past experiences—from the eras of Qzone and QQ Show (which was my favorite product back in primary school) to QQ Music, Tencent Cloud, and now Yuanbao. It’s fascinating chatting with you because you’ve built all kinds of products: to-C, to-B, products from the ancient internet era, and now AI-era products. I’m curious, what is your first principle for product development? Which experiences and values remain constant, and what has changed?

Dowson Tong: I think ultimately, product development always boils down to what the user actually needs, how to solve their pain points, and how to create value for the user or client. In different eras, and even across different industries, a product must deliver real value for users to buy into it and keep using it. That’s why whether it was the PC internet era when we built Qzone, the mobile era with various content products, or the industrial internet era with Cloud, we always had to spend a lot of time and energy listening to customers and trying to solve their problems. The underlying logic hasn’t changed all that much.

However, building products in the PC and mobile eras is indeed quite different from building them in the AI era today.

First, from a paradigm standpoint, prior to the AI era, we mostly thought about satisfying user needs through fixed features. As a product or service provider, you mapped out a specific capability and let users select options from a menu—it was like a “pre-prepared dish” where they could only order what was already there.

But in the AI era, the open-ended nature of services introduces very different requirements and challenges. With simple interaction methods like natural language or voice, you as the product developer don’t actually know what the user will ask. Therefore, you must fully leverage the model’s capabilities to understand user intent. Then, through things like the large model’s logical reasoning, it can call upon tools. The product’s job is to supply the model with various usable tools to handle these open-ended requests. This is very different from how we used to build products.

This also applies to the Evals you mentioned earlier. In the past, product development followed clear, concrete descriptions of detailed features, with structured processes for design, R&D, and testing. That waterfall workflow was quite defined. With AI products, I’ve found the biggest change is that our entire workflow has to be redesigned. Especially this year, as the vast majority of code is generated by AI, our engineers might spend more time on system and architectural design, leaving the actual coding to AI while stepping in periodically to guide and correct it.

Testing also has to shift left—becoming much more front-loaded. We have to think ahead about our Evals, environments, requirements for open-ended answers, and even alignment to match the style our users need. I feel that building products in this era requires a much more comprehensive set of capabilities.

Shunyu Yao: It’s gotten harder.

Dowson Tong: Much harder. Let me ask you about Hunyuan 3. Everyone is saying that Hy3 Preview is your debut show at Tencent. Can you introduce what specific changes have been made in Hunyuan 3?

Shunyu Yao: Honestly, I don’t think there are any secrets. To some extent, building large models today is a somewhat trivial matter in terms of the formula: you need to get the infrastructure right, and you need to get the data right. The algorithm part is actually relatively simple. I’d highlight a few key points:

First, we completely rebuilt the infrastructure, both for pre-training and reinforcement learning. Second, we made massive changes to our data and Evals—focusing on how to define truer problems, enrich data taxonomy, and elevate data quality. This is an endless pursuit.

Third, a lot of critical decisions—including how to recruit, how to set the cadence for model releases, and navigating the daily trade-offs—don’t have a clear-cut formula. I think it is highly taste-driven.

Because of this, I’m actually curious to ask you a question. Since you just brought up Co-Design, what are your thoughts on it? What tasks do you think should be handled by the model, and what should be handled by the product?

Dowson Tong: I think Co-Design has been continuously shifting over the past two years across different stages. To some extent, this evolution moves in tandem with the upgrading of model capabilities. Of course, as the industry, market, and user needs evolve, it requires better alignment from both the model and product sides.

One thing that struck me deeply is the challenge of alignment. When we sit down together for product alignment meetings, we face many different decisions. The product side might want to solve a problem in a specific direction, and we have to figure out how the model can meet that need. But it always goes back to the fact that models require data. How should that data be annotated? To what level of granularity? What constitutes good versus bad annotation? Because some behaviors need to be rewarded, while others need to be penalized.

Then there is the Eval and assessment. If the product team identifies something as a good user experience, but the Eval system doesn’t recognize it, the product built out of that mismatch will be inconsistent. So, my sense of Co-Design is that it requires different roles within a project team to participate in product design from the start. Once product goals and directions are set, multiple roles must achieve solid alignment on open-ended questions. Without this alignment, you’ll find the product’s behavior becomes unpredictable or even random, because the model’s training process gets muddled. This is a profound realization I’ve had over the past two years working on Co-Design between product and model teams. What do you think?

Shunyu Yao: I feel that, as I just said, the hardest part is establishing trust. Empathy is incredibly important because, at the end of the day, the goals of model developers and product developers have areas where they align, but also many areas where they don’t. Model people want the model to be as powerful as possible, while product people want user needs to be satisfied as much as possible. So there is a natural misalignment, and having the ability to change perspectives is vital.

You asked how we did Co-Design step-by-step with Yuanbao. A significant detail was that back then, we dispatched our strongest core talent from the post-training team to help Yuanbao optimize their post-training. At that time, our own pre-training wasn’t fully ready yet, but we knew that maintaining a product like Yuanbao and protecting its DAU would be incredibly critical for our subsequent model development and innovative collaboration.

At the time, many algorithm engineers didn’t understand this choice, and I had to work very hard to explain it to them. Looking back, those efforts were about making the right trade-offs. That move made the product team realize that the model engineers were truly looking out for the product. I think this played a monumental role in our later cooperation, including the successful launch of Hy3 Preview on Yuanbao. Of course, there are plenty of technical aspects to discuss, but the hardest part is always building trust and practicing empathy.

Dowson Tong: Yes, I completely agree. Let’s switch gears. You are the creator of the ReAct framework, and your PhD research centered around language agents. Have your perspectives from a few years ago materialized today? What are some examples?

Shunyu Yao: I felt quite sentimental the other day when I re-read my doctoral thesis. It felt like returning to an ancient era. The title of my thesis was “Language Agents: From Next-Token Prediction to Digital Automation,” written back in 2019.

Dowson Tong: Seven years ago.

Shunyu Yao: At that time, we literally only had GPT-2. Back then, it could only do next-token prediction, and the text it generated wasn’t very coherent and had a lot of rough edges. It was hard for people to imagine that it would one day become a world-changing force. Back then, if you had a bit of imagination in your research—for example, if you prompted it with “The capital of China is,” and through next-token prediction it answered “Beijing”—people were already thrilled that it somehow possessed knowledge.

My imagination was a bit wilder back then. I felt that GPT was something beautiful—that spitting out the next token was an elegant, minimalist, and universal concept. I believed its potential wasn’t just about outputting text, but about automating everything in this world. I actually didn’t think big enough back then; I called it “digital automation,” but looking at it now, it could be “digital and physical automation.”

My work during my PhD was mainly split into two parts. The first was how to establish an Agent methodology—how to turn a next-token prediction machine into an Agent, an automated machine. The most important piece of that work was probably ReAct. I remember a night in July 2022 when I first connected the PaLM 2 API with a hand-coded Wikipedia API. When it successfully answered a question based on that webpage through multi-turn interaction for the very first time, it felt like a dim light bulb suddenly flashing bright. As far as I knew, it was the first time humanity had connected an LLM to the internet for multi-turn interaction. My feeling then was that this would change things in 5 or 10 years—but it happened even faster than I imagined.

I remember when we first proposed SWE-bench, I thought: okay, if this can be achieved, it will clearly bring immense value—maybe tens or hundreds of billions at the time. But now we are looking at trillions. My initial thinking was still too small.

The other part of my work was defining digital automation tasks. For example, WebShop was the first internet-based Web Agent task, and InterCode and SWE-bench were among the earliest Coding Agent tasks. Looking at it today, the two most important pillars of Agent technology are indeed Web Agents and Coding Agents. The other day I was chatting in a group and looked at the conclusion of my PhD thesis where I listed my future work directions for 2024: first was training models for Agents, second was safe and robust deployment, third was scientific discovery, and fourth was helping humans. It made me quite emotional to realize how fortunate I am to be working on exactly those future directions right now.

Dowson Tong: Incredible. You are seeing the entire industry advance along every single one of those directions.

Shunyu Yao: Maybe I still didn’t think big enough. I thought my vision was wild back then, but it turns out reality is even bigger.

Dowson Tong: Technological advancement often outpaces our expectations. Today, everyone says that Agents consume massive amounts of tokens. For Hunyuan’s next-generation model R&D, what is your focus, and what areas do you think are most important?

Shunyu Yao: Without a doubt, Agents and Coding Agents are things we must do, much like pre-training was; they represent foundational capabilities. Personally, I believe Coding Agents are fundamental for several reasons. One key reason is that coding is somewhat Turing-complete. When a model has the ability to control its own file system and run within a container, it becomes a complete system.

Today, Agents are unquestionably the core focus for every model vendor. I think our approach will differ in a few ways:

First, even though coding is the most critical task today, we will still emphasize a comprehensive ecosystem. I firmly believe that to do coding well, you need data far beyond just coding—you need chat, reasoning, and all sorts of diverse inputs, because the core value of a large model is generalizability.

Second, the role of products is visibly becoming more important. Figuring out how to utilize live online data flywheels is a challenge every model vendor is grappling with. This is where our accumulated Co-Design experience becomes incredibly valuable.

Third, we still need more imagination. Whether in technical evolution, product iteration, or even the shift to the next paradigm, we need to dedicate resources to exploratory work, even if it comes with uncertainty.

Dowson Tong: From the product side, because we hear more and more voices expressing “token anxiety” due to the exponential growth of token costs, I hear many clients and even colleagues keeping a close eye on credit or token consumption. How can we make our models more token-efficient when solving a problem or completing a task? I’ve seen tasks where a model tries different paths; it might know certain directions won’t work out, but it still tries them, hits a dead end, and then tries the next one. What can be optimized here to make overall token usage more efficient?

Shunyu Yao: I think when people discuss cost-effectiveness in China, they often focus strictly on model architecture, but it’s actually a highly complex system. The most important factor is performance. Many people tell me that they ultimately find using a model like GPT-4-Opus cheaper than using a lesser model, because it gets the job done right much faster, saving human effort. Performance is paramount; if your performance is excellent, cost-effectiveness follows.

Particularly this year, robustness on simple tasks will become even more vital. Getting a relatively simple task right on the first try is a more critical piece of cost-effectiveness than just tweaking model architecture.

The second part is the cost itself. China is leading the world in this aspect—we have done a tremendous amount of work optimizing our costs. The core challenge in cost optimization is figuring out how to use a smaller model to execute higher-value tasks efficiently. On top of that, there is architectural innovation, long-context management, and scaffolding work to be done. If we can build a relatively small model that rivals large model performance and exhibits extreme robustness across the majority of tasks, even a 1% or 2% improvement in long-horizon tasks could be incredibly valuable in China today.

I’m curious to ask you: when did you realize that Agents represented a fundamentally new product opportunity, what is your current understanding of them, and where do you think the bottleneck lies for creating a truly seamless Agent?

Dowson Tong: The Agents we build take on different product forms depending on the scenario. In Agent design, a large part of it is about maximizing the model’s inherent capabilities. Of course, as models iterate and grow more powerful, the scaffolding work required by the Agent decreases. I’ve noticed several of our products over the past period simplifying their Agent architecture as model capabilities improved—allowing us to focus more on providing diverse tools and creating more “skills” so the model can complete tasks more efficiently.

We also supply the model with what we call “memory”—extracting information about the user’s past habits and preferences to serve as context. In a coding environment, we provide relevant code context; in WorkBuddy for office collaboration or PPT creation, the content focus and the context fed to the model will differ. So when we build different Agents, the key is understanding what content and information are vital and relevant in that specific scenario so we can coordinate cleanly with the model, giving it the information it needs while fully unleashing its capabilities.

Shunyu Yao: We’ve recently launched some products like WorkBuddy that have received quite good word-of-mouth, powered by small teams iterating rapidly behind the scenes. I’m curious, compared to traditional product R&D, what changes have occurred in product teams regarding R&D and organizational management in this new Agent era? What are your thoughts on this?

Dowson Tong: I was recently helping WorkBuddy with an organizational announcement, and I looked at their exceptionally flat organizational structure. It differs significantly from our past product structures. It consists of more small teams—three to five people—converging to tackle a specific domain. There is a lot of experimentation involved, and they also have to support Infra experiments. We let different small squads explore and then validate. Since most experiments don’t immediately yield positive feedback, we must be tolerant of team trial-and-error. Refining user workflows and achieving positive outcomes through a massive volume of experiments is exactly what the organizational form of native AI and Agent products needs to support.

Furthermore, engineers used to spend a lot of time writing code, but today, that work can undoubtedly be handed over to AI. Consequently, we are seeing a blending of roles. Everyone acts like a product manager—everyone needs a thorough understanding of user needs and must design the desired product form. Every engineer behaves more like a visionary leader, driving multiple Coding Agents to develop and build according to our product requirements. At the same time, they participate in evaluation and testing early in the cycle, leveraging AI capabilities to front-load quality assurance and alignment work.

I also want to ask a question that gets discussed quite a bit. Many people mention that Tencent is “slow” and that we didn’t capture certain opportunities in AI fast enough. Do you think we are truly slow? What exactly does the second half look like? Could you elaborate on that?

Shunyu Yao: I feel like that’s a question I should be asking you! (Laughs)

Dowson Tong: Haha.

Shunyu Yao: First of all, I think there are two major judgments to make about AI today. The first is: do we view AI as a short-term game or a long-term game? In Silicon Valley, a lot of anxiety is spreading—people saying everyone will be unemployed in a year or two, AI will replace all jobs, so we should make money quickly for two years and retire. But clearly, our judgment is that AI is a long-term game. In fact, I think AI is just getting started; the second half has barely begun. I don’t believe chatbots will be the only super-apps; that would be a very bleak world. There will undoubtedly be a continuous stream of new opportunities. Today feels a bit like the 1970s when the PC was just born; there is still so much work to be done.

The second judgment is whether this will be a linear, winner-take-all game or a diversified game. Granted, over the past few years, everyone has witnessed a very clear main line: pre-training, post-training, then Agents, and Coding Agents. It seems like everyone is doing the exact same thing and copying each other, which is also quite uninspiring. But will the future become more singular or more diversified? My personal view is that it will become much more diversified. Without a doubt, Coding Agent productivity will become increasingly vital, but it’s just getting started. There is still so much unfilled space in this world—multimodal, embodied AI, and many other new things are unfolding or just beginning. From this perspective, if we believe the second half is just starting, it’s certainly not over. Our past models and products underwent a lot of exploration and took some detours, which is completely normal. If you’ve never done something before, doing it for the first time will inevitably involve twists and turns. What matters most is whether you can face yourself honestly, be real, look at feedback and adapt, and maintain patience. This mindset is what matters most in the second half.

Dowson Tong: People often like to pick a specific point to criticize Tencent, but we welcome everyone holding us to a higher standard. We are a highly diversified company with many products across numerous tracks, and multiple teams pushing forward different projects simultaneously. Naturally, in such a complex organization, we might move faster in some areas, slower in others, and experience failures during exploration. These reminders are excellent, and there are certainly areas where we can do better.

But as you said, this is a marathon. Tencent possesses an incredibly rich tapestry of application scenarios. Going back to why you chose Tencent initially—AI requires context, and models require an immense amount of it. The accumulation across Tencent’s diverse products and tracks over the years can provide valuable, scenario-specific context to unleash the model’s value.

In this long-distance race, I am confident the model will continuously iterate, user needs will keep evolving, and new product paradigms will emerge. For instance, we reacted quite rapidly to the AI wave early this year. Meanwhile, Agent products like WorkBuddy actually started development a couple of years ago, evolving from our work on Coding and CodeBuddy as we realized non-programmers also had intense demands. Today, we hear high expectations from clients regarding how our different products can be combined. We are right in the middle of this marathon, so please continue to give us reminders and suggestions, and use our products to give us positive feedback.

I see that we have run over time. I’d like to begin by thanking Shunyu for sharing his insights today. We’ve covered model building, product development, Co-Design, the evolution of Agents, organizational transformation, and industry opportunities. Over the past year, we’ve seen many enterprises share common confusions or face similar challenges. If products aren’t utilized effectively, enterprises cannot sustain investment, or if the ROI is insufficient, it slows down the adoption of AI across industries.

To address this, we are launching a suite of Efficiency Agent Toolkits today to help enterprises deploy application Agents more securely and efficiently. Behind this are three core capabilities of Tencent:

1. Scenario Connectivity: Leveraging high-frequency touchpoints like WeChat, WeCom, and Yuanbao to embed large models into real business workflows, deeply connecting with users, data, and ecosystems.

2. Engineering Mastery: Utilizing a comprehensive Harness system to ensure Agents run stably, reliably, and sustainably. This is backed by powerful AI Infra—including high-speed networking, high-throughput storage, and a high-performance Agent Runtime—to guarantee high GPU utilization.

3. Model Drive: Relying on the Hunyuan large model and model-product Co-Design to balance practicality, cost-effectiveness, and ROI.

At the same time, we are launching the “Tencent AI Co-Creation Camp (Phase II),” joining hands with ISVs and MSP partners to co-create industry solutions and establish benchmark case studies. In the upcoming segments, my colleagues will share further details on these initiatives. This afternoon, we will host multiple parallel forums covering product technology, industry scenarios, and ecosystem co-creation across various personal and enterprise productivity scenarios, alongside an AI product launch session to introduce over 20 new products and capabilities to everyone.

That concludes our dialogue for today. Thank you, Shunyu, and thank you all!

Disclosure: I hold no position in Tencent but have had a consulting relationship with the company within the past 12 months.

The summit in Beijing produced a “constructive strategic stability” framework and a warming of tone between the two presidents. But heads of state can announce a multi-year horizon; somebody else has to operationalize it. Does the United States have the people — the linguists, the regional experts, the long-haul institution-builders — to do that work?

This week, I chatted with two Texans answering that question from very different directions. David Firestein is the inaugural president and CEO of the George H.W. Bush Foundation for U.S.-China Relations in Houston. A career State Department officer who served four administrations and spent five years in Beijing, he’s one of the few Americans concurrently affiliated with both a Republican and a Democratic presidential legacy institution. Eddie Conger is a retired Marine major and the founder and superintendent of International Leadership of Texas (IL Texas) — a public charter network of 26 campuses serving 26,000 K-12 students and now the largest K-12 Chinese language program in the country. In January, IL Texas became the first-ever K-12 recipient of the Bush China Foundation’s George H.W. Bush Award for Educational Excellence in U.S.-China Relations, joining past honorees including Jimmy Carter and Henry Kissinger.

The conversation tackles what David calls the Texas paradox: the same state that just forced its cities to dissolve their sister-city ties with China, that pioneered the closure of Confucius Institutes, and that has restricted Chinese land purchases is also where the country’s deepest K-12 Mandarin pipeline is taking root — and where the most institutionally Texan China foundation has chosen to plant its flag. David and Eddie talk through engagement honestly (no straw-man Jeffersonian-democracy fantasies), the erroneous strategic assumptions undergirding U.S. China policy, what real national-language capacity would look like operationally, what they each saw in the Trump–Xi summit, and what 5,000 IL Texas graduates are already doing in the world.

• 05:40 — Eddie’s path: Marine infantryman to fifth-grade math teacher to the country’s largest K-12 Mandarin program

• 09:12 — David on when the Nixon-through-Obama engagement consensus broke (fall 2017) and how the lexicon shifted

• 13:30 — Engagement honestly defined: what its architects actually believed vs. the Jeffersonian-democracy straw man

• 18:30 — The Texas paradox: HB 128, sister cities, Confucius Institutes — and the country’s biggest Mandarin program in the same state

• 31:26 — Texas business, Tim Dunn, faith, and the gap between political rhetoric and where Texans actually are

• 41:54 — The Defense Department safety/security story: when one Chinese word ate an entire bilateral agreement

• 46:16 — David’s six (or seven) erroneous strategic assumptions: China doesn’t want to be us, and it has benefited more than anyone from the current order

• 52:28 — What real national-language capacity would actually look like: NSLI, WALARA, and why the pipeline still runs through one Marine major in Texas

• 01:06:07 — Reading the Beijing summit: the warmth, the “constructive strategic stability” framing, and whether Trump’s Taiwan call could blow it all up

• 01:17:10 — Where 5,000 IL Texas graduates are now — White House interns, service academies, doctors, entrepreneurs, and one high-schooler who pulled a stranger out of the surf

Paying it Forward

Eddie:

Carlos Carrasco; Emily, who is heading to Taiwan this fall on a one-year high-school program; and another student bound for the University of Texas at Austin who will be sent to South Korea for a semester as a freshman — a rarity at UT. And he closes with Miles, a high-school senior and Marine scholarship recipient who, just weeks ago at a national competition in Florida, heard someone screaming for help in the ocean, called for a boogie board, and swam out to save a drowning swimmer while a crowd of adults stood on the beach. “Others before self,” as Eddie puts it — the IL Texas mission statement made flesh.

David:

Frank Zhou, who just graduated from Harvard and chaired the Harvard College China Forum; Selina Gong, a recent graduate of the Harvard Kennedy School involved in its annual China conference; and Dean Dai, a recent graduate of Columbia’s SIPA who has been deeply involved in many of the most significant student-run China conferences in the country — and who, as it turns out, was one of the organizers of the University of Chicago U.S.-China Economy and Business Summit where Kaiser spoke earlier this month.

Recommendations:

Eddie: John Pomfret, The Beautiful Country and the Middle Kingdom: America and China, 1776 to the Present (Henry Holt, 2016)

David: Stephen Roach, Accidental Conflict: America, China, and the Clash of False Narratives (Yale, 2022)

Kaiser: David Grann, The Wager: A Tale of Shipwreck, Mutiny and Murder (Doubleday, 2023)

Also mentioned: Stephen R. Platt, The Raider: The Untold Story of a Renegade Marine and the Birth of U.S. Special Forces in World War II (Knopf, 2024)

Listen in the embedded player above. Transcript courtesy of CadreScripts follows the podcast info below. Image by Keya Zhou.

The summit in Beijing produced a “constructive strategic stability” framework and a warming of tone between the two presidents. But heads of state can announce a multi-year horizon; somebody else has to operationalize it. Does the United States have the people — the linguists, the regional experts, the long-haul institution-builders — to do that work?

This week, I chatted with two Texans answering that question from very different directions. David Firestein is the inaugural president and CEO of the George H.W. Bush Foundation for U.S.-China Relations in Houston. A career State Department officer who served four administrations and spent five years in Beijing, he’s one of the few Americans concurrently affiliated with both a Republican and a Democratic presidential legacy institution. Eddie Conger is a retired Marine major and the founder and superintendent of International Leadership of Texas (IL Texas) — a public charter network of 26 campuses serving 26,000 K-12 students and now the largest K-12 Chinese language program in the country. In January, IL Texas became the first-ever K-12 recipient of the Bush China Foundation’s George H.W. Bush Award for Educational Excellence in U.S.-China Relations, joining past honorees including Jimmy Carter and Henry Kissinger.

The conversation tackles what David calls the Texas paradox: the same state that just forced its cities to dissolve their sister-city ties with China, that pioneered the closure of Confucius Institutes, and that has restricted Chinese land purchases is also where the country’s deepest K-12 Mandarin pipeline is taking root — and where the most institutionally Texan China foundation has chosen to plant its flag. David and Eddie talk through engagement honestly (no straw-man Jeffersonian-democracy fantasies), the erroneous strategic assumptions undergirding U.S. China policy, what real national-language capacity would look like operationally, what they each saw in the Trump–Xi summit, and what 5,000 IL Texas graduates are already doing in the world.

• 05:40 — Eddie’s path: Marine infantryman to fifth-grade math teacher to the country’s largest K-12 Mandarin program

• 09:12 — David on when the Nixon-through-Obama engagement consensus broke (fall 2017) and how the lexicon shifted

• 13:30 — Engagement honestly defined: what its architects actually believed vs. the Jeffersonian-democracy straw man

• 18:30 — The Texas paradox: HB 128, sister cities, Confucius Institutes — and the country’s biggest Mandarin program in the same state

• 31:26 — Texas business, Tim Dunn, faith, and the gap between political rhetoric and where Texans actually are

• 41:54 — The Defense Department safety/security story: when one Chinese word ate an entire bilateral agreement

• 46:16 — David’s six (or seven) erroneous strategic assumptions: China doesn’t want to be us, and it has benefited more than anyone from the current order

• 52:28 — What real national-language capacity would actually look like: NSLI, WALARA, and why the pipeline still runs through one Marine major in Texas

• 01:06:07 — Reading the Beijing summit: the warmth, the “constructive strategic stability” framing, and whether Trump’s Taiwan call could blow it all up

• 01:17:10 — Where 5,000 IL Texas graduates are now — White House interns, service academies, doctors, entrepreneurs, and one high-schooler who pulled a stranger out of the surf

Paying it Forward

Eddie:

Carlos Carrasco; Emily, who is heading to Taiwan this fall on a one-year high-school program; and another student bound for the University of Texas at Austin who will be sent to South Korea for a semester as a freshman — a rarity at UT. And he closes with Miles, a high-school senior and Marine scholarship recipient who, just weeks ago at a national competition in Florida, heard someone screaming for help in the ocean, called for a boogie board, and swam out to save a drowning swimmer while a crowd of adults stood on the beach. “Others before self,” as Eddie puts it — the IL Texas mission statement made flesh.

David:

Frank Zhou, who just graduated from Harvard and chaired the Harvard College China Forum; Selina Gong, a recent graduate of the Harvard Kennedy School involved in its annual China conference; and Dean Dai, a recent graduate of Columbia’s SIPA who has been deeply involved in many of the most significant student-run China conferences in the country — and who, as it turns out, was one of the organizers of the University of Chicago U.S.-China Economy and Business Summit where Kaiser spoke earlier this month.

Recommendations:

Eddie: John Pomfret, The Beautiful Country and the Middle Kingdom: America and China, 1776 to the Present (Henry Holt, 2016)

David: Stephen Roach, Accidental Conflict: America, China, and the Clash of False Narratives (Yale, 2022)

Kaiser: David Grann, The Wager: A Tale of Shipwreck, Mutiny and Murder (Doubleday, 2023)

Also mentioned: Stephen R. Platt, The Raider: The Untold Story of a Renegade Marine and the Birth of U.S. Special Forces in World War II (Knopf, 2024)

Transcript

Kaiser Kuo: Welcome to the Sinica Podcast, a weekly discussion of current affairs in China. In this program, we look at books, ideas, new research, intellectual currents, and cultural trends that can help us better understand what’s happening in China’s politics, foreign relations, economics, and society. Join me each week for in-depth conversations that shed more light and bring less heat to how we think and talk about China.

I’m Kaiser Kuo, coming to you this week from my nearly empty, soon-to-be-on-the-market home in Chapel Hill, North Carolina. I believe this is my penultimate taping here. Got one more show to tape next week, and then I’m gonzo. The house is gone.

Sinica is supported this year by the Center for East Asian Studies at the University of Wisconsin-Madison, a national resource center for the study of East Asia. Listeners, please support my work by becoming a paying subscriber at sinicapodcast.com. I do need your help to keep doing this work, so please do subscribe.

Here’s a question that doesn’t get asked nearly often enough in Washington — Whatever the United States decides it wants from its relationship with China, to compete with it, to manage or even contain it, to strike deals with China, or some shifting combination of the above, does it actually have the people to do any of that well? The institutions, the language capacity, the human infrastructure. We talk endlessly about strategy toward China, about leverage and competition, and red lines.

We talk much less about whether there is a deep enough bench of Americans who can actually read the room, who can read the documents in the original, who can understand the strategic logic of Beijing on its own terms, and do the long, unglamorous, difficult work of dealing with a country, whether you were cooperating with it or facing off against it. The summit in Beijing a couple of weeks ago, whatever you make of its constructive strategic stability framing, was a reminder of the stakes. Heads of state can announce a multi-year horizon, but somebody has to operationalize it, and that somebody is rarely the person who’s actually at the podium.

So today, I want to look at the capacity question, where America’s ability to deal with China actually comes from, who’s building it, and what it means, that the answer right now runs through, of all places, Texas. To take on that question today, I am joined by two Texans who, from very different directions, are trying to answer it with a yes, or trying to make a yes possible, at least. David Firestein is the inaugural president and CEO of the George H.W. Bush Foundation for U.S.-China Relations, based in Houston. He was a career U.S. diplomat from 1992 to 2010, serving across four administrations with a primary focus on China.

Five years at the U.S. Embassy in Beijing, four in Moscow. He has interpreted Mandarin for top-level U.S. and Chinese officials. He’s the author of three books on China, including two China-published bestsellers. And he was, in the mid-1990s, the first foreigner ever to have a regular column in a People’s Republic of China newspaper. Before the Bush China Foundation, he founded UT Austin’s China Public Policy Center and taught at the LBJ School of Public Affairs, where he still serves on the dean’s advisory council.

He’s one of the very few Americans concurrently affiliated with both a Republican and a Democratic presidential legacy institution. David, welcome to Sinica. Great to see you.

David Firestein: Thank you so much, Kaiser. It’s truly a pleasure and an honor to be with you.

Kaiser: The honor is entirely mine. Also joining us today is Eddie Conger. He is the founder, superintendent, and CEO of International Leadership of Texas, IL Texas, which serves 26,000 K-12 students across 26 campuses in the Dallas-Fort Worth, Houston, and College Station region, and is the largest K-12 Chinese language program in the United States. Eddie is a Texas A&M grad, a retired U.S. Marine Corps major with 20 years of active service, including a posting in Okinawa.

After retiring from the Corps in 2001, he started his second career as a fifth-grade math teacher in Dallas Independent School District, ISD, and went on to lead Thomas Jefferson High School, where in four years, he drove the graduation rate from 52% to 81%. He founded IL Texas in 2012. In January, the Bush China Foundation gave IL Texas its first-ever K-12 award — The George H.W. Bush Award for Educational Excellence in U.S.-China Relations, joining a list of previous recipients that includes, oh, you know, people like Henry Kissinger and Jimmy Carter. Eddie, congrats on all that and welcome to Sinica.

Eddie Conger: Thank you very much. It’s an honor and a pleasure to be here, sir.

Kaiser: Well, thank you. Thank you for making the time. And Eddie, I want to start our conversation with you because, you know, the trajectory that you’ve taken is the one that maybe is apt to surprise people most. Texas A&M, 20 years as a Marine officer, retiring as a major in 2001. You came home to Texas and became a fifth-grade math teacher. and then took on a struggling high school in Dallas and achieved really, really impressive results. And by 2012, you’d built the largest Chinese language and exchange program in Dallas ISD — 600 students before leaving to start IL Texas.

So I want to ask, when did the conviction form for you that the most patriotic thing you could do for American national security, for the country was to teach working-class Texan kids Mandarin Chinese? Was it like a single moment or was it 20 years in the making?

Eddie: I believe it’s an entire lifetime in the making. First, the concept of service — knowing early on that I wanted to serve as a Marine Corps infantry officer, the 20 years in the Marine Corps, the studying of warfare from Clausewitz, but also Sun Tzu, the ancient Chinese philosopher. All of that and the current situation, the current environment that you always pay attention to if you are a student of international relations, and especially how it impacts the military. There’s an acronym that’s taught. It’s called DIME, D-I-M-E. D is for diplomacy. I is for information intelligence. M is for the military and E is for the economy.

Well, too often, those of us who serve and have sworn oath to the Constitution, occasionally our perspective, or at least mine, and this is 100% only my thoughts, is that we dive immediately to the military and those who are willing to serve, protect, and defend. Instead of having an equal emphasis on the diplomacy, equal emphasis on the I to help us with our national power, and to be able to navigate the world that we live in. Living in Okinawa, I was able to see how fast my own children were picking up the Japanese language. And knowing here in Texas, we only require two years of a language to graduate from high school. Even at Texas A&M, when I graduated in ‘81, they had a language requirement, but you could substitute FORTRAN and COBOL for the language, and that’s what I did.

But it was that sense of service. And then in 2008, when I went to take over the principalship there in Dallas of TJ, all of the dollar value of the flights coming into DFW Airport, the highest dollar value was with China. And so, if that is the highest trading partner, second was with Mexico, Spanish-speaking, why would we not train our students to be able to speak the language, understand the culture, even from a purely economic perspective? I would want us to be forearmed, empowered, whatever the right word is, to be so comfortable in our skin of the language, but just as importantly, the culture.

And so that was the part of service that I wanted to do in the traditional school system. And then, of course, which led me to apply to the State Board of Education for this very, very unique mission of servant leadership and then mastering those three languages — English, Spanish, and Chinese.

Kaiser: You’ve got quite a bit of the world covered with those three languages. That’s for sure. David, your trajectory is in some ways the institutional inverse of Eddie’s four administrations as a State Department officer, Bush 41, Clinton, Bush 43, Obama. You didn’t watch the bipartisan consensus on China engagement dissolve from the outside. You actually lived it from the inside. When did you first sense that what we call the sort of Nixon through Obama consensus on engagement was actually over for you? Was there a specific moment for you?

David: Yes, there was. I would say 2017, toward the end of President Trump’s first year in office, after his election in 2016, was when I really saw the tide turn in terms of U.S. elite and public sentiment really turn quickly in a much more negative direction. Of course, it really started with President Trump as a candidate for president, declaring his candidacy in 2015 and running for nearly two years, a year and a half plus for the presidency.

China obviously was a very big theme in his rhetoric, and his framing of China and his tonality and word choice around China was extraordinarily harsh. It was unlike anything that we had ever seen in the modern era and decades and decades in American political life. And it started to normalize a lexicon around China that we simply hadn’t heard before, and that would have been considered irresponsible, unpresidential, and so on. And I think it culminated in the fall of 2017.

Elite public opinion, the media in this country, academics in this country really starting to coalesce around a much more negative framing of China than we had ever seen and much more harsh language, particularly from our political class, and particularly at that time from the Republican Party, which we might also refer to at that time as the MAGA Republican Party, led by the man who invented MAGA – Donald Trump. And so, I remember very well in the fall of 2017, really seeing things change, if not overnight, over a period of just a few weeks from a fairly moderate overall national tonality around China to a much more adversarial framing and a much harsher type of tonality and rhetoric.

And by 2018, we started to see that manifest itself in terms of legislation and presidential policy initiatives, including, of course, the tariffs, which were initially launched in May of 2018. And at that point, it really was a race to the most adversarial place, rhetorically, that we’ve seen in terms of American framing of China since Nixon. And I think you’re right, Kaiser, when you point out that there was a broad continuum from President Nixon through President Obama, where we had bipartisan

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Our phrase of the week is: “social currency” (社交货币 shè jiāo huò bì)

Context

A new sports craze is taking hold in China.

It’s called Hyrox. There’s no Chinese translation for it — it’s just known by its English name.

Hyrox is a “hybrid fitness race” (混合健身竞速赛) founded in Germany in 2017 by Christian Toetzke. It has exploded across China’s first-tier cities over the past year.

Hyrox is described as the “Olympics for the middle classes” (中产奥运) in China. The majority of participants are in the 30-to-39 age bracket, mostly urban professionals, who are also among the most active people on social media.

For them, every Hyrox event has two arenas: the physical venue, and the social media feed.

Because the real appeal is the status symbol joining a Hyrox race brings:

“Snapshots from training and race day have naturally become a new form of social currency.

China’s middle class has largely moved on from flexing luxury logos and fancy meals — now they show off the winding GPS run trackers on their fitness apps and their finishing moments at Hyrox.”

一张张备赛、参赛的照片，也能水到渠成地成为社交货币。如今，中产们早就放弃为奢侈品Logo和一顿漂亮饭拍照，转而开始展示运动App里蜿蜒的跑步轨迹和Hyrox的完赛瞬间。

And with that, we have our Sinica Phrase of the Week.

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What it means

“Social currency” is a four-character phrase which translates directly as “social” (社交 shè jiāo), “currency” (货币 huò bì).

This is one of those phrases which started life in English but has become far more widespread in Chinese than in its language of origin.

The concept builds on the work of French sociologist Pierre Bourdieu, who in the 1980s developed the idea of “social capital” (社会资本) — the non-financial resources people accumulate through their networks and identity.

The specific term “social currency” was coined in 2009 by Erich Joachimsthaler, founder of New York consulting firm Vivaldi Partners, who adapted Bourdieu’s framework for the digital marketing age.

The phrase became widely known in the English speaking world after Wharton School professor, Jonah Berger, made it the first of six principles in his 2013 bestseller Contagious: Why Things Catch On. Berger defined it as how people “use social currency to win the admiration of family, friends, and colleagues”.

The Chinese translation of Contagious (疯传) was published in January 2014, which rendered “social currency” in Chinese as “社交货币”.

The phrase spread through Chinese marketing circles over the following years, becoming established vocabulary by 2018, when it was being used to analyse the rise of brands like Xiaomi (小米), which used social media to build brand and engagement with their fans and customers.

By 2019 to 2021, “social currency” had crossed over into mainstream usage. With the rise of the “aesthetics economy” (颜值经济), brands like premium ice cream maker Chicecream (钟薛高) — designed to be photographed and shared on social media — turned “social currency” into a standard way of describing why young Chinese consumers buy what they buy.

The term “social currency” fits the new Hyrox trend perfectly. For many of China’s urban middle class who take part, the race itself is only half the appeal. The training photos, the finishing-line moments, and the matching PUMA shoes, are just as important. These are the social currency they gain from taking part.

The organisers of Hyrox has done an incredible job of seizing the commercial opportunity. Photographers are stationed throughout the course. And after the race participants can buy the full set of their photos for 214 yuan ($31).

So social currency, it turns out, can also be turned into hard currency by smart brands.

Andrew Methven is the author of RealTime Mandarin, a resource which helps you bridge the gap to real-world fluency in Mandarin, stay informed about China, and communicate with confidence—all through weekly immersion in real news. Subscribe for free here.

Read more about how this story is being discussed in the Chinese media in this week’s RealTime Mandarin:

RealTime Mandarin

#278: A new sports craze takes off in China

A new sports craze is taking hold in China…

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13 days ago · 5 likes · 3 comments · Andrew Methven

While both Washington and Beijing have publicly insisted that little changed during the meeting, Joe argues that several comments from President Trump may signal a meaningful shift in how the White House approaches Taiwan – one that could introduce greater uncertainty into an already delicate cross-strait equilibrium.

The conversation explores:

• Why Trump’s comments on Taiwan have generated concern despite official claims of policy continuity

• Whether the administration is beginning to treat arms sales to Taiwan as a broader negotiating tool in US-China relations

• How Beijing may interpret Trump’s increasingly transactional approach to Taiwan

• Why even a simple phone call between Trump and Taiwan leader Lai Ching-te could trigger a major response from China

• The key signals analysts should watch for to determine whether Beijing’s Taiwan policy is truly changing

Then, in the second half of the episode, Andrew is joined by Trivium’s Head of Markets Research Dinny McMahon to examine an emerging priority in Beijing’s economic strategy: “producer services.” While the term may sound obscure, Dinny argues it sits at the heart of China’s effort to move up the global value chain and build world-leading companies.

Their discussion covers:

• What producer services are and why Chinese policymakers are suddenly focused on them

• How Beijing hopes to create more Chinese versions of companies like Apple and NVIDIA

• Why Xi Jinping increasingly sees services as a way to strengthen – rather than replace – manufacturing

• The role of design, engineering, R&D, logistics, and branding in China’s next stage of industrial development

• How producer services could help address China’s youth unemployment challenge

• Whether AI will undermine Beijing’s plans to create more high-value white-collar jobs

Taken together, the two conversations offer a window into how China’s leaders are thinking about both the country’s most sensitive geopolitical challenge and the next phase of its economic transformation.

Transcript

Andrew Polk: Hi, everybody. Welcome to the latest Trivium China Podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium Co-Founder Andrew Polk, and I am joined today by Trivium’s Head of Geopolitical Analysis and Research, Joe Mazur. Joe, how are you doing, man? Good to have you back on the pod.

Joe Mazur: I’m doing great. I’m in a good mood. Tired, but happy, basically.

Andrew: I appreciate it, man. Well, I appreciate you joining me late. For our listeners, it’s 8.40 p.m. in Beijing, where Joe is, on May the 27th; 8.40 a.m. in the U.S., where I am. So, Joe, appreciate you sticking on late for this, man.

Joe: Yeah, happy to do it so I can enjoy your august company.

Andrew: Well, we are going to talk a little bit more about sort of the Xi-Trump meeting. We want to get beyond the Xi-Trump meeting. We’ve done sort of two podcasts. This will be the third that’s sort of relevant. But the big reason I wanted to have Joe on is he wrote a piece for our subscribers about Donald Trump’s kind of comments and the wider U.S. administration’s comments on Taiwan, as well as, of course, China’s perspective on Taiwan, which hasn’t really changed much.

But arguing that while they are saying that U.S. policy hasn’t changed, there actually seems to have made some pretty major adjustments if seen through. And we’re not sure, we’ll get into the details, of course, but not sure whether some of these adjustments were Donald Trump just speaking off the cuff or whether we should really be thinking about a change in U.S. policy, but any kind of changes in that sort of unstable equilibrium can obviously cause quite a bit of chaos. So, it was a great piece. I wanted to get Joe in and talk us through it.

And then for listeners, on the second half of the pod, I’m going to talk to our Head of Markets Research, Dinny McMahon, about a piece he wrote on producer services, which sounds like a snooze fest but is actually really important. We think Beijing is investing on this. And when we talk about producer services, what we’re talking about is trying to build companies like, for example, Apple, who do a lot of really good design work that then goes into their industrial processes and makes everybody want to buy an iPhone, right?

So, this is services that industrial producers can do to make their products and brands more competitive globally. So this is China wanting to build really strong global brands. So that’ll be interesting as well. So, stick around for that. But before we get into all of it, of course, we have to start with a customary vibe check. Joe, I know it’s late in Beijing, but how’s your vibe right now?

Joe: Yeah, I’m going to say the vibe is quiet, too quiet. I think in the aftermath of the Trump meeting and the Trump trip, you had that initial, you know, crazy rush of analysis. And then since then, I mean, obviously, stuff is still popping off in Iran. And so, we’re waiting to see what happens there. But sort of in the directly China-adjacent policy verse, it’s been just sort of like back to the pre-2019 days of just kind of writing about developments day by day at a fairly steady pace instead of perpetually drinking from the fire hose. So yeah, that’s my vibe is quiet, too quiet.

Andrew: It’s a strange feeling, right? You’re like, oh, when are we going to get…?

Joe: Yeah, it’s suspicious.

Andrew: Well, that actually reminds me. We should have said this on the pod before, but for listeners who are also readers of Trivium’s work, there’s a good chance that at some point over the past 10 years, can you believe we’ve been doing this 10 years? That’s crazy. And Joe, you’ve been with us since 20…

Joe: 2019.

Andrew: 2019.

Joe: 2019, yeah.

Andrew: So you’ve been doing it for seven years with us. There’s a good chance that if you’ve ever chuckled, there’s a good chance that you’ve chuckled at something we’ve written because we try to like view a little bit of humor. And if you’ve ever chuckled at something we’ve written, there’s like a 90% chance that that line was written by Joe Mazur. He’s not only our chief geopolitical analyst, but also our punter in chief, I guess. For example, he’s had a lot of bangers over the years, but for example, he was the one who came up with the title of our weekly a couple weeks ago, which was, this state visit could have been an email, which I then also have to point out to listeners who may not know, that joke was also made on Saturday Night Live, basically verbatim. And so, we’re waiting on our royalty checks.

Joe: Yeah, the lawsuit’s pending.

Andrew: Yeah, exactly. But that’s a little inside baseball for listeners. But you have Joe Mazur to thank. So, Joe, thanks for your wit and witticisms over the years as well.

Joe: Yeah, it’s the very least I can do.

Andrew: That’s my vibe today, Joe, it’s thankful for your humor. How about that?

Joe: I do like that. I can live with that.

Andrew: Great. Well, great vibe check. Love a little inside baseball. Want to get to the meat of the discussion, of course, but we also have to do the quick housekeeping as well. First, a quick reminder that we’re not just a podcast here. Trivium China is a strategic advisory firm that helps businesses and investors navigate the China policy landscape. That, of course, includes policy towards China, Western capitals like D.C., London, Brussels, and others. So, if you need any help on that front, either policy towards China or Western capitals or domestic policy in China, that may impact your business or your fund, reach out to us at hq@triviumchina.com.

We’d love to have a conversation with you and see how we can support your business or your fund. Otherwise, if you’re interested in receiving more Trivium content, check out our website, again, www.triviumchina.com, where we have a bunch of different subscription options. We’ve got free options, paid options, options for markets, options for tech, options for the general China watcher/sort of corporate executive that needs to know the lay of the land. So, check that out. You’ll definitely find the China policy intelligence option you need on our website. And finally, please do tell your friends and colleagues about Trivium.

As always, we always say it, everybody says it, but it is true — the more you tell people about our podcast, the more you tell people about our company, the more we grow, and we appreciate it a lot. And it really means a lot in terms of a recommendation from a trusted colleague. It goes a lot further than just seeing Trivium randomly on the internet or in the news or whatever. So, please don’t hesitate to do that.

All right, that’s the intro. Joe, why don’t you kick us off? Just set the stage for us in terms of maybe some of the commentary that happened. Okay, I talked a little bit with Jon Czin last week about kind of Taiwan’s role in the Xi-Trump meeting, but why don’t you tell us a little bit about that and maybe some of the comments that were made by Trump himself and the administration afterwards, and then we can get into the analysis of it all.

Joe: Yeah, so during the meeting, I guess I should back it up first, in the lead-up to Trump’s visit, I think there was a lot of, obviously, maybe anxiety, a lot of questions about what the meeting would herald for Taiwan. I think that there was kind of this concern that Trump would sell out Taiwan for a song and a dance and then give away some kind of major concession in exchange for something that wasn’t really that important. And I think those anxieties were maybe not unfounded, but I think always kind of on the unlikely end of things to happen, especially in the context of this visit where expectations were fairly low going in.

And it ended up being more of a get-to-know-you, an icebreaker, the beginning of a process rather than the culmination of one. And so, as it was, Xi Jinping brought it up and said that it’s the most important issue. Taiwan is the most important issue in U.S.-China relations. And if it’s not handled appropriately, it could lead to conflicts. And it’s just a really sort of forceful restatement of China’s long-held position on Taiwan and where Taiwan fits in the broader U.S.-China relationship. So, no surprise there from the Chinese side. I mean, it really kind of put me in mind of somebody trying to get a concept through to a particularly dull student, really just trying to hammer this point out — This is serious. We need to take it seriously.

In the initial reactions from the American side also gave the impression that nothing much had changed. You had Marco Rubio talking to, I forget who it was, I think it was CNBC maybe, if I’m wrong about that, my mistake, but basically saying that no, there had been no policy change on Taiwan. And then Trump himself speaking to the Fox News, he was asked point-blank, “Has anything changed?” He said no. He said, I will tell you this, he made that comment about, “I don’t want anybody going independent.” I don’t want to be in a position of fighting a war 9,500 miles away from the U.S. And I think that was broadly in keeping with U.S. policy, depending on kind of your reading and your inclination.

You could argue that that was sort of a less ambiguous position than in the past. He was saying, I really don’t want anyone going independent. That’s maybe closer to opposing independence, which is the language that China wanted, as opposed to not supporting independence. I mean, kind of this whole thing is sort of a semantic minefield. There’s a lot of very, very small nuances of language that carry a lot of meaning, especially on the Chinese side. But then you’re also dealing with Donald Trump, who is somebody who doesn’t tend to use words very precisely, who tends to speak off the cuff.

And so, without being dismissive, and just saying, oh, he doesn’t know what he’s talking about, you are put in a difficult position of having to parse, what does Trump mean when he says X? How does he feel about Y? And so, I mean, if you just kind of look at that portion of the interview, the comments from Marco Rubio and from Donald Trump, it suggests that there is broad continuity on American Taiwan policy, right? Nothing has really changed. But later on in the interview, Trump said a number of things that kind of do indicate that maybe certainly he views Taiwan in a different light than previous administrations, and that he might be willing to act on it in kind of a different way from previous administrations.

Andrew: Yeah, just quickly, sorry, before you go on there, a quick comment, and I don’t want to interrupt your flow. But I think it’s very Trump in a way, where sort of it’s kind of all things to all people when he says, “I’m not looking to have somebody go independent,” that’s the exact quote, which, if you’re someone who’s arguing for continuity, you’re saying, “Yeah, of course, he doesn’t support independence.” And then if you’re China, maybe you hear he opposes independence. But I’m not looking to have somebody go independent, as you say, is not the most precise language in the world. So, that’s what kind of brings us to this situation where the administration and people in the administration, who also probably don’t really know what Donald Trump is thinking, can very clearly make the argument, you know, it’s continuity, nothing’s changed. The president was very clear.

But then there’s everything else that you’re about to say that supports maybe actually something different is afoot. So sorry, I just wanted to throw that in there quickly.

Joe: Yeah, well, so I’ll start with the language that we already know about or the cause that we already know about, which is that Trump has this massive chip on his shoulder about Taiwan having “stolen” the U.S. semiconductor industry, right? This is something that he’s talked about frequently. He imposed tariffs on Taiwan kind of as part of Liberation Day, but kind of the specific view to bringing semiconductor manufacturing back to the U.S. And now you see TSMC opening plants in Arizona. But clearly in the Trumpian world of dealmaking, he feels that that Taiwan has, in effect, screwed the U.S. as far as that goes.

So, that’s something to kind of think about, whereas previous administrations view Taiwan in the security context, maybe like an ideological context, if previous administrations felt that they had been screwed by Taiwan on semiconductors, I think that was a thought they kept to themselves. And so, I mean, that’s something to kind of consider as we talk about what we’re going to talk about next. But then when he was asked about the arms sale, this pending arms sale to Taiwan, which was kind of on the docket before the visit and was held off on because simply the visit would not have happened. It’s this record-breaking $14 billion arms sale to Taiwan that was up for discussion.

He was asked about that, and he said, “I’m holding that in abeyance. It depends on China. It’s a very good negotiating chip for us.” Now, that’s different. That’s unprecedented. I want to caveat it by saying, yes, every administration ever has kind of read the room with regards to U.S.-China relations and approved or not approved or held off on arms deals to Taiwan kind of on that basis. But to explicitly call it a negotiating chip and to say it depends on China, that’s putting a level of agency on China in regard to this arms deal that, as far as I know, China’s never been part of the discussion to that extent, at least sort of in an acknowledged way.

So, that’s very interesting. And it’s worth keeping in mind that the Taiwan Relations Act requires the U.S. to provide or to sell weapons to Taiwan to provide for its defense. It’s not a favor that the U.S. is doing for Taiwan. I mean, it is in the sense that it’s something that Taiwan needs, but it is law-bound to do this. And to then kind of say, “Oh, well, it’s a negotiating chip,” again, there’s probably always been some level of wheeling and dealing on sort of the security dimension. But in terms of kind of making it a broader negotiating chip, that is something that I don’t think we’ve seen before.

Andrew: Yeah. And can you just, for listeners, be a little bit clearer on what you mean by China has not been kind of brought in in this way? I mean, you mean the considerations of what China wants have not played into U.S. conceptions of how many arms to sell to Taiwan and when. Is that right?

Joe: Well, what I mean is that previous administrations will have said, “Okay, we’re at a critical moment in U.S.-China relations. Better hold off for now. Or we don’t think this is a particularly sensitive sale, so we’re going to go ahead and do it.” There have been those internal discussions. But what it sounds like to me, and again, you’ve got to take Trump’s commentary with a grain of salt and with the understanding that he is kind of imprecise and inexact. It sounds like he’s offering China kind of a proactive role at the negotiating table saying, “What we do depends on the deal that you strike with us.”

Now, when he says a negotiating chip, that’s open to interpretation, right? Does that mean a negotiating chip in defense terms, in commercial terms? Is potentially a little bit more worrying. But it’s to explicitly call these deals a negotiating chip, I think, certainly represents a departure from what a U.S. president is willing to certainly admit. But I think also just in terms of the logic that he approaches the Taiwan issue with, that seems new to me.

Andrew: Yeah. Okay. And then you’ve also noted that Beijing is also signaling that future U.S.-China dialogues may depend on how the White House proceeds with this sale as well. So, what has China been signaling from their side around that?

Joe: Yeah. So, the reports that I’ve seen says China reportedly has made the hosting of an upcoming U.S. Defense Department delegation contingent on the way the Trump administration handles this possible $14 billion arms sale. So, meaning that the delegation will likely go ahead so long as the arms sale does not. And what has been reported is that this visit is going to pave the way for a future trip by Defense Secretary Pete Hegseth, which, first of all, is interesting in the fact that he’s planning a trip back to Beijing so soon after having just left.

And again, to be clear, China kind of making diplomatic contact contingent on what the U.S. does with regard to Taiwan, that’s also not new. But what’s interesting is that, shortly after this was reported, Acting Navy Secretary Hung Cao, I’m not sure how he pronounces it, he told Congress that the administration was pausing the sale in order to preserve weapon stocks for use in the Iran war. Now, that might be exactly what’s going on. Maybe they do need those weapons for Operation Epic Fury, but it’s also quite convenient that at the same time, these effectively kick the can down the road on this arms deal at a moment when China’s saying, don’t do it.

So, again, it’s a little bit murky. It’s hard to say whether or not this was a direct response to that Chinese admonishment, but certainly it could be read that way.

Andrew: Yeah, the optics certainly are not good. And it does strain credulity, let’s say, to say we want to make sure we’ve got these extra weapons around. When he also says in the statement, he says, we have plenty, but we’re just being double cautious.

Joe: Yeah, we have plenty. We don’t need to save any, but we’re going to save some up. So it’s just, I don’t know, and again, how much of this is a sort of Trump administration posturing and how much the issues are actually at play, I think, is a little bit hard to parse. But yeah, the optics are interesting, to say the least.

Andrew: So then, all right, next step, there’s a few more developments to go through. I guess let’s put those in the context of is this kind of good news or bad news if you’re sitting in Beijing, sitting in Zhongnanhai, thinking about Trump’s transactional approach. I think, obviously, the leadership in Taipei is worried that they’ll get, as you said, kind of traded away for some other interests. But at the same time, the transactional approach can make Trump quite mercurial, or at least feed into his mercurial aspects. So talk to us about kind of maybe how Beijing is thinking about this, and then kind of the very last development that may be raising their eyebrows.

Joe: Yeah. So, I mean, based on everything that we’ve talked about so far, that all sounds like good news from China’s perspective, the fact that or the possibility that you could make a concession on something less important. I mean, in the context of China’s policy priorities, ultimately, almost nothing is more important than getting what it wants on Taiwan. So, I think the idea that you could craft some kind of package so enticing that you could negotiate a reduction in U.S. support for Taiwan certainly seems like good news, right?

The problem is what Trump said on Air Force One on his trip back to the U.S., which is he was asked by journalists about what he discussed about Taiwan. He said he had a very good understanding. He said no one understands Taiwan better than me or something to that effect. And then said that he planned to call, I have to find the quote…. I would have to speak to the person right now who’s running Taiwan to discuss the arms sale.

Andrew: Which is just such a hilarious phraseology.

Joe: Yeah, it’s 100% guaranteed he forgot his name. And in case you were wondering, yes, we’re talking about Taiwan’s leader, Lai Ching-te. He’s a pretty important player in kind of this whole drama. But, you know, that person who’s running Taiwan, he sounds like he could be out of the mainland’s Taiwan affairs office, to be honest. Okay, so here’s why that’s a problem, though.

Andrew: Sorry, sorry. I also maybe think to give Trump some credit here, like I think that’s also probably like it’s been drilled in his brain. You don’t refer to him as the leader or the president, right? Because there’s one giant two system or whatever. So, maybe his way of kind of remembering that piece of it, but also not knowing how to refer to the guy in real time and so just say whoever’s running Taiwan. In that way, it’s pretty clever.

Joe: If that’s the case, I could almost sympathize with him a little bit because who amongst us hasn’t been in a situation where we’re talking about, oh, you know, the guy with the thing? But anyway, the problem is, if you call that guy who’s running Taiwan, that’s unprecedented. Because no sitting U.S. president has ever talked to a leader of Taiwan since the U.S. normalized relations with China in 1979. And so that would be like the biggest protocol breach you could imagine. And Trump has already gotten close to this once before. Because as president-elect, I think shortly after he was elected in 2016, the then leader of Taiwan, Tsai Ing-wen, called him and he accepted the phone call.

And that one, I can kind of almost, you know, maybe his team wasn’t kind of in place yet to advise him on the ins and outs of China policy, I don’t know, but he’s already come close to sort of breaking that taboo. But to do so as a sitting second-term president, that’s sort of a, from China’s perspective, an absolute no-no, a massive protocol breach. And something that I think that they’re going to feel compelled to respond to, certainly verbally, perhaps with a military drill, which is kind of their want whenever they feel that Taiwan is trying to cross one of their red lines. And that speaks to the fact that this transactional, unpredictable way that Trump treats Taiwan and many other things, for that matter, cuts both ways.

So, if you have the ability as China’s influence the outcome in your favor, but there’s also the possibility that he’s going to do something that goes completely against your interests and confers undue dignity from China’s perspective on this leader. So it is quite dangerous. And I think the irony…. Oh, sorry. Go ahead, Andrew.

Andrew: Well, I was just going to say, you know, speak to how China may think about the idea that, I mean, maybe Trump calls up Lai and says, “Hey, cool it.” Basically kind of gives him, for lack of a better way of putting it, like the kind of PRC talking points and says, “I don’t want this headache.” And sort of like we understand he did with the Japanese prime minister when Japan and China’s most recent spat or more than spat was kicking off, you know. So, there’s also totally the possibility that if Trump and Lai were to speak, it would somehow be in Beijing’s interests.

But kind of speak to that possibility. That’s still probably not a risk worth taking from China’s standpoint, right?

Joe: Yeah, that’s correct. I think you’re right. If he does call Lai, he probably will do so and just say, “Hey, chill out,” which is effectively the same thing that China has been trying to say to Lai, along with a lot of other messaging as well. But even so, again, going back to kind of the China is very conscious of protocol, its use of phraseology kind of in general. I mean, how much of our time do we spend kind of parsing, okay, they use this character and not that character, which they changed from last year. But especially around something as sensitive as Taiwan, every protocol, every bit of language matters.

And even if Trump does just get on the phone to Lai and just essentially repeat Chinese talking points, that’s still going to be unacceptable, right? I conclude this piece by telling everyone not to panic, which I feel like I spend a lot of my time, and we as a company spend a lot of our time telling people not to panic about Taiwan, and I think that’s still true. But the problem here is that so much of the way that these three parties act is kind of guided by norms and precedents. And when you start diverging from those norms and precedents in favor of one party or the other, it creates instability that wasn’t there before. It blurs where the lines are, and it could possibly lead to miscalculations.

It could lead to one side or another taking risks. And so, I think that one thing that we also say to clients a lot is that China has a lot more tolerance for the status quo in cross-strait relations than many people give it credit for, right? The line that we always use, which I think is a great line, is that it’s a risk to be managed, not an opportunity to be seized. And I think that when U.S. policy is consistent, they say their piece, China says their piece, that’s when cross-strait relations tend to be at their most stable. Now, obviously, Taiwan is an agent in all this too. I don’t want to discount Taiwan’s agency. But ultimately, the mainland is going to behave in a fairly predictable way. Taiwan is going to behave in a fairly predictable way within the context of their two-party system. Trump is, if anyone’s not going to behave predictably, it’s going to be him.

Andrew: So I want to press on that a little bit, the piece on Taipei’s perspective and what they might do. You know, you make a great point that I keep calling this an unstable equilibrium, which means if anything gets knocked, like an unstable equilibrium like holds temporarily, but it’s very fragile, right? And so, to your point, if any one actor changes their approach, it can change the risk calculation, the approach of another actor, which then kind of can spiral or can just change the entire calculus for everybody.

But you wrote in your piece that also specifically if Trump and Lai were to talk, but even if they aren’t, if it now becomes more actively negotiated, well, Taiwan has cards to play as well in terms of not only around the potential arms sale, but a closer relationship with Washington via potentially saying to Donald Trump, well, we will invest in and help you build a U.S. semiconductor industry, right? So kind of talk through how you think about that piece of it.

Joe: Yeah, I mean, that’s basically it, is that when it’s a negotiation, you’ve got essentially, I think, possibly the way that Trump views this, there are two bidders. China’s made its spiel, maybe there’s going to be sort of economic inducements that China offers to get Trump to behave in a certain way. But Taiwan has leverage, too. I mean, one point that I probably should have made clearer at the outset about this arms sale, the problem is its size, right? This is going to be a record-breakingly huge arms sale, and it’ll be the second one in a row, if I’m not mistaken, because the one in December was, I believe, around $11 billion, which was record-breaking for the time, right?

So, maybe Taiwan has an incentive to say, all right, well, China is… I mean, they’re not going to frame it as quite such a one-to-one, and the auction analogy is just sort of a, it’s not really how it’s going to happen. It’s more just kind of a way of thinking about it. Taiwan could say, “All right, well, we want to purchase even more arms. We want to do an even bigger, more beautiful deal.” And such a big, beautiful deal is exactly the kind that’s going to worry China, right? And Trump is a fickle guy when it comes to international relations. I mean, remember, I guess about a year ago, kind of his back and forth with Putin and Zelensky.

And one was on the outs and the other was in the good books. And then within a week, it changed, right? And so again, this is maybe a little bit of a different situation. But at the same time, Taiwan has agency to kind of make its own case for why the U.S. should sell it bigger arms packages, why the U.S. should hear it out as an active participant kind of in this three-party equilibrium. Again, the rebuilding of the U.S. semiconductor industry is something that would, I think, massively, does massively appeal to Trump.

And again, it’s very hard to say what specific contours this will have going forward or what specific approach Taiwan or China will lead with to get more of what they want from Trump. But if everything’s a negotiation, then negotiations have been over. And that does imply a level of flexibility, a level of unpredictability that I think perhaps hasn’t existed for quite some time.

Andrew: Yeah. And one final question on the negotiation point, which, from China’s perspective, which is going into this meeting, I myself and a lot of people have thought that potentially China would try to link some sort of offer on the Iran situation in terms of pressuring Iran to do more of a ceasefire or find an off ramp for the war or open the Strait of Hormuz or whatever to some sort of softening of language on Taiwan. And I saw that you all, I think, started by you had an internal Slack chat about this, but I also saw Ryan Hass at Brookings talking online about that was never going to happen because China doesn’t want the Taiwan issue linked with other issues because it is a non-negotiable.

Just by saying like, “Oh, we’ll give you some on Iran if you give us some on Taiwan,” sort of almost like reduces the primacy of the Taiwan issue in terms of the Chinese approach. And so, he was saying like, they don’t negotiate with this. And I don’t know if your internal conversation was sparked by Ryan’s comments, but I thought that was a really good point by him. And I just know you guys also talked about it, wanted to see where you landed on it.

Joe: Yeah, it was kind of a topic of debate. I think the question that we posed was that, from China’s perspective, does kind of agreeing to treat it in a transactional way cheapen China’s position or harm China’s position. And so we discussed it a bit. And I think there is precedent for China treating the Taiwan issue as something that is transactional. I think probably the best example that you can see is the fact that China has, in a lot of respects, bought off a lot of countries that previously recognized Taiwan, kind of recently in Central America and the Pacific.

I guess you could argue that it required those countries to make the first move before it reaped the benefits of Chinese investment that was linked to that. And I would have to look into it to see how explicitly China linked its uptick in aid to revoking recognition from Taiwan. But I mean, there’s an obvious quid pro quo at play there. You know, I think the Iran question is maybe different because that’s a huge wasp’s nest, which China wasn’t really eager to wade into anyway. But I think that, certainly, the Chinese side is going to be studying what they could conceivably give and what they could conceivably get.

I think they’ll proceed with tremendous caution, and I don’t think that they’re going to wade into other sort of geopolitical hornets’ nests with the expectation that suddenly the U.S. will change position on Taiwan, especially because Trump is sort of unreliable as far as that goes. He doesn’t always do what he says. But I think that there is some scope for China buying into this transactional approach and maybe kind of thinking about what it can give in exchange for some kind of concession.

Andrew: Yeah, good points, all good points. Last question, then. You’ve touched on it a little bit, which is to say kind of how we think about this with clients, and to say it’s more of a risk to be managed but an opportunity to be seized. But why don’t you just wrap up with any sort of concluding thoughts around how people, generally, listeners, clients should be thinking about this issue, particularly in light of everything we’ve just said with potentially new variables introduced here. I think we’ve still both believe it’s still pretty low risk that Xi Jinping is going to “ try to take Taiwan.” But give us a good framing for how we should be thinking about this issue.

Joe: I would say just kind of look for any indication that precedents are being broken. In recent years, China’s had a fairly standard playbook when it comes to what it sees as provocation. They’re emanating from Taiwan or related to Taiwan initiated by another party. And that’s usually to hold the drill. There’s usually some statement from the Taiwan Affairs Office. And that’s usually as far as it goes. I think if we start seeing kind of an increase in the scope, a difference in the type of drills that are being conducted, that’s certainly something to monitor. That in and of itself is not necessarily time for crisis panic mode, but it is something to monitor. I think the biggest thing is to keep an eye on the language coming out of Beijing.

This is something that we focus on every two sessions, every kind of important anniversary with Taiwan. We’re always checking to see if there’s been any kind of change in language, right? Right now, it’s about peaceful reunification, but also never accepting Taiwan independence, and kind of all the set phrases. If those set phrases begin to change, then that’s maybe an indication that Chinese policy is changing. That is almost always how it goes to the major shift in policymaking in China is that it’s presaged by a change in the language used to talk about it.

From the U.S. side, obviously monitor what the U.S. government is saying and what Donald Trump is saying. I think that our listeners, if they’re basically familiar with the sensitivities around Taiwan, they’re going to have a decent sense of what is taboo from China’s perspective and whether or not Trump is pushing that envelope, whether he’s violating those taboos.

So that’s maybe kind of a very general response for how to think about it and how to approach it. But for right now, really, the only thing that makes sense to do is to continue to monitor the situation and just sort of have an understanding of what’s precedent and what’s not.

Andrew: Yeah, that’s a really good frame. And I think people would be well to sort of anchor their analysis or thinking around this in those changes in language and/or lack thereof. Right. I think that’s one of the issues, right, is every time Xi Jinping says something about Taiwan, it’s often reported as if it’s the first time he said it or it’s new. And then we go back, and it’s like the same thing he said for 15 years or whatever. And this is a problem, as I often say to new analysts at Trivium, just because it’s the first time you’ve seen the language doesn’t mean it’s the first time the language has appeared. I say that to clients as well, right? So anyway, I think that’s sort of...

Joe: I’m still impressed by it, but especially when I was new at Trivium, I remember Trey in particular just has this memory bank of precedent. He’s like, oh, well, I said, oh, this is an interesting new development, and he said, “Well, actually, this was first heralded in 2013 in X document.” I’m like, okay, well, you know, so Trey’s got an incredible memory for that kind of thing. And it really does help to have been around for a while in this space and to kind of know what’s new and what’s not.

Andrew: Totally. And that’s where the institutional knowledge of a company like Trivium matters a lot. And, you know, we won’t get into the whole AI thing, but AI, I think, can’t really do that yet. So, hopefully we can stay one step ahead. Joe, thanks so much for the time today, especially late in your evening. I appreciate it, man. This was excellent.

Joe: Yeah, my pleasure. Happy to do it.

Andrew: And for listeners, please stick around now for my conversation with Dinny McMahon about producer services, China’s investment in them, and kind of the goal of building global brands and globally competitive companies. It’s going to be an interesting conversation on that front as well. Stick around.

I’m joined now by Trivium’s Head of Markets Research and frequent podcast guest, Dinny McMahon. Dinny, how are you doing?

Dinny McMahon: Good, mate. Good to see you.

Andrew: Yeah, great to have you on.

I already warned the listeners about this at the top of the episode, but we are going to get pretty wonky here. I mean, we always get wonky, but this one’s going to be especially wonky, talking about some of Dinny’s most recent research, specifically on what the Chinese refer to as producer services, which again, sounds boring. Don’t just turn off the podcast. It’s much more interesting than you actually think. I already kind of flagged at the top. This is like, think of Apple doing design work to make the iPhone amazing so that everybody wants to buy it.

So it’s like services that sort of feed into the industrial process that create really strong global brands. And I hope I’m not stealing too much of your thunder, but that’s kind of what we’re going to talk about that today. Any kind of introductory remarks up top from you to set the stage here, Dinny?

Dinny: No, mate, you just made them. I got nothing. We can all go home now.

Andrew: I’m trying to keep people interested. Come on.

Dinny: Well, first you tell them it’s boring, but don’t turn off. And then you’re like, I better roll this back. Let’s try and keep them interested.

Andrew: All right. So let’s get into it. So last year, government agencies became increasingly focused on promoting consumer services as a key to boosting household consumption. That definitely made a lot of sense at the time, right? China is now at an income level where people are spending more on services than physical goods, or they’re getting closer to that level where people are spending more and more on services. And that, of course, includes health, education, travel, entertainment, etc. But as I just flagged, this year we’ve seen an interesting expansion into how Chinese officials at the highest level are talking about services. It’s not just about consumer services, it’s about the producer services idea. So, Dinny, why don’t you give us a little bit more flavor about what producer services are, even though I stole a little bit of thunder?

Dinny: I mean, producer services, when it comes down to it, they’re just services that businesses use, and they make up a pretty significant amount of any developed economy. I mean, the Chinese sort of say that the EU and the U.S., it accounts for between 40 and 50% of their economies. I think it’s using a bit too much of a generous definition there. But however you cut it, business or producer services are a really important part of a developed economy. Now, China divides these things up into 10 categories, but the short version is that it includes things like logistics and transport warehousing, financial services, and leasing.

For some reason, the Chinese sort of divide those into two different categories, but it’s broadly speaking, anything finance-related. It’s human resources and education. It’s marketing and accounting and consulting and e-commerce, software design, communications, research and development, industrial design. If you kind of think of businesses as broadly falling into two buckets, either they’re producing something physical or they’re involved in services. And that’s kind of what it comes down to. I mean, you look at the Chinese economy, and the history of the past 40 years has been making stuff.

It’s building infrastructure and housing, it’s manufacturing, and it’s industrial. And producer services are sort of the gel that kind of fits in between all that. I mean, it exists in significant volumes, but just hasn’t had the same sort of attention, and China hasn’t really had the of need as they increasingly will in the future.

Andrew: Yeah. Well, and I think the piece specifically around logistics has come very much to the fore, not just in China, but globally, right? Recently, in particular, because of all the geopolitical machinations that have occurred over the past several years, including, well, I don’t know if you’d call this geopolitics, but the pandemic, Russian invasion of Ukraine, and then the Iran war and all this stuff about supply chain. It’s like, yeah, we can make this stuff, but we got to be able to procure the things we need as inputs. And then we got to get the stuff to market, right? And so, especially in a crunch time, I just think logistics really jump out as something that becomes particularly important.

I think Chinese companies are pretty good at this individually, but the logistics industry, for example, is super fragmented in China. And so, anyway, that’s one that jumps out at me as like very tangibly in a way associated with production and delivery of goods to market. But anyway, that’s kind of a side. Tell us why, you know, I just mentioned some geopolitics that may have put stuff like this on the radar, but why do you think it’s on your radar and Chinese officials’ radar all of a sudden?

Dinny: Well, this year it’s sort of been turning up in a lot of high-level documents. So, it first got a shout-out in the 15th five-year plan, which was released in March, which said that one of the goals of the next five years is to strengthen the weak links in production-oriented services across the entire supply chain. So, I mean, that kind of set the stage. And then after that, you’ve just kind of had a quick succession of the very highest levels of government officials, you know, sort of pushing hard about just how important this thing is. So, nearly April, there was a national-level services industry conference that was chaired by Premier Li Qiang. Xi Jinping wasn’t there, but he kind of sent notes or instructions.

A couple of weeks after that, there were guidelines published by the state council on expanding and improving the quality of services. I mean, all of this is service-related. It’s not just producer services, but 12 months ago, anything that was services-related was all about consumer services. And now the two producer and consumer are getting equal billing in all of these documents and meetings. And then the PBOC in May sort of chimed in and sort of seemed to be promising that they’d provide financial support to help with weaknesses of production-oriented services.

And look, just beyond that, there’s kind of been this full court press in the Chinese media, in the People’s Daily, in Qiushi, in the Economic Daily, all talking about the importance of services overall, but with this sort of new and very heavy focus on producer services.

Andrew: Okay, so you’ve set the stage, but can you walk us through what you think the goal is in terms of what officials are trying to achieve here in the producer services area? You mentioned this national conference, where Xi Jinping did not attend, but he sent comments in which he said that he wants to see the development of major Chinese service brands. Does that mean he wants to see like a Chinese Goldman Sachs, Chinese FedEx, WPP? What does he talk about when he says that?

Dinny: I don’t think he’d mind seeing any of those things. But what he really wants, I mean, this isn’t about creating financial behemoths or logistic behemoths. I mean, some of China’s big logistics companies seem to be sort of on track to do that themselves anyway. But what he really wants and kind of what the leadership, broadly speaking, wants is they want Chinese apples and Chinese NVIDIAs. Now, I know this is where things get a little-

Andrew: I thought you meant like Chinese apples that you eat. But, sorry. Okay, I’ll stop.

Dinny: You should write that one down, mate. You should use that at every opportunity.

Andrew: I literally thought that’s what you meant when you said Chinese apples.

Dinny: Yeah, maybe I need to come up with another example. But they want things like Chinese NVIDIAs, right? And this is where things get a little bit confusing because companies like Apple and NVIDIA, they actually make things. So when you think about them, you don’t think of them as being services companies. You think of them as being manufacturers to some extent. But the thing is, the value of what they produce isn’t in the manufacturing. It’s in the design. It’s in the technology, the R&D. It’s in the engineering. And those are producer services.

And this is something that comes up a lot in the Chinese press. You see this example used time and time again. They point to mobile phones, and they say, look, about 60% of the actual value of a phone is in those intangible qualities and the design and the engineering and the technology. It’s all wrapped up in the patents. And I think it’s quite a sort of an important example for China because the world’s phones are literally manufactured in China. And there’s been a big issue for years that such a, at least a decade ago, such a relatively small percentage of the value add that goes into the manufacturer or the assembly of the iPhone in China actually accrues to China because all the kind of the really valuable components traditionally have come from elsewhere, and sort of gradually China has kind of clawed a bigger and bigger part of the value of an iPhone.

But their point now is that, look, companies like Apple capture the lion’s share of the value of something like that. And it’s not because of the manufacturing. It’s because of the sort of the services sign of things, where no one’s actually making anything, but they’re coming up with ideas. And that’s really at the heart of what’s going on here. So, in developed economies, when we hear business services, our minds typically go straight to things like finance and accounting and marketing, logistics, even management. But when Beijing talks about producer services, they’re actually talking about manufacturing still, right?

So, China’s manufacturing dominance is relying less and less on cheap labor. Both the manufacturing process itself is becoming more technical as it requires fewer and fewer people and more and more robots or sort of machines. And at the same time, the nature of the products China is manufacturing is becoming more technologically advanced. And so. Beijing’s vision of maintaining manufacturing dominance increasingly relies on research, design, and engineering. And a recent Xinhua column kind of summed it up like this, what it said is… “It’s necessary to better leverage the role of the service industry as a catalyst for technological innovation and a value multiplier for manufacturing.”

And I think that kind of gets to the heart of this thing. Ultimately, when they’re talking about producer services, it’s not kind of the sort of typical stuff that we think about. It’s about doubling down on manufacturing and being able to sort of capture or retain a dominance in manufacturing as China moves into more advanced production processes and more advanced manufactured goods.

Andrew: Yeah, that makes a lot of sense and totally jibes with how I think Xi Jinping and other senior Chinese leaders think about the economy and how they want the economy to evolve. And also, unlike in the West where we sort of see we’ve wanted our economy to evolve more towards services, I think primarily for two reasons. One, because like the jobs are less labor-intensive, right? So, it’s like easier on people if they want to do those jobs more. More people want to do those jobs in a modern economy, in modern society. And then on top of that, they are higher value-added, right? You can charge more for them as opposed to often when you’re making widgets, for example, the margin you can charge on those, if it’s kind of a commodity item, it’s very low.

And so a lot of times the service is what makes products unique. But instead of treating an evolution towards services as an in and of itself, as the West does, China, you’re saying, is saying all roads lead back to manufacturing. We only want to invest in services insofar as it supports our manufacturing juggernaut. And we don’t want to hollow out the manufacturing sector so that we become a services economy. We’ll do the services in service of our core focus, which is manufacturing.

And I think that’s just a powerful point. And just so I wanted to kind of pause on that for a second. But it’s still a pretty significant pivot in terms of how authorities think about services. Because previous to now, they’ve been pretty reluctant to lean into services, right? So, kind of talk us through how that evolution has happened.

Dinny: Yeah, it’s funny. Beijing’s kind of gone back and forth on services. So, in the 13th five-year plan, so that was two plans ago, the period 2016 to 2020, they seem to be moving more in the direction of what you just described. Western developed economies typically look like, you know, the natural evolution to white-collar services jobs, kind of as an end to itself. It’s kind of a natural evolution. It’s fine. It’s just the way things are. And so, in the 13th five-year plan, Beijing actually set a goal for increasing the service sector’s share of GDP to increase it from, I think it was 50.5% of the economy to 56% of the economy by 2026.

And, of course, this wasn’t just producer services. It was also consumer services as well. But the idea here was that this was a way of restructuring the economy away from its reliance on manufacturing and exports, and also kind of investment in housing and whatnot. So, it was a deliberate decision. It was kind of, okay, we’re now at a certain stage of development. We can do this. It’s a way of supporting economic activity at a time where we really can’t rely on other parts of the economy anymore. However, at the end of that five-year period, Beijing clearly had a sort of a road to Damascus epiphany and decided that it was no longer that enthusiastic about this sort of restructuring towards services.

Now, economic orthodoxy holds that the potential for productivity gains in services is far smaller than in manufacturing. Manufacturing is typically more capital-intensive than services, which really means that productivity improvements are easier to achieve through like constantly upgrading machinery and tinkering with the production process. Raising service productivity with capital, on the other hand, it just doesn’t generate the sort of same sort of long-term productivity growth. And so, for example, if you take a hospital, right? You can raise productivity in a hospital by equipping every examination room with an ultrasound machine, or you can raise the productivity of a supermarket by introducing self-checkout terminals.

But these are sort of like one-off step changes. It’s not kind of the continuous improvements in processes or small changes in technology that you can see on a factory floor, which kind of generates sort of constant increase in productivity. And so, over the last five, six years, we’ve seen that Beijing’s vision of its economic transformation is entirely wrapped up in manufacturing. And the reason is because it sees manufacturing as the way to deliver on the promise of new quality productive forces, which is really what it comes down to is manufacturing will deliver productivity gains in a way that no other part of the economy will.

And in particular, it will deliver it in a way that services can’t. And so, what we saw in the 14th five-year plan, so that was 2021 to 2025, is that Beijing pivoted away from services because they were like, “Okay, this is going to result in a slowdown of economic growth far greater than what we’re willing to accept because it’s not going to deliver the productivity gains.” And instead, they pretty much drew a line in the sand and said, “We are going to maintain manufacturing share of GDP.” And they more or less did that over the five-year period.

Manufacturing’s contribution to the economy has declined marginally since the beginning of that five-year period, but it’s more or less the same. And then we had the new five-year plan just being released. The goal is to maintain, keep the manufacturing sector, ensure that it maintains a reasonable share of the economy, and additionally to build a modern industrial system with advanced manufacturing at its backbone. So, we don’t know exactly what constitutes a reasonable share, but I don’t think that they’re enthusiastic to sort of see it meaningfully decline as a share of the overall economy. So, this sort of pivot back to producer services, talking about just how important it is, is really interesting because they’ve gone from seeing services as a drag on productivity, and by extension economic growth. And now they see it as being essential to delivering productivity growth.

But that productivity growth is still centered on manufacturing. It’s just that services are the tool that will deliver it.

Andrew: That’s interesting. I was going to say, in a way, it’s like dressed up in a lot of Chinese Communist Party speak, but it’s actually a very sort of traditional economic focus. Like you said, my chief economist, when I used to work at the Conference Board, used to always say the only truly sustainable way to grow your economy is through consistent improvements in productivity. There’s diminishing returns to capital. Your labor force only can do so much. It will start to age, particularly in China. But if you keep improving your productivity, you can do that forever, right? And so, in a way, that’s a really kind of old school, classical economic focus of Xi Jinping.

I guess what most economists, Western economists would probably take issue with is that most don’t think that you can engineer it, productivity growth in the way that China’s trying to do. So obviously they’re taking a unique approach, but I don’t know, it just strikes me that focusing in on productivity is really kind of what a Western classical economist would prescribe for most policymakers. So, that’s interesting. I don’t know, any thoughts on that before we move into the employment piece?

Dinny: No, no, look, I think you’re right. But I mean, I think we’ve talked about this a little bit before. Sure, China is razor-focused on productivity, but all the benefits that are supposed to come from higher productivity are things like higher wages and income. It’s supposed to be more profitable firms that can create a bigger tax base. And so far, at least over the last couple of years, we haven’t seen any of that sort of stuff, largely because you’ve kind of seen a race to the bottom in terms of prices as firms try to maximize market share. And you’ve kind of got these issues of involution and overcapacity, which leads to firms not having the money to sort of deliver on bonuses or it’s kind of resulting in job insecurity because the corporate profits aren’t there.

The tax base is sort of idled. The vision is right. Productivity will deliver a more prosperous China. But there are certain caveats that go with that. And at the moment, China’s just not realizing any of the real benefits from it.

Andrew: Good point. So, next, I want to tease out a little bit an observation that you made in your piece that you wrote, which is the basis for all this stuff. So if you don’t subscribe to Trivium Markets, go to our website, subscribe to Trivium Markets, you can access the piece. But in that piece, you talked about how this will have pretty important and interesting implications for the employment side of things. Can you walk us through that?

Dinny: Yeah, well, we’ve repeatedly argued that Beijing ultimately wants to boost household consumption, despite the fact that it’s really not doing anything meaningful on that front. And it talks about it all the time, hasn’t really done anything for the last few years. But it actually wants to boost household spending, and it wants to build more robust domestic demand off the back of households. But it wants to do those things through higher-paying jobs, not through income and wealth redistribution, or at least not through wealth redistribution until it has the tax base to pay for it, which is not at the moment.

So the challenge is that while innovation and industrial upgrading are kind of turbocharging manufacturing, well, at least the goal is it’ll turbocharge manufacturing productivity and output, at the moment, that isn’t necessarily translating into a proportional increase in manufacturing jobs, right? I mean, that’s the great irony. It’s like, who’s supposed to benefit from this kind of more advanced manufacturing machine when that manufacturing machine just doesn’t need as many blue-collar workers as they used to. And so in areas such as textiles and electronic manufacturing, so much of it’s being automated. And so, you just don’t need as many blue collar workers.

And then, kind of at the higher end, the new innovative products like electric vehicles, they just require less labor than the products they replace. I mean, firstly, an EV requires far fewer components than a traditional internal combustion engine vehicle does. And secondly, that the degree to which some of these factories of China’s more advanced EV countries are automated, they just need a far fewer people on the factory floor. And so, consequently, blue collar workers are being replaced in China by purple-collar technicians. So, these are the employees who run the machines that do the manufacturing, and they’re far better paid, but they’re just employed in far smaller numbers.

And so, what we’ve seen in China is that manufacturing employment has actually risen over the last few years, sort of riding on this tide of industrial expansion. But you listen to senior government officials speak, and they clearly do not think it’s going to last. They’re worried about future employment, blue-collar employment, particularly as automation intensifies. And certainly, that the scale of or the scope of manufacturing employment doesn’t reflect at all the scope of the expansion or the scale of the expansion of industrial expansion in China. So, it’s certainly not a one for one sort of pairing.

So, the way that producer services come into all of this is that, ultimately, producer services is the way to translate this more efficient, more high value manufacturing into high-paying jobs. And again, Apple is representative of exactly what Beijing would like to achieve. Now, I know I said before that Apple, it does… you know, it makes things. That’s kind of what you think of Apple. It makes phones, it makes iPads. But the thing is the company outsources all of its manufacturing. None of that’s done in-house. And yet, and I think we’ve talked about this on the podcast before, that in the United States, it employs about 90,000 people.

And that’s in the U.S. alone, with the exception of Apple stores. Most of those jobs are white-collar and they’re high-paying because they include software developers, engineers, researchers, product designers, supply chain managers, salespeople, market researchers, marketers, lobbyists. I mean, it’s a long list. People in human resources, finance, lawyers protecting IP, people in government relations. Those 90,000 people, so many of them, probably almost all of them, are in well-paid white-collar jobs. And those jobs aren’t created by low-end manufacturing, which is where profit margins are wafer-thin, but high-end manufactured goods with a high-tech content, the more you have of that, it creates this far more of a space and demand for these high-value, high-paying, white-collar jobs.

And crucially, these are exactly the types of jobs that China needs, not just to kind of boost incomes, become a more consumption-oriented economy, but they’re also the jobs China needs to lower its high rates of youth unemployment, specifically among university grads. Because that youth employment is very much concentrated among college graduates who are entering the job market in record numbers, only to find that the white-collar jobs that they trained for, effectively the ones they were promised, are in short supply. And so, this is really the value of producer services.

It’s a way of translating China’s drive into manufacturing into much higher-paying jobs and also kind of deal with this sort of residual, undealt-with issue of university graduate underemployment and disillusionment.

Andrew: Yeah, well, that all makes sense. And especially our younger listeners who may be graduating from undergrad or grad school may have to forgive me for saying this, but China’s trying to create these high value white collar jobs as a support to the manufacturing sector, you’re saying, but aren’t those exactly the jobs that AI is coming for, that margins are absolutely getting hammered on and are quickly drying up because of the AI revolution, or at least expected to quickly dry up?

Dinny: Yeah, I mean, this is kind of a fly in the ointment. Yeah, this is the great unknown at the moment, to what extent will AI undermine this sort of transition? But with this sort of stuff, China is still in a better position than developed economies because in the U.S. and the EU, AI threatens to wipe out a bunch of jobs in these producer services areas because they are existing mature industries which have probably limited scope to expand. And so, there’s just kind of ripe to sort of take over existing functions. But in China, because these producer services industries are underdeveloped and are likely to expand either with government support or just because of the trajectory of China’s economy, you’re still likely to see job creation, just not as much as might otherwise be the case.

So, let’s say without AI, this drive into producer services may have been the solution to the graduate employment problem over, say, the next decade. It would conceivably deliver a structural shift in the nature and scale of white-collar jobs being created. But with AI, an expansion of producer services will help, but it probably won’t fully fix this problem of disillusioned university grads.

Andrew: So you’re making the case, or at least that I think Beijing probably believes, and it would make as well, that even in the AI age, this is going to be an important pool for new employment for not only young people, but a wide range of folks to support, again, ultimately the manufacturing sector through these higher value service sector jobs. But how do they actually go about this? I mean, this isn’t the housing market or building infrastructure. You can’t just throw out a bunch of credit, pile on a bunch more debt. So, what specifically, from a policy standpoint, is Beijing looking to do to make this reality?

Dinny: Well, the People’s Daily had a column in which it said authorities will need to accelerate the construction of the unified national market, which is effectively the code for removing internal trade barriers, that there’ll need to be flexible deregulation and improving resource allocation, whatever that means. But that sort of stuff isn’t easy. I mean, Lord knows they’ve been trying to build a unified national market for years with fairly mixed success. But I think in terms of industries, I think they’ll concentrate their efforts on industrial design. I think that’s something that’s come up a fair bit. I think we’re looking at policy and funding support for firms that can take scientific research, commercialize it, and customize it.

Now, whether that means in-house support for companies that have already proven they can do this sort of thing, like Huawei or CATL, or whether it’s independent third parties, or both, I don’t know. But I think that’s where Beijing thinks the value is, and that’s where the efforts will go, at least initially.

Andrew: Well, this is one that’s definitely going to be interesting that I think is a kind of a, I don’t know, a pretty big pivot, and certainly could be a big theme for us to continue watching going forward. I mean, kind of this whole conception of the services industry is pretty unique. I mean, wouldn’t you say?

Dinny: Yeah, absolutely. You know, I kind of feel that it’s a big change in formulation of in terms of how they see key parts of the economy. It represents a pivot of how they envision productivity gains and how they think they’re going to keep the manufacturing machine sort of churning over. And I think the question is, I mean, how do they go about it? How do they go about taking this idea of producer services and building up the sort of firms that are needed to deliver these sorts of gains? And so it’s an open question. I think we’ll see more of it. But clearly at the highest level of government, Beijing is putting a lot into this, sort of letting everybody know this is a priority and that it wants to see progress. So yeah, the question is just how do they do it?

Andrew: Well, we’ll be monitoring this and analyzing it as it unfolds, of course, as part of China’s wider economic evolution, economic transition, which we’ve talked a lot about on this pod. So, listeners can stick with us for that. We’ll have more on this in the future, I’m sure. In the meantime, Dinny, thanks for walking us through this. Really interesting stuff. Appreciate it.

Dinny: Yeah, no worries, Andrew. Love talking about this stuff.

Andrew: Yeah. Well, I’m sorry for intimating that it might be a little weedy, but yeah, you did a good job. All right. Thanks again, man, and thanks, everybody, for listening. We’ll see you next time. Bye, everybody.

This week I’m joined again by Eric Olander, founder of the China Global South Project, which runs the most indispensable English-language operation going for understanding China’s engagement with Africa, Latin America, Southeast Asia, and the Middle East.

I came in with a plan: map, region by region, how the capitals of the Global South were reading the back-to-back Trump and Putin visits to Beijing — relief at a steadier U.S.-China modus vivendi, or foreboding at a G2 condominium squeezing shut their room to maneuver. Eric dismantled the premise within ten minutes. The honest answer, he warned me, is that most of the Global South simply isn’t watching the way we are — and the disappointment turned out to be the most interesting thing in the room. What looked like the absence of a story was the story. I’d built my questions around one assumption about what mattered; Eric had built his answers around another, and I cop to being schooled.

Once you set the summit framing aside, what Eric’s contributors are actually seeing comes into focus: Japan racing to recenter an Asia-Pacific security architecture, a region quietly de-risking from an unreliable United States, fresh cracks in the BRICS, Justin Yifu Lin’s “three moves” for Chinese manufacturing, Latin America’s “find out” phase, and a Gulf where the Chinese setback so many in Washington insist must exist simply isn’t there. We get into all of it — and close on the summit as a remarkable piece of theater, the first since 1945 at which no one quite knew who the most powerful person in the room was.

04:27 — The dominant mood: pro forma coverage, exhaustion, and bigger problems at home

08:15 — Breaking news: the paused $14B Taiwan arms package and the canceled Colby trip

11:15 — The dog that caught the truck: China and the costs of a receding U.S. umbrella

13:00 — “Constructive strategic stability” — new equilibrium or just choreography?

28:23 — The snub: Beijing sends only an ambassador to the BRICS meeting in New Delhi

37:56 — Africa: tariff-free access, the trade imbalance, and Kenya’s “collapsed” exports

44:34 — Justin Yifu Lin’s “three moves”: move up-market, localize, move south

51:00 — Latin America’s “find out” phase in Panama, and very low China literacy

57:35 — The Gulf after the war on Iran: who really won?

Paying it Forward:

Boston University’s Global Development Policy (GDP) Research Center

Recommendations

Eric: A “rabbit hole” of books on Xi Jinping, currently Party of One by Chun Han Wong (after Kevin Rudd’s On Xi Jinping).

Kaiser: Angine de Poitrine, a “microtonal math rock” duo from Quebec — think Frank Zappa meets King Crimson — possibly the thing to breathe new life into progressive rock.

Transcript courtesy of CadreScripts follows the podcast info. Image by Keya Zhou.

This week I’m joined again by Eric Olander, founder of the China Global South Project, which runs the most indispensable English-language operation going for understanding China’s engagement with Africa, Latin America, Southeast Asia, and the Middle East.

I came in with a plan: map, region by region, how the capitals of the Global South were reading the back-to-back Trump and Putin visits to Beijing — relief at a steadier U.S.-China modus vivendi, or foreboding at a G2 condominium squeezing shut their room to maneuver. Eric dismantled the premise within ten minutes. The honest answer, he warned me, is that most of the Global South simply isn’t watching the way we are — and the disappointment turned out to be the most interesting thing in the room. What looked like the absence of a story was the story. I’d built my questions around one assumption about what mattered; Eric had built his answers around another, and I cop to being schooled.

Once you set the summit framing aside, what Eric’s contributors are actually seeing comes into focus: Japan racing to recenter an Asia-Pacific security architecture, a region quietly de-risking from an unreliable United States, fresh cracks in the BRICS, Justin Yifu Lin’s “three moves” for Chinese manufacturing, Latin America’s “find out” phase, and a Gulf where the Chinese setback so many in Washington insist must exist simply isn’t there. We get into all of it — and close on the summit as a remarkable piece of theater, the first since 1945 at which no one quite knew who the most powerful person in the room was.

04:27 — The dominant mood: pro forma coverage, exhaustion, and bigger problems at home

08:15 — Breaking news: the paused $14B Taiwan arms package and the canceled Colby trip

11:15 — The dog that caught the truck: China and the costs of a receding U.S. umbrella

13:00 — “Constructive strategic stability” — new equilibrium or just choreography?

28:23 — The snub: Beijing sends only an ambassador to the BRICS meeting in New Delhi

37:56 — Africa: tariff-free access, the trade imbalance, and Kenya’s “collapsed” exports

44:34 — Justin Yifu Lin’s “three moves”: move up-market, localize, move south

51:00 — Latin America’s “find out” phase in Panama, and very low China literacy

57:35 — The Gulf after the war on Iran: who really won?

Paying it Forward:

Boston University’s Global Development Policy (GDP) Research Center

Recommendations

Eric: A “rabbit hole” of books on Xi Jinping, currently Party of One by Chun Han Wong (after Kevin Rudd’s On Xi Jinping).

Kaiser: Angine de Poitrine, a “microtonal math rock” duo from Quebec — think Frank Zappa meets King Crimson — possibly the thing to breathe new life into progressive rock.

Transcript

Kaiser Kuo: Welcome to the Sinica Podcast, a weekly discussion of current affairs in China. In this program, we look at books, ideas, new research, intellectual currents, and cultural trends that can help us better understand what’s happening in China’s politics, foreign relations, economics, and society. Join me each week for in-depth conversations that shed more light and bring less heat to how we think and talk about China.

I’m Kaiser Kuo, coming to you this week for really one of the very last times from my soon-to-be-on-the-market home in Chapel Hill, North Carolina.

Sinica is supported this year by the Center for East Asian Studies at the University of Wisconsin-Madison, a national resource center for the study of East Asia. Listeners, please support my work by becoming a paying subscriber at sinicapodcast.com. Please do subscribe so I can continue to bring you these conversations.

The last few weeks have given us an extraordinary stretch of summitry in the Chinese capital. Donald Trump’s visit to Beijing, his first as president since returning to the White House, was followed only four days later by the arrival of Vladimir Putin. Two visits back-to-back by the leaders of two of the world’s other major powers, arguably the other two major world powers, hosted by Xi Jinping in quick succession. Whatever one makes of the substance, the choreography alone has set off a great deal of interpretation in Washington, in European capitals, and in Moscow.

But the conversation I’ve been especially eager to have was about how all of this is landing somewhere else entirely, that is, in the capitals of the global south. And there are some big framing questions to put on the table. Are leaders in Lagos, and Brasília, and Jakarta, and Nairobi breathing a sigh of relief? Are they hopeful that a more stable U.S.-China modus vivendi means they won’t be forced to choose sides and that they can get on with the business of development in a less turbulent environment? Or is there foreboding, a sense that they’re watching, not stability forming but a consolidation instead of a G2 world, one in which the agency that middle powers and non-aligned states have painstakingly carved out over the last decade somehow gets squeezed back down?

Is China being seen as the indispensable convener, the one capital that can now host both Washington and Moscow within a single week or, conversely, as a power being pulled in two directions itself and forced to perform balancing acts of its own? And underneath all of it, what does this moment do to the kind of multi-alignment strategies that so many global south states have come to depend on? Well, to help me work through all of this, I am genuinely delighted to welcome back to the show someone I’ve collaborated with now for many years and whose work I admire enormously — Eric Olander, founder of the China Global South Project and host of the China Global South podcast.

Eric and his team have built what is truly the most indispensable English language resource for understanding China’s engagement with Africa, Latin America, Southeast Asia, and the Middle East. He draws on a network of contributors in places that most Western China-watching outlets simply don’t cover. If you want to know how a Chinese-financed port is actually being received in coastal Kenya, or what Brazilian commentators are saying about a Lula-Xi exchange, or how Indonesian elites are reading Beijing’s South China Sea posture, Eric’s operation is where you go. It’s a model of what serious, on-the-ground, multi-vocal journalism about China can look like.

And over the years, our shows have leaned on one another often enough. I think that we’re now, I mean, he is a real intellectual partner in this work. Eric, welcome back to Sinica. Great to see you, my man.

Eric Olander: Great to be back, and you’re hired as the marketing chief for the China Global South Podcast.

Kaiser: Well, can you pay me? That’s the thing, as I’m hard up these days. Anyway, it’s just wonderful and a very good morning to you. And a very good morning to you.

Eric: Yeah.

Kaiser: I always want to borrow phraseology from your show.

Eric: It’s hot and rainy here in Southeast Asia this time of year. But yeah, but we’re excited the rains are finally here.

Kaiser: Yeah, yeah. Eric, let’s start with the big picture. So, in the days since these two visits, what have you and your team been hearing from your contributors and your contacts across the global south, this huge region that you cover? Is there a dominant mood? And it would be relief or opportunity, anxiety for boating, as I was saying. Or is it genuinely fragmented depending on where you’re listening? Give us the tour.

Eric: Interesting, because we spend a lot of time looking at the discussions in Asia, Africa, and Latin America. So, we have a site in Spanish that’s focused on Latin America, and then also a separate site in French that’s focused on Africa. And so, this conversation about the summits is very interesting by virtue of the fact that… and here in Vietnam, it was the same situation too. I mean, like it was the pro forma coverage that you saw, not a lot of discussion about it. Nowhere near the kind of intensity of the conversations that people have been having in the U.S. and Europe about it, about this kind of movement of great power politics. I think you have to understand the moment that we’re in right now. So, in Kenya, there’ve been, for the past week, massive riots over petrol prices and taxes going up. There’s been violence on the streets.

Here in many parts of Southeast Asia, the fuel shortages are pressing down on everything. So, I think people have a lot more things on their mind other than this. And everybody’s kind of a little bit exhausted of trying to figure out Donald Trump, and what does it mean? I think the performance that Donald Trump gave did not really reassure a lot of people. The groveling that he did with Xi, his apparent lack of understanding of things like the Thucydides trap and other things like that just kind of did not instill a lot of confidence. And so, I think a lot of people in Global South countries, from what we could see, were just kind of not really paying attention to the summit in the sense of what is every machination going on between, what did Xi do, what did Trump do, what were the body languages and all of that.

What we’re seeing, though, much more, in the same time the summit was going on, is rapid movements here in Asia in particular to accommodate for the new realities. And so, at the same time as the summit’s going on, President Ferdinand Marcos in the Philippines is preparing for a trip to Japan to meet with Japanese Prime Minister Takaichi and said something very interesting that triggered an enormous amount of buzz out here that in the event of a Taiwan conflict, the Philippines would invariably be drawn in because of the proximity to Taiwan and also the fact that there’s 200,000 Filipinos in Taiwan.

This captured the headlines a lot. China, of course, reacted furiously. And what was interesting was that, again, we did not see the United States come to the support of an ally partner on this, rhetorically speaking. And this is something that the Japanese have been complaining about for a long time, that when they made similar comments that they would be brought into a Taiwan conflict, the U.S. was nowhere to be found. So, all of this together sets a context of uncertainty. And people weren’t focusing as much on the summit as on the actions and what comes out of it. And I don’t think there was a lot of tangibles that people could really face decisions on. So, they’re just moving on now.

And you’re seeing the movement. We can talk about Japan and South Korea as well. There’s really a growing sense of alienation from the United States that they’re going to follow through on their security in Asia.

Kaiser: Indeed. Let’s focus on Asia right now. And I need to timestamp this. We are speaking here on the East Coast of the United States at a little past 9:00 in the evening on May 21st. It’s the morning of May 22nd, where you are. And we’ve just seen the news that the United States has paused the delivery fulfillment of a $14 billion arms package to Taiwan. This has just been announced by the Secretary of War. And that in addition to that, the undersecretary of what used to be called the Department of Defense, Elbridge Colby, will not be, as had originally been announced, visiting China in advance of Pete Hegseth’s trip there.

Now, this is all, of course, a lot of people were afraid that this was going to happen. Trump had signaled his hesitation about approving the arms sales. He sort of talked about the arms sales being in abeyance in interviews that he did. So, now I think Taipei’s worst fear is confirmed. But, you know, we’re here to talk about the reaction in the global south. How is this news likely going to impact other countries of the region?

Eric: So what Trump has been able to do is remarkable in a historical context. When you see South Korean President Lee Jae-myung and Japanese Prime Minister Sanae Takaichi, you know, smiling together, being so close together, I mean, this is one of the most strained geopolitical and historically strained relationships in the modern era. And they are recognizing that they need each other. And since Takaichi’s come into power, she’s leaned heavily into rebuilding relations with South Korea. And this week, we saw a summit between those two, and it was all smiles. And this is a reflection of the new realities that Trump has brought them together. And that is something that we saw it a little bit under Biden, but this is so strained.

And at the same time, we’re seeing the Japanese prime minister was just in Vietnam. She was just in Australia. Marcos is on his way to Tokyo. And there is a sense among some analysts in this region now that Japan wants to put itself back at the center of an Asia-Pacific security architecture. And again, this is where China has to be very concerned because pushing the United States out of the Western Pacific doesn’t necessarily mean life gets easier for the Chinese in Asia. And I don’t think there’s an appreciation of that in a lot of the Chinese discourse. They’re so focused on the U.S. right now. But the movements that Japan is making is tremendous.

Kaiser: Let me push back on you a little bit there because I do hear it a lot when I talk to people who are sort of in the Chinese strategic class. They’re not unaware that China has benefited from –

Eric: They’re not unaware. No, no. To be sure. Absolutely. But I think the focus is far more on the US. But I do agree. I mean there’s certainly sensitivities in China, obviously, about Japan. I mean –

Kaiser: Right. I mean it’s not just Japan. I mean China understands that it had benefited from the fact that the public good of security and balancing in the Western Pacific had been something that the United States had provided. And when that was a pillar of stability, it was a useful thing for China. Of course, they had nurtured the theory, but they’re a little bit like the dog that caught the truck right now, and getting what they wished for.

Eric: That’s right. And so, the concern the Chinese need to have right now is that, you know, their defense spending has been stable for much of the past 10, 15 years. And that may not be the case going forward. If the security architecture breaks down in this part of the world, they’re going to have to start spending a lot more on defense. And that’s not something that the Chinese economy in its current state is well positioned to do. So, I think, again, we’re resetting the board out here in very profound ways. And maybe I don’t know if it’s fair to put that all at the doorstep of Donald Trump. Remember, the whole pivot to Asia never fell through with the United States.

They never followed through on that. And so maybe this was bound to happen at some point anyway, and Trump is just accelerating that trend. But I can tell you it’s happening right now. And it’s really happening in quite dramatic ways, which is fascinating to watch, but it’s happened.

Kaiser: It’s interesting to hear you describe the result of the summit being sort of increased instability when, in Washington and in Beijing, I think many people are sort of celebrating and sort of letting out a sigh of relief at what now promises to be a couple of years at least of relative stability. This new framework that not only that Beijing has proposed evidently and that the Trump administration in its fact statement following the summit has agreed to of constructive strategic stability, right?

The Chinese readout leaned very heavily on that phrase. Trump characterized it as that he added, you know, of course, with reciprocity, and there was an additional framing in the American readout, but the fact that he used the same construction about constructive strategic stability. How is that landing in, let’s start with, and move out concentrically, let’s start in Southeast Asia where you are. Is it being taken seriously as a description of a new equilibrium or is it read more cynically as just mere choreography?

Eric: I talked to a Philippine scholar this week to ask that question and I got a very bland answer. And this is why I think you’re going to be disappointed by my answers here, which is that I just don’t think that people in these countries are putting that much weight in the kind of stability you’re talking about, because I think the sentiment is there may be stability between the U.S. and China, but if you’re in Panama or if you’re in Vietnam or if you’re in Angola or any of these countries, the tensions are going to keep coming. I mean, the U.S. ambassadors that have been sent around the world aren’t going to start pulling back their punches on China anytime soon simply because that there was a summit.

And we see this playing out right now in Central and South America, where U.S. ambassadors in Peru and Panama and others have just been, you know, just unstoppable in their criticisms of the Chinese. And so, I think if you’re sitting in these countries, you’re much more pragmatic. I mean, remember the context of this, this narrative that, well, the post-Cold War era was one of the most peaceful and stable eras in history. And that’s why the rules-based international order is something that we should cherish, right? Well, if you’re sitting in Vietnam or Angola or Nicaragua, you’re thinking to yourself, no, the Cold War was not a peaceful era. The war was fought in the global South. The tensions were waged in the global South, not between

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Our phrase of the week is: “brave the elements” (风里来雨里去 fēng lǐ lái yǔ lǐ qù)

Context

A new documentary about delivery riders in China has struck a nerve.

The Life of China’s Food Delivery Riders in 2026 (2026中国外卖员生存报告) was produced by LifeLab (三联生活实验室), which is a lifestyle magazine published by LifeWeek.

The documentary was released in mid-April and follows riders across three Beijing neighbourhoods: the migrant village of Yuxinzhuang (于辛庄村) a northern suburb near the Sixth Ring Road, the central business district, and Wanliu (万柳), one of the capital’s wealthiest enclaves.

China now has more than 13 million delivery riders. The average pay per order has more than halved over the last few years. Yet the number of riders has multiplied several times during the same period so now there’s more workers than ever chasing lower-paid orders.

The video has since been removed from the LifeLab website, but fragments of the film and some articles discussing it are still available on WeChat and continue to circulate.

One line in particular has resonated, spoken by a noodle shop owner who also offers delivery services:

“I feel like I’m just an average person, no different from the delivery riders.

The only difference is that I’m grinding away inside the shop while they’re out there braving the elements. It’s hard work for all of us.”

因为我觉得我也是一个普通人，跟送外卖的一样，只不过我是在店里熬，他们是风里来雨里去的，都很辛苦。

And with that, we have our Sinica Phrase of the Week.

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What it means

“Brave the elements” (风里来雨里去 fēng lǐ lái yǔ lǐ qù) is a colloquial expression that describes the hardship of physical labour. The five characters translate as “wind” (风), “in” (里), “come” (来), “rain” (雨), “in” (里), “go” (去) — literally, to come in the wind and leave in the rain, working through whatever the weather throws at you.

The phrase is widely cited as originating in the 1958 novel River Fen Flows On (汾水长流), by Hu Zheng (胡正), a writer from Shanxi province (山西) who was part of the “Potato School” (山药蛋派) of writters — a group of mid-twentieth century novelists who wrote in plain rural vernacular about everyday life in northern Chinese villages.

River Fen Flows On is set in a Shanxi farming community in the early years of the People’s Republic, and follows villagers navigating the upheavals of agricultural collectivisation.

The phrase appears in Chapter 19, spoken by a woman scolding her husband for sleeping through a downpour while she works outside:

“All you do is sleep like the dead. Look at me, I’m soaked through, and you can’t even be bothered to get up and help me change.

What do you think I’m out there braving the elements for?”

你就知道睡死觉，人家淋成这样，也不说起来帮我换换衣衫。我这么风里来雨里去的是为了甚？

The phrase entered everyday Chinese and is now used to describe anyone whose work demands they push through harsh conditions, particularly outdoors. It’s commonly applied to police officers responding in typhoons, surveyors working in winter, or journalists chasing stories in the field.

In recent years, it has become closely associated with food delivery riders, whose work takes them out in all weather every day. Which is exactly how the noodle shop owner uses it in this context. Delivery riders are working through wind and rain doing what they have to do to survive and make ends meet.

Andrew Methven is the author of RealTime Mandarin, a resource which helps you bridge the gap to real-world fluency in Mandarin, stay informed about China, and communicate with confidence—all through weekly immersion in real news. Subscribe for free here.

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20 days ago · 8 likes · 1 comment · Andrew Methven

On the first half of this week’s Trivium China Podcast, host Andrew Polk is joined by special guest Jon Czin — the Michael H. Armacost Chair in Foreign Policy Studies and a fellow in the John L. Thornton China Center at the Brookings Institution — to unpack what came out of the Xi-Trump meeting, what both sides were trying to accomplish, and where the relationship may go next.

Jon gets into:

• Why the current U.S.-China situation is more temporary stalemate than budding stability

• China’s evolving strategy for managing Trump and the broader bilateral relationship

• The significance of Beijing’s proposed framework for “Constructive Strategic Stability”

• How China views US leverage — and its own leverage — in trade, critical minerals, and supply chains

• How the Iran war is shaping the broader geopolitical context for US-China diplomacy

Then in the second half of the pod, Andrew is joined by Trivium’s lead macroeconomic analyst Joe Peissel to break down the latest batch of Chinese macro data, which showed a sharp slowdown in economic activity in April.

The two discuss:

• How the Iran war and supply chain disruptions are weighing on China’s industrial sector

• Why investment activity weakened more than expected last month

• The hidden policy changes dragging on infrastructure investment

• Continued weakness in Chinese consumption and consumer confidence

• What the latest data means for Beijing’s broader economic outlook

Transcript

Andrew Polk: Hi, everybody. Welcome to the latest Trivium China Podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium Co-Founder, Andrew Polk. And I’ve got a very special guest on the podcast today. He is the Michael H. Armacost Chair in Foreign Policy Studies and a fellow at the John L. Thornton China Center, both at Brookings Institution. He’s also a former member of the Senior Analytics Service at the CIA, where he was one of the intelligence community’s top China experts. And he was also on the National Security Council at the White House in charge of China policy from 2021 to 2023. Most people will not need that long introduction to be familiar with the guest today — It’s Jon Czin. Jon, how are you doing?

Jon Czin: I’m great, thanks. Thanks for having me on, Andrew.

Andrew: Yeah, so glad to finally get this together. For anyone who hasn’t seen it, Jon was so kind as to have me on his podcast at the Brookings Institution, excellent new podcast called The Beijing Brief. Everyone should be on the lookout for that. Really, really good stuff. And you should also be on the lookout for Jon’s work in Foreign Affairs magazine. He publishes pretty frequently there, pretty regularly. Has had some great pieces recently and an upcoming piece Anything I’m missing, Jon, in terms of work that you want to highlight?

Jon: No, I think that’s good for the podcast.

Andrew: Great. Okay. Awesome. Well, we are going to talk today, so I flagged this last week that we’re going to have Jon on to talk through the latest around the Xi Jinping-Dong Trump meeting. Obviously, the meeting happened at the end of last week. We’re recording on May 20th, 1 P.M. in the afternoon, just to timestamp this for folks. So, it’s been a few days since the meeting, but it’s a perfect time to talk about this because there’s really been kind of a trickle of ongoing developments in terms of what happened at that meeting.

So, it’s nice to have had a few days to let the dust settle. We even got some extra comments from the Ministry of Commerce this morning that we’ll go through. So, with a few days’ perspective, Jon and I will talk about kind of what’s the latest, what we think it means, what it means for U.S.-China going forward. Going to be a great conversation. And then for listeners, the second half of the pod, stick around. I talk to Trivium’s Lead Macroeconomic Analyst, Joe Peissel.

We just got the latest monthly macro data out of China. So, we do a quick update on that at the end of the pod. So, stick around for that. So, it’s going to be a lot of meaty content again, as always today. But before we get into it, Jon was so kind to join us for the customary vibe check today. Jon, how’s your vibe going into this podcast?

Jon: You know, after the past week we’ve had, and just how much follow-up there’s been in the ensuing week, my vibe is extremely well caffeinated.

Andrew: That’s a great vibe. Great energy to bring to this pod. You were just saying like my vibe is usually pretty chill. So, I’ll stick with the chill vibe, even though there’s a lot going on. Hopefully we’ll be a little bit of yin and yang here. You can bring the energy and I’ll just be asking the questions. How does that sound?

Jon: I am always impressed by your composure and equanimity on this show, Andrew. And I feel like, especially in Washington, that’s a precious commodity. I don’t know. After this, maybe you can write self-help books for China Hand.

Andrew: Yeah, that’ll be my second act. You’ve also got young kids. But having young kids, running a business, you got to find Zen anywhere you can take it. So that’s what I try to do.

Jon: Amen.

Andrew: Well, we will touch on all the latest here on U.S. China here in a moment. But first, I also have to quickly go through the housekeeping for listeners. Just a quick reminder to folks out there, we’re not just a podcast here. Trivium China is a strategic advisory firm that helps businesses and investors navigate the China policy landscape. That, of course, includes policy towards China out of Western capitals like D.C., London, Brussels, and others. So, if you need any help on that front, please reach out to us at hq@triviumchina.com.

We’d love to have a conversation about how we can support your business or your fund. Otherwise, if you’re interested in receiving more Trivium content, check out our website, again, triviumchina.com, where we’ve got a bunch of subscription options for people to stay on top of ongoing policy developments out of China. We’ve got paid options, free options, options related to technology policy, markets policy, whatever you need in terms of options for staying on top of China policy analysis, China policy intelligence, you will get that on our website, so check that out.

And finally, please do tell your friends and colleagues about Trivium and both about the business and about the podcast. It really helps us grow our listenership and grow our business. And those word-of-mouth suggestions or recommendations really, really help us out.

All right, Jon, with that, you’re ready to get into it?

Jon: I am.

Andrew: Awesome. Well, as I said, so we’ve had a few days to let the dust settle. Out of the meeting initially, there was literally no announcement, right? Or at least when Donald Trump was wheels up from Beijing, I was talking to clients and saying, I’m not trying to make the argument this is a nothing burger. There’s literally been no announcements. There is nothing to say. But as we kind of surmised at the time, there might be some developments or some confirmations of what was discussed in the coming days. That has, of course, been the case.

We, this morning, finally got the Chinese confirmation, for example, around the purchase of Boeing airplanes. Chinese confirmed that they’ve done some stuff on the agricultural side in terms of both purchases and greater market access, both into China and into the U.S. So, it seems like everybody’s pretty much on the same page, which we’ll get into kind of the differing details of the readouts. But let me just start with, now that we’ve had a few days, has your view of what happened at the Xi Trump meeting evolved at all since Friday?

Jon: Yeah, I mean, I think to take one step back, Going into this meeting, I had very low expectations going into it for a couple of different reasons. I mean, I think part of it was just some of the reporting that we saw about how little staffing there was for this, especially on the U.S. side, which I think is unsurprising. I mean, I think especially on this set of issues on China policy, you really see President Trump acting as his own China desk officer. I’m very mindful that even people like Steve Witkoff or Jared Kushner, who are influential on other major foreign policy portfolio items like Russia or the Middle East, don’t really seem to be engaged on this set of issues and were not part of the delegation.

But I think even though he’s so focused on it, a big part of it goes back to my sense of what Beijing was trying to accomplish in this meeting. And I don’t think that there was really a clear affirmative agenda from Beijing’s perspective or something that they were looking to accomplish. People keep talking during this meeting and in the aftermath of it about the focus on stability from both sides. And I kind of think that’s a misnomer. I think what there really is in the wake of last year’s trade war is a stalemate between the two sides. And I think that’s a more helpful way to think about it because the stability, such as it is, it’s pretty shallow and it’s pretty thin.

And I think from the Chinese side, I think what they’re looking to accomplish in a meeting like this is basically try to buy themselves time and space and relief from U.S. pressure so that they can fortify themselves for the next round of the contest. So, I think the game that Beijing is playing is trying to figure out what is the minimum price point for purchasing that. And I think for this meeting, I think that’s why there was such a heavy focus on the optics of this, right, rather than the outcomes. I think that was a lot of what drove the approach and why we saw so little of substance coming out of this.

Andrew: Yeah, that makes a lot of sense and helps to frame sort of, you know, one reason why the Chinese weren’t pushing harder for very concrete deliverables. Would you say, kind of based on where we are today, that you think the Chinese are pretty satisfied with the outcome?

Jon: I think so. I think they probably are. I mean, it is interesting already in the days after you can already see some of those structural friction points start to resurface. So, Secretary Bessent, just this morning, and this is again Wednesday, May 20th, was talking about corralling the G7 to push back against Chinese overcapacity. I think, again, it shows how shallow and tentative this progress is so far. I will say from my perspective as an American, I would say, coming, I had low expectations going in. And then at the end of the summit, my bumper sticker for it was no escalation, no concessions.

And I think at this moment, given the competition that is in fact underway between the two sides and given how fraught the relationship has been, I kind of felt like that was not a bad place to land. It’s hard to land the plane on this. But I will say, I think from the U.S. side, the quality of the outcomes and my assessment of the quality outcomes has actually degraded just over the last few days. I think a lot of that is driven by two things. I think it’s, number one, the interview that President Trump did with Fox News after he got back to the United States, where he said, “We’ll use Taiwan as negotiating leverage with China,” which is a major departure from the six assurances promulgated in 1982 back in the Reagan administration.

And I think sends exactly the wrong signal, not just to Taipei, but I think to our allies and partners in the region. And I think, to its credit, while they were on the ground in Beijing, the administration, like Secretary Rubio and the president himself, they were at pains, it seemed like, to emphasize continuity in American Taiwan policy. And I gave them credit for it. And they didn’t always do the liturgy in the precise way, but that’s fine. I think the main thrust of it was to emphasize that continuity. So, I think it’s been troubling in the days since, that that discipline that they had on messaging seemed to go slack.

So that’s number one. The other thing that was floating around out there, and I think maybe we’ll talk about this later in the conversation, is what the Chinese had proposed, this new vision of constructive strategic stability, right? Which clearly came from the Central Party School and not from Madison Avenue, really just rolls right off the tongue for an American audience. But I think my view is it sounds innocuous, but I think this is one of these Chinese rhetorical traps that looks innocuous on the surface, but it’s really a trap to try to box the U.S. in.

And again, I think it’s about that allies and partners piece of the equation. I think the signal that it sends is that the United States is prioritizing stability with China over the interests of our allies and partners in the region. Right?

Andrew: Yeah. Well, I mean, let’s just dive into that a little bit further because I do think it’s a key point. I’ve been talking with folks because I remember during the Obama administration, actually, when the Chinese came over, they met in California, and the Chinese tried to float this sort of new great power relationship.

Jon: New type of great power relations. Yep. Exactly.

Andrew: Yep. And I remember at the time the Obama administration really pushing back on that for exactly this purpose to say, “We don’t want to sort of elevate China to our status. We’ll deal with them, but we’re not going to say we’re the two leading powers.” It sort of gives China, like I said, some kind of elevated status that the Obama administration didn’t want to impart on them. So, just talk to me a little bit more about kind of why China would want to put forth something like this. What do you think the “constructive strategic stability relationship” means from the Chinese side? And then we can kind of talk a little bit more from the U.S. side about whether or not it was a good or bad idea and how it might impact things from the U.S. framework on China going forward.

Jon: Yeah. Yeah. I mean, I think from my perspective, I think you’re quite right to go back to that genealogy, right? This is kind of a recapitulation of new type of great power relations in a different formulation, right? So, it’s like, oh, you know, same bottle, new wine, or same wine, new bottle, however the saying goes. So, they’re really trying to repackage the same thing. And I think part of it is just reflective of how their system operates, right? Like they like to have put forward these kind of high-minded principles before getting down into some of the nitty gritty and the policy substance, right? Like they want to have some kind of conceptual wraparound to put on the relationship.

And I think it’s a difference in approach from how we approach things in the United States where we want to get down to business right away and talk about things that are front of mind. And I think especially in this administration, it’s even more accentuated, things you can actually touch and feel, like the deals you talked about that MOFCOM had talked about this morning, right? Like purchasing agreements, that sort of thing, fentanyl, other related issues. Some of it is symptomatic about how their system works. And I think they want to have that framing. I think it is about managing the competition with the United States in some ways.

And I think what they want to do with this is I think, number one, they find it beneficial to send that signal to the region that the U.S. is elevating not just Beijing, but stability with Beijing over other interests and consideration. I think they do feel like that gives them, you know, some leverage or juice with other countries in the region. But I think, number two, I think, my understanding is the expectation is Beijing that at some point, maybe sooner rather than later, but at some point down the road, they fully expect there to be some kind of reversion to a more overtly competitive posture from the United States.

Like they can see what’s going on on Capitol Hill, and they can see that, you know, President Trump is an important anomaly, but he’s kind of anomalous in the conventional wisdom in Washington about China policy in particular. And so, I think this is a little bit of a setup, right? The next time the U.S. takes some kind of competitive action, whether it’s a tightening of export controls, or does another arms sale to Taiwan, which was a major topic of consideration, it allows them to put the onus on the United States and say, “You broke our gentleman’s agreement. We wanted to stabilize the relationship, but those nasty Americans undertook these egregious actions, and it puts the onus on us.”

And I think that matters less here in Washington, necessarily. I think it’s more useful for them in terms of signaling to third parties, especially in the global South, where you have a lot of countries that would be more sympathetic to Beijing, but I think also for potentially other U.S. allies and partners in other parts of the globe outside of Asia.

Andrew: Yeah, those are all great points and totally sort of aligns with how I see China approaching this relationship as well. Now, let’s kind of look at it from the U.S. side. I mean, again, dialing back to the Obama administration, I sort of understood at the time and still understand why they would push back on kind of this new framework. I guess my thinking now is that China is sort of a more idiosyncratic relationship with the U.S., a more consequential, more complicated relationship. So, I guess a two-parter. One is, should we be treating China as sort of in a standalone category in terms of our diplomacy with them?

And if the answer to that is yes, does that mean we should go along with something like the constructive stability relationship? Or should we just kind of acknowledge that from a U.S. policy standpoint and not buy into the Chinese framework?

Jon: I mean, I think from my perspective, right, and I know this is more prescriptive than analytical, I think the answer is no, that we should not be treating China differently. I mean, we have other longstanding relationships, especially in that part of the world. And I don’t think we should necessarily elevate China above those considerations. I’m thinking of Japan in particular, the Philippines, Australia, right? people that where we really have deep and longstanding ties and when there is an alignment of interest. So, I think we should absolutely be engaged in diplomacy with China. But I think this is part of the game. And it’s a little abstract. It’s not like war in the Middle East. I think we have to be cautious about accepting their framing.

And this goes back to the earlier comment. So, when the president was wheels up on Friday, we had not accepted that framing. And I thought that was to the administration’s credit. But then when we get to the actual statement, then it was embedded in there. And I think, again, what was striking to me, once the fact sheet was released from the White House about the meeting, it was a very truncated document. It was really focused on trade and commercial issues. And really the only nod to strategic or security issues was the statement about constructive strategic stability.

So, no mention of the current kerfuffle that’s going on between China and Japan. Nothing about any of their other problematic activity, even vis-à-vis Iran, which has been such a priority for the administration in the China context and going into this meeting. That’s part of why my assessment has downgraded, right? I felt like at first it was a do-no-harm kind of summit. And now I feel like there’s actually harm that’s been done. So yeah, to circle back to this particular question, it’s not clear to me that we should be elevating diplomacy with China at this point. That’s just my own view and how I balance out these other considerations. Because it’s not just about what does it mean in the China context, but what is it going to mean more broadly? What are going to be kind of the second, and how is this going to be perceived by other parties around the world?

Andrew: Sure. That makes a lot of sense. And especially, I mean, you’ve been in these conversations, you’ve been in these negotiations and staffed them, as we were talking about before we came on. And so, I take your view on this with a lot of respect. And, you know, having not been in the government myself, I don’t always understand some of the nuances of how these fit together. So, point’s very well taken. I wanted to sort of dive in a little bit deeper in terms of, so there’s the high-level kind of framework we just talked about, but then we’re getting some clarity on what seems to have been agreed between the two.

Can you talk a little bit more about any read on the more concrete developments that have come out? So, it sounds like they have not agreed to extend the Busan understanding, but it does seem that they have decided they’re definitely going to cap tariff rates, for example, at the Busan rate. They don’t seem to have made any headway on critical minerals or export controls, but there is the Boeing purchases that they talked about and the ag stuff. How do you grade that mix of now somewhat more concrete outcomes?

Jon: Yeah, I mean, to the extent that we have concrete outcomes, I think that’s all fine and well and good. But what’s striking to me is that when you think about the broader U.S.-China relationship, even just the economic relationship, I think, as important and consequential as these deals are for the particular sectors that are involved or particular firms like Boeing, in the context of the broader economic relationship and the overall relationship, I have to say this is kind of small ball stuff in the big scheme of things.

And I think this reflects a successful negotiating tactic by the Chinese since Liberation Day. When the Trump administration came in in the first term, they were talking about big structural macroeconomic issues and about how to address those. And understandably, Trump had his own idiosyncratic view about this, but the U.S. side has been griping about these since the George W. Bush administration, almost since China was admitted to the WTO about their non-market unfair trade practices. And I think what the Chinese have done in the ensuing months is whittle down the scope of the conversation intentionally, right? So that we’re not talking about those big imbalances. We’re talking about particular sectors, particular firms, and particular products.

I think the administration has been clear that they’ve kind of jettisoned those bigger ambitions. I think they also would point out too, like I heard Jamieson Greer saying this right after, you know, the U.S. trade representative saying this right after the meeting, pointing out that Chinese exports to the United States are down 33% or roughly a third from where they were a year ago. And I’ve heard this elsewhere, right? They point to this as a sign of progress in remedying those trade imbalances, right? But the problem with that, of course, is that it’s like putting pressure on a balloon. Those goods have all gone somewhere else. A lot of them seem to have gone to Europe in particular, which seems to be the next big turn of the crank.

But in terms of directly negotiating with China, I appreciate why that’s the case. We seem to have given up on trying to address the issues that animated Liberation Day and the de facto embargo that we had in place 15 months ago. And just to dwell on this point, it is breathtaking when you think that 15 months ago, we had just come out of the United States having a de facto embargo on China.

And now we’re talking about how much of our stuff are they going to buy and what the Board of Trade and what the Board of Investment is going to look like. So again, if you think about this from the Chinese perspective, think about how they would have thought about this coming into 2025 and dealing with a new Trump administration, thinking about trade war 2.0. And now we’re on the back end of it. And if the question really is, have they bought themselves time and space? The answer has to be a resounding yes from Beijing’s perspective.

Andrew: Yeah, that’s interesting. It’s funny. Even as you say, the administration bragging about how much less we’re buying from China. As someone who’s generally still one of the few free traders still standing, it just seems like a, you know, what do they say? Weird flex, bro. You know, it’s like such a weird thing to brag about because, A, those goods are just going elsewhere in the world. And B, most of it’s kind of low-end stuff that we’re not buying from China. So, it just seems strange to me. I understand it’s a goal of the administration. So, in some ways, goal achieved, but I just don’t quite get it.

Jon: Yeah. And also, where there are those friction points, it’s not clear that it’s really been resolved. Like on the critical minerals, right? There’s no extension of Busan. Scott Bessent was playing it cool and saying, “We’re not looking for an extension right away.” But, well, I thought it was interesting from the initial readouts. There was zero mention in the initial MOFCOM readout about rare earths or critical minerals, but it was mentioned in the U.S. side. And on the U.S. side, it wasn’t that the issue was resolved. It actually showed that this was still a real problem and that basically when it came down to particular items, basically the Chinese were still playing games, I think was the subtext of that document, which again is remarkable that that’s coming out of a presidential engagement, right? That there’s still a funnel point there and it’s difficult for U.S. companies to get what they want.

Andrew: Yeah, I actually want to come back to the discrepancy piece between the two readouts and the two sort of characterizations of the meeting in just a second. But before I do that, I just want to ask you, I mean, how big of an issue do you think it is that we didn’t extend the Busan agreement? I mean, as you said, Scott Bessent is out there saying, “No big deal. We have plenty of time to renew this.” But that to me was kind of the one thing I personally wanted to see, and I know a lot of my clients, as companies, wanted to have some clarity on their ability to get rare earths and rare earth magnets from China.

To me, it’s a pretty glaring absence because that seems like an easy thing to say, “Okay, we’re just going to extend this agreement from a year to two years or 18 months or whatever.” What’s your thought on why that didn’t happen, or how big of a deal it is?

Jon: It’s interesting because in the final run-up to the meeting, I was hearing that the Chinese side was interested in extending it. And I could see, you know, it wasn’t just the rumors. It’s always about how you contextualize them, too. I could see the rationale for that, that they would kind of want to prop up this fragile stability through the midterm elections and into next year because nobody knows how the political dynamic on these issues could change in the next year or so. But I think it shows just how little of substance was accomplished, because if that is your one… and I think you are not wrong to use that as a benchmark, right, for gauging progress in these meetings.

And if we weren’t able to clear that, just an extension, no new agreement. I mean, that’s a pretty low bar to not clear coming out of a presidential meeting, right? Because this is going to be a real issue going forward, and it’s not going to go away. And I think what it shows, too, is how much leverage China still has given the set of issue, right? Like the administration was saying at some point, “Well, now they’ve played their Trump card, no pun intended.” And now it’s been revealed, and we all know this, first of all, we’ve all known about this, like you said, since 2010 when they did this to the Japanese.

But number two, it doesn’t really seem to be subject to the same kind of half-life that the administration might hope. And I think that’s going to be an important element of how this dynamic plays out through the summer. From my perspective, we’ve got two potential big oil slicks in the road ahead. Number one is the arms sale to Taiwan and what the Trump administration decides to do with it. You know, unfortunately, I think there’s no good options at this point.

Either the Trump administration, now that it’s out there, either President Trump postpones it, and then that sends the wrong signal to Taipei and our allies and partners in the region, and to Beijing as well. Or he goes forward with it and then, I think, we potentially find ourselves in another cycle of escalation and de-escalation, and it’s back to the future. And I think it’s the same thing with the 301 investigation.

Andrew: Oh, interesting. Okay.

Jon: Just a quick bracket. I didn’t see the MOFCOM statements this morning. Did they say they would be okay with it going back to the 45% average tariff rate?

Andrew: That’s how we’ve been reading it, basically. It sounds like, yeah, they have kind of acquiesced to the idea of we’re going to allow the 301s to go forward as long as they don’t go above Busan. That’s how we read the MOFCOM statements.

Jon: Okay.

Andrew: I don’t know. React to that. That’s interesting.

Jon: Yeah. So sliding back in, I mean, I think that that is interesting and that’s notable, right? If that is, in fact, the signal. Because for a while, I was skeptical, right? The Chinese do not tend to be magnanimous negotiators, as you know. And I could easily have envisioned a scenario where they say, “No, no, no, this is different from the tariffs that preceded this,” and that that could end up being an issue down the road as well. So, I mean, if we’re interpreting it the right way, I mean, I think it does show that China does have an interest in at least maintaining the stability, if not advancing things further.

Andrew: Yeah. And just for listeners who don’t know, what we’re talking about here is basically after the Supreme Court shot down some of Trump’s tariffs under the emergency powers, the administration is expected to use a different avenue to raise tariffs back up to that level through these so-called 301 investigations. And the administration has always said, “Well, this just gets us back to where we were with China when we paused the cessation of hostilities in Busan.” But China has said, “No, no, no, those will be new tariffs. And we don’t even want you to go back to the original rate because these are new facilities.”

Seems like maybe the two sides have agreed, “Okay, you can use this new facility to get us back to the Busan level. We won’t push back against that.” But I’m with you, Jon. I thought the Chinese would press that advantage, but it is kind of an easy thing to give, especially, I guess, last piece on this, insofar as at this point in the negotiations, do they really care about tariffs all that much? I feel like they sort of looked into the abyss on tariffs and kind came out relatively unscathed and said, “Actually, we’re not that worried about tariffs anymore.” Do you think that’s right?

Jon: I think that’s right. I think they looked into the abyss and realized they could ford across it. The abyss was not bottomless. Right?

Andrew: Totally. So, speaking of discrepancies between the two sides on how they were going to proceed with things, there have been discrepancies in the communication on the back end of this meeting. That’s, of course, to be expected in a way. Some of the discrepancy, for example, was just even the amount of time it took the Chinese to confirm that they were going to do the Boeing purchase. The language around agriculture has differed from both sides, the language around rare earths, the language even a little bit around Taiwan. And I would say, in previous rounds of negotiations since Liberation Day, those discrepancies on what was agreed to out of these various meetings has caused major, major problems, right?

Because both sides came out saying, “We agreed to this.” And then the other side saying, “We agreed to that.” And like, actually they weren’t on the same page. Our read of this is that both sides seem to generally be on the same page, and the discrepancies are a little bit more about each side kind of choosing to emphasize the more positive aspects for their narrative. But what do you think about that? Is our reading of it right? When I say our, I mean Trivium. Or do you think these discrepancies could lead to sort of another kind of backtrack and substantial misunderstanding on where we are in these negotiations?

Jon: Yeah. I mean, I think it depends on the set of issues in some ways, right? Like I think, especially on the economic issues, it’s so about the particulars, right? So, in terms of potentially disrupting the overall relationship, I think there’s less capacity for that because the two sides can continue negotiating. I think it’s possible that both sides left themselves enough base to kind of tout their victories at home. That’s one theory that I’ve heard espoused. And I think there might be some merit to that. I think some of it might be just be symptomatic, too, of how the Trump administration conducts diplomacy broadly, where you announce the agreement and then the negotiations get underway, which is the reverse of how these things normally go.

But I think there probably is an element of that going on here, especially given just how distracted the administration was and focused on the war on Iran, as we saw with the post moment coming into this. So, I think that’s an element. I think where it could be more consequential and where I worry that maybe the administration heard what it wanted to in some ways was on issues like Iran or on North Korea, where they said the Chinese support denuclearization, which has always been a code word for South Korea and other parts of this, right? That is not what we mean. And I think on Iran, too, in particular.

I think that’s intentional from Beijing’s perspective. And I think it’s no accident just to highlight for listeners that the week before this meeting, Beijing hosted Iran’s foreign minister. And I don’t think that was coincidental or an accident. I think what it allowed them to do was deflect U.S. pressure on this issue because they’ve said for a long time now that they want to see the Strait of Hormuz reopened. So, my suspicion would be that when this issue came up, Xi would have then been positioned to say, “Yeah, we supported opening the Strait of Hormuz too. We’re all on the same page.”

So, I think that that is one of those things where the divergence in substance might be different. But just to dwell on one point, it is really striking as a longtime observer of U.S.-China relations, how far we’ve come in these kind of documents, just in terms of the mechanics of these meetings. I mean, it used to be, in the early days of the relationship, as we were normalizing, we would have joint communiques, right? Like the canonical three communiques, right? And then we did joint statements for a long period of time until basically the middle of the Obama administration, if I recall correctly, where it became clear it was too frustrating and not worth the effort to issue these kind of joint statements.

And then what we had for a long time was parallel statements that were coordinated so that we weren’t talking past each other. And now it seems like we’ve entered the phase of like, we just use statements, but it’s not clear that they’re coordinated. Like the phrase I kept thinking of as I was going through the statements over the weekend was it’s like that old Chinese aphorism about a chicken talking to a duck.

Andrew: Yeah.

Jon: There was a strong element of that vibe in perusing the readouts, right? Especially until we got a little bit more of the details.

Andrew: Yeah. And that does seem to be a feature of, I guess, I mean, you’re saying it’s been happening for a few years now, but the past 18 months in particular. Obviously, both sides are incentivized to kind of play up their narrative. I think for now, it doesn’t seem like it’s going to blow up on us, but we’ll see if there’s any backsliding because of those different communication strategies. I want to talk a little bit about, going forward, what you see kind of over the rest of this year and kind of the rest of the Trump administration at least.

But maybe, obviously, Iran war continues to be the big kind of geopolitical context for this. Can you talk to me a little bit more about China’s perspective on that and what you think, how they would have characterized that in the meeting, and whether or not the U.S. wanted more from China on that? Or how do you think that all played in?

Jon: Yeah, I mean, it’s been really interesting to listen to both the president and Secretary Rubio coming out of the meeting, where they said, “We don’t want China’s help on this.” And they were very explicit about the point. They said, “Well, if we ask them to do something, there’s going to be a cost associated with that,” which is not wrong. I think that’s the way these things usually go. But the problem with that is if you don’t ask them to do something very specific and concrete, then they’re not going to do anything. And again, I think the Chinese tried to position themselves to deflect US pressure, both because of the meeting, but also Trump was touting Xi’s statement that they wouldn’t provide military equipment to the Iranians, but the Chinese have also denied providing aid to Russia’s war against Ukraine.

And there’s been this kind of huge fudge factor about, well, it’s dual use. Is it really military equipment? What is the nature of what they’re really providing? And Beijing is, I think, content to play that kind of game all day long. And I think the real question is, from Beijing’s perspective, are they going to bestir themselves to actually do anything meaningful in reopening the Strait of Hormuz or bringing this conflict to some kind of conclusion? The answer seems to be no. I’m happy to be surprised, but I feel like we’ve seen this movie before, not just in the Russia-Ukraine context, but also with North Korea. What’s really striking to me is that we all in Washington are preoccupied with every gyration of what’s going on in the Strait of Hormuz.

But I think coming into this meeting, I think for the Chinese side, it was more in their peripheral vision than central. And I was actually in a conversation with a Chinese colleague who said, and it was very bracing to hear it, because they said in the run to this meeting that, “It would be a waste of time for the two presidents to spend a lot of time talking about the Iran issue because the U.S.-China relationship is so much bigger and more consequential than this one regional issue in the Middle East.”

Andrew: Interesting.

Jon: I take it with a grain of salt because, of course, they want to deflect attention. But I think it also captured a kernel of truth, right? And this is something you and I have talked about before. It’s always important to think like, okay, how does this look from Beijing’s perspective and how large does this loom? And I think there’s a tendency to think that if it’s on the front page of The New York Times, if it’s blowing up your Twitter feed, that of course it must also be important to China. And I think this just kind of underscores that’s not necessarily the case.

Andrew: I think that’s right. But I think it’s also probably true that they do want the Strait of Hormuz open. And so why do you think they’re not doing more? I know there’s a little bit of a dogleg to the conversation here.

Jon: I think you’re right. I mean, I think they do want it open, right? I think it is a headache for them. And I think the longer this drags on, they’ll start to feel the energy crunch. And my take on this has been it’s less the energy crunch per se, because ironically, the United States and China are probably the most well positioned to weather the energy crisis despite or the energy crunch despite rising gas prices here in the U.S. I think the bigger problem for them is that is if this instigates some kind of global or regional economic contraction or recession, because then that really impinges on their export driven model. Demand starts to dry up in Europe and Southeast Asia, and other parts of the globe as well.

I think part of it is I think what they’ve learned from watching us, honestly, though, over the last quarter century, is that it’s a mistake to get too heavily involved in the Middle East, right? And I have this pet theory, too. This is kind of illustrative how things have shifted just broadly in international relations, that the Middle East is not the locus of great power relations and great power competition the way it was when Kissinger was doing shuttle diplomacy back in the 70s because we were worried about the Soviets and the U.S. brushing up against each other in that part of the world, or even 10 years ago when Russia supported intervene in and we had to do deconflection, right?

I think it’s obviously an important part of the world, but for supply chain reasons. The last thing that I’ll mention, Andrew, just while we’re talking about Iran too, one of the things that’s striking to me is that I do think there is a parallel narrative arc for how the war in Iran is playing out and how the trade war played out with China, which is basically that the administration comes in, you know, metaphorically in the case of China and literally in the case of Iran, guns blazing, right? And they think they have the advantage. And the other side, to use Secretary Bessent’s unfortunate turn of phrase, is just playing with a pair of twos.

And then they discover not that the other side is necessarily as formidable as the United States, but that there’s a lot of resilience there that they didn’t expect and that they can hold out in ways that will be challenging for us to do it politically at home. And then ultimately conclude by seeking some kind of diplomatic denouement, which is where the direction of travel seems to be in the Iran case. Not a Middle East expert, of course, but that seems to be where this is all going.

So, it’s striking to me because it feels like year one was following this narrative arc vis-à-vis China, and year two of the administration is now following the same narrative arc in a different geography.

Andrew: Totally agree with you. Actually, I was thinking a similar thought when you mentioned the rare earths piece and people saying, “Well, China’s not going to pull the rare earths card because then they start the clock and everyone’s going to start diversifying.” But one of the consistent themes between the China situation and the Iran situation is both sides were willing to play their major trump card, rare earths in China’s side and Hormuz on Iran’s side, to their own detriment in some ways, and to stick out the pain of that just to prove their leverage point.

And I think in both cases, the administration underestimated the willingness of both sides to not only play that card, but to stick with it.

Jon: Yeah. Even before the war with Iran, I had a Chinese colleague make a really striking statement to me at the end of last year after the Busan meeting. And we were talking about this very issue of leverage between the two sides. This colleague said, “It’s not that we don’t think the United States does not have leverage over China. You do. The real issue is we don’t think you have the stomach to use it.”

Andrew: Yeah. Interesting. Very interesting point. Yeah. Some of those nuggets from Chinese interlocutors that kind of display how they think are pretty interesting. The one I always use is somebody from the Chinese embassy said to me when we were talking about kind of choke points versus choke points. So, the choke point on the U.S. side being the critical minerals and rare earths reliance on China and the choke point on the Chinese side being chips, right? Reliance on the U.S.

And he said, “We only have to go from 80% to 100% to close the chips gap. You have to go from 0% to 100% to close the errors gap.” And I was like, wow, that’s right. And I think it really gets to something fundamental about how they think about that dichotomy.

Jon: Yeah, I think that’s right. And I’ve heard, you know, my colleague here at Brookings, Kyle Chan, make a similar point. For us to diversify away from China and to remediate these vulnerabilities that we have and these reliances that they have, it’s going to require, in some ways, if not quite starting from scratch, starting from a pretty low baseline.

Andrew: Yeah, yeah, for sure. Well, I’ve got a couple more things I want to get your thoughts on before I let you go. We touched on this a little bit. I want to dive a little bit further onto it is the Taiwan piece. You talked about that there’s no real good options in terms of kind of specifically the potential arms package, arms sale package to Taiwan. I just wanted to run this by you. It strikes me that in phone calls in particular, and in this meeting as well, that Xi Jinping, specifically with Donald Trump, has been a little bit more forceful in kind of sort of trying to grab Trump’s attention and say, “I want to make it clear to you that we are not messing around on the Taiwan piece. That’s the one thing where you can’t do the kind of crazy man theory and keep us guessing. You need to know that is…” It just seems like Trump’s been more forceful on a kind of person-to-person interaction level. Am I reading that wrong? Or do you think there’s something to that?

Jon: Yeah, you’re not alone in that. But I actually think it’s less forceful than what we saw in the Biden administration.

Andrew: Oh, interesting.

Jon: When I was in the Biden administration, we saw this in the Chinese readout from the virtual encounter that Biden and Xi had back in November 2021. I mean, the language in that readout was very striking, where Xi said, “If you play with fire, you’re going to get burned.”

Andrew: Oh, yeah. That’s pretty striking.

Jon: It’s praising. It’s praising when you hear that from the head of the second superpower. And I think it was designed to be, right? So I actually think of anything in general, in aggregate, it seems like Xi may have been a little bit softer in the run-up to this meeting on some of the Taiwan points, maybe until this year. I think they probably felt like they did have to put a very clear marker down, both because the U.S. side put out after the meeting of Busan that Taiwan did not come up, which I pretty remarkable. And then because you had the almost $11 billion arms sale package that was announced after the Busan meeting, which the Chinese were clearly very upset about.

And I think part of what they were trying to do is foreclose the possibility of that happening again in the wake of this meeting. They didn’t want to have a tête-à-tête between the two leaders and then another historic arms sale package announced in the wake of that. I think part of it too is just, again, it’s about choreography surrounding the meeting. This is on Xi’s home turf. And so the Chinese side gets more over the agenda and how to frame things and how to put their own spin on the ball. And so, I think it was always going to be the case that they were going to push very hard on this issue.

And again, this gets to the question of grading the outcomes from the summit. I mean, I was very struck when the president was flying back home. He said on Air Force One, “Well, I listened and I didn’t push back,” which at the very least is a missed opportunity. The better way to handle it would be to reassert firm, longstanding U.S. policy on Taiwan, rather than just let this be a lecture that goes unanswered from the Chinese side. And I think that’s part of what’s been disconcerting, and why I talk about this deterioration, and the outcome is that Trump in some ways is now echoing Beijing’s framing on this issue.

Andrew: How so? Can you elaborate?

Jon: Yeah. I mean, I think it’s not just about talking about the negotiating point, but also talking about, number two, talking about how far away Taiwan is and how hard it would be to fight a war over Taiwan, which seems like it’s more of him thinking out loud on this set of issues. But I think talking about independence on Taiwan. He said, “Both sides have to cool it, but we don’t want people on the island seeking dependence,” which is kind of Trump’s own way, I think, of channeling Xi’s explication of what’s going on, on the island.

Andrew: Were you surprised that Taiwan didn’t play more of a role in this meeting, or is that to be expected?

Jon: I think that’s to be expected. I think it’s not surprising that the Chinese leaned really heavily into this. I think, as we saw with these comments we were just talking about, Trump is not personally invested in this set of issues. And he’s made comments since coming back into office, kind of similar to what he said about other allies and partners, viewing them more as a liability than an asset that they’ve stolen or chips production, and that that’s problematic. So, it’s all consistent. So I’m not surprised, which is why I was really hoping for, and kind of relieved on Friday before these follow-on comments that at least no harm seemed to have been done. So I think that is the big question going forward.

Andrew: Well, speaking of going forward, first of all, thank you for being so generous with your time. It’s been a great conversation. But the thing I want to end on is, you know, what’s next? You know, the Chinese side now seem, I think, to confirm that Xi Jinping will come to the U.S. for a state visit. There’s obviously the also two other opportunities for the leaders to meet bilaterally in November in China at APEC and then December G20 in Miami. We’ll see whether one or both those happens. But beyond just whether or not the two leaders will meet, how do you think China in particular is thinking about the next phase? And if I can just expound a little bit, so the way I see it is China has like played, stuck very, very close to its playbook. Like they had a playbook with Trump coming in a second time.

They knew some tariffs were coming. They may have not known it was going to be global tariffs and the extent of the tariff levels and all that stuff, but they had a playbook, they stuck with it, and it, I think, has been pretty effective. But I’m not sure they had a playbook for where we are now in terms of like, okay, now how do we proactively manage the relationship going forward now that we’ve gotten the stalemate, as you call it? Am I wrong there? Or what do you think the playbook is if they have one?

Jon: Yeah, it’s a good question. I mean, I think part of what’s going on on the Chinese side, I mean, you’re right, they’ve been dealing with Trump or thinking about how to deal with Trump now for almost a decade. I think they did develop a reasonably effective playbook. I don’t know if they feel like it has to change much going forward, maybe more kind of adjusted and recalibrated now that we have entered this kind of stalemate/fragile stability. But I think the key thing from Beijing’s perspective is it’s more on the negative side than the affirmative side. They still feel like they have that leverage.

They have other sources of leverage. Like my colleague Ryan Hass was in Beijing at the end of last year, and he came back saying that he had heard a disconcerting number of references in his engagements in Beijing to the U.S. supply chain that run through China for the pharmaceutical industry. So critical minerals is kind of a beast to take on and get our arms around it on its own. But they have other sources of leverage. I think the playbook right now coming out of this meeting, and I think this has been true ever since the post-liberation day walkdown from the U.S. side, it’s not that the Chinese think in terms of dynastic cycles. They have outlook calendar like the rest of us.

And so the deal in Busan was agreed to in November, and it runs through the following November, which is right around the time of our own midterm elections. And I think that has been a focal point for organizing their negotiations and posture towards the United States. They are working backwards from that moment, which is why I think they conceded so little of substance in this initial encounter between the two leaders. I think Secretary Besson argued that this would be stabilizing for the relationship to have multiple encounters, but it also provided a big disincentive for Beijing to offer much to the U.S. side.

Andrew: Great point.

Jon: Especially because I think what they learned from the first trade war is that as this goes on, Trump is going to get antsy for a deal, especially in the run-up to our midterm elections. And that whatever concessions they do make, Trump will have every incentive then to tout that as loudly as possible as being an awesome sweetheart deal. And so, I think that is their calculation that whatever they do end up giving in that next encounter, they will get more bang for the buck for it. And I think it gets back to this theory that I had at the outset. They are trying to buy time and space and being effective, you know, hardscrabble negotiators. They’re trying to find the lowest price point for doing that. So why pay now when you can get the same or even an outsized impact six months from now?

And so I think that is their playbook through the election at least. And on the point about the other two meetings, I am personally skeptical that those other two meetings and multilateral engagements will happen. These guys are both septuagenarians who I don’t think like to travel much. Xi has, you know, as Neil Thomas has documented, is not traveling as much as he used to. Our president’s going to be 80 next month. And so, it’s a big schlep across the Pacific as you appreciate more than most people. And the other element, too, is that the timing of those meetings are awkward. It’s always hard for U.S. presidents to get away either around election season or in the aftermath.

I mean, I think this happened even during the Obama administration when we were trying to pivot to Asia. And, you know, President Trump is not particularly fond of multilateral forests. So is he really going to make the trip or is he going to be focused on other things? And same thing for Xi Jinping. My suspicion is we’ll probably get one more touchpoint this year. And then I think it’s an open question about how this plays out as we go into next year. I think what Beijing will want, at the very least, is to take a minute to pause in the last quarter of the year, hopefully extend the stability, but try to sort out what’s going on in the United States politically and how this is all shaking out.

They’re not the most politically salient issue in U.S. politics, but to the extent they need to recalibrate, take it from there. But I think that’s kind of the next big pivot point.

Andrew: Yeah. I mean, you make a ton of great points. We can’t expound on them too much. I just want to make a couple of reactions. One is a great point about November/December. I mean, we looked at it, and if Xi Jinping comes back to the U.S., it’ll be the first time any Chinese president, general secretary, has come to the U.S. twice in one year, in one calendar year, which would be pretty remarkable. And I was already thinking around December. It’s just everybody’s in holiday season at that point or holiday mindset. So, you’re the first person I’ve heard say, “I really just think it’s going to be one more meeting,” but I think that’s a good shout and a kind of an out-of-the-money call. So, I like it.

On China, like waiting to press their advantage, I also think that’s interesting because just as somebody who personally does some negotiating just in the life of our business, I have experienced, especially on our own side, people really get uncomfortable. They want a resolution. And so, the longer you’re able to make someone else sweat it out, if you’re willing to be the patient party, you very, very often get a better outcome because people just get antsy, exactly like you said. And so, that’s a really good point. And of course, that’s something that the Chinese, we are the same, we don’t necessarily see the Chinese as thinking in dynastic cycles, but they do have some kind of strategic patience, right?

And so, that might be interesting to see how that plays in. Last question. So, you made a good case that they’re basically thinking backwards from November. Is there a plan for the rest of the Trump administration or beyond? Or is it just kind of like get to November and then see what happens?

Jon: I think there is a plan. I think they do feel like they have leverage and they will continue to use that. And I think this is part of the genesis for this idea of a new vision for constructive strategic stability. I mean, they said, they were explicit, they said this would run through the course of President Trump’s time in office.

Andrew: Yes. Right.

Jon: I think that was Wang Yi’s comments. So ,like that’s pretty clear like — this is the plan. Sign here and we are good to go for the next two and a half years or so. So I think that is kind of the game plan, to keep this locked in as much as possible. And then I think what they need to do with President Trump in particular is they need to do just enough after the midterm elections to keep Trump invested in the diplomatic process and to keep him from lashing out, which is basically what happened in the first term. So, that is going to be the real trick for them. I think that’s already the trick for them. They are trying to find the lowest price point, but the limiting factor is don’t let Trump get impatient or feel like this is never going to come to resolution. Give him just enough so that he’s willing to do the next meeting.

And I think it’s an interesting point about Trump too, because I think it is something, I don’t want to stereotype, there’s something quintessentially American about this, that you just want to resolve the problem and move on to the next thing. And I think the Chinese are willing just to wait a couple of weeks longer and sweat it out a little bit.

Andrew: 100%. Well, and one thing that adds to that is, of course, our sort of media cycles, right? Is we want the resolution, we want the story. What have you done for me lately kind of attitude, which just adds to kind of the political narrative and the pressure. Obviously, the Chinese don’t have that since they don’t have free and open press to be putting that kind of pressure on them.

Jon: You don’t count the whole party democracy that we’re going to experience next year in the run for the party Congress as part of that?

Andrew: No, yeah, well-

Jon: Whole process democracy. Whole process, sorry.

Andrew: Yeah, that’s a debate we can have another time for sure. Yeah.

Jon: One concluding thought in that vein, Andrew, is, as idiosyncratic as President Trump is and as different as he thinks of himself as being from his predecessors and as different as he actually is, there are some ways in which he’s very much classic second-term U.S. president, where he has put foreign policy front and center on the agenda. I was already thinking about this this time last year when it was clear that he was not very hands-on about the one big, beautiful bill that was working its way through Congress.

He is really thinking about… and you see this in Iran, too, right, where he wants to be the president who could fix this problem that nobody else could really get their arms around. And I think it’s the same thing with China. He’s very much focused not just on foreign policy, but on his place in history. And China, I think, for any U.S. president, is an important part of that puzzle. And I don’t want to psychoanalyze the guy, but like I said, he’s going to be 80 in a few weeks. This question of legacy and his place in history, I think that is very much at the forefront of his mind right now.

Andrew: Well, that’s a great point. And I would just say, without making a judgment one way or the other, I am confident that Donald Trump is going to feature quite prominently when historians write about this epic in global and American history. So, maybe he doesn’t have to worry about legacy too much because there’s no doubt to me that he’s going to be prominent.

Jon: Future history textbooks will have the Gilded Age, and then they’ll have the Gilded Pages.

Andrew: Yeah, exactly right. Exactly right.

Jon: Although they won’t have books anymore. They probably don’t already.

Andrew: Yeah. It’ll all just be AI piped straight into our brains.

Jon: Yeah, exactly. It’ll be Neuralink straight to the brain, right? Then we’ll all get our Renmin Ribao that way in the morning.

Andrew: Yeah, exactly. Oh my gosh. Well, that’s a really dark turn. Jon, thank you so much. This has been a great conversation. It’s great to have you on, and I hope you’ll come back soon as well.

Jon: Absolutely. Absolutely. I really enjoy this. I am not just a contributor now. I’m a longtime fan and I’ve got you guys in my earbuds on a weekly basis. Though I will confess, when we get the rundown of the economic stats, it’s really hard to do on a run. I have to actually be on my desk or doing something less distracting to ingest all that.

Andrew: Fair enough.

Jon: But it’s great. It’s great.

Andrew: Well, that’s kind words. We really appreciate it. And I’m actually the same. It’s like when I listen to political podcasts, once they start going through the polling numbers, I just tune out because the numbers, when I’m on our own, it’s hard to do. So, good note. Good note. Jon, thanks so much. Appreciate it, man.

Jon: My pleasure. My pleasure, Andrew. Anytime.

Andrew: And listeners, please stick around for my conversation, speaking of macro numbers, with Joe Peissel, coming up now.

I’m joined now by Joe Peissel, our lead macroeconomic analyst on China, to talk about the latest data from China’s macroeconomy that came out, I guess, just a few days ago. We’re recording May 20th in the morning Eastern time. And this would be the monthly data from April. So, the data is released about two weeks after the month ends. And the big story, Joe, from this last month is that April really showed a downshift in Chinese economic growth, China’s economic trajectory, largely, I think, due to impacts from the Iran war, but also due to some other factors going on in the economy. So, why don’t you just walk us through it? What’s the headline takeaway from this latest batch of data that you saw?

Joe Peissel: Yeah, thanks, Andrew. The headline takeaway is that China’s economy slowed significantly. We actually flagged in March’s data that there was early signs of a slowdown, and this intensified in April. So, industrial output grew at a much slower pace than it has previously. Investment actually declined. Consumption indicators were really, really weak. So, as a general takeaway, the economy performed poorly in April. Most of this is linked to the Iran war. So, there’s a very clear economic fallout from the Iran war. But also, there are some domestic drivers, especially behind the decline in investment as well.

Andrew: Well, let’s dig into all this a little bit. We’ll start with the supply side of China’s economy, particularly looking at the industrial sector. The main indicator we watch there is industrial value added or the growth of industrial value added, which you talked about slowed. But what’s going on? What caused that to happen?

Joe: Yeah, so industrial value added, that grew by just over 4% in April. That’s the weakest reading in almost three years, in almost 36 months. And it’s the third or the fourth consecutive month of slowing growth. So, there’s a clear trend here, which is the rate of expansion of China’s industrial base is slowing. So, for comparison, in March, it actually grew by almost 6%. So, a really sharp drop down to this 4.1% growth we saw in April. And this dropping growth, this is really concentrated in sectors that are exposed to the Iran war. So first and foremost, energy-intensive sectors, things like mining or metal manufacturing, things that have huge energy inputs, production of concrete, glass, things like this.

Output on these energy-intensive sectors actually declined year on year. And then other parts of China’s industrial base, which are also exposed to the Middle East and supply chain disruptions. So we can think of things like plastics, which rely on hydrocarbon inputs, chemicals, they also rely on all different sort of feed stocks, which are sourced from the Middle East. Growth in these areas also slowed really quite sharply, quite drastically. So, this exposure of China’s industrial base to the Iran war, that’s a theme we’re also seeing in the inflation data. So PPI, that’s producer price inflation, that increased in April.

That’s the second month of PPI growth. But the price increases, again, were concentrated in energy and other areas with Middle Eastern exposure, while broader PPI, so PPI in other areas of the economy, which aren’t quite so exposed, grew at a much more moderate pace, or in some cases actually continued to decline. So, I’ll give you an example. Overall headline PPI was, I think, 3.8%, but PPI in consumer goods actually declined 1%. So, we can think about that’s the price that factories that manufacture these consumer goods are selling to retailers or to wholesalers.

And that disparity between headline PPI and PPI at a sub-sectoral level is actually really concerning because for these producers of consumer goods, what we’re seeing is the price of their inputs are increasing, but the price they’re selling their outputs is continuing to decrease. So, we’re actually seeing a real compression in their margins, and that’s going to impact things like investment decisions, production decisions, headcount at the factories, things like this.

Andrew: As a business owner, seeing your costs go up and your sales price go down is definitely not something you want to see.

Joe: Some nasty combination.

Andrew: Yeah. We’ll get into sort of the knock-on effects of that. I’m going to throw you a little bit of a curveball. So, if you don’t have a great answer at hand, that’s fine. I’ve been thinking about this because clients keep asking, “When are the effects of the Iran more really going to show up in terms of China’s overall economic output, industrial output, economic trajectory?” This is the first like big sign in April. But I guess my question is, in terms of the slowdown in industrial output linked to the Iran-linked supply chain disruptions, is this straight-up shortages like industrial producers in China can’t get their hands on the goods that they need?

Or is it prices are going up so they’re just choosing to buy less? Or is it a combination of kind of a preemptive slowdown in industrial output kind of to manage what could be a future shortage? Does that latter one kind of make sense or is it kind of combination of all three? I’ve kind of got my sense of what might be happening, but where do you think we are in that dynamic?

Joe: Yeah. So, I mean, that’s a great question. The data suggests it’s more of a price issue rather than actually that manufacturers can still, or importers can still access these goods, but they’re paying a premium for that. And we see that in China’s import data, like imports have surged. In volume terms, they’re pretty healthy. In value terms, they’ve gone up massively because, well, firstly, importers are kind of scrambling to secure supply chains before there’s any more disruption, but also because the price of imports has also increased for raw materials across the board.

So, the data would suggest it’s mainly an issue of this increase in the cost of sourcing goods rather than actually being able to obtain them. In volume terms, supplies okay. In value terms, that’s where it’s really hurting manufacturers.

Andrew: Cool. That’s great to know because I always talk to clients, and I’m like, “The price action is going to make or going to have an impact and it’ll have one impact. We’re seeing it, right? As costs go up, you’re going to… basically, you can buy less. If you’re a business and you’ve got a pot of money for importing supplies, let’s say, you know, you’ve got a million dollars, well, you’re still going to spend a million dollars, but that’s going to buy you fewer items, right? But the game changes when you actually can’t get the goods.

A supply shortage is way different than a supply disruption that causes increased prices. And we don’t seem to be at the full-on shortage for a lot of these industrial goods yet. Am I hearing that right?

Joe: Yeah, correct. China also has purchasing power or monopoly power as a massive importer, and it’s able to diversify its supply chains as well. So, you think, for example, that energy imports from the Gulf states has absolutely plummeted. But at the same time, China’s increasing import, diversifying, right? So increasing imports from Russia, for example. I’m not necessarily saying that that’s going to replace totally the decrease in imports from the Gulf states, but it helps to mitigate the supply chain disruptions.

Andrew: Super helpful. Okay, awesome. Or maybe not awesome, but excellent explanation. Let’s move on to kind of the knock-on effects of a lot of these movements in the industrial sector, which is kind of, as you pointed out, you’re causing companies to invest less. Specifically, manufacturing fixed asset investment declined 4.3% year on year in April. What’s happening in the broader investment dynamics in China’s economy?

Joe: Yeah, so it’s not just manufacturing investment, although you rightly said that did fall in April, but broader investments, aggregate investment across the economy, fixed asset investment, that fell by over 9% in April, which is a huge decline. And this was primarily driven by a collapse in real estate investment, which we know real estate investment has been declining. That decline accelerated in April. It fell by over 20%. But there’s also a surprise decline in infrastructure investment. Now, on the surface, this is really unexpected because central government has been emphasizing how important infrastructure investment is going to be this year and make commitments to ramp up infrastructure investment, increase the value of investment and also the speed with which it rolls out investment projects and the efficiency of the investments.

So, this decline in April really kind of this was unexpected and markets were surprised by this. There are broadly three factors behind this. So, the first is that local governments, they issue what are called special purpose bonds. So, this is a debt instrument that traditionally was earmarked just to fund infrastructure investments. But the amount of special purpose bonds local governments are issuing to fund infrastructure has actually declined. So, it declined by about 20% in April. And that’s because instead, these SPBs, special purpose bonds, they’re being repurposed for other uses, in particular, paying down hidden debt or purchasing back unused land from property developers.

So, as local governments ramp up or increase these efforts to either pay down debt or buy back unused land, this is crowding out or replacing capital that would otherwise be invested in infrastructure projects. So that’s the first factor here. There’s been a decline in SPBs that are earmarked for infrastructure. The second factor is a decline in a facility, a mechanism used by the central bank that provides cheap credit to policy banks, which then use that to fund infrastructure. So, the PBOC, that’s China’s central bank, they have a mechanism that’s known as the pledged supplementary loan facility, the PSL facility. This provides cheap credit. And in April, lending under the PSL actually contracted by about 200 billion.

So, there’s less of this cheap credit available to invest in infrastructure. And the third factor, which I think is the most significant, and it’s certainly been the one that’s been least talked about, is reforms to the way state-owned enterprises remit profits to the central government. So this is quite archaic. I’ll try and explain it simply. And by the way, I should also add that this isn’t just my research. A colleague of ours, a senior analyst called [Wenyi Sun 01:03:23], she’s done a load of research into this as well. So I don’t want to take credit for this solely. This has really been a joint research project between us.

So state-owned enterprises, they’re obligated to turn a portion of their profits, to give a portion of their profits to central government. And this is used for different purposes. Some of it’s actually re-injected back into the SOEs via equity injections. Some of these remitted profits are transferred to other parts of the government’s balance sheet and used for various spending obligations. And this system has been in place since at least 2007. Now, late last year, in late 2025, the finance ministry reformed the way that state-owned enterprises remit their profits.

So the main thing, the biggest change from these reforms was it ramped up the profit remittance ratios. So, for example, SOEs that operate in strategically important industries like telecommunications or electricity generation or coal supply, their profit remittance ratio increased from 20% to 35%. That’s a huge increase. That’s almost, overnight, a doubling in the amount of retained earnings that SOEs have to turn over to central government. And this has a significant impact on SOEs’ investment decisions because typically they would fund a portion of an investment with retained earnings.

As a general rule, this really varies across industries and infrastructure projects, but as a general rule, infrastructure investments with about 20% equity and the remaining would come from debt. So, we can think every one RMB reduction in SOE retained earnings translates into a five RMB reduction in fixed asset investment. So actually, the increased profit remittance ratio has an exponential or disproportionate impact on fixed asset investment. And our modelling of this issue suggests that the increase in profit remittance ratios implemented by the finance ministry late last year could lead to up to a 1 trillion reduction in fixed asset investment.

That’s about two and a half percentage points of fixed asset investment growth in 2026. So it’s a massive issue. It hasn’t really been talked about much. And we think this is one of the major drivers of this kind of surprise decline in fixed asset in April.

Andrew: Yeah, thanks for walking us through that. I know you’ve been doing that great research. I know you’re going to publish a piece on it soon. We could do a whole pod on that, or at least a segment of a pod. We should get that. Make sure we put that on the book soon so listeners can kind of hear the full story there. And also, we should look at putting out a public piece so listeners can be on the lookout for more details on that. But it really is great work you guys have been doing and kind of at the forefront of an underappreciated dynamic, I think. Just to dig in a little bit on everything you just said, so what I heard was the pullback in manufacturing investment largely impacted by sort of overall industrial activity and impacts of the Iran war.

But then the other parts of investment, infrastructure in particular, and property, of course, both being pulled back for sort of more idiosyncratic domestically related issues. Is that right?

Joe: Yeah, that’s exactly it. That’s exactly it. So, it’s not just when we talk about the slowdown in economic activity in April, to a large extent, that’s due to the fallout from the Iran war. But there are also these domestic issues going on as well. It’s not just an Iran war story here.

Andrew: Yeah, that’s good to know because, I mean, it’s easy to look at it and just say, “Oh, China’s economy is being impacted negatively by the fallout of the disruptions from the Middle East.” But really, there’s a lot more going on. So you’ve got a sort of, I don’t know if it’s cyclical, but some sort of fundamental domestic slowdown on top of an external shock, which is never a great place to be in. But sort of speaking of the domestic part of the economy, we’ve gone through industrial activity and investment. Another big one on the domestic side is consumption. What are you seeing there?

Joe: Also bad. Yeah, sorry, man.

Andrew: I think that’s exactly what you said last month when we talked about this.

Joe: Yeah, yeah. Nothing changes, man. I’m sorry to be such a Debbie Downer.

Andrew: That’s okay.

Joe: Yeah, so I mean, retail sales of consumer goods, I think they grew by 0.2% in April year on year. So, it’s next to no growth. And part of this, again, was due to the Iran war. So, we can think of some retail sales categories which are more exposed to impacts of the Iran war, like the sale of petroleum products, for example. I mean, that declined massively. But there were also other categories which fell. So, for example, the sale of cultural goods or sports equipment or leisure equipment. All of these, in terms of retail sales, were declining year on year, which really suggests just a broader issue with consumer confidence and consumer willingness to spend.

What I found most concerning in the data was actually the decline of big-ticket item sales. So, this is kind of more expensive consumer durables, things like autos, home appliances, furniture. Sales of these goods, these big-ticket items, they fell by double digits year on year. And why that’s so concerning is because these are exactly the retail sales categories which are being subsidized by the central government. So, there’s a central government initiative, the Consumer Goods Trading Program, to boost sales of these products. And they’re falling by double digits. And that tells us that the stimulus impact of this trading program has really run out of steam.

So, this program has been in implementation for several years now. And what it does is, because there’s these subsidies, it incentivizes consumers to essentially pull forward future consumption. So, if I’m a Chinese consumer and I’m planning to buy a car in the next few years, why not buy it now and take advantage of these subsidies? It’s borrowing future demand and realizing it in the present. Well, of course, you can only do that for so long until you run out of future demand, until you kind of exhaust this demand.

Andrew: You’re not going to buy a new refrigerator every year for the next five years?

Joe: I’m not, no, no. Even if it is subsidized. So this is what we’ve seen. Kind of the stimulus has now been exhausted. And so, we’re now seeing a decline in the sale of big-ticket items as well. Now, in theory, Beijing could double down on this. It could increase subsidies even more or expand the program scope. But given the diminishing returns and kind of the fiscal constraints the government faces, this doesn’t look likely. And so, it’s a pretty negative outlook for consumption in the coming months.

Andrew: Okay, well, you know, I gave you a pass for being Debbie Downer today, but that brings up the question, if you’re Beijing, you’ve got a lot of down arrows when it comes to your economic indicators. Basically, nothing on the horizon that looks great. How do you respond to all these headwinds?

Joe: Yeah. I mean, from a policy perspective, it’s really tricky because Beijing’s standard policy response is ill-equipped to deal with this. We can think about what would policymakers, what would they normally do? Well, infrastructure investment is a go-to policy response, right? But we’ve already seen there’s really this gap between Beijing’s spending ambitions, what it said it’s going to do to infrastructure spending this year, and the reality on the ground because infrastructure investment actually declined in April. When we think about infrastructure stimulus, it’s not as simple as central government spends more, economy grows more. As we’ve seen, we need to think about what is the central bank doing in terms of its PSL, its pledge supplementary lending facility?

How much cheap credit is it providing? How are local governments prioritizing paying back hidden debt over infrastructure stimulus? What is the behavioral response of SOEs as they have to ramp up profit remittances? So, there are variables when we think about infrastructure stimulus that are outside of central government’s control. And so, simply to spend more doesn’t necessarily mean that infrastructure is going to grow or it’s going to stimulate the economy. Another typical policy response could be supply-side support. We see this usually when the economy slows down, Beijing tries to support its manufacturing base. But the effectiveness of this support is contingent on manufacturers being able to export what they produce.

And this is now uncertain. And maybe we can talk about why in a minute. But because of the Iran war, maintaining export growth is no longer a certainty. And so, that kind of puts question marks over the impact of any supply-side support. And of course, consumption support, what we’ve just talked about, the consumer goods trade-in program is running out of steam. So, in many respects, Beijing’s hands are almost tied when it looks about what it can do domestically. I think the best economic response it probably has is actually a geopolitical one in trying to leverage an end to the Iran war.

And there’s huge question marks about how much leverage it actually has. But trying to support or accelerate a quick end into the Iran war, this would reduce inflationary pressures and it would remove headwinds against export growth. That’s probably the best thing it can actually do at the moment is rather than thinking about domestic policy, what can it do from a geopolitical one?

Andrew: Yeah, as a policymaker, it’s never good when it’s like your best option is, what can we do to support the economy? End a war that someone else started. That’s not a great policy option to have as your top choice, but I’m glad you brought up the export piece. We should dig into that a little bit as well. I mean, basically, it sounds like what you’re saying is continued reliance on export growth is pretty much the key to navigating out of the current economic funk. Talk us through where we are on exports in terms of the latest data and what the trajectory currently looks like, say, absent any kind of resolution from the Iran war.

Joe: Yeah, I said this, I think, last month when we spoke. When we think about the outlook for China’s economy in the next, say, six months, there are some certainties. We can be sure China’s industrial base will continue to grow, even if there’s been a slowdown; it’s still going to expand. We can be sure consumption is not going to perform very well. The one big question mark, one of the most decisive factors for China’s economic performance this year is exports. And there is a lot of uncertainty about how they’re going to perform. So, in April, they surged, they grew by double digits. I think it was about 14% or slightly over. Really strong growth. And this was received well by the markets because it was a sharp reversal from what we saw in March. So, exports in March grew by about 2.5%.

And so, at the time, there was a lot of panic in the investment and analyst circles that this 2.5% growth in March is evident that the Iran war is starting to weigh on China’s exports. And actually, at the time, I mean, I don’t want to blow our trumpet too much, Andrew, but we actually argued against this at the time and said March’s weak growth wasn’t an Iran war-driven deterioration in trade. It’s a combination of base effects because exports in March 2025 were really high. And so just mathematically, March 2026 growth is going to be a little bit lower because it’s coming off a high base. And there’s seasonal effects because Chinese New Year was longer than normal, and it happened later than normal as well.

So, there’s kind of an impact on factory production. So, April’s rebound in export growth to us was really no surprise. We expected it. What that means over the coming months is less certain. There are clear headwinds, the main one being that China’s key export markets. So we can think about Africa, South Asia, Southeast Asia. These economies are highly reliant on energy imports. And so this explosion in energy prices is hammering household purchasing power. And that’s going to reduce their demand for Chinese consumer goods. That’s a clear headwind to export growth in the coming months.

But there are also potential upsides, which we’ve talked about before. One of the main ones being Chinese manufacturers are more insulated from global energy prices than other countries. And that actually makes manufacturers more competitive relative to foreign counterparts. I’m also expecting a rise in export of Chinese new energy technologies, so things like solar panels, EVs, batteries. I mean, I put my hands up. It hasn’t really materialized in April’s data, but I’m expecting that to happen in the coming months.

Sometimes these things can take a few months to work their way through. But this rise in oil prices is going to provide a clear incentive for governments to accelerate the energy transition, and that means more demand for Chinese clean tech. This is a kind of a long-winded answer, all that to say there’s up and downsides. It’s kind of unclear, but it’s certainly one of the most important factors to look out for when trying to understand how China’s economy is going to perform this year.

Andrew: Yeah. On that last point on the electrification, I’ve got friends in Texas, where I’m from, even talking about buying electric vehicles, which if the Texans are moving to electric vehicles because gas is too expensive, you know something’s changed. But to your point kind of on the relative performance of Chinese exports, I mean, that’s an important thing, I think, to keep in mind. Like there’s a lot of very obvious headwinds to overall Chinese exports because of the Iran war. But if Chinese exporters can still do better on a relative basis, then they can continue to gain market share.

And even in sort of a down market or potentially even sort of global recessionary type environment, they can still do okay compared to other economies, which is kind of all you can do in a situation like that. And improving on a relative basis is still sort of a win in that kind of context, right?

Joe: Yeah, I think conventional economic analysis would tell us a global recession or a slowdown in global economic growth is going to be bad for Chinese exporters. But I agree. I think there are actually potential exceptions this time round, which means exports could surprise to the upside. It’s not out of the realm of impossibility for them to surprise to the upside.

Andrew: Well, thanks for running us through all those dynamics from the latest data and kind of what it all means. We can wrap up here, but I guess, you know, what listeners always want to know is, you know, what’s next? So, basically, does this data fundamentally change or impact your view on what China’s economy looks like six months, a year, two years from now? Where are we headed here?

Joe: I mean, certainly not two years from now. Policymakers have been very consistent in achieving this long-term structural transformation. So, growth of high-value manufacturing and tech self-sufficiency and all this sort of stuff. And the short-term, the cyclical impact from the Iran war doesn’t change any of that. But certainly over the short-term, we’re starting to see that we flagged in March, there were signs of a slowdown, mainly driven by disruptions in the Middle East. And this has become more clear, more concrete in April. So, over the short-term, there’s definitely some turbulence for the economy.

But those thinking about the long-term picture, the short-term cyclical impact doesn’t change that.

Andrew: Yeah, good to know. So, everyone writing about the death of the Chinese economy and the Chinese economic growth model might once again be a little bit premature.

Joe: I’ve heard that before.

Andrew: Yeah. I mean, the medium-term trends do tend to assert themselves over time.

Joe: That’s it, yeah. Well, listen, Joe, this was excellent. Thanks so much, as always, for catching us up on this stuff. I appreciate you taking the time today.

Joe: Yeah. Cheers for having me, Andrew.

Andrew: Thanks, everybody, for listening. We’ll see you next time. Bye, everybody.

This week on Sinica, I speak with Andrew Seth Meyer, professor of history at CUNY Brooklyn College and the author of a remarkable new book from Oxford University Press, To Rule All Under Heaven: A History of Classical China from Confucius to the First Emperor. Sixteen years in the making, it’s the first proper one-volume narrative history of the Warring States in English aimed at a general reader — a gap in the field that Andy has now decisively filled. We talk about why this period — the roughly 260 years between Confucius’s death and Qin’s unification in 221 BCE — really is the deepest layer of Chinese political history that still genuinely matters, and we try together to find the line between responsible historical reasoning about modern China and the kind of lazy essentialism that reaches for Han Feizi every time Xi Jinping makes a speech. Along the way we get into the displacement of the hereditary aristocracy by the shi, the Lüshi Chunqiu as a piece of political genius, why the standard caricature of “Legalist” Qin is wrong, and what it means that the Chinese state is still, in some real sense, running on operating software written in the 4th century BCE.

8:14 – The 16-year gestation, why no general-reader Warring States book existed in English, and what made Andy think he could be the one to write it

11:06 – The romanization headaches: Wei vs. Wey, King Zhao of Qin vs. King Zhao of Yan, and the special agonies of writing about early China for an English audience

14:31 – Why he organized the book by state rather than strictly chronologically — and what that structure lets him do

18:14 – The relevance question: how to take the deep continuity of Chinese political life seriously without falling into the orientalist “eternal China” trap

25:52 – Why the Warring States is properly called a revolution: the destruction of Zhou-era hereditary aristocracy and the rise of the shi

33:15 – Fukuyama’s claim that Qin built the world’s first genuinely modern state — is “modern” the right word?

36:30 – Qin’s 38 commanderies, why the radical version lasted only 15 years, and the Han retreat: aristocracy or regional autonomy?

39:46 – Reading the Hundred Schools as embedded political actors rather than tidy textbook categories — and the Jixia Academy as ancient Brookings

44:06 – The Lüshi Chunqiu as a brilliant piece of political propaganda, and what its tripartite cosmological structure was actually arguing

52:31 – Why the cartoon-legalist version of the Qin is wrong: the 70 erudites, the Taishan stelae, and what the book-burning episode really was

57:05 – The axial age question: pattern-matching or something real?

1:00:40 – What the Warring States actually has to teach us about China in 2026: zhong guo as aspiration, not description

1:05:08 – How the Warring States is taught in China and Taiwan today, and what archaeology is doing to the field

1:08:36 – Constant self-reinvention as the real Chinese legacy, and why no plausible future China fully repudiates the CCP

Paying it forward:

Avital Rom (postdoc at Cambridge, early Chinese cultural history, editor of a forthcoming volume on disability and impairment in early China)

Liang Cai (Notre Dame, new book on Han-era jurisprudence and legal traditions)

Recommendations:

Andy: Hadestown on Broadway — and Anaïs Mitchell’s original concept album

Kaiser: To Say Nothing of the Dog: or, How We Found the Bishop’s Bird Stump at Last by Connie Willis (audiobook especially recommended)

This week on Sinica, I speak with Andrew Seth Meyer, professor of history at CUNY Brooklyn College and the author of a remarkable new book from Oxford University Press, To Rule All Under Heaven: A History of Classical China from Confucius to the First Emperor. Sixteen years in the making, it’s the first proper one-volume narrative history of the Warring States in English aimed at a general reader — a gap in the field that Andy has now decisively filled. We talk about why this period — the roughly 260 years between Confucius’s death and Qin’s unification in 221 BCE — really is the deepest layer of Chinese political history that still genuinely matters, and we try together to find the line between responsible historical reasoning about modern China and the kind of lazy essentialism that reaches for Han Feizi every time Xi Jinping makes a speech. Along the way we get into the displacement of the hereditary aristocracy by the shi, the Lüshi Chunqiu as a piece of political genius, why the standard caricature of “Legalist” Qin is wrong, and what it means that the Chinese state is still, in some real sense, running on operating software written in the 4th century BCE.

8:14 – The 16-year gestation, why no general-reader Warring States book existed in English, and what made Andy think he could be the one to write it

11:06 – The romanization headaches: Wei vs. Wey, King Zhao of Qin vs. King Zhao of Yan, and the special agonies of writing about early China for an English audience

14:31 – Why he organized the book by state rather than strictly chronologically — and what that structure lets him do

18:14 – The relevance question: how to take the deep continuity of Chinese political life seriously without falling into the orientalist “eternal China” trap

25:52 – Why the Warring States is properly called a revolution: the destruction of Zhou-era hereditary aristocracy and the rise of the shi

33:15 – Fukuyama’s claim that Qin built the world’s first genuinely modern state — is “modern” the right word?

36:30 – Qin’s 38 commanderies, why the radical version lasted only 15 years, and the Han retreat: aristocracy or regional autonomy?

39:46 – Reading the Hundred Schools as embedded political actors rather than tidy textbook categories — and the Jixia Academy as ancient Brookings

44:06 – The Lüshi Chunqiu as a brilliant piece of political propaganda, and what its tripartite cosmological structure was actually arguing

52:31 – Why the cartoon-legalist version of the Qin is wrong: the 70 erudites, the Taishan stelae, and what the book-burning episode really was

57:05 – The axial age question: pattern-matching or something real?

1:00:40 – What the Warring States actually has to teach us about China in 2026: zhong guo as aspiration, not description

1:05:08 – How the Warring States is taught in China and Taiwan today, and what archaeology is doing to the field

1:08:36 – Constant self-reinvention as the real Chinese legacy, and why no plausible future China fully repudiates the CCP

Paying it forward:

Avital Rom (postdoc at Cambridge, early Chinese cultural history, editor of a forthcoming volume on disability and impairment in early China)

Liang Cai (Notre Dame, new book on Han-era jurisprudence and legal traditions)

Recommendations:

Andy: Hadestown on Broadway — and Anaïs Mitchell’s original concept album

Kaiser: To Say Nothing of the Dog: or, How We Found the Bishop’s Bird Stump at Last by Connie Willis (audiobook especially recommended)

Transcript

Kaiser Kuo: Welcome to the Sinica Podcast, the weekly discussion of current affairs in China. In this program, we look at books, ideas, new research, intellectual currents, and cultural trends that can help us better understand what’s happening in China’s politics, foreign relations, economics, and society. Join me each week for in-depth conversations that shed more light and bring less heat to how we think and talk about China.

I’m Kaiser Kuo, coming to you from my nearly empty, soon-to-be on-the-market home in Chapel Hill, North Carolina.

Sinica is supported this year by the Center for East Asian Studies at the University of Wisconsin-Madison, a national resource center for the study of East Asia. Listeners, please support my work by becoming a paying subscriber at sinicapodcast.com. I know there are a ton of sub-stacks out there, and they start to add up because there’s so many good ones, but I think this one delivers serious value, and I do need your help to keep doing this work. So please subscribe so I can continue to bring you these conversations.

A confession to begin with — I’m recording this just a few hours after President Trump touched down in Beijing to kick off a summit meeting with President Xi Jinping, but I am not talking at all about that today. In fact, the book that I want to talk about is set in a period that ended in 221 BCE, a comfortable 2,247 years before our usual Sinica fare. So, before I introduce my guest, let me try to justify what, at first glance, looks like a violent break with format here. So, anyone who thinks and writes about a society faces a question that is really rarely posed but is always there, present in the background.

How far back do you really need to go?

Nobody seriously argues that you can understand contemporary China without grappling with, obviously, the 20th century. The 19th, the unequal treaties, the Taipings, the self-strengthening movement, all that stuff, that also makes the cut without any controversy. But the further back you push, the louder the objections become, and reasonably so. We don’t usually involve Xenophon to explain the modern American Senate or Alcibiades to explain Pete Hegseth. So, why should anyone reach for Mencius to explain Wang Huning, or, you know, as some commentators have insisted, claim that you can’t understand the mind of Xi Jinping without first reading Han Feizi?

The honest answer is that there’s no clean rule. Some claims of historical relevance are obviously serious, and others are obviously ridiculous. And, you know, we tell them apart mostly by feel, to be honest. But there are at least two features of China’s case that complicate the easy dismissal. The first is the sheer continuity of script and of canon. A literate Chinese person who’s had a bit of classical Chinese can, in 2026, pick up a passage from the Mencius or the Han Feizi and read it. Not without effort, of course, not without commentary, probably, but they can read it.

And that is not the relationship that most, say, Italians have with Latin or most Greeks with Plato. The second thing that I think complicates this is conscious cultivation. The Chinese state, from the very first centuries of empire down to the present, has deliberately maintained its links with antiquity. It treats those links as part of its claim to legitimacy. Xi Jinping doesn’t just allude to Confucius. He actually sponsors institutes named after the sage.

The Party doesn’t just publish white papers; it publishes editions of the classics. When a society insists this loudly on its own deep history, the question of how that history actually shapes the present is not one that scholars just get to wave away. Still, how far back? The Warring States period, the roughly 260 years between the death of Confucius and Qin’s unification in 221 BCE, is a strong candidate for the deepest layer that genuinely matters. It is, on any honest accounting, the moment that the basic operating system of Chinese political life was really written.

The era produced, you know, at its end really, especially the imperial throne, which then ran without fundamental redesign for, what, 2,132 years until Emperor Puyi abdicated in 1912. It produced the centralized bureaucratic state, what Francis Fukuyama in The Origins of Political Order calls the world’s first genuinely modern state, predating its European counterparts by something like 17 centuries. It produced the displacement of hereditary aristocracy by an educated meritocratic class, the shi 士. The ancestors, really, of every Chinese scholar official, every Communist Party cadre, every Gaokao striver, it produced the entire intellectual repertoire that the Chinese state has been rummaging through ever since.

Confucian moralism, Taoist quietism, Moist universalism, legalist fiscal administrative techniques, and punitive techniques. Although, you know, this is one of the genuinely revisionist threads in my guest’s book. The famous categories of the hundred schools of thought turn out, on close inspection, to be much more entangled with one another and much more entangled with the actual political world of the competing courts than the tidy textbook treatment suggests.

The Qin court that unified the realm in 221 BCE was not the cartoon legalist regime of later caricature. It employed dozens of erudites steeped in what would later be called the Confucian classics. The stelae the first emperor erected on the sacred mountain of Taishan in his new empire, actually invoke all the Confucian virtues — humaneness, rightness, filial piety — and entirely in conventional Confucian terms. We’re going to get into all of that. The era also produced, finally, I think, a vocabulary of regional identity that is still alive in the contemporary cultural imagination. You know, Yan in Beijing, Chu in the Hubei Hunan area.

The Zhao surname, which clusters so commonly in Shanxi, where you meet somebody named Zhao, you can bet they’ve got Shanxi ancestry. You know, the whole seven-state mnemonic, you know — Qi, Chu, Yan, Han, Zhao, Wei, Qin — that in my experience, virtually any educated person in China can just rattle off without hesitation. So, to talk about all of this stuff, I am extremely glad to be joined today by Andrew Seth Meyer, professor of history at CUNY Brooklyn College and the author of a remarkable new book from Oxford University Press called To Rule All Under Heaven: A History of Classical China from Confucius to the First Emperor.

Andy did his BA at Brown in, I think, ‘89, and his PhD in East Asian Languages and Civilizations at Harvard in ‘99. And he spent his career working primarily on the intellectual and political history of early China. Listeners may know him as co-translator with John Major, Sarah Queen, and Harold Roth of the magnificent Huainanzi, that compendious second-century BCE attempt to synthesize the entire Warring States intellectual inheritance into a single book of statecraft. He’s also written The Dao of the Military: Liu An’s Art of War.

His new book, To Rule Under Heaven, is the product of 16 years of work and is, by some considerable distance, I think, really truly the first proper one-volume narrative history of the Warring States in English that’s really aimed at a general reader. That such a book did not exist until now is frankly an embarrassment for the field, and Andy has filled the gap in a way that he’s going to be, I think, the standard for some time. Andy Meyer, welcome to Sinica at last.

Andy Seth Meyer: Wow. I’m going to have to talk through my tears. That was such a wonderful introduction. Thank you.

Kaiser: Well, great. I mean, we’re going to plunge into all the stuff that I hinted at, but first, 16 years is a long gestation period, you know. So, take us back to the beginning. You teach at Brooklyn College. You’d already done the Huainanzi book and the Liu An book, both quite specialized works. And at some point, you decided what you actually wanted to write was a proper, like I said, one-volume narrative history of the Warring States in English for a general reading. What was the gap that you saw? And why do you feel like you had to be the one to fill?

Andy: That’s a good question. The gap, I mean, I think you described it quite well in your introduction, right? It’s embarrassing. The gap was sort of obvious to everyone in the field. And I think I began to understand the reasons for the gap as I worked to try…. This book, when I first got the contract, so my initial impulse to write the book was because I was having some trouble. I’ve told this story many times, so forgive me for repeating myself here, but I was having some trouble getting some of my academic work published.

And, you know, publish or perish, I was trying to... So I had a student, a young man who tragically died of cancer in 2015. Lovely. And I think he might have gone on for a PhD and you might be talking to him someday. But he became very passionate about early China in some of the classes that he took with me as an MA student. I don’t know how it came up. I don’t know why. It was sort of indiscreet of me to say, well, I’m having some trouble publishing my academic work.

He said, “Well, you know, I have a lot of context in the publishing industry. Why don’t you try to write something for general readers?” And as soon as he put that idea in my head, I thought, well, the book that general readers really need is a one-volume history of the Warring States. I’ve always been very passionately, you know, I became mesmerized by the Warring States as a college student. So, as soon as somebody put that idea in front of me — why don’t you write something for general readers? Like you said, I mean, this is something general readers here in the States need. When I first got the contract, I told my original publisher that I would… I got the contract in 2009.

I told them I’d have a book for them in 2011. Yeah, that was crazy. And there were a number of different problems. I can talk about why it took me so long if you like. I mean, I radically underestimated the challenges of doing it. I think as I was doing it, I began to realize why we academics who were under this pressure to publish or perish, why they would shy away from this task. Right?

Kaiser: Yeah. Yeah, yeah. I mean, I feel like I can guess at some of the questions. I mean, part of it is just simply the scale of what you took on. I mean, this is a period of, what? 260 years with seven major states, dozens and dozens of minor ones. There are multiple generations of rulers and ministers, and these itinerant intellectuals, in each of them, all operating in this truly multi-polar system where the action keeps shifting from court to court. I mean, I was thinking as I was reading this, can you imagine, I read C.V. Wedgwood’s book on Thirty Years’ War. That’s already tough, to keep all the names and all because that is a multi-state system across a long period of time. But if you can imagine that, taking it and multiplying the actors by 10, the duration by nearly 10, that’s what you took on. And then on top of that, I got to ask you about this because I felt your pain on every page, Andy. I mean, Mandarin is not doing you a lot of favors here. I mean, like you have a major state called Wei and a small state called Wey. They’re perfect homophones, right? I mean, even down to the tone, right I mean, and that forces you, I guess it’s been a convention for a while now, into this romanization workaround where, you know, the first Wei gets spelled, you know, the big one, W-E-I, as it is forever. And then Wey, you know, the one that means guard, is W-E-Y, right?

Andy: Yeah. Part of it is writing about early China for an English-speaking audience. There are all sorts of problems like that. So there are all sorts of sort of just literary technical problems.

Kaiser: Yeah. I mean, my favorite one, Andy, I don’t know if you – I mean, talk about this because you’ve got a King Zhao of Qin and you’ve got a King Zhao of Yan. They’re ruling at the same damn time. And right next door between them, sandwiched between them, is a state called Zhao. And both of them at various points go to war with that. So you could write like a perfectly accurate sentence in which King Zhao of Qin attacks Zhao and then King Zhao of Yan comes to the aid of Zhao, or something like that. The reader has to do a lot of work here to figure out what’s going on. And thankfully, you have all the maps in there. But wow.

Andy: Yeah. No, it was a challenge and I don’t know. I did my best to sort of lay this out comprehensively and engagingly. And, you know, I mean, the thing about the writing about the warring states, the sources are very rich, but they’re in a very vexed state because, spoiler alert, the warring states end with the state of Qin conquering the other six great states. And they undertake this purge, right, of the records of the other states.

So, it becomes very challenging using the sources that we have, and it’s a combination of transmitted sources and archaeologically recovered sources, to reconstruct a verifiable chronology. And I wanted it to be an engaging narrative, an informative narrative, but also a verifiable narrative. Luckily, I had the guide of scholars like Yang Kuan and Qian Mu as guides. But even with their help, putting together a narrative alongside this chronology was challenging.

Kaiser: You call it a chronology, but the fact is you organize the book by state rather than strictly by chronology. So, you go from Qi, then to Wu and Chu and Yue, and then to Jin, and then Wei, and then Qin, and so on. It’s a choice, right? Most chronological histories would kind of interleave this stuff, but what did organizing by state let you do that a strictly chronological account would have prevented? Because it’s state and also theme. It’s really cleverly, I think, very, very well put together.

Andy: Thank you. And, you know, that was a big challenge. You know, narrative and chronology are two separate things. So, I just felt that the task of creating a meaningful and edifying narrative required me to work outside of the strict framework of chronology. If you want to sort of make sense of the history of this period, you can’t work strictly chronologically. You sort of have to move the focus around in order to sort of tell a story that helps people understand what’s going on in this society and why it has such durable impact on the history of China and the world.

You know, that was one of the earliest problems. Because I had sort of laid out the framework of my plan when I first got the contract. So that was one of the earliest problems I had solved was, well, how am I going to lay this story out? And that was, I think, what made me sort of cocky, why I thought, oh, I’ll write this book in two years. I didn’t realize that sort of filling in that outline was still going to pose lots of challenges.

Kaiser: I mean, I got to wonder whether your agent and Oxford that published it, whether they were confident that there was going to be an audience for this because, you know, the conventional wisdom and trade publishing, as I understand it, is that, so English language readers, they will buy the Greeks and the Romans. They’re not going to buy ancient China. I mean, did you have to argue for the existence of a readership? I mean, did you have to appeal to the Chinamaxxing trend toward the end there?

Andy: You know, I always had a firm faith that there’s a readership for this book out there.

Kaiser: Yeah.

Andy: You know, it may not be as big as the readership for authors like Donald Kagan and Adrian Goldsworthy. But I mean, people are interested in ancient history. They’re interested in China. In all honesty, the first publisher that I was with, my contract was originally, I won’t name names, it was with a different publisher. And they weren’t first very enthusiastic about it, but they were never satisfied that I had sort of sexed up the narrative to the point where it would be interesting enough for English language readers that they had confidence in it. So, they let me go.

That was part of what took so long is that I was trying to sort of fashion a book that they would have confidence in publishing. That process helped a lot in that it helped me find the voice that ultimately is in the book now, which is much altered from

Read more

This week on Sinica, I chat with Ali Wyne, Senior Research and Advocacy Adviser for U.S.-China at the International Crisis Group, just hours after President Trump’s plane left Chinese airspace at the end of a three-day state visit to Beijing. We dig into the new framework Xi Jinping put on the table — what Beijing is calling 中美建设性战略稳定关系, a “constructive China-U.S. relationship of strategic stability” — and ask whether it’s a genuine doctrine of mutual restraint or a rhetorical tripwire that future American moves can be characterized as having violated. Ali and I work through Foreign Minister Wang Yi’s morning-after media briefing, including his striking claim that the U.S. side now “does not accept” Taiwan independence — a notable shift from the standard American formulation. We talk about what Trump actually said on Taiwan in his Air Force One press gaggle and in his Fox News interview with Bret Baier, the gap between Trump’s account of Xi’s private remarks on Iran and what Beijing is willing to say publicly, and whether AI can serve as a durable basis for cooperation coming out of the summit. We also turn to the American domestic side: the bind Democrats find themselves in trying to critique Trump’s China engagement without out-hawking him, the generational data showing a striking gap in American attitudes toward China that transcends partisan division, and the question of when that shift in mass opinion actually starts to bite on policy.

3:46 — Big-picture takeaways: Trump’s stumble into a more sober appreciation of Chinese power

6:24 — The new Chinese framing: “constructive strategic stability” and what Beijing wants from it

10:21 — Unpacking the framework: Wu Xinbo, Sun Chenghao, and the nuclear-arms-control genealogy

14:52 — Doctrine of mutual restraint or rhetorical tripwire? The two readings circulating among China-watchers

18:04 — The Democrats’ hawkish trap: what a non-out-hawking critique of Trump on China would actually sound like

23:50 — Who in the Democratic political class is modeling the right posture

28:38 — The generational gap in American attitudes toward China, and why it transcends partisan divisions

33:32 — When the public-opinion shift starts to bite on policy formation

37:16 — Taiwan: Xi’s fire-and-water language, Rubio’s “raise, note, move on,” and what Trump said to Bret Baier

42:47 — Wang Yi’s “does not accept” formulation and the marker Beijing is laying down

47:32 — Iran and Hormuz: the gap between what Trump says Xi told him privately and what Beijing will say publicly

51:57 — Closing: where Ali ends the week, and the case for Chinese strategic patience 55:18 — Recommended reading on the summit: Ryan Hass in The Atlantic and Jessica Chen Weiss in the FT

Paying It Forward

• Afra Wang, author of the Concurrent newsletter — one of the most thoughtful writers on Chinese technological development and what it tells us about broader socioeconomic shifts in China

• Allie Matthias, senior research assistant at Brookings, for her recent essay with Jonathan Czin in China Leadership Monitor on the inversion of the “peak China” thesis

• Mackenzie Miller, program manager of the Penn Project on the Future of U.S.-China Relations

• Kate Gross-Whitaker, research and editorial associate at the Institute for America, China, and the Future of Global Affairs (ACF)

Recommendations

Ali:

• No Straight Road Takes You There: Essays for Uneven Terrain by Rebecca Solnit

• A World Appears: A Journey into Consciousness by Michael Pollan

• Living in the Present with John Prine by Tom Piazza

Kaiser:

• One Day, Everyone Will Have Always Been Against This by Omar El Akkad — a National Book Award–winning cri de coeur from a brilliant writer, in the same unflinching register as Ta-Nehisi Coates’s Between the World and Me

This week on Sinica, I chat with Ali Wyne, Senior Research and Advocacy Adviser for U.S.-China at the International Crisis Group, just hours after President Trump’s plane left Chinese airspace at the end of a three-day state visit to Beijing. We dig into the new framework Xi Jinping put on the table — what Beijing is calling 中美建设性战略稳定关系, a “constructive China-U.S. relationship of strategic stability” — and ask whether it’s a genuine doctrine of mutual restraint or a rhetorical tripwire that future American moves can be characterized as having violated. Ali and I work through Foreign Minister Wang Yi’s morning-after media briefing, including his striking claim that the U.S. side now “does not accept” Taiwan independence — a notable shift from the standard American formulation. We talk about what Trump actually said on Taiwan in his Air Force One press gaggle and in his Fox News interview with Bret Baier, the gap between Trump’s account of Xi’s private remarks on Iran and what Beijing is willing to say publicly, and whether AI can serve as a durable basis for cooperation coming out of the summit. We also turn to the American domestic side: the bind Democrats find themselves in trying to critique Trump’s China engagement without out-hawking him, the generational data showing a striking gap in American attitudes toward China that transcends partisan division, and the question of when that shift in mass opinion actually starts to bite on policy.

3:46 — Big-picture takeaways: Trump’s stumble into a more sober appreciation of Chinese power

6:24 — The new Chinese framing: “constructive strategic stability” and what Beijing wants from it

10:21 — Unpacking the framework: Wu Xinbo, Sun Chenghao, and the nuclear-arms-control genealogy

14:52 — Doctrine of mutual restraint or rhetorical tripwire? The two readings circulating among China-watchers

18:04 — The Democrats’ hawkish trap: what a non-out-hawking critique of Trump on China would actually sound like

23:50 — Who in the Democratic political class is modeling the right posture

28:38 — The generational gap in American attitudes toward China, and why it transcends partisan divisions

33:32 — When the public-opinion shift starts to bite on policy formation

37:16 — Taiwan: Xi’s fire-and-water language, Rubio’s “raise, note, move on,” and what Trump said to Bret Baier

42:47 — Wang Yi’s “does not accept” formulation and the marker Beijing is laying down

47:32 — Iran and Hormuz: the gap between what Trump says Xi told him privately and what Beijing will say publicly

51:57 — Closing: where Ali ends the week, and the case for Chinese strategic patience 55:18 — Recommended reading on the summit: Ryan Hass in The Atlantic and Jessica Chen Weiss in the FT

Paying It Forward

• Afra Wang, author of the Concurrent newsletter — one of the most thoughtful writers on Chinese technological development and what it tells us about broader socioeconomic shifts in China

• Allie Matthias, senior research assistant at Brookings, for her recent essay with Jonathan Czin in China Leadership Monitor on the inversion of the “peak China” thesis

• Mackenzie Miller, program manager of the Penn Project on the Future of U.S.-China Relations

• Kate Gross-Whitaker, research and editorial associate at the Institute for America, China, and the Future of Global Affairs (ACF)

Recommendations

Ali:

• No Straight Road Takes You There: Essays for Uneven Terrain by Rebecca Solnit

• A World Appears: A Journey into Consciousness by Michael Pollan

• Living in the Present with John Prine by Tom Piazza

Kaiser:

• One Day, Everyone Will Have Always Been Against This by Omar El Akkad — a National Book Award–winning cri de coeur from a brilliant writer, in the same unflinching register as Ta-Nehisi Coates’s Between the World and Me

Transcript

Kaiser Kuo: Welcome to the Sinica Podcast, a weekly discussion of current affairs in China. In this program, we look at books, ideas, new research, intellectual currents, and cultural trends that can help us better understand what’s happening in China’s politics, foreign relations, economics, and society. Join me each week for in-depth conversations that shed more light and bring less heat to how we think and talk about China.

I’m Kaiser Kuo, coming to you this week from my soon-to-be-on-the-market home in Chapel Hill, North Carolina.

Sinica is supported this year by the Center for East Asian Studies at the University of Wisconsin-Madison, a national resource center for the study of East Asia. Listeners, you can support my work by becoming a paying subscriber at sinicapodcast.com. Please do subscribe so I can continue to bring you these conversations.

So, I’m taping this just a little over a day after President Trump’s plane left Chinese airspace, wrapping up a state visit that included many hours of direct engagement with Chinese President Xi Jinping. It was bad timing on my part that I wasn’t there in Beijing for the summit so I could, you know, maybe give you guys a better sense of Chinese reactions to it and how it felt on the ground. But hey, I did pay as much attention to it as I was able to from here. It wasn’t exactly Nixon goes to China in 1972. There weren’t major breakthroughs, no eye-wateringly large trade or investment deals signed yet, or announced yet anyway.

No board of investment announced. No dramatic changes in the American position on Taiwan that I can tell. No pledge secured for China to help the U.S. out of its jam in Iran and get the Strait of Hormuz open. After the first day, the two sides produced parallel readouts that read, as more than one observer had noted, like accounts of two very different meetings. Perhaps there’s still more to come. But so far, the deliverables list, as everyone has noted, is rather thin. You’ve got some Boeing orders, I guess 200 planes, a resumption of U.S. beef imports, I suppose a notional agreement that the Strait of Hormuz ought to be reopened, and that no toll should be charged.

Nevertheless, I rate the summit a success. It did what both sides really wanted to do, at a minimum, which was to extend the ceasefire in the trade war made last fall in Busan, South Korea. Neither side had its expectations set too high, and that’s a very good thing, I think. The vibes, the atmospherics, the optics, or the tone, or whatever you want to call it, that was all quite positive. And as far as I can tell, it’s all gotten high marks from all serious observers, whether Western or Chinese, importantly. What’s more important, I would say, than the relative paucity of deliverables is this tone.

They’re meeting three more times this year in D.C. in September, both at APEC in November in Shenzhen, and at the G20, which is going to be in Miami in December. What I think was really of lasting significance, perhaps, is that there was this sense of power parity that I don’t think has any precedent in U.S.-China’s symmetry. So yeah, Trump came into this in a relatively weak position, but Xi and the Chinese leadership didn’t rub his face in it and simply projected a firmness and nonchalance, a confidence that did, I think, much of the talking.

This wasn’t just Beijing’s doing, though. It struck me, especially given Trump’s remarks and what he said during his interview with Fox News while he was still in Beijing, that Trump’s own sense of China has fundamentally shifted, something that we’ve long kind of intuited but now have heard straight from Trump himself. Part of what’s larger and harder to evaluate is this new Chinese framing for the relationship that Beijing wants to anchor for the next three years and perhaps beyond. They’re calling it 中美建设性战略的固定关系, a constructive China-US relationship of strategic stability.

Now, parsing that phrase is already keeping people pretty busy, but unpacking it is really going to be one of the central interpretive questions, I think, for anyone who’s trying to understand the U.S.-China relationship in the next few years. So, to help me through all the complexities of the U.S.-China relationship and the summit’s aftermath, I am delighted to be joined by Ali Wyne. Ali is the Senior Research and Advocacy Advisor for U.S.-China at the International Crisis Group, where he analyzes U.S. policy toward China and works to introduce Crisis Group’s recommendations for easing tensions into Washington’s policy debates. Before joining Crisis Group at the start of 2024, he worked at Eurasia Group, the RAND Corporation, the Carnegie Endowment, and at State.

He is the author of America’s Great-Power Opportunity: Revitalizing U.S. Foreign Policy to Meet the Challenges of Strategic Competition, which The Spectator named one of his books of the year in 2022, and about which I’ve had Ali on the show previously. You probably remember that. He is one of the sharpest and most temperamentally even-handed voices riding on this relationship today, and I am glad to have him. Ali Wyne, welcome to Sinica, or welcome back to Sinica, man.

Ali Wyne: It’s great to be back, Kaiser. Thanks very much for having me on.

Kaiser: Well, it’s wonderful to have you back, and thanks for making yourself available on the weekend. Sorry to take up your Saturday afternoon.

Ali: Of course. No, I wouldn’t want to spend it any other way.

Kaiser: Oh, you’re delightful. So, let me start with your big picture takeaways, just your two-minute top line take on what the summit meant before we dive deeper into the many other questions. I don’t know if you had any quibbles with the way I characterized it just now in the opening, or what your take was.

Ali: I think that your assessment is spot on. I had modest expectations, I think, along with most other folks who were monitoring the summit. I had modest expectations of the concrete deliverables that the summit would deliver. And indeed, as your opening remarks indicate, I don’t think that the summit produced any sort of eye-watering deals or major diplomatic breakthroughs. Nonetheless, it was very illuminating in two respects. And I think illuminating in one respect from China’s vantage point and then from America’s vantage point.

When President Trump made his first official state visit to China in November 2017, so almost a decade ago, the Chinese delegation expended a lot of effort trying to impress upon President Trump that President Xi was a geopolitical equal on the world stage, that China had arrived as America’s most capable and confident

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Giorgia Marino: US-China relations are playing an increasingly pivotal role in global geopolitics and the global economy, but all too frequently, the “moves” taken by the two superpowers are based on deep-rooted preconceptions and self-fulfilling prophecies. Today, however, the drive for greater mutual understanding could start from the bottom up.

Kaiser Kuo: Attraction and repulsion, rivalry and complementarity, fascination and misunderstandings. The relationship between China and the United States is now, more than ever, at the very heart of international geopolitics. Every bilateral summit, every exchange between Xi Jinping and Donald Trump, awaits and is observed with a mixture of hope and fear by the nations of the Global South, with undisguised apprehension in Europe, and, in general, with a certain unease across the globe. Stock markets, energy prices, the flow of raw materials, and even more seemingly mundane aspects of daily life, such as access to social media, all depend on the fluctuating tensions and de-escalations between the two superpowers.

But what are the real changes in Sino-American relations in the era of Trump’s second term? And what do the Chinese think of the Americans today, and vice versa?

We spoke about this with an exceptional observer. A rock guitarist, former member and founder of China’s first heavy metal band (Tang Dynasty), former director of international communications at Baidu, journalist and expert in new technologies, Kaiser Kuo was born in the United States to Chinese parents and lived for more than twenty years in Beijing, where he has recently returned. Since 2010, on the hugely successful Sinica Podcast, he has been discussing and analysing Chinese politics, economics, society and culture. He is considered one of the most original and insightful voices on the relationship between China and the United States.

Giorgia: How has the mutual perception of the American and the Chinese changed in recent years?

Kaiser: It has changed significantly very recently, but not evenly across the entire population. Looking at the polls, for example the Pew Research Center’s, it is clear that in the United States views on China were very negative across most demographic groups: more so among Republicans and older people and less so among Democrats and young people. Over the past year, negative sentiment has declined significantly, most notably among Democrats and young people aged 18 to 35. The shift largely reflects growing disaffection with the US government under the Trump administration.

Giorgia: And what about the Chinese perspective? Some say that the Chinese know Westerners far better than Westerners know China. Do you agree?

Kaiser: Yes, broadly speaking, yes. Let’s say that mutual understanding is rather limited on both sides. The dominance of Western narratives, particularly American ones, in the world means that it is impossible for a Chinese person to know nothing about the United States: global popular culture, television and American news programmes have a very dominant voice.

Now, that doesn’t mean the Chinese education system necessarily does a better job: the Chinese are subjected to the same kind of heavily biased information about the United States that the American public sees about China. I do not believe they are making any more effort to understand Americans. It simply comes down to the dominance of Western narratives.

Giorgia: What has really changed in the China-US relationship with Trump’s return? And what has instead remained simply consistent with the past?

Kaiser: The situation is changing by the month, as evidenced by the ongoing war in Iran. When Trump returned to the White House in January 2025, there was a real belief that relations with China would deteriorate. Most people in China expected another round of the trade war, but were also well aware that they were far better prepared to deal with it. And this took the United States completely by surprise. When Trump announced tariffs on “Liberation Day” on April 2, China was one of the few major economies to stand firm: it did not seek a deal, it did not flatter Trump and it did not attempt to evade the new tariff regime. Rather, it reacted forcefully, imposing tariffs of its own and forcing Trump to back down. Shortly afterwards, when the United States expanded the list of Chinese companies subject to sanctions under the so-called 50% rule, China responded by introducing controls on rare-earth exports, once again forcing Trump to yield. Seeing a visibly irritated Trump faced with calm and level-headed Chinese leadership has influenced the American public’s thinking: in the United States, the country lurches from one political crisis to the next, while China appears relatively stable.

Many other changes have taken place in the last year alone. In early 2025, the Chinese start-up DeepSeek launched an LLM (Large Language Model) that was trained at a fraction of the cost of the most advanced American models: quite a shock. Then, when it seemed that TikTok was about to be shut down in the United States, many American users signed up to the Chinese social media platform Xiaohongshu (Red Note), catching a glimpse of life among the urban classes in big cities like Shanghai and Hangzhou. All of a sudden, they found themselves thinking they had been deceived by their own media and political class, whose portrayal of China was very different from what they could see with their own eyes. From there, a trend known as “Chinamaxxing” took off. Throughout 2025, many American influencers and YouTubers travelled to China, travelling on high-speed trains and filming themselves against the futuristic urban backdrops of Shenzhen, Shanghai and Hangzhou. They all came back, almost unanimously, impressed. So for the whole year, Americans were immersed in a sort of “Chinese infrastructure porn”, wondering: what on earth has happened to America? Why have we stopped building?

Awareness is also growing of the fact that China has built the kind of energy system the world needs: vast amounts of solar and wind power, batteries, electric vehicles and a modern, efficient ultra-high-voltage transmission grid. At the same time, the Trump administration has withdrawn from the Paris Agreement, blocked offshore wind projects in which hundreds of millions of dollars had already been invested, and dismantled the legal framework that enabled the EPA to regulate greenhouse gas emissions. This stark contrast is contributing to a profound shift in the narrative and in the way Americans perceive China.

Giorgia: Returning to the shocks that Americans, but also Europeans, are still experiencing every time China overtakes them in some cutting-edge sector such as renewables, electric cars (BYD) or AI (DeepSeek), what will be the next major shock we should expect?

Kaiser: If only I knew, so I could invest in it! One thing is clear, though: China is investing heavily in nuclear fusion. We are likely to witness breakthroughs in new materials, battery chemistry and quantum computing. But the biggest advances will probably come from the life sciences and biotechnology, which receive less attention. China has built a very solid foundation in pharmaceutical discovery: in the past, it merely acted as an external supplier of molecular analysis services on behalf of major Western biopharmaceutical companies. Now, however, many of these Chinese companies are operating independently, and I believe that in the coming years we will see significant pharmaceutical discoveries emerging from China.

Giorgia: The “technological containment” that the United States is trying to impose on China is a policy that cuts across party lines, from Democrats to Republicans. But what do scientists, both Chinese and American, make of this? Is there no hope of achieving constructive scientific cooperation?

Kaiser: I believe that scientists on both sides consider this policy an absolute tragedy. It is a loss for all of humanity that collaboration between the scientific communities of China and the United States – two of the largest, best-funded and most creative in the world – is suffocated by geopolitics. Unfortunately, in the United States, even within the scientific community, many people are still obsessed with national security, convinced that China must be kept away from the most advanced technologies. The debate over which policy is the right one is still ongoing.

In China, however, there is no doubt. They are angry, believing this policy to be fundamentally immoral, but at the same time they believe it has sparked a fuse, forcing scientists and engineers to redouble their efforts towards innovation. And China has indeed achieved considerable progress towards greater self-sufficiency, particularly in the production of semiconductors.

Giorgia: However, if we take AI as an example, China is implementing much stricter regulations than the US. Why, then, are the Americans so afraid of China’s technological development?

Kaiser: I interpret this mainly as a projection: Americans believe that any other power would behave just as they do. Faced with enormous capabilities that would allow a country to aspire to global hegemony, they believe that any nation possessing such technological strength would exercise it immediately. In essence, they think that China would do what they imagine the United States would do. Never thoroughly analysed, this assumption is the basis for much of the paranoia emerging, particularly from Silicon Valley. But I do not think it is a valid hypothesis. In fact, it risks becoming a self-fulfilling prophecy. Relating to another country on this basis means demonstrating your own bad faith, proving that you are willing to bring it to its knees. How can anyone think this will not influence their perception? It will generate precisely the kind of hostility that was taken for granted from the outset, but it was their own actions that created it.

This, at least, is my interpretation. I would argue that an open and collaborative approach across all these technological frontiers would have significantly reduced China’s propensity to try to exert leverage over the United States.

Giorgia: Expanding the discussion to global geopolitics, there is much talk today of China as a new responsible power and a defender of multilateralism. But does China actually want this role? What sort of global power does it want to be?

We must be very careful with this kind of assumption. For the same reasons that we should not assume China would use every technological weapon at its disposal, we should not assume that it wants the same kind of global hegemony as the US.

It is clear that China acknowledges that it has benefited from the so-called rules-based international order; it admires some aspects of it and criticises others: in particular, the fact that, following its rise, it has not been granted an adequate say in multilateral institutions, along with other developing countries. A criticism that I find very well-founded. But do they really want to take control of these institutions? I believe there is very little evidence to support this claim. They are trying to reform them, not to subvert them. They are not looking to completely replace the United States in its hegemonic role. China has no real interest in this; it recognises its lack of experience in these areas and does not wish to take on this sort of responsibility.

What Chinese leaders are interested in is ensuring that the world has the public goods they consider important: sea routes, transport corridors, communication networks and railway lines. This is what the Belt and Road Initiative set out to achieve. They genuinely believe that integrating the Global South into global trade networks is beneficial for all parties involved. They hope that these countries will adopt some of the practices that helped China rapidly climb the development ladder: investment in infrastructure, rail and road networks, so that people, goods and data can move freely. They genuinely believe this. That this appears threatening to the dominant powers – Europeans and Americans who, even after colonialism, have enjoyed privileged positions in Latin America, South Asia, Southeast Asia and Africa – is understandable. But it is truly tragic that it has been interpreted in this way.

Giorgia: So, do you think there really exists a Chinese model to imitate? I don’t know about the US, but here in Europe, in certain environments, there has been talk of a “Chinese model” like it is something desirable. Does China really want to “export” its model? What kind of influence and soft power does it want to spread?

Kaiser: I believe that China is not particularly interested in actively exporting its model. Its form of exceptionalism consists in affirming that its experience is unique, the result of specific historical processes. Whatever has worked for China is in line with its national conditions, and these conditions vary enormously from country to country. The Chinese do not believe that there is a one-size-fits-all model.

So, while rejecting the American idea that market liberalisation and political democracy are a sure-fire path to progress for every nation, they do not think that a “Chinese model” should take its place. After all, if they wanted to export one, they would probably give it a sexier name than “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era”!

Nevertheless, while there is very little push, there is certainly a lot of pull: many countries are turning to China to discover some of the secrets of its development, and China is more than happy to share what it considers to be best practices – the importance of infrastructure, the role of the state as a coordinator of development priorities and an element of market liberalisation. But they are not seeking to export a model in its entirety.

Giorgia: One last question. Could there be a scenario in which China and the US will find a stable way to coexist? And which role could Europe have in it?

I believe there is ultimately a way forward, but it requires a fundamental rethinking, particularly on the part of the US. The United States must be able to answer a simple question: what do we want from China? So far, it has failed to articulate a constructive vision. From their behaviour, one can deduce what they seem to want: namely, for China to remain forever behind, a producer of low-tech goods for the world, a sink for polluting industries. However, China will not accept this in the long term.

The United States must also recognise that there are other paths to modernity that do not have a Western face, that there are other legitimate ways of prioritising values. Americans firmly believe that civil and political rights must come first and that others will follow from these.

Much of the rest of the world disagrees: it considers it entirely reasonable that only once people have food, clothing and a roof over their heads – when their basic economic needs are met – can they realistically aspire to more advanced rights. If the United States were more open to a plurality of priorities, genuine and peaceful coexistence might become possible.

At present, the United States is struggling to psychologically accept its own decline. It is difficult to witness the rise of a China that has challenged so many long-held assumptions on how countries should develop. It will take time to overcome this psychological hurdle. In some ways, the situation is reminiscent of Spain in the first half of the 17th century, during the Thirty Years’ War. The United States will have to adapt. It is difficult and often results in major disruptions. But if we can avoid war, I believe we can manage it.

As for Europe, we are beginning to glimpse the outlines of a more significant strategic autonomy, and, in a somewhat perverse way, Trump has contributed to this process. Medium-sized powers, including the major EU member states, are seeking to protect themselves. They have issues with both China and the United States, which is a very difficult balance to strike. However, I believe Europe can play a crucial role in guiding the world towards a truly multilateral and multipolar order, where institutions are reformed rather than abandoned. And a more multipolar world, I believe, could lead to a more stable configuration.

The decades following the fall of the Qing dynasty were full of colorful characters who managed to accrue personal power and wealth (often at the expense of the people who lived in the areas under their control). The abrupt end to the imperial system — even if many elements of society, culture, and politics persisted — meant that the people who had successfully risen to power suddenly found themselves needing to reinvent themselves. Some of those who succeeded in this would emerge as “warlords” when Yuan Shikai died and the Chinese republic collapsed. Some, though, never had that chance.

One such man was Xu Baoshan 徐宝山. Xu, born in 1866, built his career as a smuggler, moving salt around the lower Yangtze valley in defiance of the imperial monopoly. By the end of the 20th century, according to historian Paul Martin, Xu had nearly 10,000 people working for him and some 700 vessels at his disposal to move salt up and down the river and the coast. Going by the nickname “Tiger,” Xu negotiated expertly a complex space between Qing authorities and would-be revolutionaries, oscillating, in Martin’s description, “between conflict and cooperation depending on which policy best served to maximize Xu’s interests at any given time.”

To illustrate Xu’s skill, he was appointed as an official by the Qing government to oversee their anti-smuggling efforts in Jiangnan, the lands south of the Lower Yangtze — a relatively easy brief since his own organization was responsible for most of the illegal trade in the region. He could now use his official office to persecute rivals. What had previously been ruthless business practices became law enforcement. And after 1911, Xu seized control of Yangzhou and, at first, rallied his troops to fight against the rebels. But then, rather than going down with the Qing ship, Tiger Xu made a deal with the anti-dynastic forces. He agreed to side with the new Republic as long as he could retain control over, and the revenue from, the salt manufacturing and distribution apparatus that he had, by turns, been bypassing or enforcing for the previous decades. The Qing dynasty was gone, but Xu Baoshan had strengthened his own wealth and power in its wake.

But power in the years following 1911 was precarious. Xu’s influence and location made him crucial for anyone wanting to strengthen power in the lower Yangtze, which was in turn an essential part of any aspiration for nationwide power. Yuan Shikai had recognized this and bought Xu’s loyalty with money — reportedly a quarter of a million taels — and favors — he gave Xu’s son a military appointment. Then, when Yuan revealed his dictatorial ambitions by murdering his political rivals,

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