This week on Sinica, I’m joined once again by Ryan Hass, Director of the John L. Thornton China Center at Brookings, former NSC director for China, Taiwan, and Mongolia, and co-host of the Beijing Brief podcast. Ryan has just published two pieces that couldn’t be better timed: a long essay in China Leadership Monitor, “China’s Great Power Vision Comes into Focus,” which argues that the 2020s may be remembered as the decade Beijing finally laid its cards on the table — and a shorter Brookings piece, “Why Beijing Isn’t Taking the Bait with Trump,” on why Xi Jinping has answered an unusually accommodating American president with a poker face, and what that means for Xi’s state visit to Washington later this month.

We start with the perennial question — what does China want? — and Ryan’s own two-decade journey with it, from chasing a supposed secret strategy in Zhongnanhai as a junior political officer to concluding that Beijing’s vision is now legible and consistent: an international political order stripped of its liberal core and rebuilt around sovereign equality and the “global majority.” We talk about “American decline” and “strategic stalemate” in Chinese discourse, the tension between China’s pitch to the developing world and its export juggernaut, the Middle East and Northeast Asia as test cases, and the central riddle of Ryan’s essay: why a country so willing to articulate its ambitions has been so unwilling to pay for them. Then we turn to the summit — constructive strategic stability, escalation dominance, and what will and won’t be on the table when Xi comes to Washington.

• 03:11 – The “What does China want?” genre — and why Ryan concluded there is no secret plan locked in a Zhongnanhai vault

• 06:10 – From participant to architect: what actually changed, and whether Beijing is revisionist or, as I cheekily put it, restorationist

• 09:12 – “American decline” (美国衰落) and “strategic stalemate” (战略相持): reading Beijing’s rhetorical restraint and the Maoist echo

• 14:34 – Champion of the global majority, or the world’s factory? The $6 toaster problem and the credibility gap on Ukraine and Japan

• 19:36 – The Middle East as a test case: economic enabler, not security patron — and the good-faith maximalist rebuttal

• 24:38 – Northeast Asia: why Beijing keeps generating the very encirclement it fears

• 26:59 – Rhetoric without resources: flat foreign aid, shrinking BRI lending, and the SCO as China’s proving ground

• 32:28 – The Pew swing that hasn’t materialized, and why Biden may have been America’s last restorationist president

• 36:01 – Why Beijing isn’t taking the bait: Xi’s poker face, “constructive strategic stability,” and the G2 refusal

• 41:55 – Confident abroad, anxious at home: the purges, the memory of 2020, economic escalation dominance, and a viewer’s guide to the September summit

Paying It Forward

Ryan flags two women doing important work in China studies, both with books out this fall: Emily Matson of Georgetown, whose China’s Date Debate: How Manchurian Scholars Rewrote World War II examines how the start date of China’s war with Japan was moved from 1937 back to 1931; and Shuxian Luo of the University of Hawaiʻi at Mānoa, whose Simmering Seas: Escalation and De-escalation in China’s Maritime Disputes is forthcoming from Oxford University Press in October. He also gives a shout-out to the engines of the Brookings China Center, research assistants Allie Matthias and Joyce Yang.

Recommendations

Ryan: Barbara Tuchman’s The Guns of August, which he’s late to but found poignant for its eerie echoes of today’s battlefields — and Maggie Haberman and Jonathan Swan’s Regime Change, an inside account of the second Trump administration that he calls harrowing but essential for anyone trying to anticipate the president’s behavior. (He also finally read The Three-Body Problem, and now knows his sophons from his Trisolarans.)

Kaiser: Robert Harris’s Agrippa, published September 1 — the memoir of Marcus Agrippa, the general who won Octavian’s battles and built half of Augustan Rome, and a story about the pivot from republic to empire that feels uncomfortably relevant. And if you’ve read Tuchman, do read Christopher Clark’s The Sleepwalkers: How Europe Went to War in 1914. Not my official recommendation, but astonishing.

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 home in Beijing.

Listeners, please support my work by becoming a paying subscriber at sinicapodcast.com. I know there are a lot of Substacks out there, and yes, they start to add up, but this one is very worthwhile. In addition to Sinica, you also get great content from partners like Trivium and the China Global South Project, and you get Jay Carter’s This Week in China’s History. So, please do subscribe so I can continue to bring you these conversations and lots more.

What does China want?

It’s the question that never seems to go away. It feels at times like it’s the question underneath nearly every other question in the discourse on China, and every year somebody takes another serious run at it. My guest today, Ryan Hass, has just undertaken one of the better efforts in recent memory, an essay in the new issue of China Leadership Monitor called China’s Great Power Vision Comes Into Focus, which argues that the 2020s may be remembered as the decade when Beijing finally laid its cards on the table.

A vision for an international political order stripped of what some would call that order’s original liberal core and rebuilt around sovereign equality and the global majority. Ryan then asks whether China is actually willing to pay for it. He’s also just written a shorter piece for Brookings, where he works, that couldn’t be more timely with Xi Jinping due in Washington for a state visit later this month.

The piece is called Why Beijing Isn’t Taking the Bait with Trump. President Trump has given Beijing an awful lot of what it has wanted from an American president for a long time now, 75 years. But Xi Jinping has responded with kind of a poker face. Ryan explains why. Ryan Hass is Director of the John L. Thornton China Center at the Brookings Institution.

He’s a co-host of the excellent, excellent Beijing Brief podcast. From 2013 to 2017, during President Obama’s second term, he was director for China, Taiwan, and Mongolia on the National Security Council. He’s someone I’ve come to rely on for exactly the kind of analysis these two pieces represent. Sensitive to, but unsentimental about Beijing. Sensitive to, yet also unsentimental about Washington.

And really grounded in what Chinese strategists are actually saying rather than what we’d like to imagine they’re saying. He’s been on the show many, many times before, and it’s always a pleasure and an inspiration. Ryan, welcome back to Seneca, and good evening to you.

Ryan Hass: Well, thank you, Kaiser. It’s really, it’s a pleasure and a privilege for me to be with you.

Kaiser: So, Ryan, let’s jump right in, and let’s start with the framing — What does China want has been asked so often that it’s almost become a genre unto itself, and I have heard answers to it that seem plausible enough and others that sound completely unhinged or are based, as far as I can tell, just on mere projection. Before we get into your answer, what do you make of what’s been suggested by major voices in the discourse focusing on the U.S. to date? Some of the answers, to me, don’t seem that far off. What’s out there?

Ryan: Well, I think that there’s a range of views in Washington about this question, what does China want? I think some of them, as you suggested, are ideological in their orientation. Some of them are rooted in a view that only one country can lead. So, if China rises, it must therefore displace the United States and assume the roles and responsibilities that the United States has held for 75 years. I’m arguing something different. And to be honest, Kaiser, this has sort of been a long, torturous journey. When I was a Foreign Service officer in the embassy in Beijing in 2008 to 2012, one of the things that I was asked to explore was exactly this question.

04:22

And so back then, I would go to the policy planning department at the Ministry of Foreign Affairs and ask Le Yucheng, and I would go to the universities and ask Wang Jisi and Yan Xuetong and go to CICIR and talk to Da Wei and Yuan Peng and all these folks. And back then, there was sort of this question in Washington about whether there’s some secret strategy locked in a vault deep in Zhongnanhai that the Chinese are meticulously following to assert their dominance on the world stage. And the answer I came away with back then is it’s not there. You know, it just doesn’t exist because they were more consumed by more approximate issues and more approximate debates such as whether hide and bide still applies.

Kaiser: Right, right, right. So you had ruled one thing out that there was no 100-year marathon plan.

Ryan: Yeah.

Kaiser: Some of the answers that are on offer, like I said, they don’t seem too far off. I mean, there was that formulation that Jessica Chen Weiss popularized, you know, China wants a world safe for autocracy. There was this RAND report from, I think, 2017 or 2018 that described China as a kind of selectively revisionist state, not interested in hegemony beyond the region, not interested in overturning the apple cart. That seems to align pretty well with you, no?

Ryan: I think that broadly aligns with where I ended up based upon the research and the evidence that I found. But Kaiser, I think that there are two ways of getting at the answer to this question. One is knowing what conclusion you want and working backwards to fill in the blanks. And the other is trying to take the evidence as it comes and use it to let it guide you towards a hypothesis or theory. I’m hoping that this work falls in the latter category because it was really intended to try to provide as clear and accurate a reflection of my understanding of Chinese strategic thought as possible.

Kaiser: Yeah. So, I would say the most common answer I would hear was one that was rooted, I guess, admirably, in uncertainty that we just can’t really say for sure. But you’re saying the ambiguity is now mostly gone. China has moved, in your phrase, from participant to architect. Would you have answered all that differently five years ago? I mean, and if so, what has actually changed to make the vision more legible now? Is it that Beijing has said new things or that it started saying old things with a confidence that it didn’t have before? What’s changed?

Ryan: I think the principal thing that has changed is that the Chinese have just become much more open, direct, and consistently repetitive about articulating what type of world they want to see emerge. And this is a stark contrast to when I was

Read more

This week on Sinica, I’m joined once again by Ryan Hass, Director of the John L. Thornton China Center at Brookings, former NSC director for China, Taiwan, and Mongolia, and co-host of the Beijing Brief podcast. Ryan has just published two pieces that couldn’t be better timed: a long essay in China Leadership Monitor, “China’s Great Power Vision Comes into Focus,” which argues that the 2020s may be remembered as the decade Beijing finally laid its cards on the table — and a shorter Brookings piece, “Why Beijing Isn’t Taking the Bait with Trump,” on why Xi Jinping has answered an unusually accommodating American president with a poker face, and what that means for Xi’s state visit to Washington later this month.

We start with the perennial question — what does China want? — and Ryan’s own two-decade journey with it, from chasing a supposed secret strategy in Zhongnanhai as a junior political officer to concluding that Beijing’s vision is now legible and consistent: an international political order stripped of its liberal core and rebuilt around sovereign equality and the “global majority.” We talk about “American decline” and “strategic stalemate” in Chinese discourse, the tension between China’s pitch to the developing world and its export juggernaut, the Middle East and Northeast Asia as test cases, and the central riddle of Ryan’s essay: why a country so willing to articulate its ambitions has been so unwilling to pay for them. Then we turn to the summit — constructive strategic stability, escalation dominance, and what will and won’t be on the table when Xi comes to Washington.

• 03:11 – The “What does China want?” genre — and why Ryan concluded there is no secret plan locked in a Zhongnanhai vault

• 06:10 – From participant to architect: what actually changed, and whether Beijing is revisionist or, as I cheekily put it, restorationist

• 09:12 – “American decline” (美国衰落) and “strategic stalemate” (战略相持): reading Beijing’s rhetorical restraint and the Maoist echo

• 14:34 – Champion of the global majority, or the world’s factory? The $6 toaster problem and the credibility gap on Ukraine and Japan

• 19:36 – The Middle East as a test case: economic enabler, not security patron — and the good-faith maximalist rebuttal

• 24:38 – Northeast Asia: why Beijing keeps generating the very encirclement it fears

• 26:59 – Rhetoric without resources: flat foreign aid, shrinking BRI lending, and the SCO as China’s proving ground

• 32:28 – The Pew swing that hasn’t materialized, and why Biden may have been America’s last restorationist president

• 36:01 – Why Beijing isn’t taking the bait: Xi’s poker face, “constructive strategic stability,” and the G2 refusal

• 41:55 – Confident abroad, anxious at home: the purges, the memory of 2020, economic escalation dominance, and a viewer’s guide to the September summit

Paying It Forward

Ryan flags two women doing important work in China studies, both with books out this fall: Emily Matson of Georgetown, whose China’s Date Debate: How Manchurian Scholars Rewrote World War II examines how the start date of China’s war with Japan was moved from 1937 back to 1931; and Shuxian Luo of the University of Hawaiʻi at Mānoa, whose Simmering Seas: Escalation and De-escalation in China’s Maritime Disputes is forthcoming from Oxford University Press in October. He also gives a shout-out to the engines of the Brookings China Center, research assistants Allie Matthias and Joyce Yang.

Recommendations

Ryan: Barbara Tuchman’s The Guns of August, which he’s late to but found poignant for its eerie echoes of today’s battlefields — and Maggie Haberman and Jonathan Swan’s Regime Change, an inside account of the second Trump administration that he calls harrowing but essential for anyone trying to anticipate the president’s behavior. (He also finally read The Three-Body Problem, and now knows his sophons from his Trisolarans.)

Kaiser: Robert Harris’s Agrippa, published September 1 — the memoir of Marcus Agrippa, the general who won Octavian’s battles and built half of Augustan Rome, and a story about the pivot from republic to empire that feels uncomfortably relevant. And if you’ve read Tuchman, do read Christopher Clark’s The Sleepwalkers: How Europe Went to War in 1914. Not my official recommendation, but astonishing.

Our phrase of the week is: “Western medicine works faster” (西药见效快 xīyào jiànxiào kuài)

Context

In early August, 440 fresh graduates at a Chinese manufacturer were called into meeting rooms in small groups and given an hour to decide their future. They had started work a month earlier, hired into engineering and management roles.

The choice was to sign a voluntary resignation, take half a month’s pay, and go. Or be transferred to the production line to “tighten screws” (打螺丝). 107 of them took the offer.

The company was Xingyu (星宇股份), China’s largest car-lamp manufacturer and a major supplier to international automotive brands.

The graduates tried to complain to the company union, which did not respond. And the authorities did not step in either. So some of the graduates looked further afield. They submitted complaints to the Hong Kong Stock Exchange, where Xingyu had a listing application under review, and with the supplier whistleblowing channels at Mercedes-Benz, BMW and Volkswagen, all customers of Xingyu.

Mercedes-Benz responded to the complaint almost immediately. Then Xingyu’s local Human Resources Bureau did respond, and that forced an apology from Xingyu. The company admitted its management had made errors of judgement, and the HR director was suspended.

Observers in China watching all this unfold explained the chain of events with a newly coined phrase:

The comments on the coverage of this matter are almost universally along the lines of “western medicine does work faster.”

关于这件事的报道，基本上评论区都是清一色的”还是西药见效快”。

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

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What it means

“Western medicine works faster” is a five-character phrase which translates directly as “Western medicine” (西药 xī yào), “to take effect” (见效 jiàn xiào) - which is literally “to see” (见) plus “effect” (效) - and “fast” (快 kuài).

This expression is based on the observation that “Western medicine” (西药) acts quickly on the symptom, whereas “Chinese medicine” (中药) works slowly to deal with the underlying cause.

This received wisdom is captured in another set phrase: “treating the symptoms and not the root cause” (治标不治本). Which is the criticism usually levelled at the Western approach.

In this context, however, the “Western medicine” is seen as a positive. It’s a metaphor for the German carmakers acting under EU supply chain regulations. And once they moved, so did everyone else. The labour bureau’s investigation and the company’s apology both came after the complaints reached Europe and had an immediate effect.

So in the end, Xingyu’s response came not because of its Chinese employees, its union, or the regulator.

But because of its customers in Germany.

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.

Get my Mandarin back today!

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

RealTime Mandarin

#292: Chinese manufacturer under pressure for unfairly sacking graduate employees

Xingyu (星宇股份) is China’s largest car-lamp manufacturer. Based in Changzhou (常州) in Jiangsu province, it supplies international automotive brands like Mercedes-Benz, BMW, and Volkswagen…

Listen now

4 days ago · Andrew Methven

To discuss the nature – and limits – of the fragile US-China economic détente, we are joined this week by Evan Medeiros, the Penner Family Chair and Director of Asian Studies at Georgetown University’s School of Foreign Service.

• Evan’s read: The US-China relationship is at an unstable equilibrium, and in for a snapback toward a much more contentious state of play.

In this episode, host Andrew Polk and Trivium colleague Cory Combs sit down with Evan to unpack:

• Why Xi Jinping’s upcoming state visit to Washington, the first in over a decade, may be the one thing still holding the relationship together

• How the trade war became a supply chain war back in April 2025, and why tariffs aren’t the main event anymore

• Why China keeps reaching for chokepoints tied to US national security instead of hitting the broader economy, and what that reveals about Beijing’s actual theory of leverage

• The uncomfortable new front opening up: Beijing increasingly penalizing American companies for the crime of complying with US laws

It’s another great discussion, so enjoy!

Transcript

Andrew Polk: Hi, everybody, and 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’m joined today again by Trivium’s Head of Supply Chain and Critical Minerals Research, Cory Combs, who’s going to co-host with me today because we’ve got a terrific guest… very excited to have him on.

He is the Penner Family Chair and Director of Asian Studies at Georgetown School of Foreign Service and a former senior China and Asia official on the National Security Council under the Obama administration.

It’s Evan Medeiros. Evan, how are you doing?

Evan Medeiros: Good, Andrew. Great to be here.

Andrew: Thanks so much for coming on. I’m really glad to get you on the pod. Been wanting to have you on for a while, so I’m glad we were able to make it happen.

Evan: Yeah, I’m a huge fan of Trivium. Hope everybody continues to read it. It’s the best stuff out there. So, I’m excited to sit down with you and Cory and spin a little yarn this afternoon.

Cory Combs: Cheers.

Andrew: Yeah, well, thank you for the kind words. We certainly appreciate that. Cory, how are you doing today?

Cory: Well, I feel like, you know, I’ve been reading, catching up on the papers I haven’t read of Evan’s and other corresponding research. And it makes me wish I could go back to graduate school and do it properly this time. So, it’s fun to be able to zoom out a little bit and talk about these issues.

Evan: You’re always welcome at Georgetown, Cory. Always welcome. Maybe we’ll give you a friends and family discount.

Cory: Cheers.

Andrew: I love it. I love it. Always be selling. Always be selling.

So, Evan, we are going to talk today about some of the work that you’ve been doing, which is, of course, relevant to our listeners and to our clients — This is around the U.S.-China relationship and kind of how you’ve framed the evolving nature of that competition. We’re going to start with sort of the news of the day, Xi Jinping’s upcoming state visit to D.C., and then we’ll kind of broaden out and talk more about that relationship more generally and some of the economic lawfare that China’s been using to hit back against the U.S. and sort of the nature of that leverage, both from the Chinese side and the U.S. side.

So, going to be a very fascinating conversation. But before we get into it, of course, we have to do the customary vibe check. So, Evan, how’s your vibe today?

Evan: Vibe is good. I would say excited, but anxious. Excited because we’re starting a new school year at Georgetown, teaching my first or giving my first lecture of the year this afternoon. But, anxious because there’s just so much uncertainty in global markets, in geopolitics, and we have this weird U.S.-China summit coming up. We’ll get into it, but it’s hard to see where this takes the relationship.

Andrew: Yeah. I feel like excitement and anxiety increasingly go together in our line of work. So, I think that’s a very inappropriate vibe to be bringing into this conversation, Evan. How about you, Cory? How’s your vibe today?

Cory: Yeah. I mean, I don’t think you can beat that vibe. It seems evergreen right now. So completely agreed. And me personally, that tracks in terms of upcoming travel. I’ll be back in D.C. shortly. A quick trip up to New York as well, and back to LA, where it’s been, you know, I was going to complain about the heat, but it’s been like 92. And for LA, that’s insane. Dry heat here, something we complain about. So, I finally get to complain about the weather briefly, but I’ll be back in the swamp soon, and it’ll probably be a hundred degrees and given. So, looking forward to that.

Andrew: Yeah. Well, it certainly is hot here. So, you’re not going to get any respite in D.C. For my part, I am headed off on Friday to Shanghai to see some of our clients and our colleagues there. So, always excited to get back to China, ready to get back on the road, kick off the fall. So, that kind of energy is what I’m bringing to the podcast today. So, I think we got a good mix here. Some excitement, some anxiety, some ready to get on an airplane from Cory and I. And I know Evan’s on the road a lot. So that’ll suit us well for the rest of the conversation.

Before we get into the content, I quickly also have to do the housekeeping up top. So, just 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 domestic policy in China along a range of areas, tech, autos, minerals— you name it, we do it— but it also 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 do 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 want more Trivium content, please check out our website. Again, www.triviumchina.com. We’ve got a bunch of different subscription options in terms of staying on top of Chinese policy intel, whether that be in policy related to the markets, to the tech environment, or just as a general China business person or China watcher, you’ll find the China policy intel option you need on our website for sure.

And then, finally, please do tell your friends and colleagues about Trivium, both about the business and about the podcast. Those word-of-mouth recommendations really, really do help us grow the company and the listenership. So, we really appreciate it. All right. With that, Evan, let’s get into it. You ready?

Evan: Yeah, let’s go.

Andrew: All right. Well, you already teed it up. We’ve got this big trip from Xi Jinping coming to Washington, D.C. on September 24th. I believe this is going to be the first official state visit by a Chinese leader to Washington in more than a decade. We’ll get into some of the bigger context around the relationship and how you see that evolving in a minute. But I just want to start with that piece.

What are you expecting out of this meeting? Are we going to see any significant breakthroughs, any changes to kind of how the two countries deal with each other? Or what are your thoughts on what’s going to happen a few weeks from now?

Evan: Yeah, I think that’s the critical question — What are our expectations? I have to admit, Andrew, I have pretty modest- I would say even low expectations for the meeting because it comes at a time of fragile truce, tactical détente. Pick your adjective and noun. There’s loads of them floating around out there. But the reality is we’re at a highly uncertain period in the relationship because we’re in this period of a commercially driven détente where the leaders are meeting twice this year, maybe upwards of four times.

But yet, below the surface, competition continues to be fairly intense. And you could argue it’s actually even growing greater. The administration likes to use the analogy of water polo. Below the surface, there’s an enormous amount of competing and fighting and kicking going on. So, the summit comes at a moment of this sort of unstable equilibrium. And the Trump administration, because of who they are, they haven’t approached this summit using the typical ways that other American leaders, Republicans and Democrats have.

So, there haven’t been a lot of high-level meetings to prepare for the summit. It’s very unclear what the deliverables are going to be, either geopolitical or commercial. So, I think the most likely outcome of the summit is an extension of the truce that was reached in Busan in the fall of 2025. But even then, that extension of the truce, it could be six months, it could be a year, and I think that’s probably most of what we can expect.

I think from the Chinese perspective, they’re much more focused on limiting downside risks than they are at achieving upside gains. What I’m hearing from the Chinese is that they’re most concerned about ensuring that Xi Jinping is not embarrassed and making sure that he looks good because he has to return to China and quickly prepare for the fifth plenum, which is key politically to the party Congress that will be in the fall of next year. So, I got pretty low expectations.

There might be a few small deliverables related to Chinese purchases of agricultural goods. But again, it’s going to be a lot of implementation of past commitments as opposed to anything substantially or dramatically new.

Andrew: Yeah, I think we would tend to share that view. And related to that, I just wonder how you think about the Busan deal at the moment. Because over the past nine months, I’ve thought, you know, it’s actually provided a pretty decent level of stability. Both sides seem to want to broadly adhere to the deal. Now, the reporting is that both sides seem to want to extend the deal.

But over the past just three, four weeks or so, we’ve seen kind of a barrage of back-and-forth sort of spearheaded by the Federal Communications Commission on the U.S. side, and China hitting back against moves by that entity out of the U.S. And it just has felt to me over the past few weeks like we’re sort of bursting at the seams almost. I don’t know if that’s the right way to say it, or that détente, that agreement is kind of straining as both sides continue to try to find different ways to assert their interests even under that agreement.

Kind of like you said, the water polo example is a great metaphor, right? Calm up top, but still a lot of kicking and jabbing underneath. Do you get the same sense?

Evan: Oh, absolutely. I completely agree, Andrew, because there are two fundamental dynamics at the heart of the U.S.-China relationship. The way I think about them is there are two negotiations. One is the U.S. and China negotiating the threshold of competition. So, we have the Busan truce, but both sides continue to take actions below some undetermined threshold or boundary — the U.S. with its FCC actions, the Chinese in retaliation. And nobody really knows where the threshold or boundary is, but we keep taking actions and the Chinese retaliate.

And I think it’s just inherently unstable. So that’s why my favorite adjective-noun combo for the relationship is an unstable equilibrium, because it’s a détente that’s constantly being stressed. And so, we’re in this situation where both leaders talk about meeting maybe upwards of four times this year. We talk about extending the Busan cruise. We talk about maybe some other deliverables, ag purchases, Boeing planes, etc.

But yet the tech competition is intensifying; it’s expanding, and it’s diversifying. The other negotiation, of course, that’s going on is between the executive and the legislative branch of the U.S. government, which is odd because typically, and I know this from my time in the Obama NSC, most of the intense debates are within the interagency, so within the different parts of the U.S. government.

Right now, the debates appear to be largely between the executive and the legislative, with the Congress debating and discussing passing new pieces of legislation, which would accelerate the tech competition and the tech decoupling. And I think that these two processes are fundamentally unsustainable. And so I think that, and I’ve written about this, that we’re on track for a snapback to a much more competitive rivalrous relationship at some point.

I can’t tell you precisely when that’s going to happen yet. We’ll know more, of course, after the summit. And so, to me, what’s so interesting about the summit process is it’s sort of stress-testing the demand for stability because both sides want stability in the relationship. But the question is, is what costs and risks are they willing to pay to sustain stability?

You know, Trump obviously needs it because we’re at war in Iran and we have economic problems at home. The Chinese need it because they’re entering into a very sensitive, difficult political year in advance of the 21st Party Congress. And of course, they have their own economic problems. And so, it’s in some ways, both sides are trying to figure out, how much can I compete without blowing up this stability? And I don’t think either side really knows where the line is.

And so, all of these interactions, the summit, if Trump goes to APEC, if Xi Jinping reciprocates by coming to the G20 that we’re hosting, we will sort of begin to learn where these boundaries exist and how deep the yearning is for stability in the relationship or whether or not both sides ultimately find the politics and the geopolitics can’t sustain.

Andrew: Yeah, I like the way you have written about this, about the potential for a snapback. And I know you just said you can’t really, in advance, pinpoint exactly sort of what the tipping point for that might be. But can you talk a little bit more? And then I want to bring in Cory on how and if critical minerals might play into that, which I would guess would be potentially a large part of it. But can you just expound on the snapback idea and what you kind of in broad strokes think that looks like?

Evan: Yeah. So, the idea of the snapback is that we move from this current era of tactical détente, unstable equilibrium, to something that looks more like the U.S.-China relationship in 2020 post-COVID. In other words, the relationship is defined much more by acrimony and intense competition, economic competition, military security competition.

And the question is, what will trigger that? So there are both Chinese actions and U.S. actions that could cross this imaginary threshold. And I think both are relevant here. I think on the U.S. side, you could have a situation where, you know, for example, the Chinese provide some assistance to Iran that really alienates the president. Number two, you could have the Chinese miscalculate in one of their export control actions that alienates the White House.

You could have Trump simply come to the conclusion that the Chinese are playing him for time, manipulating him, and he just decides that it’s not worth it anymore. You could have congressionally mandated actions, especially after the midterms, if you see major changes in the House and Senate that could lead to a sort of new political configuration in the United States where either the Congress becomes more active on China or more likely the president feels that he has big political vulnerabilities and decides to go full MAGA on China, not unlike COVID.

So, I think on the U.S. side, there are multiple things. As I said, I think on the Chinese side, there are multiple actions they could take that largely involve just over-cranking that alienates the U.S.

Andrew: Yeah, I share your concern here that there’s going to be a miscalculation and someone’s going to go too far and kick a little too hard under the water, to stick with the water polo metaphor. But Cory, Evan has pointed out that a lot of the back and forth, or the tension on this issue currently, is between the executive branch and potentially the legislative branch if Congress were to take action against China to sort of ramp things up in a way that China would see as abrogating the Busan deal. What do you see as issues that might trip up the relationship? And China is to… yeah, I think the assumption is that China’s ready at any moment to pull the lever again on critical minerals. How do you think they’re thinking about that as a potential reaction?

Cory: Absolutely. I think Beijing has made clear that a lot of options are on the table. It’s also made clear, I think, since probably around May or so this year, that we might be in what I think Evan has rightly characterized as finding the new floor. And earlier this year, kind of up through April this year, it seems like both sides were trying to find the new floor of relationships, or the relations. But since then, I mean, we’ve had a number of actions. They’re so many, but most recently leading to the August 5th retaliations, right?

And so, you have all this willingness to press further and to kind of explore the boundaries, sort of the détente really. And I think it’s clear that Beijing, one, is willing to push back. And two, it’s not trying to unilaterally escalate, right? So, I think it would take a lot to get the rare earths card going back in all of a sudden. It’s possible that negotiations break down. But there’s one case, I guess, where you have the extension of Busan breaks down for some reason. Now, that’s, I think, a tail of risk. We were actually fairly optimistic that some kind of deal will get advanced.

But at the same time, we’re a little less confident in that now than it would have been in, say, March, April, May. Because at that time, you’re looking at this kind of commitment to let’s not break up this brief floor setting that we’ve managed to achieve. Let’s maintain the détente for now. But then over the summer, you’ve seen a lot more of these moves: FCC action, the UFLPA, Uyghur Forced Labor Prevention Act listings from the Department of Homeland Security.

Those are actions that the U.S. took that China immediately responded to in a way that it’s all proportionate in terms of impact, not unilaterally escalatory. But you start pushing on the boundaries, like you said earlier, kind of bursting at the seams, the water polo metaphor, the question is, is there a threshold of which this boundary pushing goes a little too far, and one side or the other kind of blows things up? And this is question and comment.

What I’m concerned about is, Evan, you already mentioned, it’s not quite clear where the thresholds for both sides lie. And my bigger concern is that they move. Some of the thresholds are clear, like don’t embarrass Xi Jinping and stuff like that, like that’s pretty clear. But there’s a lot of thresholds that are far below that. I think they are shifting. And so, does Trump feel he’s getting played? Well, it depends on a lot of things, including things that have nothing to do with China. Does he feel like he’s getting played by other countries and regional blocks like the EU?

And he does tend to kind of take it out when he’s losing somewhere; he’ll take it out somewhere else. All these factors that I think just make it very difficult to predict. I am still optimistic that we won’t see Beijing feel a need to throw a unilateral, well, rare earth controls are back on the table, right? I don’t expect that right now, but there are a variety of other pathways. And so, further decreasing the flow of license approvals, which would cut off exports more broadly than just Japan, that’s on the table right now.

And that’s kind of somewhere between the actions we’ve seen so far, like blacklisting MP materials and USA rare earths, which are notable, but I would say not, you know, catastrophic. Between that and a full rare earth export ban, there’s a lot of middle-ground options that China has. And I just don’t know when exactly. And that’s my question for Evan is, you know, what thresholds do you see? And what do you see moving in the current state?

What does stability look like up through the agreement of a new extension to the Busan agreement? What does that look like?

Evan: One quick caveat before I answer Cory’s excellent question. Keep in mind that when we talk about the boundaries around this unstable equilibrium, this tactical détente, that because this is Trivium, we’re talking about the economic dimensions of it, but let’s not forget there are big geopolitical dimensions. And here, I’m thinking of Taiwan, South China Sea, and Japan as well. I mean, it is notable that since the Busan Agreement and the tactical détente have been reached, the Chinese have actually been quite aggressive and assertive in their claims against the Philippines in the South China Sea, including trying to establish a near-permanent presence in and around Scarborough.

For example, the Chinese on Taiwan have now come much more active to the east of Taiwan using Coast Guard activities, basically trying to assert maritime rights in Taiwan’s littoral in a way that sort of effectively, you know, turns it into territorial waters, right? As opposed to international waters to assert Chinese sovereign rights over the landmass and the sea rights that accord with that. And so, all of that is out there as well, in addition, that I think is very much stress-testing where the floor in the relationship is.

But to get to Cory’s very good question, sort of where do I see the thresholds? What I would say is, number one, I can’t pinpoint the threshold. I don’t think anybody can. That’s the problem. Nobody really knows what action is going to be a step too far. What I would say is that I do believe that 2026 has been a very, very important year in the supply chain competition, export control competition, because it’s a year and kind of pretty substantially built out its architecture.

Some of our listeners may be familiar about an article that Andrew and I wrote about a year ago that sort of told the broad story of the export control architecture from 2018 onward. But in 2026, the state council passed decrees 834, 835, 837, all within 90 days of one another, all done at the state council level, all effective immediately, all of them building out certain rights under the broader infrastructure of the Unreliable Entities List, the Anti-Foreign Sanctions Law, with different and new dimensions layered on.

In 2026, we saw China move to much more actively assert its extraterritorial rights or extraterritorial mechanisms in the application of export controls. In particular, basically, it looks like every entity listing this year bars anyone anywhere from transferring China-origin dual-use items to listed parties, basically asserting jurisdiction over third-country conduct. And it’s, of course, started with Japan, but it’s more than that now. And now we have, you know, China targeting entities like the Responsible Business Alliance in April and the sort of accreditation activities.

They’re now listing MP materials and USA rare earths on some of their control lists, which to me makes export control policy look increasingly like industrial policy. In other words, using export controls to shape supply chain activity of other countries.

So, it feels like 2026 in retrospect will really be a very, very significant year. So, going back to your core question, Cory, I don’t know where the threshold is, but I feel like we’re pretty rapidly stressing wherever that threshold is. And I think the only thing sort of holding all of this up are these leader-level meetings.

And I say that as somebody that has studied and worked on the U.S.-China relationship. This pattern of behavior on both sides, it’s just not sustainable. And imagine if this year finishes with Trump not going to APEC because the losses of the midterm are too bad and he doesn’t feel like he got enough from Xi at the summit, Xi Jinping doesn’t come to the G20 and then we’re sort of off to the races.

Andrew: Well, I hadn’t even really kind of contemplated that sort of quick of a deterioration because I’ve been hoping that this Busan deal and the leader-level meetings would kind of continue to provide a ballast. But that’s a good point. Something trips up those meetings, then you sort of lose the one leg of the stool that’s still hanging on. And one-legged stool, by definition, isn’t very stable to begin with.

But I did want to stay on this idea of the supply chain war. I mean, I think you articulated well this idea that we’ve really morphed. We’ve written about this at Trivium. You and I, Evan, wrote about it a little bit in our piece earlier that, I mean, tariffs aren’t even the main show anymore. This is absolutely a supply chain war. This is a choke point war.

And I guess maybe the question is, I mean, in my view, China sort of shifted the ground onto that playing field. Do you agree with that? One. And secondly, why do you think they did that? Why do you think they did it now? Why is 2026 the year of the supply chain war?

Evan: Well, I mean, they did it in April of 2025, right? And this story is well known to your listeners, right? I mean, we had tariffs that were well above 150%. And the Chinese, I think, said they basically looked around, they broke the glass, and they pulled the fire alarm, so to speak, they pulled the greatest, most significant source of leverage they had, which was rare earths. Now, the U.S. retaliated with its own supply chain and vulnerabilities. These are specific commodities China can only source from the United States.

But I think it was at that point that the trade war really transitioned to a supply chain war. And it was really about both sides trying to reduce their own vulnerabilities and increase sources of leverage. I mean, the good news is, is in 2025, I think both sides in May sort of had walked to the brink of using these cutoffs in critical choke point technologies and materials and walked back and said, we don’t want to go there.

But they had already crossed that threshold. And I think that’s where we are today. I mean, as you guys know well, you write about it so frequently. I mean, the administration is very concerned about the fact that the Chinese are not providing general licenses for the export of rare earth materials. They’re approving individual licenses on a case-by-case basis, which is super slow and super inefficient, which has led to a huge amount of frustration.

And so, I think that the whole issue of the extension of the Busan truce, will it be three months, six months, nine months, 12 months will be tied in part to whether or not the Chinese are willing to accelerate their licensing regime for rare earths. And then, another part of a possible summit package is this whole question of Boeing planes — will China buy Boeing planes? And part of that is held up by the fact that there’s this Chinese requirement for Boeing to sell them a huge supply of spare parts. So, they’re not subject to some kind of choke point cutoff in the future. So, we are very much in a supply chain competition.

I think that’s exactly right. And we should understand it as such. And as a result, basically what’s happening is both sides are sort of racing to reduce vulnerabilities and increase leverage. And the challenge is that there’s a little bit of an asymmetry there between the U.S. and China.

Cory: I’d like to build on that a little bit. I absolutely agree. And I don’t just say it’s a supply chain issue because I’m a supply chain guy. I became a supply chain guy because it’s an issue. So, 100% aligned there. One further point, I’m curious if you’ll agree with this. I think when we shifted from the economic to supply chain conflict, it shifted from commercial and national security grounds. And I think that is the deeper, very fundamental issue here.

For China, the motivation on kind of when they’re looking for asymmetric leverage, right? U.S. tariffs them, they can’t just tariff back and that’s proportional. They needed something else. So they reached, as you say, they broke the glass, they reached out at other tools. And specifically, it has always struck me that nine times out of 10, Beijing has not tried to attack, say, the U.S. economy broadly.

There’s probably a lot of reasons, but at least one is implicit, I think, is that they didn’t think it would move the needle. I don’t think they believed it would change U.S. behavior. I think they believed what would change U.S. behavior is things that would affect national. So, rare earths and tungsten and other things that go to the Pentagon. And I think that message was shown to be basically validated by, certainly the Chinese industrial discourse will suggest it was validated on October 9th when the U.S. kind of backed down.

So, for China, there’s not much of a tension there to kind of use this commercial control to impact national security grounds of the U.S. to secure China’s commercial interests by getting the U.S. to back off. But for the U.S., and you’ve pointed this out, among others, that the U.S., with its tech controls, has actually treated what used to be purely national security matters. Can you use certain chips like Huawei? Can you export certain chips that are essentially banned for national security purposes?

Can you use those national security interests as bargaining chips in what is technically a commercial negotiation? And so, the use of national security as a bargaining chip is something that has concerned many people. So, I think that’s all part and parcel in my head of this shift to supply chain conflict. It’s specifically supply chains for national security interests that are really kind of the center of this discourse. I’m curious if you would align on that and what that means.

Is this an appropriate kind of use in terms of the way that the U.S. has been responding?

Evan: Well, the challenge, I think, Cory, is where’s the line between commercial interests and national security interests, right? I mean, China denies the sale of permanent magnets to American companies making motors for EVs. That doesn’t feel particularly national security. I agree with you that a lot of their export controls have been much more focused on denying rare earths and permanent magnets to defense contractors, but there’s also been a commercial application.

So, I think the Chinese are careful, but I don’t think the line is very clear anymore in a supply chain war between commercial and national security. What I will say is that the Chinese are very careful with the way they sort of apply these controls. In other words, they pay great attention in the extent to which the application of new controls is reciprocal, proportional, and symmetrical.

Because I think the Chinese, as you rightly went out, are often trying to find the sweet spot between imposing costs and not escalating the situation. And I think back to the controls that they adopted in September of 2025 when they applied the Foreign Direct Product rule to rare earth controls. The way that they adopted that was actually phased in a way that was meant to sort of give them time and give both sides breathing space to do what they ultimately did, which was suspend them in Busan. And that suspension is still in place.

So, I do think that the Chinese pay great attention to the way they calibrate the imposition of export controls for punitive purposes, because they’re very attentive to escalating the situation and they want to maintain some degree of escalation control. And they also want to see how much resistance and pushback they get. What I hear a lot these days is a great amount of focus among Chinese on the whole concept of reciprocity. They’re like, basically, when we use the rare earth controls, we demonstrated that we could impose real costs on you. You have a vulnerability.

It’s going to take you a very long time to fix it. That source of leverage for us has sort of leveled the playing field. We’re now equal status with you. So, if you do something, we’re going to retaliate. There’s a new commitment to reciprocity. And I think we’ve seen that play out all summer because every FCC action seems to be met with a Chinese action.

But interestingly, the FCC actions are not met with symmetrical actions, right? I mean, the stuff that the Chinese did most recently on August 5th was all pretty interesting in the sense that it was just a series of sort of four different actions the Chinese took to retaliate, you know, the actions on drones, etc.

Cory: Yeah, I think building up on that, just in terms of finding that line, I think Beijing’s line has been, I mean, very early on and more recently, you look at the early actions on rare earths, and you see them, there’s this conversation of did China of overstep or overreach. And I’d say a lot of that discourse I kind of pushed against. But the one piece where I think that was fair was where they had commercial impacts that they didn’t intend to, they would very quietly try to roll that back.

And so, a good example was with the auto industry you bring up. The auto industry. I mean, Ford shut down their plants early on because they couldn’t get access to material. That hasn’t happened. They reopened. It hasn’t happened since they reopened. And partly it’s because the Chinese are making sure they actually do get those flows because the goal isn’t to shut down Ford. And with the EU, it’s a similar thing. All the older companies, among others, who really were not the intended targets, but obviously were impacted, and Beijing, kind of, trying to do this without losing face or admit faults or anything, of course.

But you start to see things flow in that direction. And now when you hear companies getting licenses rejected, and again, the licenses are applied to the Chinese exporter, but they have to clear their end user, just for the audience’s reference. So, the end users are unable to get that material. Nine times out of 10, the reason listed is we couldn’t prove that you’re not going to end up giving this to Raytheon or someone. And so in that gap is where a lot of companies still get hit.

And so that strikes me as a lot of the intent behind the actual work controls remains really around dual use, national security, that kind of approach. Of course, there are huge commercial impacts, but it seems to be kind of a tolerated collateral damage. But yeah, so that’s one piece. And I think what’s so interesting is the US has used chips, which is also kind of a national interest story, not so much national security in the same sense of, do you have Samarium for this, right? That’s a little bit more direct.

But with chips, it’s a lot about China’s ability to use U.S. chips in military systems and for AI that could be deployed for defensive… all that rationalization. And then to relax those controls, right? I do not ever see China relaxing controls specifically on the dual-use or national security grounds. I don’t ever see them allowing Boeing to get whatever they want. That could go into non-commercial applications. But you do see the U.S. enabling some chips to be sold that originally were argued to be banned under national security grounds. That seems to be an asymmetry to me.

If there’s empirics I’m missing, I’d love to know, but I’m just curious if you see it that way or if you can push back or what that means.

Evan: Well, let’s bring Andrew into the conversation. Andrew, I want to get your sense of sort of these dynamics.

Andrew: Yeah, I mean, I agree with you, Cory, in terms of the asymmetry. I think, in my view, part of the reason that China has done this is because just very fundamentally when it came to the tariff war, they were outgunned, right? Because the U.S. buys more stuff from China than vice versa. And so they, years ago, realized they were going to have to fight an asymmetric war when it came to a tariff war or a trade war. And then as time went on, and their various moves kind of went, I don’t know, not unnoticed, but not really… The Trump administration just didn’t react that strongly to some of the asymmetric moves that China was making.

They sort of ratcheted it up piece by piece until they found an asymmetric weapon in rare earths, as Evan pointed out, that the Trump administration absolutely could not ignore. But on that score, Evan, I wanted to ask you, you know, if you were to give each side a grade, just I’m thinking about the nature of leverage in this competition now and going forward- if you were to give each side a grade, how good do you think China is? How good do you think the U.S. is? Or how good have we been on using our leverage vis-à-vis the other country?

Evan: Yeah, I mean, leverage is a tricky thing because it’s not a mathematical equation. And in part, leverage, you know, depends on the political tolerance of a country and its leadership to withstand pain. So, it’s important to understand that I can sort of give you a balance sheet of leverage, but it’s an inherently political calculation, right? So, if the Chinese can really impose costs on us, but we’re willing to sustain those costs, it’s not really leverage.

But what I would say is at least the events of 2025, Andrew, revealed to me the asymmetrical nature of U.S. and Chinese vulnerabilities and leverage. You know, it basically as of 2025, and I want to highlight that this is meant to be a snapshot. This is not a forecast or projection for the future. But the U.S. vulnerability to China is pretty broad and its leverage is relatively narrow. And, again, we’re only talking about the economic supply chain realm and that affords China certain benefits because the areas where we have vulnerabilities to China are pretty significant.

Right? In other words, China’s leverage over us is in the global supply of critical minerals, rare earths, magnets, and other sectors like, you know, biopharma, etc. And so, the trade war highlighted that the Chinese could pretty substantially impose costs on us. And of course, the Chinese buy lots of our agricultural goods, both grains and animal products. That could be a source of leverage for them as well.

And so, because China is an important part of so many of our supply chains, right now, I think China has a lot of leverage. By contrast, China’s vulnerability to U.S. actions at this moment look relatively narrow. It’s more commodity-specific than sector-specific. You know, we have choke point actions we can take against China — semiconductor design tools, jet engines for commercial airliners, a few other areas that are genuine choke points. And the Chinese know that and they’re trying to reduce those vulnerabilities, especially in the semiconductor supply chain.

One of the difficulties in assessing our leverage is that we do have a wider assortment of tools available to us, but they’re tools that would be so highly disruptive and costly to the global economy, like cutting China off from the dollar system, cutting it off from a swift global payment system, cutting off their access to U.S. capital markets, trying to globalize all of our export controls. These are things that conceivably we could do. The problem is that they’re so highly disruptive and costly to the global economy, they’re really not credible threats in peacetime. They seem like they’re tools that we would use during a conflict.

So, when I think about what the balance of leverage is, you have to think which tools does each side have that can credibly be used. And so, I think right now, because we’re so exposed to so many different supply chains where China plays a critical role, I think we have a lot of vulnerabilities that we need to correct. And I hope the Trump administration is doing that. We know that they’re investing in critical minerals, rare earths and permanent magnets, but there clearly are other areas. So, I think the picture right now doesn’t redound to America’s benefit.

Cory: Yeah, I agree with that. And then I have a follow-up for you on that. And I think you laid out several pieces of the answer, and I’d like to get your take on the whole thing is, what is the end destination of this? What is a stable point after this? And I’m asking specifically in terms of there’s the rare earth’s vulnerabilities, there’s other critical minerals. Beyond that, there are a lot of intermediates, there are new technologies and bio and advanced materials that China’s developing that the U.S. don’t have access to. So, there’s a list of things.

And part of the problem we’ve already seen is that rare earths is not one choke point. There’s like five just within rare earth themselves. And there’s 50 others. It’s a lot of downstream stuff. And you rightly characterized this thing before as it’s kind of broad. Even the seemingly narrow specific choke points, they have broad impacts downstream. Even if not broad economic, like in terms of one… rare earths themselves are not a huge industry. But the stuff that you’re into is massive industry and they all depend on it. So, that’s where the breadth comes out of its specificity.

Let’s say the U.S. somehow manages to clean up a lot of that stuff. There’s always something else is the concern. And so, in the worst case, do we end up just back in an ongoing destructive dance as we patch one vulnerability and the other side finds another one? Or do you think that there’s a level of cost that starts to constrain any growth of spiral? And you mentioned, for example, the U.S. has leverage of the so-called- maybe nuclear options is not the right kind of phrase here, but cutting China out of the dollar system would be just such a dramatic, just absolutely not foreseeable now.

Do you think we run up against a point where that’s the only leverage left and the cost of that additional leverage prevents the cycle sufficiently to kind of constrain it? What do you see as an end point in the kind of mid to near term?

Evan: Cory, it’s a great point, but I don’t think that there’s an end point. I think that this is a new dynamic at the heart of the relationship that is ongoing, in which both sides are constantly going to be trying to identify and eliminate vulnerabilities, at the same time, try to accumulate sources of leverage where possible.

Some leverage is big, some leverage is small, but I think that this just becomes an essential element of this broader thing we call long-term geopolitical strategic competition between the United States and China. I think it’s with us for the long term. And let’s not forget, this dynamic that we’re talking about exists within a broader geopolitical competition as well.

So, when we enter into periods of détente, that affects the cost-benefit calculus of both sides to whether or not they want to probe or test or whatever. But I think these sources of vulnerability and leverage are now a persistent, consistent feature of our long-term competition with China.

Andrew: Yeah, you’ve been really generous with your time, Evan. I know we’ve only got a few minutes left. I wanted to press on the leverage piece just one last time and then some thoughts on how businesses should be thinking about this. But do you fundamentally think, good or bad, I don’t know if those are the right words, but is it in a way positive for China and the U.S. to each have some leverage over each other?

There seems to be a strain of thinking out there that both sides having leverage over each other kind of creates an entanglement, an entwinement, a sort of the whole idea of mutually assured destruction on the economic front, right? That creates some stability because both sides can’t fully extract from each other or at least not without a lot of pain.

But then I guess, you know, that leaves sort of unexplored the counterfactual of, well, what if both sides were able to reduce their vulnerabilities to each other significantly? Might that be a better situation to be in? Where do you come down on kind of leverage as a stabilizing force or not when both sides have it over each other?

Evan: It’s a hard question for me to answer because this is when the part of my brain that’s a former policymaker kicks in, Andrew. And my instinct is that the United States should accumulate as much leverage as possible and then use it to advance American interests. And so that’s my instinct.

What I would say in answer to this question about mutually assured disruption, and I know you and I have talked a lot about this, and I hope we will continue talking about it. I don’t really see it as a stabilizing force. Everybody forgets that mutually assured destruction was not this great source of stability between the nuclear powers. In fact, both sides were constantly trying to exit MAD because they didn’t like the mutual vulnerability associated with it. I mean, there’s lots of books and articles about that.

So, in retrospect, it looks broadly stabilizing, but at the time, both sides were deeply, deeply uncomfortable with it. The other thing, of course, is, you know, mutually assured disruption economically is fundamentally different than nuclear MAD, because with nuclear MAD, the stakes are so high, they’re existential. With mutually assured disruption, the stakes are not existential, right? It’s basically just how much pain is the other person willing to withstand and how might they retaliate in ways that you don’t like.

And so, I think we’re in a world where both sides are going to be, at least at this current moment, much more willing and able to use these sources of vulnerability and leverage in their broader competition. So I don’t think it’s necessarily stabilizing. Sometimes I do wonder whether or not this whole idea of mutually assured disruption is really has mistaken the source of, or the cause of stability in this current period. In other words, it’s the fact that Donald Trump is not a hawk on China, worst kept secret in Washington.

The fact that he secretly wants to have a good relationship with Xi Jinping, that he himself is very committed to leader-level diplomacy. And so both sides sort of put together, kludged together with duct tape, a sequence of events for 2026 that have sort of allowed for this, the current weird moment that we’re in. But that once we’re outside of this leader level diplomacy, the fundamental sources of competition are going to kick back in again.

I don’t really buy the mutually assured disruption aspect or I don’t really buy the mutually assured disruption explanation for the current moment. I think there might be other forces at work that really explain the stability of the moment. But we won’t really know. Let’s do the same podcast in a year. And who was right and who was wrong.

Andrew: For sure. Well, to wrap up then, one last question for you, which is, it’s just, I mean, if you’re right, and I think your analysis here is strong, right? That a snapback is highly likely coming, that we’ve got a current floor, but it’s not sort of the medium-term floor. And that each side is going to be persistently and consistently finding new sources of leverage and trying to maximize that.

I know you talk to businesses a lot as part of your work. Of course, every business is different, but how do business leaders think about, how should they think about this? If just this is the new world where Beijing is going to be looking for leverage over the United States, of course, in the national security realm, but also the commercial realm and vice versa, how on a broad level should companies be navigating that dynamic, which doesn’t seem to be going away anytime soon?

Evan: Well, I think every company, if they haven’t done it, needs to do their own sort of China risk audit. How exposed are they to China, both demand in China as well as supply in China? And on the supply piece, make sure that there aren’t choke-point single-source vulnerabilities. I think even in this day and age after the rough-and-tumble events of 2025 and 2026, there’s still loads of companies that I don’t think fully appreciate how vulnerable they are to disruption.

Number two, I think that American companies, and we haven’t talked about it on this podcast, but I got to bring it up, need to pay attention to this growing Chinese preoccupation with American companies doing business in China who are complying with American laws. So, it’s all captured in the Anti-Foreign Sanctions Law. It’s reiterated in 834 and 835, the new state council regs from this year, where basically I think that there’s a growing appetite in China to start penalizing American companies who are just trying to comply with American laws like the Uyghur Forced Labor Protection Act.

And from my perspective, the Chinese started doing this a little bit earlier this year when it came to companies that were trying to comply with American sanctions on buying Iranian oil. Cory will know the details better than me. And then, of course, this recent action against the RBA, which does these audits relevant to both complying with the Uyghur Forced Labor Protection Act, as well as critical minerals.

And so, I think that to me, that’s a big new vulnerability that companies need to think about because the Chinese basically are going to try and force them to choose. Like you can’t operate in our market and comply with U.S. law. And so, I think determining where those vulnerabilities are is another real challenge for American companies.

Andrew: Yeah.

Cory: Yeah. We work on that a lot, specifically like the potential for compliance trap. And we do, generally, sense that Beijing doesn’t have an overriding interest in kicking out all American investment and business operations, obviously. But at the same time, absolutely, they’re using this as pressure. And if the U.S. is trying to put the U.S. in a position of like, you’re the reason… So, there’s a lot of compliance trap issues that Andrew, I’m sure, has a lot of framing on. But that is, in short, one of the top issues that we’re focused on right now. So, I’m glad you raised that.

Andrew: Yeah, it’s certainly only going to become more complex to be a multinational company trying to navigate this environment. And especially as these dynamics, as you say, Evan, are not going away anytime soon.

Evan: And just to reiterate a point I made earlier, I think it’s important to be mindful that on certain supply chains where the Chinese want to have dominant influence, I think you’re going to begin to see the use of export control policy basically as a proxy for industrial policy, right? They’re going to build alternative supply chains.

Now, I’m not trying to say that they’re reducing their exposure to imported oil as a weapon to target the Western world, but there are ways in which the Chinese, as they build up a greater degree of their own self-reliance and resilience, can, in certain ways, use that to the advantage of their economic policy and industrial policy. And I think we just have to be really frank about how China could sort of weaponize some of these tools. I think it’s a real risk.

Andrew: Absolutely. And we know for certain they will be continuing to sort of look at what the next leverage point is and the next leverage point, not only as you kind of pointed out, because that makes sense from a policymaker’s point of view, it’s what policymakers do, but they basically have said as much in the 15th Five-Year Plan.

And we’re doing a lot of work to kind of figure out what are the next choke points. And so, as soon as the U.S. closes the rare earth choke point, there will be something else that pops up.

Evan: Exactly.

Andrew: Evan, thank you so much for the time today. This has been a really great discussion. There was a ton of other stuff I wanted to get to that we just unfortunately didn’t have time to. But hopefully we can have you on again soon and talk about these issues because, as you said, they’re not going away. You said we can reconvene next year, but hopefully even before that we can try it again.

Evan: Yeah. Look, you guys are great. I’m a huge committed Trivium reader. It’s my favorite thing to read every morning. So, I hope everybody listens to the podcast, signs up, and to be continued. Look forward to keeping in touch with you guys and talking again in the near future.

Andrew: Well, thanks so much.

Cory: Cheers.

Andrew: Can’t ask for a better organic plug than that. So, thanks again for the time today, Evan. And thank you, Cory. And thanks, everybody, for listening. We’ll see you next time, everybody.

Cory: Thanks so much.

Andrew: Bye.

Evan: Thank you.

Xu Jiayin (许家印) was once China's richest man. He is the founder of Evergrande (恒大集团) which at its peak one of the world's largest property companies. In 2021 Evergrande became the world's most indebted property developer, and two years later Xu was taken into custody on suspicion of criminal offences. He's not been seen in public since.

On 20 August images appeared of him inside a Shenzhen courtroom. Now with a full head of white hair, Xu stood between two law enforcement officers as he was convicted on eight charges, given a life sentence, and ordered to forfeit everything he owns.

Two of his companies were fined as well. Evergrande Group, the parent, was fined 8.82 billion yuan, around 1.2 billion US dollars. Evergrande Real Estate (恒大地产), its main onshore property arm, was fined a further 7 billion. Fifty-six executives and employees were sentenced alongside Xu, his two sons among them.

The court found that between 2016 and 2021 he had carried out large-scale accounting fraud, taken deposits from the public illegally, run fundraising scams, and bribed his way to control of financial institutions.

Evergrande had grown explosively with China’s property boom since 1996. By 2017 Xu was named China’s richest man with a personal wealth of 280 billion yuan (around $42 billion dollars).

Then when Beijing imposed the “three red lines” (三道红线) on developer borrowing in 2020, Evergrande began to fall apart. By the end of 2022 it owed 2.4 trillion yuan (340 billion US dollars) to banks, suppliers, and the 1.6 million buyers who had paid for homes that were never built. Xu, meanwhile, continued to live in luxury and was moving money and assets out of the business and out of China.

But now, less than a decade since topping the rich list, Xu Jiayin has nothing and will spend the rest of his life in prison.

One article summed up his life with a classical expression:

“He enjoyed thirty years of wealth and glory.

But in the end, it was all just one long dream.”

三十年荣华富贵，到头来，大梦一场。

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

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What it means

“One long dream” (大梦一场) is our translation of a phrase which has its roots in classical Chinese. The four-characters are “great” (大 dà), “dream” (梦 mèng), and “one time” (一场 yì chǎng), a measure word used for events and performances.

The idea of a “long dream” first appeared in the Zhuangzi (庄子), the foundational Daoist text compiled during the Warring States period (475 to 221 BC), attributed to the philosopher Zhuang Zhou (庄周), also know as Zhuangzi (庄子).

His writings treated reality and illusion as difficult to tell apart. In the second chapter, On the Equality of Things (齐物论), he writes:

“While dreaming, one does not know it is a dream. In the dream, one may even try to interpret a dream within it, and only upon waking does one realize it was all a dream.

Only after the Great Awakening will we realize that this life itself is the Grand Illusion, while fools remain convinced they are wide awake.”

方其梦也，不知其梦也。梦之中又占其梦焉，觉而后知其梦也。且有大觉而后知此其大梦也，而愚者自以为觉。

According to Zhuangzi, the “grand illusion” (大梦) is only visible after the “great awakening” (大觉). And it’s only clear it was an illusion, or a dream, when it abruptly comes to an end.

In the same chapter, Zhangzi also writes about the “butterfly dream” (庄周梦蝶):

“Once Zhuang Zhou dreamt he was a butterfly, fluttering about, happy with himself and doing as he pleased. He did not know he was Zhuang Zhou. Suddenly he woke, and there he was, back to being Zhuang Zhou again.

But now he did not know whether he was Zhuang Zhou who had dreamt he was a butterfly, or a butterfly now dreaming he was Zhuang Zhou.”

昔者庄周梦为胡蝶，栩栩然胡蝶也。自喻适志与，不知周也。俄然觉，则蘧蘧然周也。不知周之梦为胡蝶与，胡蝶之梦为周与？

Life being one long dream is a theme which runs through Chinese poetry in the Tang and Song dynasties.

The Tang’s most celebrated poet, Li Bai (李白, 701 to 762), opens one of his best known poems with it:

“Life in this world is like a long dream, so why wear yourself out with toil?”

处世若大梦，胡为劳其生。

The four-character phrase, “one long dream” (大梦一场), first appears in a later work by Su Shi (苏轼, 1037 to 1101), the Northern Song poet, essayist and official. His poem Moon over the West River (西江月), which he wrote on a Mid-Autumn nigh while in exile, begins:

“The worldly affairs are one long dream,

How many cold autumns can a single life endure?”

世事一场大梦，人生几度秋凉？

The poem is about a man looking north from the far edge of the empire at everything he has lost, as if what he previously had was just a dream.

In modern Chinese, “one long dream” marks the moment when an experience or reality turns out to have been an illusion, and abruptly comes to an end. It can be applied to a person’s career, fortune, marriage, or even an empire.

Which is why it fits so perfectly the story of Xu Jiayin, who spent thirty years building the largest property empire in the world. And now, it seems, it was all just one long, elaborate dream.

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:

RealTime Mandarin

#291: Xu Jiayin is sentenced to life in prison

During the early years of the Qing empire, writers, poets and playwrights obsessed over why the previous dynasty, the Ming (1368 to 1644), had fallen. Their works carried warnings for the new Qing rulers not to repeat the same mistakes made by the corrupt Ming court before them…

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12 days ago · 4 likes · 1 comment · Andrew Methven

China is not always known for its naval history. With apologies to Admiral Zheng He and his treasure fleet that navigated from Nanjing to the Middle East and East Africa in the 1400s, China’s maritime past is rarely celebrated, and often not remembered.

Which is not to say that Chinese sailors deserve to be ignored. So, for This Week in China’s history, let’s look back to a pivotal naval battle as Zhu Yuanzhang pursued his bid to establish what would become the Ming Dynasty, the 1363 Battle of Lake Poyang 鄱阳湖.

The battle is full of hooks to tempt the 21st century historian seeking to draw in an audience. It was one of — by some measures the — largest naval battle ever. Reliable estimates are hard to come by, but historian Tonio Andrade is comfortable with the claim that half a million people, and several hundred vessels, participated in the battle. Even more significant, Poyang Lake saw the first documented use of firearms in shipborne warfare, foreshadowing the blazing broadsides of the age of sail (though perhaps not as specifically as some portrayals would have you believe).

Today, the setting does not suggest itself as a location for a naval battle of any sort, let alone one of the magnitude that took place in the summer of 1363. The lake is China’s largest freshwater lake, but if you’re imagining North America’s Great Lakes, think again. Poyang is just a fraction of even the smallest of those lakes. The lake’s surface area has always varied in size, seasonally, and in the rainy season it can reach 1500 square miles, so it’s formidable (by comparison, Utah’s Great Salt Lake covers about 1000). Iin recent years Lake Poyang has dwindled, beset by climate change and starved by the Three Gorges Dam. Its seasonal variation has grown even greater and during the dry season–typically late fall–Lake Poyang is often a mere puddle compared to what it once was, in some years almost disappearing entirely, covering fewer than 100 square miles.

But in the waning years of the Yuan Dynasty, Lake Poyang was larger than it is today— some sources say more than twice its current size — and late summer is its seasonal peak. And in 1363 it became the key to China’s civil war.

Zhu Yuanzhang, the man who would found the Ming as the Hongwu Emperor, had risen in prominence as part of the Red Turban Rebellion, an uprising with roots in millenarian Buddhist principles but which came to serve as a broad umbrella for those with grievances against the Yuan. By the middle of the 1350s, Zhu was one of several powerful generals in the Red Turban movement, with some 20,000 troops at his disposal. By 1360, that number had grown to perhaps 100,000, and Zhu ruled from his capital in Nanjing over as many as eight million people, including much of Zhejiang, Jiangsu, and Anhui provinces.

Zhu was certainly one of the most powerful men in China, but he was just one of several men with even greater ambitions. Besides Zhu, Chen Youliang 陈友谅, based in Jiujiang (Jiangxi), and Zhang Shicheng 張士誠, based in Suzhou, were the best positioned to succeed the Yuan and form a dynasty that would rule China. And when, early in 1363, Zhu moved his armies north against Zhang Shicheng, Chen Youliang saw an opportunity.

Lake Poyang was positioned at the boundary between the two men’s territories. Chen’s plan was to organize an invasion fleet and attack the city of Nanchang, Zhu Yuanzhang’s main garrison on the lake that guarded the entry to the Yangtze. After taking Nanchang, Chen could then move downriver and take Zhu’s capital at Nanjing.

Contemporary sources place the size of Chen’s fleet at 600,000. That is accepted as an exaggeration, but even at half that size (as seems likely) it was as large a force as could be mustered anywhere in the world at that time. The central feature of Chen’s fleet were “tower ships”: three decks high with armored sides. These vessels were not

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This week’s US sanctions are the perfect example: On August 20, President Donald Trump’s warned of “TREMENDOUS Economic Consequences” for any country that provides “any type of lifeline to Iran.”

Days later, Treasury Secretary Scott Bessent unveiled “Operation Economic Outcast,” Washington’s plan to cut Iran off from external economic support.

· Bessent announced sanctions on more than 60 entities – including several in mainland China and Hong Kong – accused of supporting Iran’s nuclear and missile programs, cyber operations, and oil-revenue generation.

· He also warned that entities failing to cut ties with Iran risked being frozen out of the dollar-based financial system entirely.

Notably absent from the list, however, were any Chinese oil refineries or banks.

· That’s a telling gap, given these are the institutions facilitating the vast majority of Iran’s oil exports.

Hardly the TREMENDOUS consequences we were expecting.

Washington is concerned that sanctioning major Chinese refineries or banks would lead Beijing to retaliate, reigniting the trade war the two countries have spent considerable political capital trying to wind down.

· Instead, the administration has sanctioned a collection of smaller, more peripheral entities – disguised behind a barrage of aggressive rhetoric – while leaving the institutions that really matter untouched.

The Iran sanctions aren’t an isolated case: Washington’s approach to China in recent months has followed the same script of all bluster, no substance.

· In mid-July, Trump made a televised address accusing China of interfering in the 2020 election. There was no substantive policy follow-up.

· Earlier this month, the White House released a report accusing China of exploiting differential tariff rates to evade US import duties, titled “The Great Transshipment Scam.” But the report’s own proposed remedies amount to little more than AI-assisted customs monitoring.

Beijing appears to have clocked the difference between what’s real and what’s theatre, and is responding with studied indifference.

· China arguably needs less from this relationship right now than the US does. Washington wants Chinese purchases of American agricultural goods and Beijing’s help nudging Iran toward a peace deal, while also pushing China to rein in the alleged industrial overcapacity fuelling its export machine.

· Beijing, for its part, mostly wants the relationship to hold steady long enough for Xi’s visit to the US, now less than four weeks away, to go smoothly and, beyond that, for Washington to stay out of its face.

That asymmetry is shaping Beijing’s entire posture. Rather than responding tit-for-tat to every fresh round of tariffs or provocative rhetoric, Chinese officials appear willing to absorb the noise and wait Washington out – confident that the threats which would actually hurt are precisely the ones Washington has so far declined to make.

The danger is that this equilibrium is more fragile than it looks.

· Strategic patience only works for as long as Beijing judges the costs of waiting to be lower than the costs of acting – and Washington’s next move, on Iran or anything else, could easily tip that calculation.

A relationship held together by one side’s forbearance and the other side’s bluster is not built to last.

· But for now, that is precisely the foundation the world’s most important bilateral relationship is resting on.

Joe Mazur, Head of Geopolitical Research, Trivium China

What you missed

US-China

A “broad understanding” that the Busan trade truce will be extended is taking shape ahead of Xi Jinping’s September visit to the US.

· The Chinese side has reportedly pushed for an extension through the end of Trump’s term, while the US wants another one-year extension.

The US is preparing to impose a 7.5% tariff on Chinese imports due to Beijing’s alleged industrial overcapacity.

· On top of the forced labor tariff imposed in June, the excess capacity tariffs would restore Trump’s duties on China to around 20% – consistent with the trade truce terms agreed in Busan.

Foreign affairs

Xi Jinping met with King Abdullah of Jordan in Beijing on the final day of the king’s week-long state visit.

· Like other powers in the region, Jordan wants deeper ties with China to diversify its sources of investment and trade, while preserving the US security relationship that remains essential to the kingdom’s stability.

Econ and finance

The macro planner’s (NDRC) vice chair Yue Xiuhu convened ministries and companies to work out how to finance the “six networks” infrastructure push.

· The shift from discussing what to build to how to finance it signals that investment in the six networks is set to pick up in the coming months – providing Beijing with a lever to shore up slowing growth.

Corporates

CATL is now the largest shareholder of battery swapping (BS) unicorn Qiyuan Green Power, having acquired an additional 24.9% stake in the company.

· With Beijing offering generous policy support for heavy-duty truck (HDT) electrification, buying into the BS industry leader is a shrewd move for CATL, giving it a sizable customer base and countrywide battery swapping network which would otherwise need to be built from scratch.

Tech

eVTOL (aka “flying cars”) maker EHang withdrew its full-year revenue guidance of RMB 600 million, citing uncertainty around manned commercial flight approvals following a fatal crash in late June.

· Beijing has been aggressively promoting the low-altitude economy as a growth driver, but a single fatal crash has shown how quickly safety concerns can override industrial policy ambitions.

The cyberspace regulator’s (CAC) new plan to support digital enterprises, released August 21, outlined the agency’s regulatory priorities over the next several years.

· In a bid to rebuild trust with digital enterprises in the post-tech crackdown era, the plan commits to standardizing administrative inspections of these firms to reduce disruption to normal operations.

Net zero

The Party Central Committee and State Council general offices jointly released a set of measures governing how local cadres will be punished for causing ecological and environmental damage.

· Notably, officials will remain accountable for misconduct that occurred on their watch even after they retire or move on to other roles – much like the Party’s approach to corruption.

Politics

A massive mudslide on August 26 at Tibet’s Jilong port has left at least three dead and 558 missing in China, with Xi directing the response from Beijing.

· During his nearly 14 years in power, Xi has rarely appeared at the frontline of a disaster, in stark contrast to his predecessors Jiang Zemin and Hu Jintao.

The Party’s anti-corruption watchdog (CCDI) convened an unusual special plenum to appoint two new deputy secretaries, Zhao Shiyong and Zhang Zhong.

· The August meeting was the first stand-alone mid-year CCDI plenum of its kind in at least two decades.

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.

· Beijing just released a plan to fix both problems at once.

Our take: “China’s nefarious plan to get its companies to obey overseas laws” is a Foreign Affairs headline just waiting to be written.

On this episode, Trivium China podcast host Andrew Polk sits down with Kendra Schaefer (Head of Tech Policy Research) to unpack:

• Why lumping AI labs, e-commerce platforms, and cybersecurity firms into the single regulatory category of “cyberspace enterprises” is a bigger deal than it sounds

• The story behind AliExpress’s EUR 550 million EU fine, and why Chinese companies keep getting tripped up by rules they don’t fully understand

• One vague line in the CAC’s latest policy doc that might matter most: Beijing says it will “regulate the overseas competitive behavior” of its own tech firms, with zero detail on how

• Why cleaning up Chinese tech companies’ act abroad might get Beijing branded as the bad guy either way

Transcript

Andrew Polk: Hi, everybody, and 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 today I am joined once again by Trivium’s Head of Tech Policy Research, Kendra Schaefer. Kendra, how’re you doing?

Kendra Schaefer: I’m doing great. How are you?

Andrew: I’m wonderful, especially since I have the opportunity to talk to you about China tech policy. I mean, that’s just what gets me going. I’m only half kidding. Actually, I’m 90% serious. So, anyway, we are going to talk today about this regulation that came out on August 21st. We are recording today on August 25th. And this document came out on the 21st from the Cyber Administration of China.

It’s a 2026 to 2030 action plan aimed at helping Chinese digital companies, everything from SMEs to big platform companies and AI firms, grow stronger and compete internationally.

So there’s a lot in here about supporting firms as they head abroad, but also some pointed language about bringing in some bad behavior once they get there.

So we’re going to unpack all of that with Kendra today and talk about what it signals. But of course, before we get into it, we have to start with the customary vibe check.

Kendra, how’s your vibe today?

Kendra: A little bit overwhelmed, actually. I am going to be on four trips in September. I’m not really sure how that happened, but I’m going to be in D.C. like three times, and then I’m going to go to New York once. That just kind of trip’s just piled on trips, so I’m gearing up for a lot of Amtrak in the next four weeks.

Andrew: Wow. Well, that sounds like a lot of fun. That’s great. My vibe is, I don’t know, like ready for the fall. Our kids are back in school, so it feels like we’re getting back in that whole rhythm of D.C. starting to heat up, not temperature-wise, of course, but activity-wise. Once Labor Day comes and goes, that’s when D.C.’s back at it.

So, kind of getting warmed up over here and excited to talk about this with you today as part of getting back into the rhythm. So, welcome. We also have to quickly do the housekeeping up top. Just a quick reminder, we’re not just a podcast here.

Trivium China is a strategic advisory firm that helps businesses and funds navigate the China policy landscape. That, of course, includes domestic policy in China around a bunch of different issues like tech, which we will talk about today, macro policy, minerals, autos, exports, choke points, industrial policy, you name it, we do it.

It also includes China or 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 the chance to talk about how you can support your business or your fund.

Otherwise, check out our website, again, triviumchina.com, where you can see all of our various subscription options for subscription policy monitoring and policy analysis products that we have there. We’ve got a range of options – free, paid. You’ll definitely find what you need on the site in terms of China policy intelligence.

And finally, please do tell your friends and colleagues about Trivium, both about the company and about the podcast. It really helps us grow our listenership, grow the business. Really cannot stress enough how the word-of-mouth recommendations really help us out a lot. They go a long way to building trust with potential new clients and new listeners. So, help us out and tell your friends and colleagues about us. All right, let’s get into it. Kendra, are you ready?

Kendra: Yeah, I’m ready. Let’s go.

Andrew: All right. So as I said, the CAC, the China Cyberspace Administration, released a new policy on digital enterprises. The policy is a bird’s-eye view on how the state is thinking about both big tech platforms, AI companies, and smaller tech companies, and how it wants to support those firms and regulate them.

So, a digital enterprise means a social media platform, an e-commerce company, a cybersecurity firm, an AI lab, a software SME, basically any kind of company that builds and sells digital products and services. So, with that intro, straight over to you, Kendra. Why is this policy interesting, or why should it be to our listeners?

Kendra: It’s interesting for a couple of reasons, actually. So, I think the first one is that we haven’t really seen the state lump AI companies into a sort of targetable category with e-commerce platforms and software companies before.

So, I thought it was vaguely interesting that we now have a sort of category.

They’re calling them cyberspace enterprises that policymakers can essentially target. But more important than that, since the tech crackdown ended, I think AI has sucked a lot of the regulatory air out of the room. There hasn’t really been a lot of discourse in the policy space about what the state wants for its digital companies.

And so, this policy gives us a really good overview, right? What kind of regulations are coming out, but what is the state also supporting? And a lot of the things that we’ll see in this policy, I think, are policy trees or trajectories that are threads that our regular listeners are probably pretty familiar with because they’re continuations of policies that have been ongoing for a while.

But there’s a couple of really interesting new things in here. So, I’m excited to do a little overview.

Andrew: All right. Well, let’s jump into the overview. Give us the overview of what’s in there, what’s interesting?

Kendra: All right. Well, actually, before I talk about the interesting stuff, let me talk about the not-so-interesting stuff. And I say it’s not interesting because-

Andrew: Great place to start; the not interesting stuff.

Kendra: Yeah, always get right in with like a really good, boring headline and get everybody really drowsy before we get into the fun part. But no, I think our regular listeners will remember a lot of this or have been tracking a lot of this for a few years, right? The state still wants Chinese companies, Chinese tech companies to invest more in basic research, particularly in strategic technologies. Those are the obvious ones — AI, quantum, blockchain, etc.

And they also want tech companies to participate in some of these national science and technology projects. So that means getting in the room with researchers, with universities, and really starting to kind of push the frontier forward on some of those emerging technology fields. They don’t want there to be a big separation between enterprises and academia.

They’re trying to sort of close that gap. So again, that’s something we’ve heard of for a long time.

They also want tech companies to digitize traditional industries like manufacturing and agricultural production. And that idea that the cyberspace companies should be contributing to the digitization and upgrading of traditional sort of dinosaur industries is another thread that we’ve seen in, for example, in the recent AI Plus policy and in several other tech policies in recent years. There were also some very familiar refrains on platform regulation.

It’s kind of funny that the state has been trying to crack down on some of these problems in the platform economy for many years now and is still sort of pursuing those regulatory pathways. One of them is improving personal information protection, of course. The other one is strengthening anti-monopoly compliance, so making sure that tech companies are adhering to antitrust law.

Eliminating forced exclusivity. And we’ve talked about that in the past during the tech crackdown. Obviously, there was a sort of push to prevent platform companies from forcing on-platform merchants from only listing on one platform, for example, through various nefarious contracting methodologies.

So, forced exclusivity elimination. Eliminating excessive consumer subsidies and involution-style competition. So, in other words, I mean, I think we’ve talked about that a lot on the podcast, right? Trying to crack down on this idea of, or this competitive mechanism whereby Chinese companies just try to drive each other out of business in some kind of war of attrition by holding each other’s head into the water until your competitor runs out of money, until they don’t want to see that anymore.

And then they also want to reduce unreasonable or obfuscated platform fees, reduce telecommunications fraud, improve AI governance. So, all of those things are sort of, again, regulatory trajectories that haven’t changed. So, even though we’ve already generally got a clear picture of where the state is going there, it’s always good to get an overview, right?

It’s like a little bit of putting a pin in the map. Yes, we’re still thinking about these things. Yes, we intend to think about them for the next half-decade. So, those are going to be, you know, those things aren’t ending. We don’t see that regulatory push as being complete. So that’s a good thing to know.

But the most interesting part, I think, of this policy is that it explicitly outlines the state’s intentions to help platform companies and AI firms and this sort of group of cyberspace enterprises compete in international markets. And that’s something we haven’t really seen the state explicitly outlined before.

It’s definitely said that it intends to support Chinese companies going out. It has said that it wants Chinese companies to compete internationally, but exactly what the state would do to support that and how the state would support that has not previously been discussed, I think, in this level of detail.

Andrew: Yeah, well, that’s all super helpful. I think you’re right to lay out the domestic stuff first, right? Because they want to continue to push forward their various regulatory priorities over these companies within the China market. And, as you say, you know, a lot of times these high-level documents, they’re not mind-blowing. They’re not a bunch of new stuff, but sort of a reassertion of, hey, this is the top five, top 10 list of things we’re going after.

So, kind of always good to get a reminder that these issues are what are top of mind for regulators domestically. But as you said, that the probably more interesting stuff is what regulators are going to do, policymakers are going to do to sort of grease the wheels for companies to go abroad. So, why don’t you talk to us a little bit about what was in the document in terms of what the state intends to do to support those efforts?

Kendra: There are so many tantalizing hints in here. I think the first one and the most interesting one is that they basically explicitly say that the state will use international fora, like the WTO, like the Belt and Road Initiative, like BRICS, like APEC, like the Shanghai Cooperation Organization, to smooth the pathway for Chinese firms to compete abroad.

And the way that they would do that is by cooperating with foreign countries and regions in areas like digital infrastructure or artificial intelligence or e-government or e-commerce or mobile payments, right? So, these areas where cooperation could basically lay the foundation for Chinese technical solutions to come in and kind of backfill the results of that cooperation.

And that’s something that we have tracked for a long time, suspected for a long time, read between the lines about for a long time. But this policy makes that very explicit that that is part of the state strategy. So, that’s one thing that I thought was kind of interesting.

Secondly, it also lays down a series of measures that regulators are going to take to help Chinese cyberspace enterprises navigate an increasingly hostile international market and an international legal environment.

And some of the things the policy says they’ll do are interesting. One, they’re going to provide what they’re calling an early warning mechanism to ensure that firms can predict and respond to unreasonable trade restrictions imposed by foreign countries. And we know what they probably mean by unreasonable trade restrictions imposed by foreign countries. That would be things like going after, right? TikTok and forcing a divestment or imposing stricter rules on Chinese companies in foreign markets when they’re competing, etc. So, unreasonable trade restrictions imposed by foreign countries.

Two, they’re going to establish overseas compliance guidance centers to help firms understand how to stay legal in foreign markets. And I’ll talk about some examples of why I think that might be important in a minute. And then three, they’re going to set up a case, like a case database of legal disputes that involve internet and information technology enterprises overseas, basically as a method to help corporate lawyers at Chinese companies understand how similar cases usually go and I think to help Chinese technology companies understand what the foreign legal environment looks like when they’re entering into it and where the risks actually are and to sort of prepare in advance for all of that.

Andrew: Yeah, that’s really interesting, that last part of kind of helping Chinese companies protect themselves abroad. I know we wrote about this today separately in our Neopol Daily that the NDRC, the National Development and Reform Commission, also on August 21st, released a draft revision to outbound investment measures.

And basically, the revision requires companies at sort of every level of the overseas investment process to report back to regulators about sort of the dynamics they’re facing on the ground, partly because they don’t want to or they want to keep companies from transferring technology or assets kind of on the back of the whole Meta-Manus thing and transfer of tech outside of China, but also for national security reasons.

And I think even more so, it says investors must flag when overseas holdings face foreign discriminatory or unreasonable measures to which the NDRC can respond by restricting the foreign party’s investment in China or Chinese entities’ dealings with it. And so, I feel like everything you just talked about is very much in line with what the NDRC is saying here, that basically we’re trying to keep Chinese companies from being messed with while they’re overseas or unfairly treated.

And I feel like it’s a little bit of an underappreciated part of the lawfare build-out. We talk about the export controls and the anti-foreign sanctions law and China building up extraterritoriality, but it’s not just about sort of punitive, retaliatory-type measures against foreign companies. It’s also asserting and helping defending Chinese companies’ rights overseas.

Do you kind of agree with that assessment that that’s part of what’s going on here?

Kendra: Oh, for sure. I would say that it’s half of what’s going on or maybe 70 percent of what’s going on. I think the other half of it, I think there’s actually two kind of things they’re tackling. The first is, as you say, the perception that Chinese companies are getting treated unfairly overseas or getting unfairly targeted. And the state wants to kind of help them protect themselves and also have the information necessary to intervene as necessary.

But secondly, there’s so many cases where Chinese companies have entered foreign markets and violated the rules of those markets simply because they’re behaving the way they behave in China. And I think there’s just a sort of lack of understanding about… I mean, if you think about it the same way that you get a foreign MNC that comes into the China market and they don’t know anything about the local government when they first enter that market, they don’t understand the business norms.

They don’t really get the legal environment. Sure, they’ve hired a lot of very smart people, but the decisions that are being made at the headquarters level are not necessarily plugged into the realities on the ground. I mean, we sit in the middle of those kind of issues all the time.

So, there’s a similar thing now with Chinese companies that are going the other way. And so you see things like, actually, the one that I’m probably most intimately familiar with is all of these Chinese e-commerce platforms that have entered the EU in recent years.

And you probably, you know, you know all about this, but just a couple of months ago, the EU Commission sort of fined AliExpress 550 million euros for failing to sort of prevent the sale of illegal goods on their platforms. There was also a big fine levied against TAMU, I think 200 million euros, right? I think that was violations of the Digital Services Act or Product Safety Act or something like that.

And we actually did a big research project on that at one point. And one of our key findings was, I mean, I think the assumption by EU policymakers was that those platforms were going into that market like with total disregard for local law. And they didn’t really care about local law at all. But the reality of the situation was, I think they were a little bit unfamiliar with the operating environment.

It was partly that. And they were simply behaving. I mean, I’m wildly oversimplifying a very complicated issue. But part of it is that they were just behaving exactly the way you would behave in China; when a regulator knocks on your door in China and says, “Hey, you need to fix XYZ,” you pay a bunch of lip service and they’re going to go away, and then they’ll come back and tell you to knock it off, and then they’ll go away and then they’ll come back and tell you to knock it off. And surely, you’ll be able to sort it out at some point.

But the entire sort of legal and compliance environment is really different. And all these sort of e-commerce companies got caught up in that to some extent. Now, there were lots of other things going on. They were selling unsafe goods into those countries, and they failed to stem the tide of those services. I think those fines were probably quite justified.

And in fact, I would say that the state, Beijing, knows that those fines were justified. They know those fines were justified because the EU talked to them about some of those; they were very provable, obvious issues. And the EU talked to Beijing multiple times about what was going on and Beijing couldn’t fix it. And the platform struggled to fix it. And so, you’ve got two situations, right? One is, as you say, companies go abroad and because they’re Chinese companies, they’re under additional scrutiny.

They’re more concerned about data collection maybe than there would be of another company from the same size from a different country. They get sort of targeted for exclusionary trade treatment. They feel that that’s unfair, and Beijing wants to step in. But the other half of it is those companies go into those foreign markets, Beijing knows they’re violating the rules, and they just get sort of caught up. They give Beijing a bad name, essentially. They get sort of caught up in, right?

Andrew: Yeah, that’s kind of a tough one to untether — when are Chinese companies being unfairly discriminated against and when are Chinese companies being fairly penalized for acting like Chinese companies — It’s kind of a hair-splitting exercise. But talk to us about that second piece of it in terms of what this document talks about specifically to help companies both protect themselves, but also kind of educate themselves or at least shape up their act in overseas markets.

Kendra: Well, it doesn’t get into extreme detail specifically about what they’re going to do, but how the Chinese government is going to intervene, let’s say, in the second case where you’ve got a situation where a Chinese company is operating abroad, it’s operating illegally or it’s not complying or it’s behaving badly in the market or whatever it is doing. Right? But there’s a little tantalizing clue in this policy. It says “Beijing will regulate the overseas competitive behavior of cyberspace enterprises,” and then didn’t go into detail at all.

And that is very interesting to me because they have largely not done that. There are a couple of mechanisms by which they might regulate the overseas behavior. Well, maybe they might regulate the overseas behavior of Chinese companies abroad, but there really hasn’t been a push or any mechanism by which a Chinese regulator would pull a Chinese tech company into a room and say, “Hey, we just got a complaint from the EU. What are you doing?” Right.

So, if that means and again, I’m going on four words here, but if that means there’s going to be a more formal or aggressive mechanism by which Beijing pushes both of those angles, on the one hand, it becomes much more aggressive about supporting its companies abroad and not taking such a passive non-interventionist approach to, well, you could argue, depending on the case, they’ve been very interventionist, that they weren’t just sort of responding on an ad hoc retaliatory basis to U.S. moves, but rather trying to step in to support companies in a way that they haven’t done before, right?

And then also being very aggressive with companies and very disciplinarian with companies, insisting that if the state is going to lend its support to you, you have to earn that support by trying to be compliant with overseas laws so that you don’t put us in a bad position when we’re in here supporting your outward expansion.

Andrew: Here’s one for you. That’s all very interesting. What do you think the reaction is going to be from EU member countries and the U.S., you know, Western countries generally, to something like this? Because it strikes me, part of this is Beijing trying to say, clean up your act in these other markets, which should be good, right? But part of it’s also saying we’re going to support you. And my guess is that this just gets interpreted by foreign governments as, oh, you know, Beijing’s trying to direct its companies to, I don’t know, overtake our markets. How is this going to be interpreted? Am I being too skeptical there?

Kendra: No, no. I was going to say I have a pretty cynical view of that. I mean, I think the interpretation of this will be Beijing is helping its companies abuse foreign legal environments better, that it’s going to really equip its companies with the knowledge necessary to weasel their way out of various lawsuits and penalties abroad.

And that, of course, depends on what some of those outcomes are. I mean, if regulators see a positive change in the way that some of those companies behave in the market, then maybe they’ll be a little bit more apt to appreciate some of this. But I am skeptical about that as well. I mean, in historical cases, when Chinese companies have changed behavior or the entire Chinese marketplace has changed behavior for the better over time, that rarely does get recognized.

So, even if this does work, I mean, you could take the case of counterfeiting, for example, right? It’s like 20 years ago, counterfeiting was absolutely… I mean, you couldn’t buy a non-counterfeit product. I mean, there was no real product. There was no real Gucci store at all. It was only fakes, right? The entire country and every single store had counterfeit products of every single thing.

And now China is still the primary source of counterfeits globally, but the problem has been significantly reduced over 20 years in very little credit. I mean, nobody’s patting China on the back for that. So, I think that even, you know…

Andrew: I was just going to say, people are going to give me a hard time for saying this, but I can see The Foreign Affairs article now — China’s nefarious plan to get its companies to obey overseas laws.

Kendra: But I could understand somebody having concerns about, well, if China, if they fall under the radar in foreign markets, that means that they will then be free to compete in those markets in a way that is, you know, endangering to local enterprise. So yeah, I think there’s a damned if you do, damned if you don’t situation here.

Andrew: Fair enough, fair enough, fair enough. Although I do think There is a little bit of a tide turning in terms of I’m seeing more and more articles out there by well-respected, particularly academics, but also policy-adjacent people about sort of what we’re losing by cutting off Chinese investment, what we’re losing by cutting off our markets to different Chinese companies like the whole EV story.

So, I think it’s interesting that that conversation is starting to be out there or starting to be had more. And I believe at least that would be a positive conversation to at least for us to consider if, you know, just a reflex of cutting off China from our markets is the right path. But any thoughts on that?

Kendra: Yeah, totally. And I mean, setting aside what policymakers will think of it, or what D.C. will say, or what Brussels will say, there is absolutely great benefit to having Chinese companies or having a pathway to push Chinese companies to abide by things like safety standards. It doesn’t matter what policymakers think about that. If there are less unsafe toys in international markets, that is overall just an objective good.

Andrew: Yeah. Totally. Totally.

Kendra: So I’m all about it. So hopefully we’ll see over time some results in that respect.

Andrew: Yeah. Well, thanks for walking us through all that so far. You just mentioned one other thing that might be worth flagging, which is there was one other thing in here around IPO channels. And that was another kind of element of regulators looking to support these companies. Why don’t you walk us through that and we’ll wrap it up.

Kendra: Yeah, I just had a quick little note I wanted to point out. I mean, one thing this policy says as well is that it’s going to expand exit channels beyond IPOs. Actually, I’m going to read the quote here. “We will expand exit channels beyond IPOs, encourage the development of private equity secondary market, market funds or S funds and M&A funds and further facilitate a virtuous cycle of investment, exit, reinvestment.”

And so, that’s obviously a continuation of this effort that policymakers have had to unblock the IPO pipeline. You’ll remember that about a year ago, IPOs had essentially ground to a halt, and they were gridlocked for about eight months. Approvals were gridlocked for about eight months. Then there was a push to get the IPO pipeline restarted again. That pipeline restarted again a couple of months ago. Now we’re seeing a bunch of major listings.

We saw some chip makers have listed; Unitary listed earlier just a few days ago. And now they’re looking for channels for exit beyond IPOs. So, this reads to me as the next step of that trajectory, right? That they’re not just going to support IPOs as an exit mechanism, but also these other pathways as well.

Andrew: Yeah. And that’s important, obviously, to get investment in these smaller companies, innovative companies. I mean, the capital market ecosystem is one of the great strengths of the U.S. innovation ecosystem. And China’s sort of innovated absent that ecosystem. Dinny and I have talked a lot about how they’re trying to establish more trust in capital markets, have capital markets be more plugged into national industrial policy goals so that individual investors and institutional investors can basically reap the gains of what policymakers expect to be more and more innovative companies going forward.

So, it’ll be interesting to see how that part of it plays out. The financing piece, you always have to get it right. We’re talking about that with the U.S. side in terms of trying to build out our critical minerals industry in the wake of the Chinese export controls. Cory and I talk about that a lot. It’s like, well, yeah, you can say you want all these companies to build out capabilities to process rare earths. But if the money’s not there, you don’t know what the funding mechanisms are. It’s just never going to get it off the ground. So, this is an important one to keep in mind as well.

Kendra: Totally, totally.

Andrew: Well, great. Well, thanks for walking us through that. This has been a nice, tight, short one, but always great to have you on, Kendra. Thanks for giving us some time today.

Kendra: Yeah, great to talk to you as always.

Andrew: Thanks, everybody, for listening. We’ll see you next time. Bye, everybody.

• Two prominent essays published earlier this month – one in the Party’s flagship theoretical journal Qiushi and the other in state media Economic Daily – laid out with unusual clarity how Party leadership is thinking about the country’s economic malaise.

The core message: Getting China out of its economic funk requires broader adoption of advanced technologies across the economy.

The Qiushi article argued that China’s economy is “in a critical period of transition between old and new growth drivers,” adding that:

• “A seamless transition…is impossible; there will inevitably be a gap”

Bridging the gap requires “maximizing the positive effects of new technologies,” and ensuring the benefits aren’t limited to a handful of advanced industries by:

• “Vigorously promoting the penetration and diffusion of new technologies into traditional industries.”

The commentary in Economic Daily made a similar argument, saying China’s “uneven development reflects a profound structural transformation,” and that:

• “There will inevitably be…discomfort along the way”

The way through is to pursue:

• “The diffusion of new technologies across different industrial sectors”

It identified environmental, digital, and AI as the key technologies that should be adopted more broadly.

Read together, the two essays confirm what we have been arguing for months: Beijing is playing the long game.

• That framing helps explain why policymakers haven’t responded to the country’s weak consumption, collapsing property market, and depressed household confidence with a proper demand-side stimulus.

• Because from Beijing’s perspective, weak demand is a short-term price to pay for a much bigger prize – an economy in which advanced technology permeates every sector, from steelmaking to logistics to agriculture, lifting productivity and cementing China’s position at the technological frontier.

The consequences of this strategy are clear:

• First, China’s K-shaped economy – with AI and renewable-energy sectors surging while domestic-facing industries stall – is not going to correct itself any time soon.

• Second, exports, which are the natural outlet for surplus industrial capacity that the domestic economy can’t absorb, will keep surging.

This has significant implications for anyone doing business in or with China.

Companies planning around a domestic consumption rebound need to reset their expectations. Exporters competing with Chinese firms in third markets should expect competition to sharpen. And investors betting on a stimulus-driven turn in Chinese equities should think again.

We help clients think through exactly these kinds of strategic implications.

• Get in touch if you want to work through what Beijing’s long-game strategy means for your business.

Dinny McMahon, Head of Markets Research, Trivium China

What you missed

US-China

The first meaningful volumes of Nvidia H200 chips have entered China, with ByteDance and Tencent receiving about 10,000 in recent weeks.

• This approval comes roughly five weeks out from Xi’s September 24 state visit to Washington, suggesting it’s a gesture to signal that China isn’t totally rejecting Trump’s offerings.

Chinese officials are reportedly frustrated with the Trump administration’s lack of planning for Xi Jinping’s pending visit to the US.

• Per the SCMP’s sources: “No US official or agency had thus far assumed responsibility for organizing the visit.”

Foreign affairs

Swiss President Guy Parmelin and Commerce Minister Wang Wentao announced the two sides had concluded talks on upgrading their 2014 free trade agreement.

• Under the upgraded deal, 99.8% of Swiss exports will enter China duty-free.

Xi Jinping met with Ecuadorian President Daniel Noboa during the latter’s eight-day state visit to China.

• Beijing okayed resumed imports from eight Ecuadorian shrimp plants just ahead of Noboa’s visit.

Econ and finance

A Shenzhen court sentenced Evergrande founder Xu Jiayin to life imprisonment over eight financial-crime charges, including illegal fundraising, financial fraud, and corporate bribery, to which he pleaded guilty in April.

• The court also handed prison terms to 56 other former Evergrande executives and employees involved in the offenses, including Xu’s two sons.

In an August 16 piece co-authored with the China Iron and Steel Association (CISA), top Party journal Qiushi argued that steel must not become a “sunset industry.”

• The article argues steel is foundational for both emerging industries and strategic sectors like shipbuilding and defense, and explicitly warns against US rust belt-style hollowing out.

In July, retail sales of services grew just 3.3%, the slowest rate in two years and the most concerning signal in this month’s macro data.

• Throughout 2026, we have pointed to resilient services spending as evidence that consumer spending still had pockets of strength.

• That argument is becoming harder to sustain – and if services consumption continues to decelerate, the last remaining pillar of China’s consumption story will have crumbled.

Tech

Anhui issued a 2026-2028 action plan to promote AI-powered one-person companies (OPCs) – solo ventures built on large models and agents.

• Hangzhou and Tianjin have both rolled out their own support for solo AI start-ups this year.

Net zero

The macro planner (NDRC) and energy administration (NEA) released the 15th Five-Year Plan (FYP) for oil and gas development, covering 2026 through 2030.

• The plan signals no acceleration in China’s decarbonization drive, instead aiming to increase combined production of oil and gas to 440 million tonnes of oil equivalent, up from ~420 million in 2025.

Politics

The Party gathered in the Great Hall of the People to celebrate the 100th anniversary of the birth of former Party General Secretary Jiang Zemin.

• In a speech, Xi explicitly praised Jiang for voluntarily proposing to give up his leadership positions within the Party.

• But unlike in his eulogy for Jiang in 2022, Xi did not mention how in so doing Jiang cleared the way for a new generation of Party leaders.

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: “handcrafted from scratch” (手搓 shǒu cuō)

Context

Here Comes the Cow (牛来), or Niu Lai as it’s also known in English, is an animated film which opened in Chinese cinemas on August 5.

In its first nine days, the film took just 7,169 yuan nationwide, roughly a thousand US dollars, from only 236 viewers. The few people who did see it were blunt about how terrible the animation was, comparing it to the crude paper effigies burned as offerings to the dead.

But then the film began to draw attention from finance bloggers.

They noticed the title could be interpreted as “the bull market is coming”. So they joked that with a name as auspicious as that, investors had a duty to watch it.

As the joke spread, people started digging into the film further. It was made by just two people: a 34-year-old man named Xin Yumeng (信雨萌), who directed it, and his mother, Sun Lifang (孙丽芳), who wrote the script and even sang the outro music. The pair had been working on it for five years with no team, no outside investment, and no experience or expertise in film making.

As that background surfaced, thousands more started buying tickets to go and see the movie, precisely because it was so bad. Tickets began selling out in cinemas. Daily screenings jumped from 21 on August 14 to 359 the next day. Wry five-star reviews flooded Douban (豆瓣). And ticketing platform Maoyan is now projecting a final take of just under 90 million yuan, which would make it one of the three highest-grossing domestic animated films in China this year.

Running through the mockery there was an appreciation for something which has been lacking in recent news feeds. AI software, such as Seedance 2.0, can generate smoother, sharper animation in minutes. But Xin and his mum decided to spend five years doing it themselves:

“In an era dominated by AI, it takes real guts for someone of their calibre to stick to handcrafting everything from scratch.”

AI盛行的时代，还有这种水平的人坚持手搓，勇气可嘉。

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

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What it means

“Handcrafted from scratch” is an internet slang term. It translates directly as “hand” (手 shǒu), and “to rub or knead” (搓 cuō), the motion of rolling something between your palms.

The phrase began in gaming circles around 2010, where it described playing without shortcut keys, macros or cheat tools. It meant to pull off a difficult move by pure manual input on a keyboard or a controller, and nothing else. The earliest use of the term is traced to Dungeon & Fighter (地下城与勇士), a long-running online brawler game, where certain weapons only delivered their full damage if the player triggered them by hand.

From there it moved into tech. Among programmers, “handcrafted from scratch” means writing code line by line rather than leaning on ready-made frameworks or commercial software. Among hardware enthusiasts, it means soldering your own boards and building the device yourself.

It then spread into daily life. Like cooking a meal instead of ordering in, making something by hand instead of buying one, or building something out of parts. The unofficial motto is “all you need is your hands” (有手就行), and the standard reply to any impressive hand-crafted attempt is:

“Hats off to this DIY master”

手搓大佬，受我一拜。

Over the past year the phrase has become a genre of its own. The hashtag “Making everything and anything from scratch” (手搓万物) has passed five billion views on short video platforms. There is now a "making-from-scratch economy" (手搓经济), and, alongside it, the "one-person company" (一人公司), known in Chinese by the English abbreviation “OPC”, and the "super individual" (超级个体). In contrast to "handcrafted from scratch" though, these phrases describe someone who is armed with AI tools and is able to do the work of many people.

Part of the appeal of “handcrafted from scratch” is in the character, to “rub” or “knead” (搓), which is a slow, physical, unglamorous motion. It conveys the labour and the time in a way that “make” (做) does not. The phrase always implies someone has chosen a hard way to do something, with both admiration and some disbelief that anyone would bother.

And that’s exactly why it’s used to describe the makers of Niu Lai. It took Xin Yumeng and Sun Lifang five years to build it themselves at a time when AI can generate something smoother in a single afternoon.

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.

Upgrade my Mandarin now!

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

RealTime Mandarin

#290: How the sell-out “worst film of the year” is being discussed online in China

As you’ve probably heard by now, Here Comes the Cow (牛来), or just Niu Lai, is a new animated film which opened in Chinese cinemas on August 5. There was no trailer or publicity around its launch, just a single mysterious digital image…

Listen now

19 days ago · 6 likes · 2 comments · Andrew Methven

• Consumption, investment, and property all deteriorated further last month – and the two props that supported the economy in the first half of the year are now fading fast.

On this episode, Trivium China podcast host Andrew Polk sits down with Joe Peissel (Lead Macro Analyst) to unpack:

• How July’s slowdown was broad-based, across nearly every metric that matters – and why growth looks even worse than the headlines suggest

• How the K-shaped economy has spread from output into investment flows, entrenching the divide between booming and struggling sectors

• Why deflation, not inflation, remains the real danger for a heavily indebted economy like China’s – as officials are having to quietly pick their poison

• Why even China’s 24% y/y export growth print obscures a much less impressive reality, once you separate price from volume

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 today I’m joined again by Trivium’s Lead Macro Analyst, Joe Peissel. Joe, how are you doing, man?

Joe Peissel: Hey, Andrew. I’m good. Thanks, man. Happy to be here as always.

Andrew: Good to have you. Joe is here today to talk us through China’s July macroeconomic data. The title of his most recent note pretty much says it all. It’s titled A Grim Picture. So, we’ll get into that and talk about why consumption, investment, and property all deteriorated further, why the K-shaped economy is now showing up, not just in output, but investment flows as well, and why the deflationary pressures that eased earlier this year look set to make a comeback.

But, of course, before we get into it, we’ve got to start with the customary vibe check. Joe, how’s your vibe today, man?

Joe: Yeah, my vibe’s good. Well, the thing is, my vibes are closely correlated with the Chinese economy by nature of my job. So, I would summarize my vibes, Andrew, as…

Andrew: Grim?

Joe: Gloomy, yeah, but with pockets of strength. That’s how I’m vibing, man.

Andrew: Yeah, well, you’re going to have some critical distance, man. You can’t let the work become your life. You definitely do not want your life dictated by the whims of the Chinese economy, let me tell you that. I’ve been doing this for a long time, and that was something I learned long ago.

Joe: That’s one of the saddest vibe checks I’ve given, I think.

Andrew: Well, my vibe is pretty mellow. This is the last week of summer. My kids are not in camp. So, we got me working from home, my wife working from home, my kids hanging out. It’s always just a little bit all four of us on top of each other at home all day. It gets a little bit much for everybody. I think our kids are going a little bit stir crazy. They do not want to start school on Monday, but I think it will be good for them. And I certainly am looking forward to it.

Joe: Sounds pretty intense, man.

Andrew: Well, we will not let my mellow state and your gloomy state undercut the energy of this podcast. We will still have a good discussion. So, stick with us, listeners. But of course, before we get into the content, we also have to do the quick housekeeping. So, a quick reminder, 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 domestic policy in China across a range of issues, including macroeconomic policy, which we’ll talk about today. But it also 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 more Trivium content, go to our website, again, triviumchina.com, to peruse our different subscription options. We’ve got a bunch of different China policy intel options on the site that you can check out, both free and paid, and along several different lines: tech policy, general business policy, China watcher policy, markets, which Joe covers. So, check that out.

You’ll definitely find the China policy intel option you need on the site. And finally, please do tell your friends and colleagues about Trivium, both the business and the podcast. It really helps to grow the company and our listenership. We really, really appreciate the word of mouth recommendations that you all help us out with. So, please continue to do that. It means a lot to us. And finally, if you’ve got a second, leave us a rating on your favorite podcast platform. It really helps to boost the visibility of the pod.

So, with that out of the way, Let’s get into it. You ready, Joe?

Joe: Yeah, I’m ready, Andrew.

Andrew: All right. So, I already started or noted the title of your piece is literally “A Grim Picture.” The July numbers just landed. Talk us through how bad it is and what’s different about this month’s sort of data and the slowdown you’re seeing versus the headwinds that we’ve seen economically all year.

Joe: Sure. Yeah. So yeah, it’s pretty grim. We’ve seen this broad-based slowdown across pretty much every metric that we care about — a slowdown in consumption, continuation of this unprecedented collapse in investment across China’s domestic economy, an acceleration in the property decline. I think there’s actually two things from H1, from the first half of the year, or certainly Q2, the second quarter, that were propping up China’s economy, which is starting to fade, and which make July’s data look even worse than it was earlier this year.

So, one is services consumption. That’s what households spend on services has so far been really resilient, but the growth rate slowed a lot in July, dropped to a two-year low. So, sort of the one final strong point of consumption appears to be waning. And the second area is inflation. There’s been this cost-push inflation from the Iran war. That in and of itself isn’t a good thing.

But what it did do is inflated literally Q2 GDP growth. So, Q2 nominal GDP growth, which incorporates price effects. I mean, it grew at its fastest rate in three years. And while that was mainly just a consequence of cost-push inflation, which we don’t want, there are positive consequences from that high growth. For example, nominal GDP growth is really closely correlated to tax revenues, for example. And we’ve actually seen an increase in government tax revenues. So, there are signs that deflationary pressures are returning, the end of this cost-push inflation, that brings a whole other set of challenges for China’s economy. So, hence the title, it very much was a grim picture.

Andrew: Excellent. Well, thanks for walking us through that. I mean, excellent explanation, not excellent for the Chinese economy, but you get what I mean. Talk to me now about this idea about the K-shape of the trajectory sort of moving beyond output and towards investment flows themselves. First of all, maybe you can kind of remind folks what the K-shape and the output is, and then tell us what you mean by the K-shaped shifting to these investment flows.

Joe: Sure. So the macro note I wrote last month, so that was covering June, and H1 data was creatively named; I think it’s, can you see the K or the K-shaped economy? The idea here, which we really highlighted last month, was China’s economy is diverging. You can see that really clearly if you put it on a graph, all the main economic indicators. A bunch of them are, or a few of them are heading up, very strong growth rates, and a bunch of them are heading down. They’re actually declining, already sluggish growth rates. On a graph, it literally looks like a K, hence the name.

So, what’s been growing strongly so far this year has been exports and high-tech manufacturing. So, that’s the output of EVs, shipbuilding, AI-related products, or semiconductor chips, or AI hardware, things like this. And then the tail end, or the bottom end of the K, are the things that are declining — property, domestic investment, really sluggish consumption growth, things like this. Now, what I highlighted in this month’s note, which I think is quite interesting, is we’re not just seeing the K-shape in China’s broader macroeconomy.

If we drill down into specific data sets, it’s appearing there as well. So, imports is one such example. But in particular, in this month’s note, I talked about it in the investment data. So, if we look at China’s aggregate domestic investment, fixed asset investment that fell by double digits. I think it’s about 13% decline. That’s huge. That is unprecedented. It’s actually accelerating. It was a faster decline than the previous months.

Within that manufacturing investment, that’s a subcomponent of aggregate FAI, manufacturing investment, that fell about four and a half percent. And again, that decline is accelerating. But if we drill into the manufacturing investment, so we disaggregate it by different industries, what we see is there’s still strong growth, but concentrated in a very narrow subset of industries. And these are sectors where manufacturing output is also really high.

So, we can think about computers, AI-related components, AI hardware, really, various different areas of transport, equipment, specialized machinery. All of these areas from a manufacturing output perspective are grown by double digits. And so, manufacturing investment in these areas has also grown really strongly. But meanwhile, investment in the broader or in other areas or other manufacturing subsectors is pulling back really fast. So investment in things related to property. So you can think of things like in furniture, in cement production, glass manufacturing, metal output, both manufacturing output and manufacturing investment is pulling back.

Actually, there’s this K-shape within the investment data where we’re seeing investment growth in some subsectors growing really fast, but in the majority declining. So, there’s really tight correlation between manufacturing investment and manufacturing output disaggregated at the individual industry level. The problem with that is that it entrenches this K-shape. It exacerbates this discrepancy, because if you have some part of the sectors, you almost have this positive feedback loop.

So, they’re investing lots, they’re producing lots, they invest more. But the flip side is that also applies to the sectors which are declining. They invest less, they produce less, and, as a consequence, they also invest less. So it exacerbates the K-shape in China’s economy.

Andrew: And talk to me just a little bit on this about sort of the relative scale between the upper end of the K and the lower end of the K. My impression is that the pieces of the economy that are doing well, particularly the AI-linked high-tech type stuff, are growing very fast, but are a relatively small portion of manufacturing and of overall industrial manufacturing output.

And I would guess that it’s the same for investment, right? That these parts of the economy make up a smaller part of overall investment. And thus, you put it all together and you’ve still got a pretty weak investment environment, even though some areas are doing really well. Is that right?

Joe: Yeah, that’s exactly it. We spend a lot of time talking about China’s high-tech or high-value manufacturing, and it is an important part of the economy, but it’s still the minority of economic activity. China’s manufacturing base still involves a lot of lower-value or medium-value output that is not related to the things we talk a lot about, like AI or EVs or clean energy. And so, a consequence of that is, well, we see investment in AI manufacturing facilities grown by double digits, but overall, manufacturing investment still declined by 4.5% because it’s dominated by these other parts of the economy which aren’t performing as well.

Andrew: Yeah, and I say this pretty regularly, but my sense is that, I mean, based on everything that we write and everything that we read about both the Chinese economy and what Chinese officials are saying is that top policymakers kind of approach is to kind of wait it out and allow these smaller portions of the economy that are growing very fast to get bigger and bigger and bigger and bigger and bigger, and eventually carry the weight for economic growth or carry the load.

That’s just a process that’s going to play out. So, that’s one thing that I kind of always remind people of. I think that’s a key part of what they’re thinking. And then the second piece related to that is that one of the biggest chunks of the economy, even though it’s shrinking, is still the property sector. And so, if you’re trying to wean the economy off of property as a growth driver, that’s also going to take time. And it just means that you still have this massive chunk of the economy struggling, contracting.

And while you’ve got new growth drivers, they are, or budding growth drivers, we shall say, they remain still very small, especially compared to the property sector. And so, this is a process that the party seems pretty committed to that they’re going to let play out over time. And so, in a way, that explains, one, why they’re not panicking, but also it underscores that this is going to be a pretty extended transition process.

And also, I would say, it seems to me that this is a path that is at least partially intentional, so that officials have made themselves comfortable with the idea that overall growth is going to be sluggish throughout this transition process. And I, again, just would say, you know, for people looking at the Chinese economy, everyone keeps saying, oh, the Chinese economy is terrible, is terrible, is terrible.

Well, a big chunk of that is simply down to the real estate market, which they are purposefully shrinking and purposely trying to move away from. Do you agree with those kind of framing ideas?

Joe: Yeah, I agree with everything you said. Nothing to add. Beijing is like very aware that they have a painful transition ahead of them. And they’re willing to tolerate that pain to support this structural change in the economy.

Andrew: So don’t expect any big transitions in policy terms anytime soon, I don’t think, but we’ll get to that piece in a minute. Before we do that, I want to now pivot to sort of the price action and the economy. You mentioned in your piece that there is a risk, and I would say it’s probably more than a risk. It’s virtual certainty at this point that China’s deflationary pressures will return in the coming months. Can you talk more about what’s happening in that space?

Joe: Yeah, sure. I would just say, I mean, I’m not convinced it’s a certainty because so much of it is dependent on the outcome of conflict in the Middle East. So, I think it’s plausible. There’s a scenario where commodity prices, oil prices in particular, spike for a sustained period. And I think that could spill over into kind of broader inflation in China’s economy. I don’t know whether that’s likely, but I think it’s possible. But I agree. I think the more likely outcome is a return of deflationary pressures.

So, over the past few months, we’ve seen this rebound really in producer prices and, to a lesser extent, in consumer prices. And this has totally been a cost-per-shock. It’s not a domestic demand story at all. So, input prices for manufacturers, oil and other commodities, just various manufacturing inputs, these have increased mainly because of the Iran war. And so, as a consequence, we saw a reversal in like three plus years of PPI deflation. What manufacturers have been selling their goods for at the factory gate has been declining for over three years, and finally reversed a few months ago.

And there was a slight spillover impact on consumer prices as well, which picked up. But we’re seeing a slowdown in both CPI and PPI inflation. So, in July, consumer price inflation, it slowed sharply to half a percentage point, down from 1% the previous month. So, a really sharp slowdown. And if we look at it on a month-to-month basis, so generally when we talk about changes in inflation, we’re thinking about year-to-year. So, what were prices in July 2026 relative to July 2025?

But if we look at it on a month-to-month basis, so what were prices in July relative to June of the same year? Well, then CPI has actually been declining for three consecutive months. So, in many respects, consumer price inflation has already returned. We’re just not seeing it in the headline, the year-on-year growth figures yet, but it’s very likely that there’s going to be a return of deflationary pressures. Now, this really isn’t a demand story, aside from the fact that there is no demand. That’s why prices have fallen, but prices have been falling for a long time.

There was simply a short interval of cost-push inflation, predominantly caused by the Iran war. Now, that is fading away. We’re seeing this unmasking of deflationary pressures, which have been sitting there all along. It’s really no change from what we’ve been tracking over the past few years. Of course, the return of deflation is really problematic for China.

I mentioned earlier, nominal growth was boosted in Q2 because of these inflationary pressures. And again, I’ll say this again, we don’t like cost-push inflation. It’s not a good thing in and of itself, but it does lead to a boost in nominal economic activity, and that is associated with some benefits. Increase in tax revenue is the most obvious one. And so now we have a return of deflationary pressures, we’re going to have all the associated problems. That’s going to hammer corporate revenue. That’s going to hammer government tax receipts. That’s going to undermine consumer confidence. So, it’s just another headwind to an already struggling economy.

Andrew: Yeah. I want to throw a little bit of a curveball at you. So yeah, congratulations, or get ready for this one. I think you’ll be fine for it. But just as you’re talking through that, I was thinking, I mean, for any policymaker, you really want kind of inflation to be in a sweet spot, right? You want mild inflation that kind of is indicative of expanding domestic demand, but isn’t growing so quickly that it’s reducing people’s real wages, real wealth, that kind of thing.

Traditionally, over decades, Chinese policymakers have been very wary of inflation, specifically consumer price inflation, because in the ‘70s and ‘80s, huge inflationary pressures in a lot of emerging markets led to economic and social instability. And so, officials have really been very focused on kind of trying to keep that contained for a long time. Yet, at the same time, deflation is also not a good situation to be in. And it underscores other vulnerabilities with the economy, specifically the overcapacity, overproduction type issues.

So, neither high inflation nor deflation is particularly good. You’re kind of looking for that sweet spot. And so, the reason I bring this up is we talk about deflation as insidious and difficult to do, and I think that’s true. But then we also say, well, this inflationary impulse that they have is also not ideal because, like you said, it’s cost-push inflation through an external shock that is just rising or driving up commodities prices, which is reducing margins for industrial producers.

But my sense is that officials have sort of, if they had to choose, they might choose the cost-push inflation. And even if that’s not the case, I would say they’re sort of like taking advantage of the cost-push inflation to sort of make some adjustments. Dinny has written about how they’re kind of using that inflationary environment plus strong exports to start a little bit of deleveraging in order to sort of cap debt growth with the idea that several years down the road, five, 10 years down the road, they’re probably going to have to raise more debt to build up their social security framework.

But do I have that right? Do you think they’re sort of like, well, this isn’t the best option, but we will kind of take advantage of inflation while we have it? Or do you think both options are bad? Or what do you think, I don’t know, Chinese policymakers would almost prefer when it comes to the inflationary?

Joe: They have to pick their poison.

Andrew: Yeah, yeah.

Joe: Right. Yeah, yeah. I think there’s no doubt deflation is the more dangerous problem for China’s economy. I can think of two main reasons. And I think the first, probably the most important, is that China is a highly indebted economy. And as you just mentioned, China’s trying to use inflationary pressures to try and deleverage the economy, to try and reduce its debt-to-GDP ratio. Well, deflation achieves the opposite of that.

Deflation raises the real value of debt while incomes or tax revenues stagnate. So, for a highly indebted economy, which China is, deflation is a real problem and makes it very difficult to tackle rising debt stocks. And then I think the second problem, there’s many, I’m just picking the main two, is that there’s this idea, there’s this risk of self-reinforcing expectations. So, consumers delay purchases, waiting for lower prices, which in turn harms the economy even further.

And we see this most clearly in the property data. Property prices have fallen. We’ve long argued that a prerequisite for an increase in property activity, so things like home building or real estate investment, or even sales, are for property prices to bottom out. And so, these two risks, the increase of the real value of your debt and this self-reinforcement expectations are two huge problems, real dangers for the Chinese economy.

I think inflation, in contrast, also has its problems, which you alluded to. But it’s a problem that China and also just conventional economic theory knows how to fight. So, we can think about tightening policy or reducing fiscal expenditure. It’s arguably easier to deal with excessive inflation than it is excessive deflation.

Andrew: Great points. I will say this all kind of gets back to the point that we’ve made and a lot of economists have made, which is, ideally, you’d have an inflationary environment driven by strong demand, and that’s the argument for China having or enacting a little bit more direct demand-side stimulus, which officials seem pretty reluctant to do. So, they’re kind of picking from bad options, but partly because they’re putting themselves in that place by refusing to do sort of more traditional macroeconomic management from fiscal expansion. Do you agree with that?

Joe: Yeah.

Andrew: Okay, let’s turn to exports — the part of the economy that is particularly bright has been all year, has been for several years now, continues to sort of outstrip expectations or outpace expectations. So last month, exports continued to go strongly at roughly 24% year on year. It sounds like a big win. How upbeat are you on the export side?

Joe: Yeah, it’s one of the successes of China’s economy right now. It’s the upward part of this K. 24% growth in July is amazing. It’s a really strong headline. But I think there’s some nuance we can add to that, which is if we look at exports in volume terms, they’re still growing but by a lot less than the export value. There’s 24% growth in value. So that growth in value, a lot of that is a price story. What I mean is that the prices Chinese exporters are charging is going up, that’s inflating overall export value.

But if we think about exports in real terms, like real activity, really stripping out the price effect, and we can do that by looking at volumes, how are exports growing in volume terms? It’s a lot less. So I can give some examples which really demonstrate this point. In value terms, semiconductor exports more than doubled. There’s growth of 117% year on year in July. In volume terms, they rose by 2%. It’s entirely a price story. And that’s because of the surging cost of memory chips, which is a consequence of the global AI investment boom.

So, just demand for memory chips has gone through the roof everywhere. And that’s led to inflationary pressure on the cost of memory chips, not just in China. Mobile phones, which are kind of a classic Chinese export, in value terms, they grew by double digits. In volume terms, they actually fell. China exported less mobile phone units in July 2026 than last year. But in value terms, they grew because the price is going up.

Same with a bunch of commodities. If we look at metals or petroleum-related products, in value terms, they grew. In volume terms, they shrunk. So, the surge in value, as I mentioned, partly driven by this global AI memory chip shortage, which has led to inflated prices for memory chips, and secondly, elevated commodity prices. So, export growth mainly driven by price, not really driven by China shipping more physical goods. Of course, there are exceptions to this.

Auto exports are surging in value and volume terms. They were up. China shipped 60% more cars in July 2026 than in July 2025. And again, the export of ships, of manufactured ships, that was up about 30% in volume terms. So, there are still some success stories. But I think the big takeaway here is we shouldn’t just look at the headline figure. It’s important to think about the nuance behind that. In this case, exports are an important part of the economy, but maybe not as much as the 24% year-on-year growth, the headline figure that we’re seeing.

Andrew: Yeah, I was thinking about that both as I was reading your piece and as you were talking here. And we kind of present or you kind of present the fact that export growth, at least last month, was driven by price effects as sort of not a negative, but kind of undercutting some of the positivity of the large export growth figure. But I guess the other side of that is, one, Chinese exporters have been dealing with negative margin pressure for a long time, right? Partly as they shift exports away from the U.S. and try to find new markets, partly due to a relatively sluggish global economy.

So, one, is this some relief for exporters with prices going up or at least a certain subset of exporters? And then secondly, I’d just say, as somebody who runs a business, I mean, if my total revenue goes way up, even if I’m not shipping more volumes, just simply on margin, then I’m perfectly happy with that. So, from a macro standpoint, it might not be ideal, but from an individual business standpoint, that seems totally fine.

Joe: Exactly.

Andrew: What do you think?

Joe: Yeah, you’re totally touching on it. So, from an individual business perspective, it’s great news. From a macro perspective is what we really care about when we think about trans macro economy, right? Higher export prices per se aren’t a bad thing. There’s still benefits —increased corporate revenues. And, as a consequence, higher corporate tax receipts for the government, things like this. But what I’m saying is we think of 24 year-on-year export growth really strong figure. What we care more about, if we had to pick, a minute ago you asked me to pick between too much inflation or too much deflation, now I’m asking myself – do I care more about export prices or export?

Volume, definitely volume, because that leads to more manufacturing activity, factory activity, has positive spillover effects on the labor market. It can lead to upward pressure on wages, things like this. So, ultimately, export volumes are really important here. And the export volume story is nowhere near as positive as the prices. But again, to clarify, I’m not saying export prices in and of themselves, it’s not a bad thing if exporters raise their prices. But if there’s no subsequent increase in volume, then I’m less excited about the headline export growth than otherwise.

Andrew: Yeah, I think the key is, one is kind of more beneficial for the macro economy as a whole. Another may be beneficial for individual businesses, as we talked about. And then the other piece is this isn’t China exporting inflation. This is China raising prices because of general sort of weak supply for key goods, particularly in the semiconductor and other AI-driven space, and very, very high demand. So, this is just kind of exporters reacting to the environment. So, they’re sort of more of a passive player in this.

Joe: Yeah, totally. We see the same with China’s imports in value terms. They’re way higher than in volume terms. So, China’s as much, yeah, it’s just a passive player here. Its exports have benefited from high global prices, but its import bill has surged as well. Actually, imports have been growing faster than exports most of this year. China’s trade surplus is actually down a couple of percent so far this year.

Andrew: Yeah, that’s interesting.

Joe: Yeah.

Andrew: Yeah. I think I’ve read headlines or not headlines, but in news articles, people make an argument, “Well, that should make policymakers in other parts of the world more comfortable,” but really not because it’s primarily down to surging cost of commodities. And part of the problem is that China doesn’t buy non-commodity goods from the rest of the world. Right? And that’s what people…

Joe: Exactly. Yeah. We actually, we did some research. We wrote a piece on this for our subscribers. If you strip out the impact of gold imports and memory chips, then China’s imports this year are up by single digits. If you include gold and memory chips, they’re up like 30% year on year. It’s not a broad-based increase in imports. It’s just a spike in the import bill because memory chip inflation and a kind of a one-off surge in gold purchases.

Andrew: Yeah. I’m glad you mentioned that because I thought that was a really interesting finding. So, I’m glad you highlighted it. Okay, let’s move now to another kind of downbeat piece, which has been continually downbeat for basically since the pandemic, and it’s China’s consumption picture. How bad is it and what’s going on there?

Joe: Oh, it’s pretty bad, Andrew. You teed me up for that one, man. So, sales of consumer goods, consumer durables, right? This is like autos and furniture and garments and cosmetics, all that sort of stuff. Sales of consumer durables rose by 0.6% in July. Tiny, tiny growth rate. Down from June, which grew by 1%. So, miserable growth in June, even more miserable growth in July. And we saw a decline in pretty much all of these big ticket items, which is what really from a macro perspective, we care more about the sale of, say, cars than we do of t-shirts because production of cars has much more spillover benefits.

It requires more skilled labor, higher wages, more complex supply chains. So, if we look at big-ticket items, then it’s even worse news. So, sale of cars, home appliances, furniture, all declined by double digits. The one exception was the sale of mobile phones and other consumer electronics, which grew quite strongly. And that’s interesting. It’s a very good kind of case study of the impact of fiscal stimulus. So, all of these items I just talked about- cars, furniture, mobile phones, consumer electronics, home appliances- they’re all part of the consumer goods trading program, right?

There’s essentially, the government providing subsidies for these goods. Now, the program was rolled out in 2024, and it initially targeted only at autos, home appliances, and furniture. So, they’ve now had like two and a half years of this subsidy stimulus. And the stimulus impulse has totally worn away. The reason being it boosts sales by pulling demand from the future. So, an individual that was going to buy a new piece. Let’s say they’re going to buy a new washing machine next year, but now there’s government subsidies available that will they buy it this year instead?

So, you get the short-term boost, but it means over the medium term, over several years, the stimulus impact fades. And this is what we’ve seen. This is why, even though in 2026, there are still subsidies available, the sale of these items is declining by double digits. But the program was only expanded to include mobile phones and other consumer electronics last year in 2025. So, they’ve only benefited from the program for about 12, 12 plus months, meaning that the stimulus impulse is still very much alive.

This is why last month, mobile phone sales, they grew by over 20%. So, what we’re seeing is that by borrowing future demand, over time, the stimulus fades. That’s already played out for cars, home appliances, furniture. And at some point, it’s going to happen to mobile phones as well and consumer electronics. Towards year end, the sale of these items is also going to decline. So, even kind of this one bright spot in the consumption data, this 20% growth in mobile phone sales, that’s running on a clock. It’s not a sustainable driver. At some point, it runs out.

And then to add to this gloomy picture, which I mentioned earlier, is the sale of services. This is household spending on travel and medical services, entertainment, going to the cinema, catering sales, all this sort of stuff. That’s fallen to its lowest growth rate in over two years. So, it grew by about 3.5%, 3.7%, I think. Previously, it’s been growing around the 5% mark. So, a sharp slowdown in one of the only strong parts of the consumption picture.

Andrew: So not ideal. Yeah, yeah, yeah.

Joe: Sorry, I left you on a cliff.

Andrew: No, that’s okay. That’s okay.

Joe: That’s my piece.

Andrew: Yeah. Well, anything that you see on the horizon that is going to turn the consumption picture around? I mean, we’ve been waiting for it. It seems like policy is not there. Are we just in for sluggish consumption? It seems like Beijing is… they talk about it a lot, but when push comes to shove, they seem unwilling to put more fiscal resources here. And maybe it’s unwilling, maybe it’s unable to manage this demand side picture on the consumption side. I mean, is there anything that can change this?

Joe: No, as you say, it’s largely focused on supply-side measures, even today. So, this August the 19th when we’re recording this, and Beijing has just released a policy plan to support local governments to support consumption in their local economies. This is like at the township level really localized policies. And it’s all about supply-side measures kind of building new shopping centers or converting dilapidated government buildings into retail stores, all this sort of stuff, improving consumption infrastructure is generally what they refer to it as very much a supply-side focus.

The one demand-side tool, which is this trading program, these consumer subsidies, that was effective for the original set of goods last year. It’s been effective for the mobile phone and consumer electronics this year. I mean, that’s just pulling forward demand. It’s not leaving a structural change in consumption. And it does raise the question, for which I don’t have a good answer, is what fills the gap when the program’s runway ends? At the moment, it looks like probably nothing. So, it’s another potential headwind for consumption in the coming months.

Andrew: Well, with that further grim sort of assessment, why don’t you wrap us up here? If you sort of had a single takeaway from the month’s data, what would it be? And then also sort of look ahead. What are you expecting from both the trajectory of the economy and policy, macro policy going forward?

Joe: So, look, a single takeaway, I think, is there’s been an exacerbation of this K-shaped economy. It’s kind of a tale of two economies. This narrow part of the economy, which is performing well, which is AI and export-driven and performing exceptionally well. And then there’s the much larger domestic economy, consumption and property and investment and mainstream manufacturing outside of AI and export-related sectors that is deteriorating. And this is exacerbated this month because we’re seeing a slowdown in consumption of services, and we’re seeing a removal or kind of a waning of this cost-push inflation, so the return of deflationary pressures.

What that means for H2, clearly pressure is building on policymakers to do something. I think the most recent signal we saw was in late July when they explicitly acknowledged economic challenges, but didn’t really commit to any new policies. I think they used the phrase “incremental policy measures,: so they promised to implement incremental policies, whatever these are, presumably modest and not very effective. But at least there’s explicit acknowledgement of the challenges that face them.

Now, I think the one clear area where we may see some progress or some momentum would be in infrastructure investment. It’s really unprecedented that infrastructure is declining for so long and so fast. And we’ve seen some movements. So, this week, the macro planner has pushed policy banks to increase their funding for infrastructure development. And there’s chatter going on in policy circles that Beijing sees this as a kind of as an increase in the important lever, something they really do have control over in the domestic economy to boost growth.

So, what that entails, it could be an increase in local government debt instruments, could be an expansion of the central government balance sheet to fund more infrastructure. I mean, we’re going to find out in the next few months. As of now, we’ve seen a push towards policy banks issuing more. At some point, we expect an increase in government debt as well to support infrastructure spending.

Andrew: Well, I was just again thinking as you were talking, it used to be when I started in this business 20 years ago, that if you said something like Chinese policymakers understand the issue and it’s on their radar, that you could expect a policy fix, a policy, fairly aggressive policy response to whatever that issue was in short order. And I feel increasingly the idea that Chinese policymakers know the problems. It’s like we have the same problem we have in the West. They’re admiring the problems. They’re not doing much about it, right?

Joe: Mm-hmm, yeah.

Andrew: So, we do not expect that necessarily to change anytime in the short term, which means kind of what you see is what you get. And the economy is likely to kind of struggle and bounce along on its current trajectory for the foreseeable. But as it does, we will continue to analyze it through Joe’s great work. So, Joe, I appreciate you walking us through all this today.

Joe: Yeah. Thanks for having me, Andrew.

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

This week on Sinica, I sit down with the writer Pallavi Aiyar — at her own dining table in Beijing, where in recent months I’ve been the lucky beneficiary of her and her husband Julio’s legendary hospitality. Pallavi first arrived in Beijing in 2002 to teach at the Beijing Broadcasting Institute and went on to spend the better part of a decade as The Hindu’s China correspondent — for much of that time, the only Chinese-speaking Indian foreign correspondent in the country. That period produced Smoke and Mirrors: An Experience of China, still one of the very few sustained attempts to look at China through Indian eyes. After 16 years away — years spent in Brussels, Jakarta, Tokyo, and Madrid — she’s back in Beijing, and turning her gaze inward with her latest book, Travels in the Other Place: Pursuing the Self in Eight Acts. She writes the wonderful Substack The Global Jigsaw, which I recommend without reservation.

Our conversation is built around her recent essay for Noema Magazine, “The Real Problem Underlying India-China Tensions,” which argues that the deepest problem in the relationship isn’t the border or the trade imbalance but the distorting lenses through which each side reads the other: China reads India through the lens of colonial subordination, while India reads China through the lens of betrayal. We talk about the ugly etymology of an ethnic slur, the partial historical memories each country mistakes for the whole picture, her serialized interviews with the Chinese India-watcher Mao Keji, the aporia-inducing impossibility of explaining either country to outsiders — and how her answer to the question she first posed in 2008, “Would I rather be born Indian or Chinese?”, has changed, painfully, in the years since.

• 4:35 – Beijing, 2002: an ad in That’s Beijing, gandhi@hotmail.com, and becoming The Hindu’s correspondent

• 10:03 – “Beijing and I grew up together”: the aughts as a shared coming-of-age

• 12:16 – The asymmetry of obsession: why India watches China, but not the reverse

• 16:39 – The unacknowledged third vertex: Western discursive power in the India-China relationship

• 18:08 – Back after 16 years: the Liangma River, blue skies, and the panopticon

• 21:35 – Walks in the park and the “buddy system”: what access looks like now

• 25:43 – Where did all the foreigners go?

• 29:59 – The scene at CCG: candor, offense, and the register of truth

• 33:10 – “Asan”: the etymology of a slur, Sikh policemen, opium fortunes, and China’s colonial lens

• 40:10 – 1962 and India’s betrayal lens

• 42:15 – Aporia: the foolhardy task of explaining India or China

• 47:22 – Shame and indignation: explaining a place you love versus a place you merely know

• 52:29 – The big question, 2008: born Indian or Chinese?

• 55:44 – The 2026 answer: “It hurts”

• 1:00:08 – Kaiser pushes back: cherry-picked comparisons, and can this essay’s very existence complicate its conclusions?

• 1:04:43 – Twin nations of the exam

• 1:06:57 – Cognitive empathy: what it would take for ordinary Indians and Chinese to actually see each other

Paying It Forward

• Yaqi Li, a young Chinese international relations scholar recently returned to China after a year in Singapore — Pallavi admires the rare self-reflectiveness of his memoir-inflected IR writing on his Substack, New China Literacy, and notes that he makes an interesting case for AI-assisted writing as a way for second- and third-language English speakers to find their voice.

Recommendations

• Pallavi: Flashlight by Susan Choi — a novel spanning Japan, the U.S., and North Korea, built around the North Korean abductions of Japanese citizens in the 1970s. Also This Is Where the Serpent Lives by Daniyal Mueenuddin — the first novel from her favorite Pakistani writer, a sprawling, Chekhovian portrait of feudalism and politics in modern Pakistan.

• Kaiser: Crossing to Safety by Wallace Stegner — beautiful at the sentence level, painted on a small canvas: two couples who meet as young academics at the University of Wisconsin–Madison, and their friendship across the decades. Emotionally rich despite the absence of grand drama.

Transcript (courtesy of the fantastic CadreScripts) further down the page. Image by Keya Zhou. Listen in the embedded player above!

This week on Sinica, I sit down with the writer Pallavi Aiyar — at her own dining table in Beijing, where in recent months I’ve been the lucky beneficiary of her and her husband Julio’s legendary hospitality. Pallavi first arrived in Beijing in 2002 to teach at the Beijing Broadcasting Institute and went on to spend the better part of a decade as The Hindu’s China correspondent — for much of that time, the only Chinese-speaking Indian foreign correspondent in the country. That period produced Smoke and Mirrors: An Experience of China, still one of the very few sustained attempts to look at China through Indian eyes. After 16 years away — years spent in Brussels, Jakarta, Tokyo, and Madrid — she’s back in Beijing, and turning her gaze inward with her latest book, Travels in the Other Place: Pursuing the Self in Eight Acts. She writes the wonderful Substack The Global Jigsaw, which I recommend without reservation.

Our conversation is built around her recent essay for Noema Magazine, “The Real Problem Underlying India-China Tensions,” which argues that the deepest problem in the relationship isn’t the border or the trade imbalance but the distorting lenses through which each side reads the other: China reads India through the lens of colonial subordination, while India reads China through the lens of betrayal. We talk about the ugly etymology of an ethnic slur, the partial historical memories each country mistakes for the whole picture, her serialized interviews with the Chinese India-watcher Mao Keji, the aporia-inducing impossibility of explaining either country to outsiders — and how her answer to the question she first posed in 2008, “Would I rather be born Indian or Chinese?”, has changed, painfully, in the years since.

• 4:35 – Beijing, 2002: an ad in That’s Beijing, gandhi@hotmail.com, and becoming The Hindu’s correspondent

• 10:03 – “Beijing and I grew up together”: the aughts as a shared coming-of-age

• 12:16 – The asymmetry of obsession: why India watches China, but not the reverse

• 16:39 – The unacknowledged third vertex: Western discursive power in the India-China relationship

• 18:08 – Back after 16 years: the Liangma River, blue skies, and the panopticon

• 21:35 – Walks in the park and the “buddy system”: what access looks like now

• 25:43 – Where did all the foreigners go?

• 29:59 – The scene at CCG: candor, offense, and the register of truth

• 33:10 – “Asan”: the etymology of a slur, Sikh policemen, opium fortunes, and China’s colonial lens

• 40:10 – 1962 and India’s betrayal lens

• 42:15 – Aporia: the foolhardy task of explaining India or China

• 47:22 – Shame and indignation: explaining a place you love versus a place you merely know

• 52:29 – The big question, 2008: born Indian or Chinese?

• 55:44 – The 2026 answer: “It hurts”

• 1:00:08 – Kaiser pushes back: cherry-picked comparisons, and can this essay’s very existence complicate its conclusions?

• 1:04:43 – Twin nations of the exam

• 1:06:57 – Cognitive empathy: what it would take for ordinary Indians and Chinese to actually see each other

Paying It Forward

• Yaqi Li, a young Chinese international relations scholar recently returned to China after a year in Singapore — Pallavi admires the rare self-reflectiveness of his memoir-inflected IR writing on his Substack, New China Literacy, and notes that he makes an interesting case for AI-assisted writing as a way for second- and third-language English speakers to find their voice.

Recommendations

• Pallavi: Flashlight by Susan Choi — a novel spanning Japan, the U.S., and North Korea, built around the North Korean abductions of Japanese citizens in the 1970s. Also This Is Where the Serpent Lives by Daniyal Mueenuddin — the first novel from her favorite Pakistani writer, a sprawling, Chekhovian portrait of feudalism and politics in modern Pakistan.

• Kaiser: Crossing to Safety by Wallace Stegner — beautiful at the sentence level, painted on a small canvas: two couples who meet as young academics at the University of Wisconsin–Madison, and their friendship across the decades. Emotionally rich despite the absence of grand drama.

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 Beijing, though not, for once, from my home, but from the home of my guest at a dining table where, in recent months, I have enjoyed wonderful meals and delicious wine in great company, all due to the hospitality of the guest I’ll introduce to you momentarily.

Listeners, please support my work by becoming a paying subscriber at SinicaPodcast.com. I know there are tons of Substacks out there, including one beautiful one I subscribe to written by my guest. They start to add up — I know they do — This one really, though, does deliver value for money with great content from wonderful partners like Trivium and the China Global South Project.

So, please do subscribe so I can continue to bring you these conversations and lots more.

Today, on Sinica, I am delighted to welcome the writer Pallavi Aiyar. Pallavi first came to Beijing back in 2002, if I’m not mistaken, taught at the Beijing Broadcasting Institute, and went on to spend the better part of a decade here as a correspondent for, much of that time, the only Chinese-speaking Indian foreign correspondent in the country, chronicling China’s rise for readers back home in India.

That period produced Smoke and Mirrors, her wonderful memoir of those years, which remains, I think, one of the very few sustained attempts by anyone to look at China through Indian eyes and India through China-habituated eyes. In the years since, she’s turned that same gaze on Europe, on Japan, places where she’s lived for good stretches as the wife of a diplomat. More recently, she’s turned the gaze inward in her latest excellent book, Travels in the Other Place: Pursuing the Self in Eight Acts.

Last year, Pallavi and Julio, her husband, moved back to Beijing after some 16 years away, long years, agonizing years for me, just months before my own return, which I count as just really one of the great blessings of my move back. The two of them have been convening some genuinely memorable evenings, and they are, simply put, enormously fun to be around. But the real reason she’s on the show is her writing, which manages a balance that I think is actually fiendishly difficult to strike.

Combining deep sensitivity toward both of the countries she knows best and everywhere else she writes about, combined with an almost brutal candor about each of them. She writes this Substack, which I mentioned, called The Global Jigsaw. I recommend that without reservation. Please go subscribe. And over the past year and a half, she’s published a remarkable series of essays there and elsewhere on India and China as the twin nations of the exam.

We’ll talk about that a bit. Both of them are very much sort of driven by meritocratic or notionally meritocratic exams, on the near impossibility of explaining either country to outsiders. She’s published a serialized interview with the Chinese India watcher, Mao Keji of, the National Development and Reform Commission and the piece that we’re going to build much of today’s conversation around, an essay for Noema Magazine, published by the Berggruen Institute, arguing that the deepest problem in the India-China relationship isn’t the border or the trade imbalance, but actually the distorting lenses through which each side reads the other.

We’re going to be talking about both of those lenses, about cognitive empathy and its lamentable absence in the relationship, about how her answer to the question that she posed back in 2008 — would I rather be born Indian or Chinese? — has changed, and about what it’s like to come home to a Beijing transformed.

Pallavi Aiyar, welcome to Sinica.

Pallavi Aiyar: Hey, Kaiser. It’s so great to be on the show.

Kaiser: We’re so long overdue. I mean, it was a long time ago. Smoke and Mirrors, that was the last time we had you on, right?

Pallavi: I think it was during COVID, and that was in the context of Anand Krishnan’s book on India and China, and I was on there as a discussant.

Kaiser: Oh, that’s right. That’s right. Yeah, you were on with Anand, another lovely human being who will be joining us again on the show, hopefully in the not too distant future. But let’s talk a little bit first about where you started back in 2002, probably. You guys arrived in Beijing. You arrived to teach English initially, like I said, at the Beijing Broadcasting Institute. China had just joined the WTO only months before that. The Olympic bid had been won.

The CBD, this jungle of skyscrapers, was still mostly just sort of on a planner’s draft board.

Pallavi: Yes.

Kaiser: So let’s go back to that city. What was it like for a young Indian woman really just off the plane here? And how did teaching English turn into becoming the Hindu’s correspondent here?

Pallavi: So the first time I ever considered coming to China, the idea even crossing my mind, was back in 2000 when I happened to meet my now husband, Julio, with whom I’ve been hosting all these parties that you’ve been the beneficiary of.

Kaiser: Let me just give in a word about your Julio. I mean, he’s been an invaluable person for me to get European perspectives on. We have all sorts of nerd-outs where, you’ve heard all about them, talking about the Thirty Years’ War and talking about Spain and its golden day. It’s been so fun. He’s such a lovely man.

Pallavi: He is. And when I met him in 2000, he was actually already somewhat of a China person, having studied at Renmin Daxue in 1998. In fact, when I first started dating him, I remember at some point looking at him and saying, “Darling, should I start learning Spanish?” Because he’s Spanish. And he turned around and said, “Why would you do that? You should start learning Chinese.” And at that point of time, a foreign Indian with my background, which is really quite anglophone, I had sort of grown up studying in what we call English medium schools, where the language of instruction was in English.

You know, when we thought about abroad, we really thought about the UK or the U.S., these were like, or Canada, or any of the sort of developed English-speaking countries of the world. And China just didn’t really exist on the mental map of an Indian who was born in 1975 and had grown up in Delhi in the 1980s, ‘90s. We’d had a very long 20-year almost diplomatic freeze. We had no direct flights between the two countries. Trade was almost negligible. There was no China in our imagination. A kind of ridiculous situation given that we share almost 4,000 kilometers long boundary, etc., and have a deep and storied shared history, and so on, but it just didn’t exist.

So, when Julio turned around to me and said that, you know, “China is going to be the future, this is what you should be thinking about,” I just thought it was a laughable idea. Like, what would I do in China? Why would I go to China? However, I was in love. And that had a role to play in my eventual China story because he did move to China in 2001. I went off to the U.S. for a year to continue with my education. But I came to visit him in Beijing. And it was actually December 2001. And I remember driving in from the airport into the city, and just looking out of the window. And my jaw was like close to my knees.

Because just the kind of dynamism, the energy, the sort of freneticism of what you could see outside the window in terms of just the construction energy and the jackhammering. And the fact that it really looked like something was erupting, it felt tectonic. And I just kept thinking, how has this somehow escaped my knowledge? How did I not know that this was happening? There was like an epochal change happening over here. It was almost gravity-defying. Things were kind of rising up, shearing up from the ground.

And I sort of realized the weight and import of Julio’s words about, you know, China is the place to be. I, of course, didn’t know how this was going to be possible for someone like me. I’m what I call a passport-backward caste. With an Indian passport, you can’t just up and move to places in the way that a European could. But there was a lot of serendipity involved in that particular vacation. I picked up a copy of That’s Beijing, a magazine that perhaps you’re quite familiar with, Kaiser.

And I looked at the classifieds. And there was an ad in the classified for somebody to teach English news writing at the Beijing Broadcasting Institute, the Běijīng Guǎngbō Xuéyuàn at the time. And the address of the person to contact was gandhi@hotmail.com. And I was like, Gandhi at Hotmail.com? Anyway, I sort of reached out to this Gandhi person who turned out to be a Chinese guy. And he was a great Gandhian.

And not only that, he had just applied to do the course that I was finishing studying for. It was a combined degree in the UK and the U.S. So, I mean, there were just all these things. And he immediately offered me this job. And suddenly I had this ability to like wash up in Beijing as a foreign expert, as a waiguó zhuānjiā. And I thought I’d be coming for a year. And like many other people at the time, the rest is history — We stayed.

Kaiser: Yeah, you stayed. And you’ve said before that you feel like you and Beijing grew up together. In your farewell column, that was, I think, in 2009, that line has really stayed with me. So, you and Julio were married here. Your son, Ishan, was born here. What do those years give you that really…? I mean, you clearly developed a special place in your heart for Beijing.

Pallavi: Absolutely.

Kaiser: You’ve lived in Jakarta. You’ve lived in Tokyo. You’ve lived in Madrid. You’ve lived all over the place. Something about Beijing has held on to you.

Pallavi: Yeah. So, I think, you know, a lot of how you respond to a place has to do with that place. But it also often has to do with you as an individual and where you are at that moment. And I came here straight out of university, you know, very much in love. It’s where I developed my voice. It’s where I discovered my vocation. I became a foreign correspondent here. I got married in 2005. My first son was born over here. Now, it feels a bit hubristic to say that Beijing and I grew up together. China is an ancient civilization.

And while I am getting on, I wouldn’t claim to that kind of age. However, in some ways, while it’s an ancient civilization, the early 2000s were also a new iteration for China, given that it had joined the WTO in 2001. It had just won the bid to host the Olympic Games.

Kaiser: You couldn’t have picked a better time.

Pallavi: You couldn’t have picked a better time. They were tearing down huge parts of the city to sort of rebuild it. So, it was a new old city and was also in some ways going through its adolescence or early adulthood in the post-reform era.

Kaiser: Certainly a growth spurt, right?

Pallavi: Right, a growth spurt. Yes. And in many ways, you know, it was the geography in which I grew up as well. And I also think that I learned, as all people who are sort of young adults learn, to negotiate certain contradictions in their lives. And to also, you know, begin to understand that there are a lot of shades of gray. And there’s a lot of nuance to life and these kind of early teenage certainties that you have of black and white. China was also going through that, and it helped me, I think, to develop a more nuanced way of understanding myself, society, other people.

Kaiser: But it still sort of surprises me that as somebody who grew up in a prominent Indian intellectual family, that China wasn’t more on your radar by 2000, just prior to your December 2000 trip here. And the reason I say this is because I remember distinctly reading in The Economist, it must have been around then, how the Indian intellectual national pastime was obsessing about China. That line really just sort of stuck with me. And I bounced it off a lot of my Indian friends at the time. I said, “Is this true?”

I mean, it sure seemed to be that way. I remember a few years later writing on the website Quora, I noticed I was answering a question about why there’s this asymmetry of interest, why it seemed that Indians were so much more interested in learning about China, asking so many China-related questions on Quora, where the equally populous Chinese population there asked almost no questions at all about India and would only sort of answer perfunctorily, was not interested in engaging.

And it’s sort of this asymmetry still that’s going to form a lot of our conversation this morning. What do you think explains your particular blind spot? And was it a blind spot? Was it already a national obsession by that time?

Pallavi: Actually, I think there was a huge difference between the 80s, 90s, and the 2000s. So, I think that, you know, basically we had a massive rapprochement around 2001, 2002, which was the time that I moved here. So, I was really in the right place at the right time. We had the first visit by a high-level visit. So, we had the Indian Prime Minister Vajpayee visit China in 2003.

Kaiser: The prior one had been in 88 or 89. I remember meeting him.

Pallavi: Exactly. So, after this like 15-year-long deep freeze, we had some kind of movement at the highest political level. We had the direct flights being reinstated in 2003, 2004. And at that point of time, we also eased trade restrictions, which then began to kind of grow exponentially. Like, they were almost doubling year on year. So, there was a sudden interest in China around the time that I came, which I think coincided, to some extent, with all of this WTO Olympic Games, because Indians really know China through the Western media.

And, as there was an uptick in the Western media about China, China, China, all of this happening, this hope that China was going to become one of us, was kind of entering the fray of Western nations by sort of joining the WTO and was going to become a different kind of power that was going to mirror the liberal West in some ways, at least that was the hope. I think that there was this surge of interest in India as well.

So there was a big difference even between the time when I first announced to people that I was leaving in 2002 for China when there was like, why would you do that? To say, a few years later, when I got married in 2005, when people were agog with what was going on in China. And suddenly China had emerged as a kind of benchmark. I think Manmohan Singh, the then Indian Prime Minister, when he came to China in 2006 said that he was going to make Mumbai into Shanghai. That was like the first explicit benchmarking of an Indian city with a Chinese city, rather than, say, a Western city.

And there was really this sense that China had suddenly become something of interest, which it should have been, given that it was a much more reasonable

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Our phrase of the week is: “the breeze cannot read, so why, then, does it riffle through my book?” (清风不识字，何故乱翻书 qīngfēng bù shízì, hégù luàn fānshū)

Context

Huawei (华为), one of China’s biggest and most powerful companies, has been humbled by a cheap children’s toy.

That toy is called a “bamboo cicada” (竹知了). It’s made of a short section of bamboo and a piece of string, and sounds like a cicada when spun.

In recent weeks, netizens somehow connected the bamboo cicada’s buzz to the unveiling of Huawei’s AITO M9 (问界M9) SUV back in December 2023. The event was hosted by Richard Yu (余承东), the head and public face of Huawei’s smart car business. Yu is well-known for his over-the-top language at these events, dropping claims like Huawei is “way ahead” (遥遥领先) of the competition.

The sound of the audience’s reaction to one of his claims at that 2023 launch, and Yu’s own distinctive rapid-fire way of speaking, were likened to the buzz of the bamboo cicada toy.

From mid-July, content creators began mixing the toy’s high-pitched sound into footage of the launch. At first it was no more than a niche joke and a minor trending topic. But around July 23, some bloggers received notices that their videos had been flagged for infringement. As takedown requests from Huawei’s legal team mounted, the story was catapulted to the top of hot search lists in early August. Soon, there were reports that even videos of people simply shaking the toy were being removed.

A backlash against Huawei followed. In response, the company issued a statement denying any blanket campaign against the toy or people posting about it. But this only invited further ridicule. One widely shared essay called it the worst PR disaster in Huawei’s history.

Another writer went on to use a cryptic reference to imperial censorship from nearly 300 years ago to characterise Huawei’s heavy-handed tactics to silence the public:

“The public may be uneducated, but that doesn’t mean you can abuse your power.”

老百姓可以不识字，但你不能乱翻书。

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

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What it means

“The public may be uneducated, but that doesn’t mean you can abuse your power” is a modern reworking of a famous line of verse from the time of the Qing dynasty (1644–1912).

The original is:

“The breeze cannot read, so why, then, does it riffle through my book?”

清风不识字，何故乱翻书。

It’s attributed to Xu Jun (徐骏), a young scholar in the Hanlin Academy (翰林院), the elite secretariat of the imperial court. Xu was also the son of Xu Qianxue (徐乾学), one of the most senior officials under the Kangxi (康熙) emperor, who reigned from 1661 to 1722.

That line was nothing more than an observation from Xu at his desk, describing how he noticed a breeze blowing through the room flipping the pages of a book as if it were a person. And yet, the breeze was unable to read the words.

In 1730, under Kangxi’s son and successor, the Yongzheng (雍正) emperor, Xu Jun made a fatal slip in a memorial.

He miswrote “Your Majesty” (陛下 bì xià), accidentally writing the first character as one which evokes the meaning of “prison beast” (狴犴 bì àn), a mythical tiger-like creature, whose image was carved on prison gates. The two characters (陛 vs 狴) are pronounced exactly the same (bì), and are almost identical in form, just differing by one component.

The Yongzheng emperor took offence at this slip. Xu was stripped of his title, removed from office, and had his writings searched.

In their investigation, the Qing officials found the line beginning “the clear breeze…” (清风). They concluded this was a seditious attack on the Qing empire’s Manchu rulers, because “clear breeze” (清风) shares a character with the name of the dynasty, Qing (清).

The innocuous line was interpreted as something much more serious:

“The Qing rulers are uneducated, so they have no business meddling in Chinese culture.”

So Xu was convicted and executed.

In the years that followed, “the breeze that cannot read” (清风不识字) became synonymous with the Manchu rulers’ paranoia and abuse of power. The story is retold in the Classified Anthology of Qing Anecdotes (清稗类钞), a compendium of Qing stories assembled by the writer Xu Ke (徐珂) in 1916, four years after the empire’s fall.

The case became one of the most notorious of the Qing “literary inquisitions” (文字狱), or “prisons of the written word”. These were waves of prosecutions where officials combed books, poems and even examination papers for hidden sedition. Their defining feature was that guilt lay in what a suspicious reader could find hidden in the words on the page, such as imagined puns, homophones, and allusions.

Today, “the breeze cannot read” (清风不识字) is shorthand for the misreading of innocent words by the powerful and the thin-skinned. Netizens use it whenever a harmless post is deleted by over-anxious, risk-averse censors. In this modern form, “riffling through the books” (乱翻书) refers the to censors, not the breeze.

So the warning to Huawei is not to echo the heavy-handed instincts of the Qing rulers by silencing the innocent. Which is why we translate this week's phrase as: "The public may be uneducated (in the law), but that doesn't mean you can abuse your power."

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

#289: Huawei picks a fight with a bamboo toy, and loses

One of China’s most formidable companies, Huawei (华为), has been humbled by a cheap children’s toy…

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a month ago · 5 likes · Andrew Methven

But the more durable — and future — points of leverage are already hiding in plain sight, in hundreds of intermediate goods most people never think about.

• Gerard DiPippo, Director of Global Macro at Eurasia Group, returns to the pod as our first ever two-time guest, joined by Dinny McMahon and Cory Combs, to unpack it.

On this episode, host Andrew Polk sits down with Gerard, Dinny, and Cory to dive into:

• Why rare earths are a uniquely cheap and low-cost weapon for Beijing, and why other chokepoints like batteries carry far higher stakes

• How China’s licensing regime doubles as a surveillance system, giving Beijing visibility into global supply chains it can use to ratchet pressure up or down at will

• The “shoe that hasn’t dropped yet”: China’s shelved extraterritorial rule that could restrict any product containing Chinese-origin content, anywhere in the world

• Why intermediate goods are the next frontier to watch, and why China’s reaction function gets a lot murkier once controls move further down the production chain — into products with real commercial value to Chinese firms themselves

It’s another great discussion – so enjoy!

Transcript

Andrew Polk: Hi, everybody, and 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 today we’ve got a bit of a special lineup. I’m joined by two Trivium regulars, our Head of Markets Research, Dinny McMahon, and our Head of Supply Chain and Critical Minerals Research, Cory Combs, but we also have an extra guest with us today, and that is the Director of Global Macro at Eurasia Group, Gerard DiPippo.

Gerard, how are you doing, man?

Gerard DiPippo: Good. Very happy to be back on the show.

Andrew: Yeah, it’s great to have you back. You’re our first two-time guest.

Gerard: Really? Wow.

Andrew: Yeah, absolutely. Very excited to have you back. Dinny, how are you doing, man?

Dinny McMahon: Good, mate. Always happy to be here.

Andrew: And Cory, how about yourself?

Cory Combs: Doing great. Really excited. We’re starting the hiring process for a new analyst position. So, very jazzed for that. It’s a good week.

Andrew: Awesome. Love to hear it. All right. Well, today we’re going to do another look at basically the economic lawfare and economic coercion playbook that is evolving out of China, specifically looking at kind of future choke points that China may look to draw on as its export regime evolves and its kind of choke point capabilities evolve. We’re going to use, as a jumping-off point, a piece of research that Gerard has done called China’s Chokepoint Leverage Goes Beyond Critical Minerals.

We’re not going to go line by line on that research, but we will kind of use that as a jumping-off point. And we’ll talk about where China is quietly building a dominant kind of share in various global markets. And then we’ll walk through that paper in general and our general thoughts from the Trivium side on Gerard’s analysis. It’ll be a great discussion. But of course, before we get into it, we have to do the customary vibe check. Gerard, I’ll start with you. How’s your vibe today, man?

Gerard: I’m happy to be here, although it’s funny because just before we recorded this, I was talking to my co-author from that piece, Amanda Hsiao, and she was saying how she loves this podcast, but actually doesn’t like the vibe check. And so it’s always controversial. So, shout out to her and shout out to the vibe check.

Andrew: Awesome. I love it. Yes, the vibe check is very controversial. We get a lot of people who love it, a lot of people who hate it. And so I guess that means you’re doing something right. I don’t know.

Gerard: I love it for what it’s worth.

Andrew: Well, see, good. Exactly.

Dinny: Yeah, I’m on the other side of the divide.

Andrew: Well, and with that, Dinny, how’s your vibe today?

Dinny: I’m feeling good now that I know that there are people out there who feel the same way that I do. But no, my vibe today, I’m feeling pretty rested. I had a long weekend in New York with the family. So yeah, I’m feeling good.

Andrew: Nice. So Dinny’s vibe is officially unburdened, I feel, now that he’s let it be known. Cory, how about you, man? How are you doing today?

Cory: I’m good. Yeah, again, just really excited to be bringing on a new team member soon, in particular to help work on a lot of these types of issues. Although now I have a new interview question, which is going to be the make-or-break for the candidates, which is whether or not they like the vibe check. It’s going to be a deciding factor now.

Andrew: Well, you can’t give away what the correct answer is actually now so that people will make sure that they answer honestly. Well, my vibe is pumped to have all you guys on. I’m excited. I think this is going to be a great conversation. I’m also excited. I’m going to see Gerard in real life later today. I always enjoy catching up, talking China beyond what we put on the pod.

So, we’ll get into the meat of the discussion in a sec, but of course, we also have to quickly do the housekeeping. So, a quick reminder to everybody — 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 domestic policy in China on a range of areas: autos, tech, etc., minerals, you name it, we do it. But it also 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 more Trivium content, check out our website. Again, triviumchina.com. You’ll definitely find a subscription option that will meet your needs in terms of staying on top of China policy, intelligence, and research. We have a bunch of different options on the site. And finally, please do tell your friends and colleagues about Tribune, both about the podcast and about the company. It really helps us to grow through those word-of-mouth recommendations, so we really appreciate those.

All right, Gerard, are you ready to walk us through this?

Gerard: Let’s do it.

Andrew: All right. So, Gerard, your piece, or not just your piece, but let’s start sort of where the conventional conversation around this U.S.-China back-and-forth and evolving China lawfare usually starts, which is critical minerals and rare earths. Your paper argues that rare earth controls remain Beijing’s preferred retaliatory tool, but that the approach is evolving within that space. Why don’t you just set the scene and talk to us about how you see things evolving?

Gerard: Yeah, I’ll just give you the bottom line, which is that it is proper to be focused on critical minerals as a key choke point. And those are, in fact, what Beijing knows it can weaponize for at least years, and we can debate how long. But the point we wanted to make is that there are other choke points that are developing, particularly in intermediate goods. And Chinese industrial policy is geared towards expanding China’s market share of those goods.

And so, the implication of all of that is even if you think at some point the West is able to have enough secure supply of critical minerals, and we can debate how long that takes, at that point, China will have other choke points. And there are implications from that because it means that China’s coercive leverage is growing in ways that I think Western governments are not planning for.

Andrew: So, Gerard, we’re going to talk a little bit about the evolving nature of some of these choke points that you point to in your paper. And Trivium has done some work on this as well, so we’ll kind of be able to compare notes on what we think is next. But before we get there, you also identify some of the current attributes of China’s export control regime, specifically zeroing in on the licensing aspect, which sort of allows Beijing to ration supply and deny importers of goods from China the ability to stockpile.

Can you talk to us a little bit about why you think Beijing’s leaning on the licensing piece rather than an outright ban of sales to have a more durable and effective approach to export controls?

Gerard: It’s for several reasons. One is that the licensing requires foreign companies to apply for those licenses, which means they’re able to collect information on supply chains and general needs of companies. Relatedly, if they have more comprehensive data, they can then have a sense of what total demand is and have better mechanisms for detecting whether there’s any sort of transshipment or stockpiling going on.

So, they want full visibility so that there’s no smuggling or workarounds that put holes in things once they leave China’s borders. The other reason is you want to be able to keep companies on as short of a leash as possible. And that, one, is to prevent stockpiling. But two, it also means that if Beijing wants to dial up the pressure on any government or company, it can do so fairly quickly precisely because it’s prevented that stockpiling and workarounds.

And so think of it as sort of a surveillance and enforcement capacity that’s working together.

Andrew: Totally makes sense. And another piece I wanted you to highlight is, you know, focus in on Chinese state investment and overseas mining as well. So, this isn’t just about sort of controlling the source inside China, it’s also about reinforcing dependencies in the long term through investments. Cory’s also done a bunch of work on this. So, talk to us about that piece of it in terms of what China’s doing externally to reinforce its domestic export control regime.

Gerard: Right. So, they’re investing in overseas mining and capacities. I mean, Cory is a master of tracking this stuff, so I wouldn’t deign to lecture him on it. But think of it as a comprehensive plan. I don’t know if there’s a single plan, but there’s at least planning going on such that they’re able to track the supply chains of the things they know are upstream vulnerabilities. And their companies are making those investments, right?

And so, they also are aware that Western governments are working quickly by at least Western government industrial policy standards, to try to indigenize or sort of de-Chinaize offshore those capacities. And so, it’s really like a race of industrial policy systems.

Andrew: Cory, what are you seeing on this side? Do you see it similarly to how Gerard’s characterizing it?

Cory: Yeah, the first thing is that top to bottom, at a high level, there is systematic effort to map and understand China’s vulnerabilities. And so we have that supply chain and industrial security policy from March made public in April. And it’s a state council level doc that says that very explicitly, various authorities, including Central Planner and DOC, are basically in charge of making sure that these foreign vulnerabilities don’t disrupt China’s industrial upgrading and regular operations.

So, that’s driving a lot of investment by state actors, by state investors, Ex-Im, development banks, policy banks, all that. And so absolutely, at the same time, you also, at a lower level, at a more commercial level, you still see a ton of, and I would probably argue even more, private sector investment. Now, obviously, private gets very messy when you talk about private sector in China’s mining ecosystem, but you also have things like CATL, BYD, genuinely private listed companies that are pursuing no-one supply chain security overseas, especially in Latin America, parts of Africa, etc.

So, there’s both fronts happening simultaneously, and they both support Chinese mineral resiliency, as well as processing. So, it all aligns. And to the extent that Beijing doesn’t have certain central-level plans for driving specific niches of minerals, it’s because the market’s doing it for them. And so the areas where the market’s not doing it, Beijing is making sure it’s happening. So in both regards, it’s happening, 100%.

Gerard: I may be jumping ahead here, but I would say that China’s focus on overseas investments as a means of securing its own critical materials or other resources is not new. That’s been going on pretty much for decades, at least in a concerted way, at least 20 years. I think what is more new is China imposing export controls, not only as a means of having coercive leverage against countries, which you’ve already mentioned, but also to control the technology that it knows those countries want, including for things like magnets, so that they can indigenize their own technology.

I mean, one theme you can see is that a lot of China’s recent measures, including recent controls and outbound investment, are really aimed at technology, including but not limited to things that would be useful for critical minerals, right? So, it’s the idea that China now has the capacity, one, to hit back, but two, it also has technologies that it knows other countries want, particularly to break free of those chokeholds. And so, it’s sort of protecting in both directions.

Cory: Exactly right. And a good case study of that, I think there’s 100 of them, but I think one very clear one is gallium. So, one of the earliest controls, so gallium and germanium, had a lot of attention. Australia is now recovering some gallium as a byproduct of other operations. But what do we need the gallium for? And one of the most important applications right now, to my view, is the rising demand for GaN, a gallium nitride used in wideband-gap semiconductors.

I don’t know of really any large-scale producer outside of China that can turn the gallium into gallium nitride in the substrates we use for semiconductors. So, it’s great that we’re getting gallium, but what about the processing? And that’s exactly the kind of choke point that I completely agree — this is the intermediate goods issue. This is the processing issue. And where Beijing continues to control that, that is leverage.

Andrew: So, staying on this kind of idea of where we are now with the export controls and the strength of the export controls around critical minerals and rare earths, you guys both, I think, rightly touched on the processing piece, which now, of course, other countries, notably led by the U.S. are trying to you know alleviate that choke point from China, trying to build processing capacity. But again, Gerard, you point out in your paper, in your research that even if China’s critical minerals processing eventually erodes, Beijing could extend restrictions to foreign-made goods containing Chinese mineral content.

So, this is sort of the extraterritorial piece that we talked about a little bit, Cory, where you say if there’s any piece of Chinese content, doesn’t matter if it’s processed in China or not, we’re going to restrict that. Notably, that was part of their big October 2025 controls that really brought things to a head in the U.S.-China negotiations and led to the U.S. backing off a little bit and ultimately to the Busan agreement. But talk to us about that aspect of it, Gerard. How do you think that unfolds?

Gerard: Right. So, it’s the Chinese version of the foreign direct product rule. And that is the provision among several, but maybe that one in particular in October that scared Russian government so much. Because if you read it, at least verbatim, it sounded like China had the ability to impose controls on anything that had any non-negligible amount of Chinese rare earth content in it.

Which would, if you read it that way, would mean like a battery that China had made that is in a car made in Poland that goes to France or whatever. That is still subject to those controls. Now, because of the Busan truce, that part of the controls has been shelved. It’s not dead. It’s just on pause as part of the ceasefire. And so, to my knowledge, that part has not been fully tested. And it’s sort of the shoe that hasn’t dropped yet.

But because China is collecting data during this time through the application process for the sort of normal export controls and licensing requirements, it might be able to more effectively implement that in the future. And I don’t think that regulation or that capacity is going away.

Andrew: 100% agree. I mean, I think we always talk about these export controls as, Cory, let me bring you in, like, basically, China is sort of suspending their use. But there’s just one way of general travel here, right? China wants to bolster its export control regime overall. The actual implementation of the controls may ebb and flow, but they want extraterritorial jurisdiction. They want to be able to not only use these in a weaponized fashion when needed, but also for broader industrial policy purposes. What’s your perspective on the piece Gerard was just talking about?

Cory: Yeah, I mean, all of these tools, I think the hardest part of all this to map is what are the constraints on Beijing’s use of these tools, right? And so, I think exactly right, there’s one direction of travel when it comes to the material level controls. I think at this point it’s pretty clear. Meaning, which is to say, Beijing can impose an export restriction, which just means you have to apply for the licenses. I shouldn’t say just, it means you have to apply for licenses. And this is where a lot of the attention comes from.

At that point, I don’t see any way of coming back from that. Like that is just a lever that it can ratchet it up, it can ratchet it down. And there’s two different levers on top of that, which I’m sure many listeners will be familiar with, but just to confirm, first, they can escalate the restriction to a prohibition, which means you’re not getting a license. And separately, there’s a number of ways they can expand, add new compounds, add new derivative materials, etc. Or they could go the extraterritorial route and say, “Not only are you not getting it from China, you’re not getting it from somewhere else if it has a Chinese input,” right?

Som there’s other ways of escalating. And so, I think that is negotiable. That’s up and down. That’s leverage that you can deploy at will or pull back when you’re trying to pursue strategic stability, all that. But the existence of a licensing requirement in the first place, I don’t see you coming back from that point. I see one direction of travel there, and then it’s flexible from there on. And this is in contrast to, for example, some of the commercial security or industrial security investigations, which have been very explicitly used as leverage in negotiations.

Like, oh, maybe we’ll investigate this sector, but we’ll scrap that investigation if we get certain concessions, right? And so, one question I have for Gerard and Dinny as well is, in this context, is where do intermediate goods fall? I mean, we have some intermediate goods are already affected, right? spluttering targets are a good one. They’re not intermediate from a consumer perspective, but if you’re making semiconductors, you’re not taking rare earth, making a spluttering target making a chip. You’re buying a sputtering target from somebody who bought rare earths elsewhere.

So, in the upstream sense, we’ve already seen that migration down the production chain, so to speak, and we’ve seen it in a number of others that I won’t go on about. When do we start seeing that in intermediate goods where that, I think, starts to play? Those are much bigger factors in China’s total export value. Those have much bigger costs associated with them. So that’s why I’m very curious, how do you see China’s reaction function? What are the constraints on its willingness to move further down the production chain with export controls?

Gerard: So, I think we’re waiting to see what happens when they fully weaponize other intermediate goods. I mean, you’re referencing things that might have critical mineral components in them, but there are a lot of things that are unrelated to critical minerals where China makes intermediate goods. But you mentioned something that’s really important, which is those other goods, or some of them at least, things like, say, batteries, right, they have much more commercial value for China to restrict those things, but actually be imposing harm on its own companies in a way that rare earths do not.

Rare earths are basically an optimal upstream weapon, right? Because in dollar value terms, they’re really not worth all that much. But China controls the chokehold on the processing side. It has basically two state firms it can operate with to do that. It has the ability to use that to get visibility through licensing of a whole bunch of other industries. And it can do it without really disrupting its own exports all that much. And so, it can sort of pick and choose which industry it wants to disrupt.

There are other intermediate goods, like just think of industrial chemicals, let’s say, right, where China could disrupt something, but that’s going to be probably more narrow, right? So, I’m actually skeptical that there’s any one set of things that is going to be as powerful and as sort of cheap to use for China as critical minerals. That said, there are a lot of other things that could be used in conjunction.

And if you have a sort of whole supply chain visibility, you don’t have to use the same type of good to retaliate against any one country, right? You could use different sets of goods for multiple countries. So that was kind of the point of our piece, that there are other things I can go at that would be valid, even if it were the case that there were Western supplies of processed critical minerals that could avoid China.

Cory: Absolutely. Excellent. And just to put some scale on this, you’re talking about the difference in the impact for China, the cost of imposing this. China’s rare earth industry, the entire rare earth industry is probably on the order of one to $2 billion in terms of total value. That’s obviously not strategic value. I believe their exports of batteries last year were over 60 billion. So, that’s one product and that’s just exports, right? That’s exports compared to the entire rare earth industry. So, it just doesn’t really compare, and the nature of the companies as well.

The battery revenues are even more critical because a lot of Chinese companies can sell batteries, for example, at a much higher premium overseas than they can domestically given involution. And a lot of that money is going straight back into R&D. It’s going straight back into development of new battery chemistries that China is hoping will drive its competitiveness long term. You’re not seeing that kind of R&D in rare earths. You don’t need it. So, I think both financial value-wise and strategically, the costs are so much higher for some of these.

But very well said, I completely agree with the kind of ability to target narrowly these intermediate goods. It’s not quite the same blanket. Yeah, so just seconding all of that.

Gerard: And part of why we’re still talking about this is basically hypotheticals because they still don’t need to use as other weapons, so to speak, right? You could debate how long, but at least say five years conservatively where they would have a lot of leverage with critical minerals. And if we get to a point, say, in 2030, where there is Western self-reliance, we’re going to have another conversation about what else to go after.

One thing we tried to highlight in our piece was to look at specific intermediate goods in the trade data where China has 50% market share globally, both in value and volume terms. And we identified 300 goods at the HS6 level where that’s the case. And it’s grown rapidly since 2022. It’s almost like a straight line up and on track to be 400 goods by the end of this decade. Now, I should say that because we’re operating at the HS6 level in trade code terms, that’s like sort of medium granularity.

If you are assessing your own vulnerabilities, I would want to go much more granular than that. But the problem is that you don’t actually have a global standardization of those codes at that level. So, think of that as just sort of a high-level illustration that you actually see in the data what their industrial policies are saying they’re trying to do, which is to develop whole supply chain security, including for their own defensive reasons.

But it also means that because a lot of these things are pretty low value added or low margin goods, it’s things that Chinese industrial policy is just much better suited to absorb.

Dinny: Yeah, I’d say that when it comes to the intermediate goods, I mean, what Gerard’s saying makes perfect sense that for the most part, you know, so many of these intermediate goods for the meantime don’t necessarily pose a… aren’t the sort of things that can be weaponized particularly although one day it might get to that point. In some ways, the real threat to developed economies in particular at the moment is that China’s moving so aggressively on intermediate goods. And I think that’s kind of what Europe in particular is sort of struggling with.

It kind of looks at the degree to which China is so aggressively expanded into things like chemicals or it looks at the degree to which sort of China dominates, you know, precursor ingredients for pharmaceuticals. And yet, to a certain extent, it feels exposed, but it’s also worrying about the hollowing out of its own industry because China is moving so aggressively into these sorts of bits and pieces.

I think the researcher Richard Baldwin coined the phrase that China is effectively the OPEC of intermediate goods just because of the sheer scale at which it’s producing the components that go into manufactured goods. So yeah, the point’s well taken that for most industries, China isn’t in a position to weaponize these, certainly without sort of doing damage to their own industries. But certainly, I think the rest of the world is increasingly cognizant of just how vulnerable they feel, given how dependent they are.

Andrew: Yeah, I think this is basically the sexiest part of your research, Gerard, is the intermediate good space. Can you talk to us about how you think that’s going to increase China’s leverage over time? And then you also make an interesting point about how it’s more politically palatable to control intermediate goods instead of final goods?

Gerard: The intermediate goods are, in some sense, better as a weapon because you can mess up the production side of a target economy. And you might even be able to mess with multiple industries at once with the same good. The counterfactual would be if China were going after, say, consumption goods or final goods, right? These are things that consumers or end users would notice more visibly. They could, in theory, do that, right?

So, for example, in theory, BYD could be told you have to restrict exports of electric vehicles. The problem is that’s just much more visible, so more likely to engender political pushback. And also, because final goods, by definition, contain the value of all the intermediary goods, they’re worth more, right? Which means that if you go after final goods, you’re basically asking Chinese firms to eat a bigger cost as part of that weaponization.

So, again, the intermediates are really just the better tool, both economically and politically. And in terms of how they’re going to do it going forward, now, as I said, this hasn’t really happened yet because they haven’t had to rely on non-critical minerals because they still have critical minerals. Right? But we’ve seen in March, the Chinese Academy of Sciences published a note, a bulletin that had some research looking at 63 different technologies that China could, in theory, control.

And it sort of bracketed them in different metrics. And you get a sense of, you know, that’s just like one window, right? I’m sure there’s more going on that we’re not seeing. And there are ways of trying to systematically assess different technologies or goods where there are choke points. And what that shows is we think there are basically five broad criteria that they can assess whether something is, you know, a good weapon, right? So, one is obviously, does it hurt the target economy? Two, how replaceable is it? Because it can cause a supply or policy response.

The third is how much hurts Chinese industry, because if it’s worth a lot, then you don’t really want to actually impose those costs on the Chinese firms. And then there’s the enforcement capacity, which we talked about briefly. But if you’re talking about extraterritorial controls, that is harder to do. And they have spent the last year building up their ability to map out rare earths. But if you try to do that with other goods, they might not have the same visibility into that.

And finally, there’s reputational risk. So, there are things like pharmaceutical APIs. People talk about China having choke points there, which is basically true. And I should say that last year during the height of the U.S.-China trade war, Chinese interlocutors were back channeling, suggesting that a nice API supply chain there would be a shame if something happened to it, meaning that would be sort of the next threat. We’re personally skeptical they would actually do that, partially because if you’re trying to cut off pharmaceutical goods, you’re basically risking, at least narratively, killing people because they’re not getting medication, right?

So that’s not really optimal. That’s why I think their preference would be to stay in things that are either more sort industrial or “dual use,” they would have the pretense of having that sort of geopolitical security covered.

Andrew: Yeah. Cory, Gerard just walked through his kind of framework in terms of how he thinks Beijing identifies its next export control or its item to export control. What are your thinking or what is your thinking on how Beijing makes that decision? What are its key criteria going through that? And then I want you both to say what you think, kind of based on that criteria, what might be next? That’s what people want to know. What’s coming down the pike in terms of what the next choke points are?

Cory: Yeah. I mean, first off, seconding so much of what you said, I think it’s a great framework. I’ll just add a couple of pieces. I think one is in a lot of the lawfare countermeasures retaliation, we still see a preference for symbolic reciprocity, you know, reciprocal actions. When it comes to specific critical mineral-related export controls, you know, they’ve run down the list, you’re not going to see exact reciprocity. So, if there’s a defense action, you’re not necessarily going to see a defense mineral, right?

But at the same time, I think at this point, that on the export control piece specifically, we’re just seeing them go through kind of the next best targets in terms of where China has control and where the costs are not extreme. And so, for example, if I had my money where my mouth is, I think tungsten was one early on that we were very concerned about. And it’s a huge issue now because China appears to not be exporting any of it, as far as we can tell.

Another one very similar to that or akin to that is magnesium, which goes into so many things. But magnesium metal specifically, not oxide, is just such a risk if Beijing were to go after that, and we’d have to talk about that another time. So there’s your one, going on a limb to say something specific. But I think more broadly, I mean, I agree that we’re moving past the era of just an export control, right? There’s so much more dimensionality retaliation across the lawfare toolkit, but even within the realm of export controls.

And so, I agree with Gerard as well on things like API that there are costs that are not just financial that definitely seem to factor in. I think Beijing has had many opportunities to cause more damage, if it so chose, against a particular economy, against a particular sector, against particular institutions or interests that are very clearly not taken or stopped short of. And I think API is a good example. If you really want to force the other person to do what you want, API is not a bad target, but if you also want to be accused of killing people.

There are costs beyond financial that Beijing has been very wary of, including, for example, hurting the broad consuming public. I haven’t seen them go after, for example, things that would just drive inflation. I know it’s one of the early kind of questions– would Beijing go after kind of downstream goods? And there’s other reasons for that. Like Gerard said, they’re not the top strategic targets, but I also think the cost is, you know, right now, I think more Americans are mad at America than China, and for the current situation when it comes to consumers.

Not talking about the fans, not talking about the people involved in procurement, but the average person. There’s power in that, right? And so actually, I mean, one question I have going further down the chain, I had for Gerard is, does Beijing’s reticence to use certain tools in intermediate goods, obviously, there are potential risks there, but for the ones that aren’t risks, is that enough for the U.S. to focus less on de-risking, diversifying, decoupling in certain areas?

Is the sense that, for example, Beijing would not want to target certain sectors, is that enough for the U.S. to feel more comfortable in that space? Like, right now, I feel like the strategy in D.C. is decouple as much as possible, de-risk every possible thing that China has any leverage over. Are there pockets where we can relax a little bit, or should we continue to try to push to de-risk as much as humanly possible, just because China has control, regardless of the analysis of its likelihood of using it?

How much can we trust that? So, I’m going to fight the premise a little bit, which is to say that it is true that in D.C., where I live, there’s a lot of concern about reliance on China. But as a matter of policy, the focus is overwhelmingly on critical minerals. There are a lot of other things like, say, industrial chemicals, right? Which is there are various kinds, but that’s sort of a decent bucket of targets.

I am not aware of any U.S. industrial policy specifically to address that. The point I keep making to clients is that we knew, the West, everyone knew, about the risks of reliance on China for processing of rare earths 15, 16 years ago. And yet, there was not really a concerted Western response until about a year ago. Why? It’s because China had to fully weaponize them against the U.S., they’d use them a little bit against Japan.

So, we talked about the policy response function in Beijing, but the policy response function in the West, certainly in the United States, when it comes to industrial policy, is not all that forward-leaning. It’s quite reactive. So, there might be a lot of things where the system in the U.S. is good at sort of prohibiting emerging reliances on the technology side.

So, you see that with some of the actions with the FCC just announcing, for example, that they’re going to basically ban new types of robots coming from China. But there’s nothing equivalent on the lower value added intermediate goods side of things. I think it’s because there’s just too many goods to track. I actually don’t think the U.S. government is that good at tracking these things.

But maybe the more important point is even if they were, they don’t have the policy instruments or enough fiscal firepower to actually address all of them anyway. So, my sort of scary so-what of all of this is that my belief, my observation, is that Chinese industrial policy is quite good at targeting a very wide set of goods, in this case, intermediate goods.

Whereas the Western industrial policy apparatus, which is much less intricate and less developed, is more responsive. And so, the Chinese have this sort of first mover advantage in all cases. So, it might be true that the U.S. prevents reliance on China for, say, electric vehicles because the U.S. doesn’t allow any Chinese electric vehicles to come in.

But do the same thing across, say, pharmaceutical inputs or across industrial chemicals, things that are not really all that valuable but are still part of the supply chain? I doubt it. And so, I actually don’t think that the Western response can front-run Chinese industrial policy, so to speak, which is why I push against the premise of your question. So, you might say that the West might be less worried about things like batteries if you think there’s a big financial cost for China imposing controls on that, which I agree with.

But nonetheless, there are other things they’re going to miss. And I think the Chinese are going to map those things out.

Andrew: I’ve got a couple of thoughts and a bunch of questions. So, one is I think almost the exception that proves the rule of what you just said is that the FCC is now talking about restricting inputs into AI data centers from China, right? And it’s kind of like, oh, we found this one intermediate good, right? First of all, it’s the FCC doing it, a smaller regulatory body, not the Department of Commerce would do larger-scale export controls.

And secondly, it’s only there because it is part of the AI buildup, right? It is the sexy thing that everybody’s focused on. And data centers in particular are a huge, you know, they’re becoming a political issue. They’re part of the infrastructure buildup, all that stuff. So, I think the fact that the FCC is like looking ahead at this one intermediate good really backs up your point because it’s so rare that they would do that. I guess on the back of your statements just now, I wanted to bring in Dinny to see, I mean, again, you’ve done a lot of work on this intermediate goods stuff… Well, I’ll bring Dinny in and then have Gerard respond.

How much of this, if you can put a proportion on it, China’s investment in intermediate goods is for the express purposes of future weaponization versus this is just a strategy to grow our exports versus we just want to ensconce ourselves in supply chains, not for weaponization’s sake, but for our own economic security’s sake? What do you think about that, Dinny?

Dinny: It started off as the latter. So, I mean, Xi Jinping first started talking about this, I think, back in, probably going to get it slightly wrong, but I think it was about 2019, the idea of, you know, we need to do, that Intermediate goods is something that we have vested interest in investing more in and expanding our capacity. And the idea was that China would become so embedded in global supply chains that it’d be incredibly difficult to decouple. It’d be very difficult to extract China from them.

And so, it was a defensive measure. It kind of speaks to what Gerard was talking about before. It’s like, you know, it’s a smaller target. It doesn’t attract the same attention as sort of a consumer brand or anything that, you know, it’s sort of an end product. And so, it was a way to protect China’s export machine by embedding it more deeply in global supply chains and make it more difficult to extract China from it.

And so, in a world of decoupling and de-risking, it was a degree of protection that China could lean into. And I think, over time, it’s probably evolved because as China becomes more embedded in those supply chains and the rest of the world becomes more dependent on China for procurement, it gives China unprecedented power to sort of withhold supply. And so, yeah, I don’t think it started off as a weapon, but the success of the policy has certainly created weaponization opportunities.

Andrew: Gerard, what do you think? Well, let me restate the question. If we break it down, weaponization versus just growing exports versus economic and industrial or supply chain security, where do you put the emphasis? And then I guess the follow-up question is, does it matter? Am I splitting hairs? It’s all everything all the time, just because this helps China out economically?

Gerard: So, I agree with Dinny that you can see clearly in the planning, going back to maybe probably around 2019, that the fixation on supply chain security that was embedded in the 14-5-year plan, I think that was born out of a sense of insecurity based on U.S. actions, particularly what happened with Huawei and ZTE, and then also the trade war, right? So, I actually think it does come primarily from a position of insecurity. But that’s evolving over time as we’re getting more confidence.

And I think you’ve seen over the last roughly year or two, much more confident Beijing in how they’ve been using the export controls and how they’ve handled the United States for various reasons. So, it could be that, yes, most of this is “defensive” in origin, but then it has offensive implications. In terms of growing exports, it’s obvious that they care about manufacturing as a source of growth and they generally care about exports.

But a lot of these things that are going to be choke points, those that are actually the best types of choke points, are precisely those things that actually aren’t worth all that much. So, from an overall developmental perspective, they don’t actually do much for China. What they do is buy China resiliency against coercion against them. But then once you do that, with sort of the same mechanisms, you have your own indigenous supply, and then it gets big enough, it starts to be 50% or more of global supply, you then created a weapon, right? So, it’s sort of like a distinction without a difference.

Andrew: What do you, Gerard, and then I’ll bring Dinny and Cory on this as well, make of this argument that we touched on a little bit with the whole processing versus upstream inputs piece? That China sort of shot the starting gun on companies diversifying away from China, and therefore, the export controls actually backfired, they overreached. What do you make of that in terms of, A, the current situation, but more importantly, what we’re talking about going forward? Like, if we say China overreached, as having seen that in the instance of rare earths, will that create any policy impetus or a policy roadmap to avoid more dependencies in the future at all, in your view?

Gerard: So, the response function that Beijing has to watch for is not so much what companies do, it’s what governments do to facilitate diversification for companies. And that’s because for things like rare earths, if there is no state support, if there is no industrial policy, there’s pretty clearly a limit on what companies are going to be able to do on their own, because it just doesn’t make any sense for any one of them at least to pay for it. So, basically, I think they do have to be careful to not provoke a massive industrial policy response against them.

However, because there’s only so much industrial policy capacity in the West, and they’re quite focused on critical minerals at the moment, I think the risk of overreach there is currently pretty low. If you ask the question in the other direction, I think the U.S. export controls on China, or at least the early entity listing, and then later export controls, particularly what happened after 2022 with chips, that clearly has triggered a massive industrial policy response. And so, insofar as you’re seeing this as sort of an industrial policy race on both sides, it’s advantaged China for basically institutional reasons. And I think they are playing that to their advantage.

Andrew: Cory, I see vigorous thing that in your head. What are your thoughts?

Cory: Yep, absolutely that. And tying it to the biggest points on intermediate goods and kind of the limitations of Western industrial policy more broadly, I think one exactly, companies cannot replicate these production chains. I had conversations before this even blew up about companies who considered it, said it’s not worth it, spoke with the same companies after gallium, germanium, tungsten, all these, and finally rare earth controls, and they said, “Yeah, still can’t do it, still not worth it.” And these are some of the biggest companies in the world. They need the support. It just doesn’t make economic sense otherwise.

And, as that conversation happens, you know, we start thinking ahead companies, like, how do we not get in this position again? How do we de-risk and diversify our supply chains before the next action, which is why everyone’s asking, “What’s next?” Because they want to get ahead of it. But the calculus doesn’t change. They’re even less able to get around some of these other things than they are where it’s in many cases from the financial perspective, right?

And to tie in Gerard’s point from earlier, this gets even more difficult the further down you go into intermediate goods. There are too many of them, right? And I think exactly right. I see the same thing where the U.S. is able to focus industrial policy attention on maybe a couple of things. We see it on rare earths for sure. We’ve seen a couple of other things, but pretty modest, honestly, overall. And you frankly don’t see any industrial policy, meaningful industrial policy actions, even where there’s attention when it comes to certain critical minerals that definitely need diversification today or already controlled, but they just aren’t Earth since they don’t get a type of attention.

So, I think when it comes to has Beijing overreach, is Beijing going to face a slew of industrial policies that erode future leverage? The U.S. is struggling to erode the leverage it already has in rare earths, and it’s going to be harder to erode the future types of leverage on intermediate goods. The U.S. is going to be even less able to do that for the future goods than is for the current. So yeah, that’s my take here.

Gerard: Can I make a political point? I know this show is about China, but we’re talking about U.S. and China, so I’ll make a point about the U.S. We keep saying, or I keep saying, that and the U.S. is not as responsive, not as sweeping with industrial policy compared to China, which is true. And there are many reasons for that. But I think one important thing to focus on now is that the U.S. institutionally and legally has a bias towards mechanisms that give executive-level discretion, particularly when it comes to banning things.

That’s things like export controls or ICTS rule or things like what the FCC just did. It does not have the same level of discretion on the fiscal side, which is to say it doesn’t have the means of greatly empowering industrial policy in the way the Chinese system does. So, to take an example of critical minerals, and Cory, correct me if I’m wrong on this, apart for some small sort of top-up measures that were part of NDAAs or the One Big Beautiful Bill, there is no sort of sweeping congressional legislation that has been passed on critical minerals.

It’s mostly running through executive discretion, largely through the Department of War and the Department of energy, but there’s no comprehensive plan. There’s not a lot of actual money behind it, even though fiscally speaking, the U.S. could afford it. And I think it’s really revealed preference. And so, there’s a lot of talk in this town, there has been really for the past eight years or so about industrial policy for various reasons, including climate change. But my point is revealed preference is pretty important.

And the U.S. is actually just not all that disposed to do industrial policy that has any real fiscal outlays, except for rare exceptions like the IRA or CHIPS. And that’s basically the only ones I could think of, except for a few things on the defense side. And so even if we identify these goods, unless there’s going to be some mechanism to actually fund the response to them, it’s not just a question of, oh, do we have enough expertise or do we not know what those goods are?

Is there’s a literally fiscal authority to make it work. The U.S. does not have the equivalent of the Chinese state-owned financial sector to direct credit or government guidance funds at scale. And so, there is sort of an instrument in a political economy disadvantage here.

Cory: Absolutely. And I’d add to that, they’ve revealed preference. Obviously, there’s party line, there’s other ideology, this administration, etc. But when it comes to supply versus demand side, there’s a lot of focus on let’s keep feedstock here so we can get recycling all of black mass and all these other materials. What would be more productive, I would argue, for developing a battery industry would be to help support demand for batteries, which would be an EV policy, which was under the IRA, right?

So, there’s obviously a lot of complexity to what happened with IRA rollbacks and everything. But I’d argue that there’s a problem. It’s a supply problem. We can fix it with this targeted thing. And even within that, it’s very restricted, as you said. And I’d argue that’s another aspect of the reveal preference.

Andrew: Yeah. And Dinny, why don’t you talk a little bit? You just made a great point on the demand side, Cory, on the back of Gerard’s comments, which is, you know, not only is the U.S. policy not good at incentivizing, it’s really bad at creating demand for goods, which is what Chinese industrial policy is particularly good at. Dinny, wouldn’t you say?

Dinny: Yeah, look, I wanted to go back to this question about overreach, actually, because I think what Gerard and Cory were saying is spot on when it comes to specific issues, instances of lawfare. I mean, so far, we probably haven’t seen China overreach. And as Gerard said, I mean, what the U.S. did in terms of the CHIPS Act and whatnot sort of ended up in a massive industrial response in China.

But I think if we’re talking about Chinese overreach, I don’t think it’s with specific industries or specific instances of lawfare or protections or whatever. I think perhaps what we’re looking at is a more macro level, and it’s kind of what we were talking about a couple of weeks ago, or was it even just last week, Andrew, with the Ministry of Commerce’s essay about how China isn’t dealing with overcapacity and a kind of defense of its trade surplus and whatnot.

And I think if we’re looking at overreach or we’re looking for instances of overreach, that might be where to find it. I mean, China in its full-throated defense of its trade surplus saying, “Yeah, sure, we use subsidies, but so do you. We adhere to WTO rules. We are the defenders of the free trade regime.” But then you look at sort of Europe, for example, you know, and other parts of the world, you know, developed world where increasingly, if you’re kind of looking at the free trade regimes that currently stands, European nations in particular must be looking at and going, “This isn’t what we originally signed up for,” right?

Because free trade, more or less, was supposed to be a win-win situation, not a Chinese win-win, but a win-win for everybody, right? Where you sign up and you bring down your tariff barriers and your protectionist barriers, and sure, some of your industries are going to suffer, but you’re going to come out the front because that’s why everybody got involved in it.

And for a lot of countries in the world at the moment, there isn’t any clear benefit from the free trade regime as it currently stands because of just the sheer overwhelming power of China’s export machine. So, I think for me, the space to watch is more that kind of macro level of overreach. China says it’s sort of the defender of free trade and clearly sort of supports the current trade regime because it gets so much out of it.

But is it potentially undermining the sustainability of that system because more and more countries are going to find that they’re actually not benefiting in a way that they intended, that they thought they would from this regime and wake up one morning and go, you know, we want out because we’re not getting anything from it?

And I think the EU will be the proverbial canary in the coal mine because of China 2.0. Now, of course, you know, China shot 2.0 with the Europeans, it’s probably a slow moving response or a reaction given the sort of the way the EU works. But I think, to the extent we’re talking overreach, that’s the place to watch rather than sort of China’s management of individual industries or products.

Andrew: Yeah, and Gerard, I know you’ll have thoughts on this, so I want to let you cook on it for a minute. But I guess the way I bring it together in my mind is we talk about the overreach on weaponization of export controls and Dinny making the case that China’s overreaching in terms of, you know, its overall current account and trade surplus. We’re kind of getting to a situation which you can understand why other countries are frustrated with is China’s basically saying, “You have to buy all of our stuff, except you can’t buy certain stuff.”

And really kind of weaponizing the surplus in a way, saying we’re going to deluge your economies with all of these goods, except for really high value stuff or really stuff that goes into military applications. And that you can’t buy from us, and we’re dominant in it. I mean, that’s not a tenable situation at all. Gerard, what’s your thought on all of it?

Gerard: There’s maybe a dark irony that for years, Western companies saw China as being the market of the future. So, there was sort of a demand side narrative, but it turns out that China’s power is on a producer side. If only someone had been paying attention to Marxism, maybe that would be a little more predictable. That’s clearly where the policy has been driving at, right? And so, they are weaponizing it to some extent.

I would say to Dinny’s comment, maybe there’s different layers of overreach. So, I think Beijing more routinely commits types of diplomatic overreach. I think having a paper that says, “Basically, we deny all charges when it comes to industrial overcapacity, it doesn’t exist, blah, blah, blah.” Or telling the IMF, “No, our undervalued exchange rate has no bearing because prices basically don’t matter and our subsidies are actually in no way boosting our competitiveness, which raises the question, why do you have subsidies at all? But okay.”

I think that stuff enables the environment that is happening now in Brussels, where there’s serious discussion of finally doing something. However, it doesn’t operate on the layer of triggering a specific response function to get those countries to do something, particularly on the supply chain side, to target those goods. So, I think China has a pretty good read on other countries’ political economies in terms of their ability to actually respond meaningfully.

They don’t seem to be all that concerned of whether they’ve made the Europeans that upset. It’s more of, are they going to do something that is actually going to cause problems? And there, the threshold is much higher. So it might be true that China has committed diplomatic overreach in various instances. I just don’t think they’ve caused the same sort of specific policy overreach that’s triggered a response function that is that much of a problem for them.

Andrew: Wholeheartedly agree. My pet peeve is when prognosticators describe some action China has taken or position China has taken and describe it as untenable because it’s awkward, as if China is a person and they can’t stand awkwardness. And so, at some point, they’ll have to relent because the situation is just too awkward. We can’t deal with the awkwardness.

But actually, China have to have these dynamics be quite uncomfortable, even I would say awkward for other countries, and it might even prefer that because that’s the kind of situation where it’s uncomfortable, but it’s not so extreme that a country or a block of countries is actually going to push back. And that’s sort of the sweet spot for China in terms of exactly what you’re saying, sort of ruffling feathers, but not to the point where it actually spurs action a lot of times.

Well, Cory, you’ve got something. I do want to get to some of the specific, like what we think the upcoming choke points will be. And I want to give us a little bit of time for that because I know Gerard pointed out a lot of these in his paper, and I know Cory’s in a lot of work. But Cory, jump in on your thoughts here.

Cory: No, I agree. I think trying to hit that sweet spot seems to be the objective in many domains, politically and technically on the controls of export technology, as well as on the material goods. And I think you saw this, for example, I think the most robust overreach focused conversations I’ve had were early on after the rare earth export controls, when it became, again, this is reading between the lines, but I say it with fair confidence that Beijing did not intend to cause quite as much fear and anxiety in Europe with the rare earth export controls as they actually they did.

And they had to then have those conversations around, do we whitelist, do we green channel, etc. And eventually they got to the point where like, okay, yeah, Europe is angry, but not in a position to do that much more about it. And then rare earth, enough things got through that. It kind of held at this exact, that awkward, but not like Europe is going to do anything major over this. And I think that’s an example where when we talk about leverage, we talk about the dimensionality of leverage. That’s why it’s so important that China has the ability to make certain efforts more intense or less intense.

So, whether they move from a restriction to a prohibition, allow more exports or less exports, I think that, in large part, is the way that it’s able to calibrate and try to hit that sweet spot without going too far. And sometimes it does go a bit too far and then it dials it back a little bit. And actually, I agree on the diplomatic. I mean, the last several trips to Beijing this year, back and forth, was shocking to me how the level of technical depth of so many officials, and some of the, what I felt personally were ham-fisted diplomatic analyses of like, no, do you understand how big a deal certain things are diplomatically?

And so, while there’s a much greater, I feel, and again, this is not a definitive statement, the sample size is modest, but it does strike me that the average bureaucrat has a much deeper understanding of supply chain issues, industrial security, and all this stuff than you have, say, for example, in the U.S., where the U.S. has much less experience with industrial policy. But the diplomatic capabilities are not comparable in my view, at least in terms of what they were, certainly what they’re messaging, how they’re handling that.

I think, for example, the degree of concern around the cutoff of Japan, which Beijing, others have said this before, but Beijing seems to view the cutoff of rare earth exports and other critical matter exports to Japan as a bilateral issue. The entire world is now getting really, I’ll be polite with it, in a hard state, in a hard position, because Japan is not able to process things or to produce things that everyone else depends on.

So, this bilateral thing for China and Japan is not bilateral at all to the rest of the world, including Japan, including the U.S., including the EU. And that’s the case where I think if Beijing were listening or were acting more on the diplomatic side, diplomats have been saying this. This is not a surprise. This is something that diplomatic efforts have been trying to signal a message, but Beijing is not taking that seriously. And so, that’s where I think we could get into issues where it’s got a lot of tools to hit the sweet spot, technically, but maybe diplomatically it’s missing where the sweet spot really lives. I’m not sure, but that’s where I’d see it this day.

Andrew: Yeah, nuance certainly is not always the Chinese Communist Party’s forte. Great discussion so far. I do want to, as I mentioned a couple of times, drill down a little bit. We’ve talked about really the motivations, the current weaponization centered around critical minerals and rare earths. We’ve dug into the intermediates good piece at kind of the, call it 10,000 foot level. Let’s go a little bit closer to 5,000 foot level.

Gerard, you did a lot of work looking at what’s coming next. So critical minerals are really the tip of the iceberg. And you looked at, for example, Chinese dominance in battery active materials, super hard materials, power electronics, grid inverters, chemical intermediaries like fluorine chemicals, you mentioned pharmaceutical starting materials. What’s on your list for kind of, even just if it’s one or two things, that really are at the top of your list for where Beijing might zero in in the future that, you know, companies should be looking for, policymakers should be looking for? Where do you start with that?

Gerard: So, I would separate the question between what are goods that China might impose export controls on narrowly for sort of defensive reasons where it doesn’t want to allow its technology to go offshore for, you know, offshoring capabilities, right? But those are not meant necessarily to be retaliatory or necessarily to impose pain. That’s one set. The set we were looking at is one of the things that could replace critical minerals as a coercive tool for leverage. And there, it’s those five buckets you just mentioned.

So, it’s things related to batteries, super hard materials, power-related things, chemical things, and pharmaceutical things, right? I don’t know which one China is going to use. It thus far has not really had to use any others and won’t need to for at least several years. My guess is, of those groups, chemicals are going to be kind of an obvious one or certain materials because they are so upstream for reasons we already discussed, going after pharmaceutical APIs, while technically possible, is politically suboptimal.

And batteries are things where there is a real economic cost. Although you could imagine if China maintains its dominance of the technology, particularly with, say, Europe and the global south, not so much with the U.S. because it has more protective measures. Those could be weaponized. But I actually, I don’t know if they have a list of like what’s ready to go next.

I mean, they probably do for specific countries, but, by and large, I think the sort of magazine has some depth left in it on the critical mineral side.

Andrew: Yeah, maybe they’re like a coach in a football game that has, you know, he’s got a list of five to ten fourth-down plays that he can pull from, but he doesn’t know which one he’s going to pull until the actual situation arrives. As you can tell, I love sports metaphors, and they’re always very good, as is this one.

Gerard: Everyone understands American football. It’s a great reference.

Andrew: Cory, what are your thoughts on what’s next and how Gerard’s thinking about it?

Cory: My thought is that then you should introduce the cricket and rugby metaphors and watch them go everyone’s head. I think that’ll be the next best stuff here. No, in terms of predicting, I completely agree with all that. And I think chemicals in particular, I mean, it’s such a broad space. And so, I mean, more than saying, “Hey, we’re going after gallium nitride, I think one of the most approximate risks is probably riders where you start expanding existing controls a little bit further down the production chain, right?

It wouldn’t be hard to extend some of the existing controls to some of the, like, two production steps down from that. So, that’s one proximate thing, right? So, that’s one set of materials that we already track because they’re already impacted, but they could be much more impacted.

Andrew: Can you give a concrete example of one of those? I hate to put you on the spot, but just...

Cory: No, not at all, not at all. Yeah, so you have super hard materials, right, for example. That mostly is looking at tungsten carbide, and you’re looking at carbon-boron nitride, and then you have diamond windows which are using semiconductors. You also have things like types of silicon carbide that most of their applications are not actually controlled like just very specific ones. You could expand that, and that would be important in photonics and all these other applications. You have a lot of the gallium substrates, but you don’t have all of them, right?

So, you notice I’m focused on semiconductor. Guess what? We’ve been thinking about that a lot lately. Well, now on the flip side, you also have the potential, and Gerard, I’m not going to plant my flag on this piece, but when it comes to some mineral categories, there are certain types of control, I think, would be very difficult, very risky. So, lithium, for example, it’s kind of the canonical, why didn’t China do lithium? And it’s like China produces most of the world’s lithium and the cathodes and the batteries, and what they don’t control is the actual upstream supply of Spodumene, which come from mostly Latin America, specifically lithium triangle specifically Chile, and then Australia, U.S. treaty ally on the other side is where China’s getting most of its lithium.

So, you see them, this thing I mentioned before, increased domestic development of lithium, which is kind of a terrible source. It’s a lepidolite, which is not commercially attractive, and China’s investing in it just to have it. But I think that’s an example where Beijing’s going to be very careful about a blanket ban on lithium exports because they’re so upstream and upstream dependent. But there’s some really interesting intermediates, CAM, the cathode active materials, and pCAM which is the precursor cathode active material that stuff I feel like you could mess with that market if you wanted to, maybe more subtle than an export restriction.

China has a lot of control over those markets, right? So, the main thing that I would flag is that the whole response playbook has become much more diversified, obviously, in terms of tools available. It’s also become more creative within those tools. I think we’ve seen much more creativity within the application. And so, that’s why I’m thinking more broadly about rather than just it’s magnesium, it’s titanium, right? Yes. But what else?

I would just flag that there’s more space, that the possibility space is broadening. And that’s what makes it so difficult. And that’s why we go through, not just at a high level, but we literally do this mapping on a component and input basis because there’s so much stuff that parts. There’s a lot of possibility space there.

Andrew: Well, thanks for these kind of more detailed looks at what may be coming. We’re at over an hour already. And I want to make sure that I respect everybody’s time, especially our guest, Gerard. But I want to sort of give you a last word here, Gerard. We’ve kind of been thinking about what’s coming down the pike. And one other interesting argument you made in your paper, I thought, was that the threshold for usage of these various economic coercion measures is falling. And then you specifically pointed to the 1260H list, which is a Defense Department list that the Defense Department expanded and China responded to.

Talk to us about your thinking about sort of that lowering threshold and what you think that means going forward in terms of how China approaches these issues.

Gerard: Over the past year or two, China has been responding in a tit-for-tat way to pretty much everything the U.S. or the Europeans, to some extent the Japanese are doing, there’s more to a political side to that, with measures that it’s designed to be somewhat parallel. So it used to be, say, 10 years ago, China did retaliate in certain cases, but it was typically through import restrictions. So, messing with Australian wine exports to China, for example. They now have a parallel legal architecture, and the threshold for using it is basically if the West does anything it thinks crosses the line, it has a parallel response.

This has happened even in the past few weeks, with the U.S. adding Entities for the Uyghur Forced Labor Protection Act, and then China having a parallel act. They’re not necessarily doing it to pose massive cost. What they’re trying to do is signal for everything you do, we have a response. And that response is becoming more powerful. And if you take the intermediate goods argument seriously, as I think you should, over the medium term, it becomes more forceful and more responsive to those actions, which means that the big sort of geopolitical so-one of all of this is that China is trying to teach the West and has, I think, to some extent, taught President Trump, that they don’t have unilateral freedom of action when it comes to imposing offensive measures on China.

And it has real bearing on policy debates even now. So, I think there’s an actual debate in the administration of what to do about the Chinese open-weight models, particularly after Moonshot and K3, I think you guys had a separate episode on this, and people were expecting, and we are expecting some response to that, but it’s not clear what the response is. And part of the reason for that is, there’s maybe some commercial reasons, but it’s also that the U.S. White House is aware if they do something as aggressive as, say, banning Chinese models, then China is going to respond. And we know what they’re going to do.

They’re going to probably do something with rare earths, and then the U.S. will probably have to back down. And so, expect that equilibrium. Think of it as like an arms race where now both sides have demonstrated weapons. Both sides have shown they can shoot as weapons. And now it’s new equilibrium. Now, maybe the positive spin on this is like an arms race. If both sides know the other is armed, then it actually could be stabilizing somewhat perversely, right? It’s a little bit of mutually assured destruction.

But both sides can misread each other. I think the U.S. certainly misread China’s response to the 50% BIS rule last September, and they were not expecting China to respond so forcefully with its own rare earth export patrols, which were later shelved as part of the Busan truce. So, I think both sides are sort of learning, and they’re trying to teach the U.S. and Europe, basically, like, “Don’t mess with us, we’re going to punch back.”

And if that is accepted, or to the extent that it is accepted, it just means that policy in the West going forward has to be more careful and probably has to rely less on things like export controls and maybe to some extent tariffs than it has so far. And that means what’s left is more domestic industrial policy, which is still more or less in play for the West. But for reasons I already expressed, that’s not the comparative advantage of the West. So, that is it’s overall tilting the field towards China’s advantages.

Andrew: Yeah, great points. I think we should leave it there.

I’ll just, you know, speaker’s or host’s prerogative, make one final point, which is I would love it if the U.S. moved in that direction without getting too much on the soapbox. I think we should compete with China, right? You know, instead of complaining about China cheating and trying to hold them back and all this stuff. Yeah, we need a multifaceted toolkit, of course. But China’s on the playing field and they’re competing, and they’re trying to assert their interests.

Let’s assert ours by trying to invest at home, make sure that our companies are world-leading, that we’ve got the supplies we need. I don’t know if you call that more offensive or defensive in this context, but just kind of investing in our own capabilities, I think, is a longer-term and more sort of productive and proactive approach.

Hopefully, that’s a lesson we learned, and we can evolve and maybe become better at kind of that domestic investment that, as you say, we’re kind of currently disadvantaged at. So, that’s my hope. I’ll leave that hopefully for everyone on an optimistic note. But with that, Gerard, thanks so much for the time. Great discussion as always. Great to have you back on, man.

Gerard: Thank you for having me.

Andrew: And Dinny and Cory, thanks as always, fellas. Good to see you.

Cory: Cheers.

Andrew: And of course, thanks to the listeners. We appreciate it. We’ll see you next time. Bye, everybody.

• And this time, officials did something they rarely do – naming exactly which US actions they were responding to and why.

On this episode of the Trivium China Podcast, Andrew Polk sits down with Cory Combs (Head of Supply Chain and Critical Minerals Research) to unpack:

• What exactly landed in MofCom’s four-part policy package — from countersanctions on US biotech and compliance firms to China’s first ever foreign-trade national security investigation

• Why this round of retaliation was aimed squarely at the FCC and DHS, and how it traces back to actions on robotics, drones, and forced-labor sanctions

• Whether Beijing’s unusually direct language about the Busan detente is a warning shot or a sign the deal is really at risk

• Why neither side seems ready to blow up the agreement just yet, even as both keep testing its edges

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 today we’re doing another quick reaction episode. I’m going to be talking with Trivium’s Head of Supply Chain and Critical Minerals Research, Cory Combs, about the latest economic coercion measures or retaliation measures, as they would see it, taken by China. But first, you know, Cory, how are you doing today, man?

Cory Combs: Doing very well. Thank you. Yeah. Happy to get into this.

Andrew: Yeah. Good to have you back. So, I already teased it — China dropped a large batch of retaliatory economic restrictions on August 5th. These were kind of against a range of U.S. actors and entities. The measures included some formal counter-sanctions and a spate of other things that we’re going to walk through. We’re going to talk about exactly what was done, what actions were taken by the Ministry of Commerce, which was the one officially putting these measures forth, the context that provoked these actions, and then talk about what it all means both for the short-term in U.S.-China relations and more broadly for that economic relationship. So, let’s get into it.

All right, Cory, like I said, August 5th. So, we’re recording this on August 10th in the afternoon, East Coast time, 5.45 p.m. It’s been a few days, but I was on vacation last week. So, I wanted to get you on the horn as quickly as I could once we were back to work. But why don’t you just start by walking us through what actually landed here? What actions did MOFCOM announce?

Cory: Yeah. So, on August 5th, we have two sets of documents. We have two orders and two announcements. And the orders are these kind of overarching orders signed by the minister. And the announcements are largely implementation of policy. So, I’ll kind of walk through all four documents in order. Order No. 2 has six counter sanctions. Specifically, these appear to be direct responses to the UFLPA, or Uyghur Forced Labor Prevention Act sanctions from the U.S. side.

And so, they’re applied to six different entities, including Applied Sciences DNA, Stratum Reservoir, Altana, folks in bio might recognize some of these names, as well as some compliance and human rights groups. So, we have Responsible Business Alliance, Verite Group, which is a labor practices group, among other things, and then Human Rights in China, HRiC. So, the order sanctions their business activities within China. So, they’re basically, they’re not on the ground anymore. It’s a sudden abrupt change, direct countermeasure against UFLPA.

We have Order No. 3, which is a countermeasure under the Anti-Foreign Sanctions Law. So this is, again, quite literally, a counter-sanction against the FCC measures in the U.S. Specifically, these are applied to U.S. Compliance Testing LLC. Beijing has accused this company, and let’s just be very clear, I’ve seen a couple places, it’s like someone has mistranslated this is applied to U.S. compliance testing companies. It is the name of an actual company, an actual LLC, Compliance Testing, right? Beijing has accused them of assisting in the FCC’s investigation and ultimate actions that in China’s, this is translated verbatim, ‘actions that harm China’s sovereignty, security, and development interests,’ right?

And so, these compliance efforts are deemed anti-China, right? So, the broad question here is, first, you have all the Chinese entities are now prohibited from engaging with that LLC in any business activity. That obviously means they can’t do much on compliance work of Chinese companies or anyone working with Chinese companies. So, one of the questions immediately is, is this going to be a broader issue with compliance? So, we’ll get to that. So, those are the orders. The announcements: the first is Announcement 33 of 2026. These are numbered annually.

And this starts a national security investigation into foreign trade regarding, and this is a really interesting one, imported printing, copying, and office equipment. So, this is not exactly what you’d think of, at least for me, as kind of a national security imperative, but it’s under the hood. What’s really targeting is foreign-developed software. And that software is used in imported office equipment. They’re not naming specific entities, but there’s a lot of prime candidates here. I mean, in the U.S., you have things like HP, you have Lexmark under Ninestar, you have Xerox.

In Japan, you’d have entities like Canon, Ricoh, Kyocera, Konica, right? So, just to be clear, it didn’t name those entities. I don’t want everyone to be like, “Okay, this is happening to this company.” But this is a broad national security investigation into foreign trade associated with those foreign office equipment and other products. So, it sounds a little bit niche, but I want to flag, this is China’s first-ever foreign trade national security investigation of this type. So, it’s kind of an odd one, but it’s also the first in this front.

So, very notable. I think it’ll be referenced a lot as we move forward as we’re trying to piece… trying to take out the lessons from this will be tricky. And then finally, you have announcement 34, which strengthens the export control specifically on dual-use items “related to drones,” right? So that’s pretty broad. You might imagine a few things. You have propellers, you have the batteries, you have all that stuff. Every affected export to the U.S., specifically, will undergo strict review.

And it also makes very clear there’ll be no fast-tracking or simplified approvals. Basically, we’re looking at a very high-friction process.

Andrew: Okay, great. Thanks for laying out the details. I want to get into the implications of each of those, but maybe before we do that, we start with the trigger. Why did this happen now? Why did China take these actions? Walk us through the thinking there. I mean, this isn’t conjecture. They were pretty forthright about this, right?

Cory: Yeah, MOFCOM’s spokesperson, they had a press conference and they were very clear that these are all responses to, again, China’s language, ‘negative China-related measures,’ and particularly the FCC and DHS. So I’ll talk about those two in particular. But the concerns here from China’s part, from Beijing’s part, date back to a number of things, a number of actions on drones, optical cables, and others. So, the FCC regulations in particular, it’s the July 28 ban on imports of Chinese humanoid robots, quadruped robots, power inverters, etc. Basically, the FCC has build this as a way to protect the U.S. AI industry, including not just power inverters is really talking about batteries and energy supply for data centers, but then you have the embodied AI, the humanoid robots and all that stuff.

So, the FCC is explicitly targeting this to “protect” the U.S. from Chinese capabilities there. This is also, by the way, there are reports that the administration is drafting a much broader ban on Chinese data center components and various other things. Of course, this is very problematic for China from its view, because those are very high-value exports in things it’s very good at and trying to develop. So again, very much in China’s economic model is increasing exports of these high-value things. Then you have July 31st, you have the Department of Homeland Security announced an expansion of the UFLPA entity list.

And again, that’s the Uyghur Forced Labor Prevention Act entity list. And so, these are companies that the U.S. alleges are involved in human rights abuses in Xinjiang, basically. It added 43 companies, and they span a whole bunch of different areas, a lot of them in minerals. I mean, we have steel, copper, lithium, caustic soda, and some other stuff. Also, notably, there are several biopharma and biochemicals companies as well. So, bio is in the list for the first time ever, but it is a notable issue.

Anytime you’re targeting Chinese bio right now, it’s very sensitive because that is one of the future industries that Beijing is really looking to develop. Those are the two main sets of actions that I think triggered all of this.

Andrew: Yeah. And we’ll get into this a little bit more in a minute in terms of how this may impact the Busan Agreement that occurred in November of last year and is expected to be renewed in the upcoming, you know, talks between the U.S. and China with Xi Jinping coming to Washington, D.C. in September, of course, next month. I will just say, I think from the U.S. side, I had heard that various parts of the U.S. government were looking for ways to continue pressing China that was “outside the eye of Sauron,” by which they mean, frankly, the White House.

The White House has been, I mean, this public reporting, very, or has taking a strong interest in tamping down any actions towards China in order to maintain stability, to maintain the Busan Agreement, to have a productive and well-received trip to the U.S. by Xi Jinping. And I think the thinking was basically the FCC’s a little bit more ancillary. It’s not a big legislative move. It’s not a tariff. It’s not an export control. So maybe we can get away with this, right? Both get away with this by effectively end-running the White House’s desire or, you know, command for more stability. And sort of same on DHS, right?

This is kind of like, it’s not a new action per se. The legislation’s already been put in force, and they’re just adding a few more names to the list. So these are not kind of what we-

Cory: Which happens regularly.

Andrew: Yeah. It’s kind of like, these aren’t the big lead moves. They’re the AAA moves, if you will. And that’s, I think, what the people who were kind of in charge of these were thinking, right?

Cory: Were thinking, yeah.

Andrew: There are ways we can continue to press China without kind of disrupting the core of what was agreed to in Busan and the core of the ongoing negotiations. China saw it differently, which we’ll get into in a minute. So, you know, people thought they were being nuanced, maybe, or I don’t know, being, I don’t know what the right word is, that they were able to get around kind of the White House desire. And I think some of them may have thought, you know, also China wouldn’t respond.

Or maybe there are elements out there that want China to respond because they don’t like the stability, but that’s conjecture.

Cory: But one can imagine that there’s this view that you can be tough without being provocative. And maybe that’s, you know.

Andrew: Yeah. Good point. Good point. You can imagine that.

Cory: I’m not sure I’d buy that, but one could imagine.

Andrew: I’m with you. Yes. Okay. But we’ll get more into that in a second. Before we do that, talk to us about the real ramifications of this. So, there’s MOFCOM Order No.2, which sanctioned the six entities you talked about. Then there’s the counter-sanctions order, which was in response to the FCC enforcement. Then there’s the Announcement 33, which is the national security investigation on foreign software or in the printing industry. And then there’s the tightened export controls on drugs. So, those are the four things. Start with thus No. 1, MOFCOM Order No.2 on those six entities. What are the real-world implications here?

Cory: Yeah, I think a couple of the main ones for a lot of MNCs is just that, I mean, some of these entities are essential to getting facts on the ground for their compliance efforts. And so, I mean, at risk of stating the very obvious, a lot of the entities or several of the entities in question were involved in UFLPA compliance. And so, if they’re not on the ground, they probably can’t be involved in compliance.

And so, all these American companies and anyone else operating in the U.S. who has to comply, they to figure out, if they’re working with some of these entities, what their backup plan is. So, that’s a very concrete, and it is distinct from the type of counter-sanction out of the Anti-Foreign Sanctions Law, but effectively, it is a means to undercut the ability of foreign companies to comply with American law. I mean, that’s effectively what this does. And obviously, it makes things a little harder for the bio side on those companies that are affected on that side as well.

Andrew: Okay. What about Order No.2, the compliance testing LLC piece?

Cory: You know, still working through this one, but I mean, long and short is that I think the medium-term risk here is that compliance itself becomes a battleground. That is not good for anyone because compliance, by necessity, when it comes to this type of trade, you need… the whole point of compliance is to verify what’s happening on one side from the other side. I mean, it’s probably not going to work for most countries outside of China to be like, well, we had a local Chinese body, you know, certified compliance with something that like you copy or whatever else.

So, you need reciprocity, bilateral access when it comes to this type of compliance. And so, if compliance and testing types of companies are getting squeezed by counter sanctions, that’s a dangerous path to go down. And so, the implications aren’t super clear to me yet, honestly. I’m sure someone in an office somewhere is, “This is what it means for me.” And I know there are going to be specifics that we’re still working through, but I’m mostly concerned about that medium term.

And to be very clear, I do not see this as Beijing trying to systematically target compliance or testing or anything like that. This is a specifically targeted thing. But if this becomes a center point of U.S.-China lawfare and economic coercion and counter-sanctions of anything, that becomes rather dangerous very quickly. So, I’d rather we not go down that particular route.

Andrew: Okay. So before we move to the other two pieces, how big, scale of one to 10 in terms of real-world implications are these first two things we’re talking about? I guess another way to say it is, you know, what’s Beijing’s intention here? Is Beijing really trying to hit back with full force? Or is this something that’s marginally disruptive for some companies?

Kind of like not symbolic, but a little bit of a more sort of protest type retaliation to throw some further friction in the works, but not fundamentally make it so that… I mean, Beijing doesn’t want these companies to leave. They’re going to have to do compliance. Is it more of a disruption or how do you see it?

Cory: Yeah, no, I think on one hand, these are intended to demonstrate that China’s very serious. I mean, Beijing did not view this as tough, but not provocative. This was very clearly provocative. These FCC and DHS actions at the same time, exactly as you said, they’re not trying to escalate the situation per se, and they’re not looking to destroy the Busan truce or détente, right? And so that’s a fine line to walk or find a kind of tightrope there.

But I do think that is the intent. Not escalate, but show that we take this very seriously. I think it shows the willingness. In some ways, you could argue it’s increasingly creative. I know creative is probably too positive a term for this kind of action. I’m not trying to, you know, it’s not a good thing. But in terms of it’s not so straightforward as, well, if you do this, we’ll just hit the next rare earth. You know, it’s much more dynamic. It’s much more involved. There’s much more optionality, basically, so I’d put it. And I think that demonstrates that willingness to be serious, but also not escalating.

Andrew: Yeah, I think the challenge with these moves, as we’ve seen in our work, is almost by design, not almost by design, by design- these moves have asymmetric impact. And I don’t just mean asymmetric to U.S. moves. What I mean is they impact you as a company. They impact you pretty significantly, potentially. But if you’re not dealing with one of the compliance testing LLC, maybe it has no impact on you whatsoever. And so, unlike a tariff that kind of impacts all companies in that industry equally, these kinds of moves impact companies disproportionately. And that’s the challenge, I think, for companies.

I think, originally, Beijing was trying to use that as leverage. When I say originally, like months ago in the U.S., China back and forth to try to get the U.S. business community to go to the White House and say, listen, “We as X company are getting absolutely hammered here.” I think Beijing now realized that doesn’t work as a piece of leverage per se to get companies to change the White House’s approach. But the ultimate impact for companies is still quite disproportionate, depending on where you happen to land on that.

Cory: Absolutely. You know, there’s not perfect visibility on Beijing’s side either. You can’t guarantee anything, but I would nearly guarantee that Beijing does not have a perfect mapping of all the companies that rely on… right? And so, all their consumers and clients and everything. So, I think in that kind of environment of uncertainty about like, how serious is this? One counterfactual that is helpful for understanding Beijing’s positioning is if Beijing wants to do more, what could it have done?

And it could have done after everyone who does publicly work with the Responsible Business Alliance. It did not. And I do not anticipate it doing that. So, that’s a good example, I think, of just kind of ordinal ranking of actions it could have taken and kind of contextualizing. But absolutely. And this is not equally deployed. And it is a huge problem for individuals. But at a macro level, we tend to, and I recognize, that as you’re saying, you’re absolutely right, we tend to think of these things in terms of kind of broad macroeconomic impacts.

And a lot of the times they aren’t. These particular moves won’t have that type of impact, but that doesn’t mean they’re not incredibly impactful for individual. Yeah. A hundred percent with you.

Andrew: Yeah. And I mean, I think additionally, like Beijing is probably trying to limit the collateral damage to the extent it can, but kind of probably is like, there’s going to be some collateral damage. If you’re going to make an omelet, we have to break some eggs kind of thing. So, I think, you know, they’re going to probably try to map it out best they can, but they’re not going to do a ton of work to make sure no major company’s impacted. It’s just going to whack some folks, right? And that’s just part of it.

Okay. So quickly, the last two, practical impacts of Announcement 33, which is national security investigation into the software piece, and then Announcement 34, the export controls and drone-related. Both of these strike me as, as you said, the foreign trade national security or investigation is a brand-new mechanism, but both of these strike me as pretty tame. Yeah. Real world impacts. Tell me if I’m wrong.

Andrew: No, I agree. And I think, I think specifically we’ve seen a number of national security investigations and other types, or other types of commercial investigations, pardon me, that tend to get used as leverage, right? This is the kind of thing that Beijing is willing to trade more of. When it comes to a counter-sanction, that’s serious. So, like, okay, as long as the sanctions in place, the counter sanctions in place is the default presumption.

Whereas investigations, obviously with commercial investigations, trade investigations, that is obviously a little bit less… I mean, we don’t really have precedent for this, as noted. So, it’s hard to say with too much confidence, but I do think that, one, the national security investigation is inherently a bit more serious, frankly, than some of the trade investigations. But at the same time, most of these investigations have been opened in response to something, and then once that issue is kind of tamped down or there’s discussion, negotiation, those investigations tend to lead nowhere or be repealed or formally or informally. Assuming things don’t get worse, that’s what this strikes me as. And that could be proven otherwise, but that’s my default.

Andrew: Right. Well, that’s assuming things don’t get worse is an important caveat.

Cory: Right. Always a caveat.

Andrew: Yeah. Well, a couple of things. One is Beijing has shown a clear pattern, putting up countermeasures so that it can roll them back, right? Like putting entities on the Unreliable Entity List so that it can take them off as part of a negotiation, opening investigations so that it can roll them back as part of a negotiation. I think that might be part of it here. But your other question, again, we’ll get to your point that we’ll get to again later on, assuming things don’t get worse. A lot of our clients are saying, “Well, is this the first in a series of moves?” And the answer is totally path dependent.

Does the U.S. ramp things up? Do the FCC take more moves? China is not trying to, in my view, up the ante. Officials feel compelled to respond. But the point is we don’t really know where things go from here. Beijing is highly unlikely to continue ratcheting up without further provocation from the U.S., we can say that, I think.

Cory: Yes, I agree with that.

Andrew: Okay, so let’s talk through some of this stuff. So, you’ve written in some of your work, writing about some of this stuff, just how Beijing’s being more direct. They didn’t hold punches, they were very clear, this is retaliation. Talk to us about how you kind of think about that piece.

Cory: Yeah, I mean, I think there’s a couple ways to look at this. I mean, I think fundamentally, the strategy around messaging has become, the clearer, the better, not in every single instance, right? There’s definitely some obfuscated policymaking. I don’t want to overstate that argument. But when it comes specifically to countermeasures against the U.S., I mean, we used to have, you know, well, no, the export controls aren’t retaliatory. You know, they’re in the interest of national security, and say, okay, given three days after the action that you’re very symbolically nearing, okay, sure.

And now we have the MOFCOM spokesperson saying, since Busan, I’m paraphrasing from my personal translation here, the FCC has ignored strong opposition from China, right? Continuously broadening the concept of national security, and particularly the U.S. has repeatedly ignoring China’s negotiations, yada, yada. And so, we’re doing this, you know, these actions. And direct quote, “I want to emphasize that China’s countermeasures have generally been restrained. China values the hard-won stability of China-U.S. economic and trade relations,” referring to Busan on that list.

So, I mean, there’s no playing coy there. It’s like, “Hey, we’ve worked really hard for stability. You’re only screwing it up.” I mean, you don’t have to agree with it, but that is the messaging, right? And it’s just such a turn. And I think a logical turn. I mean, this is probably, I think I’ve been saying this for a long time. I think we’ve all on the side been saying, if you want to get through to the White House, don’t play coy. Tell them exactly what you’re trying to do and what you’re mad about. And I don’t think subtlety is the name of the game in this context.

And they seem to have gotten a memo. At least MOFCOM has been very straightforward in this case.

Andrew: Yeah. And I think that’s a really important piece to point out. We had been hearing that Beijing was frustrated about these ancillary moves, the moves outside of the eye of Sauron, as we said. And, again, you know, whatever the motivations were, it was pretty clear this was coming to a head, and Beijing felt as though it had to respond. So, let’s talk a little bit then about how you think this impacts the Busan détente. I mean, how seriously should we take Beijing’s claim that the U.S. is abrogating the Busan agreement? And what should we expect moves like this to mean for that agreement, which is, up until last week, kind of expected to be pretty smoothly rolled over for at least six months, if not to the end of Trump’s term?

Cory: Yeah, I think bottom line, there are positions on both the optimistic and pessimistic side of the spectrum that I think would be reasonable here. For me personally, I’ll be very curious to get your view. I take this very seriously. I think Beijing genuinely views, you and I have discussed this before, Beijing views these types of affairs out of the U.S., whether by the White House or not, whether with a direct approval or not, they view this as directly violating the spirits of the stability that the U.S. and China have formed. And they view this as a direct attack on, especially when it comes to like biotech and things like that. These are direct attacks against China’s economy in the perception of Beijing.

And so, the motivation there doesn’t really matter. They have to hit back. And that phrase, the relationship that undercuts the spirit of Hussain. Now that said, I don’t think we’re at the breaking point yet. Personally, I think it’s quite clear to me that Beijing is very broadly committed to, or really wants the stability to be maintained. They want to have an agreement to postpone export controls further by November. They want to move forward with more constructive trade and economic relations. And they’d really like to see the relationship not fray further. And in fact, that it will get better.

And I think in the White House, you see a lot of interest in that direction too. And so structurally, I think the case for optimism is that both sides have structural strategic interests in maintaining the state option. I think that is essential. If we didn’t have that, there wouldn’t be much room for optimism, but I do think that is still there. The question now is, to me, and there’s many other ways of looking at it, but my question is, first and foremost, do we continue forward with FCC and some congressionally directed actions that just fray the relationship too far where Beijing kind of, it’s like, “Look, we’ve had enough. We need to start from scratch. We’re not playing this game anymore.” Do we hit that or not?

And I think that’s largely, but not entirely in the White House’s control as of right now. That could change. Obviously, Trump can be more or less personally involved in things. But I take it very seriously. Beijing is putting up a warning flare. It’s saying, “If this path continues, we will not end up where we want to be.” So, I take it seriously, but not a doomer about it. So anyway, I’m curious of your take here.

Andrew: Yeah, yeah. I think that’s all right. I mean, I would say it’ll be really interesting to see if we start to get some reporting that the White House is putting the FCC on a tighter leash, and maybe DHS as well. DHS has its own political challenges among the leadership with MAGA and all the immigration stuff that’s happening. So, you know, that might be one way to… even another reason to rein in DHS. I don’t know, just speculation.

But I guess the way I think about it is the White House, as far as we understand, has been very clear to Treasury, not that they need to be as clear with Treasury, but to USTR, to the Department of Commerce — hey, we are putting actions against China on pause while we try to negotiate some kind of stability. So, all the entities, the U.S. government entities that were told explicitly, hey, it’s time to pause have paused. But now it’s the ones just outside the circle, right? Who weren’t explicitly told that are now moving.

And so, do those folks get slapped down a little bit and said, “Hey, we didn’t tell you before, but now we’re just making it crystal clear.” So, I wouldn’t be shocked if we saw some kind of messaging or reporting about that kind of messaging from the White House. And then the other thing I was just thinking as you were talking was, you know, for anybody who thinks that China might be trying to blow up the deal, I mean, this just wouldn’t be the path they would take. If they, for some reason, wanted Busan to blow up, they would just reinstitute export controls.

That’s the path of least resistance. They don’t need to create some kind of cover for blowing the deal up. They don’t need to create some reasoning, some rationale. They would just blame the U.S. no matter what and say, “Guess what? You guys are being jerks. We don’t think you’re living up to what we agreed and we’re reinstating export controls.” They wouldn’t be coy about it.

Cory: Yeah. I’d say they already have enough, like, if that were the path they’re going to do, they’d say that what we’ve seen so far is enough to do that. And they’re actively trying to say, again, you don’t have to agree with the statement, but they’re like, China’s measures or countermeasures have been restrained, right? Like they’re trying to, you know… they wouldn’t say that. They would just go for it.

Andrew: Yeah. They’re trying to be as clear as possible. I think that’s right. So, I mean, all that is to say, of course, you have to… with any government readout from China or many places, but China in particular, you got to sort of understand the Party speak and the goals and kind of what the angles are. But I think this one’s pretty straightforward. They’re trying to say…

Cory: Usually, yeah.

Andrew: Yeah, yeah. We don’t want this to blow up, but we feel compelled to respond. And so, this is the response. So, I think we can leave it there. I’ve already taken up more of your time than I expected, so I appreciate that. Just one quick 30 seconds if you’ve got it. The next day after these announcements on August 5th, on August 6th, the cybersecurity regulator announced an investigation, or not an investigation, a review of products sold by Palo Alto Networks, a cybersecurity firm. Do you think that’s related to this or is that separate?

Cory: I think that probably is separate. I mean, this is very similar to the CAC’s cybersecurity review into Micron in 2023, right? It fits a different pattern. It is very confusing when these things overlap, obviously. But I think broadly, Beijing has been expanding its reviews into foreign technology it considers risky to use. And so, there’s a lot of different motivations for that kind of review. And the tech team, I think Kendra will have so much to say about that. That’s beyond me, but I do think that’s kind of separate.

But on the other side, I mean, one thing that you do see as, I think, very specifically interesting about where Beijing retaliated and why Beijing retaliated against these efforts were, one, again, the MOFCOM spokesperson specifically singled out U.S.-restricted measures against China covering telecoms, covering consumer-grade routers. These are pure kind of core tech when we think of tech. And then submarine optical cables, right?

These are more a little bit further afield, but also kind of in that core space. And then AI. The other side of it is biotech. And so, I think there’s going to be a lot more overlap. There are going to be these cybersecurity reviews, these kind of broad technology reviews. For much the same way that FCC is arguing that Chinese technologies pose a risk to the U.S., I mean, a lot of Chinese authorities are looking at this the same way. Like, yeah, U.S. technologies that China’s dependent on have back doors, right?

We’re going to start being a bit more cautious about that and reviewing this stuff more carefully. And so again, Kendra and the tech team have much more to say about that than I will. But on that, you have that piece of it, which is a whole separate dimension of tech review, in addition to these retaliatory kind of actions. And then on biotech, it’s probably up there with embodied AI in terms of… I think embodied AI is certainly the sexiest, if you will, in terms of getting the most attention. But biotech is an industry that Beijing hopes is on the precipice of a massive development spurt, with huge TFP gains and just total value add for the economy.

And if it starts facing tight restrictions that either undermine development of the domestic biotech industry or that prohibit or prevent the export of key technologies or key products really using those technologies, Beijing’s going to hit back very hard against those because they’re such strategic industries. And that’s going to overlap with all the cybersecurity, data protection, all these other governance regimes. They’re going to all be stacking up on each other. And it’s probably going to get difficult to tell some of them apart. And it’s going to be essential that we do because those reviews will all serve different functions. It’s going to be important that we don’t mix the signal there.

Andrew: Yeah, great points. I’m glad that you pointed out that you think that the Palo Alto networks thing is separate. I think that’s an important point. We may or may not have a chance to pick that up with Kendra at some point. But it just also brings up the point that China is still also hitting back in certain ways. Like that Palo Alto thing may have happened even absent this retaliatory back and forth. And so, both sides are trying to test the limits of where they can continue to assert their interests without blowing up the Busan deal.

So, that’s an interesting dynamic. And then the other piece I was just thinking is, I also wonder if, to an extent, maybe taking the action against the FCC on the back of their move against robotics. The reporting is that the FCC is also looking at a ban for certain inputs into data centers. Right?

Cory: Yes, it is. That’s correct.

Andrew: And once you take these actions into the realm of AI, which is one of the key things propping up the Chinese economy and exports of those components into data centers are a real big driver, or one key driver, China’s export performance recently. Maybe China’s trying to head that off. Like, hey, we can see more and more coming out of the FCC. We want to nip this in the bud. I don’t know. Maybe that’s part of it as well.

Cory: No, I think that that stands to reason. And it’s especially because the reporting, the public reporting around this has been so clear that it seems like there’s a much broader interest in not even decoupling, but preemptively making sure that Chinese tech is not throughout the data centers, which on the energy side, at least, is difficult because a lot of what you need is made best and cheapest by China. And so, that is just a difficulty for hyperscalers. And it’s a practical challenge and a security challenge and all this stuff.

And the problem is when we decouple the technical and security reviews, like the legitimate kind of teardowns and then figuring out any backdoor issues, that’s stuff you just do as a matter of course, versus kind of general narrative and geopolitical. There are a lot of things that frankly do not need to be banned, right? But there are things that do, right? We’re in that middle space where your value set kind of dictates. But if everything gets lumped together, that would definitely be viewed as excessive harm to China’s economy and an ideological as opposed to market-driven approach.

And so, that’s where things start to get very complicated. And unfortunately, policy, one, often doesn’t play with that type of nuance in many cases for political reasons. But also, even if it does, it can be very difficult to actually execute in a nuanced way. I understand that. And I know it’s very easy for us analysts to kind of be like, “Well, actually, you really should have a 17-point framework for analyzing every component.” That’s not realistic. We get that. For all the policymakers listening to the naive people, we get that, right? At the same time, separating out things that bear technical risk and need to be handled on a technical basis versus things that we don’t want it because we don’t want it, those are different things.

And so, I think for Beijing, being able to signal which actions are on which side is very geopolitically and practically important in terms of how they might counteract, what measures they might respond with.

Andrew: Yeah. Yeah. All good points. All good points. Well, we’ve already, like I said, gone over a little bit longer than we…

Cory: Sorry.

Andrew: No, no, not you. This is a great discussion. The only other thing to talk about is sort of where all this goes. But I think time will tell and we’ll have plenty of chances to kind of discuss that with the Xi Jinping meeting coming up. I think we’ve already touched on enough to say we still think both sides, despite showing some cracks, have a strategic interest in maintaining the Busan deal, extending the Busan deal. Whether or not someone on either side decides we want to blow this thing up, we don’t seem to be at that point yet.

Cory: 100%.

Cory: So, I think we can say that with confidence. Great. And also, I think the main point here was just to lay out the key details of what happened for listeners. And this was all kind of a complicated mishmash of stuff. So, I appreciate you just laying out the details and making it clear as to what exactly happened and what the likely near-term impacts are. So, thanks for that, Cory. I really appreciate it, man.

Cory: Absolutely. Always a pleasure.

Andrew: Yeah. Well, this has been great. Thanks for your time, Cory, and thanks, everybody, for listening. We’ll see you next time, everybody. Bye.

Transcript (courtesy of the fantastic CadreScripts) further down the page. Image by Keya Zhou. Listen in the embedded player above!

This week on Sinica, I welcome back Evan Osnos of The New Yorker, whose marvelous new essay, “The Future, Made in China,” chronicles a tech-focused return trip to Beijing, where he lived from 2005 to 2013 — first for the Chicago Tribune, then as The New Yorker’s China correspondent. Evan is the author of Age of Ambition: Chasing Fortune, Truth, and Faith in the New China, which won the National Book Award, as well as Wildland: The Making of America’s Fury and The Haves and Have-Yachts.

His essay is far more than another breathless account of China’s advances in robotics and electric vehicles. It’s a meditation on what China’s technological ascent means for the United States, for how both societies are organized, and for the rest of us, whose futures increasingly seem to be wagered by two small circles of powerful men in Beijing and Washington. We talk about the Xiaomi Hyperfactory, “Chinamaxxing,” the export control debate, and the deeper contest Evan identifies: not democracy versus authoritarianism, but humanism versus scientism.

• 3:04 – Walking Beijing’s streets again: quieter, richer, more surveilled

• 11:26 – The Xiaomi Hyperfactory: choreography, awe, and what’s actually real

• 18:10 – Doomed to coexist: Evan’s message for the American reader

• 24:15 – Schrödinger’s China: joke or juggernaut?

• 27:16 – The limits of knowability in an increasingly opaque system

• 31:56 – Threat narratives vs. “Chinamaxxing”: America’s two China conversations

• 43:20 – “Thank Trump”: America’s self-inflicted wounds

• 47:29 – Revisiting the Sullivan doctrine and export controls

• 53:10 – Mankind 2000: humanism, scientism, and rival oligarchies

• 1:02:48 – Convergence: arriving at dystopia from opposite directions

• 1:07:21 – Self-strengthening redux: Levenson and America’s meum-verum gap

• 1:17:53 – The other Sputnik moment: the backlash against tech oligarchy

Paying It Forward

• Yi-Ling Liu, author of The Wall Dancers: Searching for Freedom and Connection on the Chinese Internet — Evan admires how her work grapples with the competition between scientism and humanism across national borders.

• Chang Che, who writes for The New Yorker and The Guardian — watching China’s technological developments up close, “creating history in real time.”

Recommendations

• Evan: How to Rule the World: An Education in Power at Stanford University by Theo Baker — the youngest-ever Polk Award winner on how a rising generation at Silicon Valley’s feeder school perceives its opportunities and obligations. Also True Grit by Charles Portis — splendid, sentence-savoring dialogue.

• Kaiser: Butcher’s Crossing by John Williams, author of Stoner — a Western with the same sentence-level craft; for fans of Melville and Cormac McCarthy.

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 from my home in Beijing. Listeners, please support my work by becoming a paying subscriber at sinicapodcast.com. I know there are a lot of Substacks out there, and they start to add up because there’s so many good ones, but this one really does deliver value for money with great content from wonderful partners like Trivium and the China Global South Project, so please do subscribe so I can continue to bring you these conversations and lots more.

Today on Sinica, I am delighted to welcome back Evan Osnos of The New Yorker. Evan, as many of you know, was in Beijing for a good stretch during that oft-nostalgized golden age in the capital as a correspondent, first for the Chicago Tribune from 2005, and then after 2008, for The New Yorker until he headed back to the States in 2013, I believe. He is the author of The Outstanding Age of Ambition, which won the National Book Award in 2014 and was a Pulitzer Prize finalist the following year. He’s since written a couple of books, Wildland: The Making of America’s Fury, which is just a fantastic one, and The Haves and the Have-Yachts, which I have yet to read, but I’m really looking forward to, in addition, of course, to dozens and dozens of widely read profiles on important American political figures, mostly named Joe, Joe Manchin, Joe Biden.

Earlier this month, Evan published a marvelous essay chronicling a recent tech-focused trip back to China, his old stomping ground, where he spoke with people ranging from grandees of the Chinese tech scene, like Li Kai-fu, to delivery drivers, visited all manner of tech companies, and of course just sort of pounded the pavement and checked out his old digs. The essay is called The Future Made in China, and if you’ve not had a chance to read it yet, do hit pause and take, you know, 40, 45 minutes to do so, and then come back.

Anyway, this was, as I hope you’ll know now, far more than just another breathless account of China’s mind-blowing advances in robotics and electric vehicles and yada, yada, of the sort that we’re so used to seeing these days. It’s actually a meditation, I think, on what China’s technological ascent means for the United States, for the way both societies are organized, and really for the rest of us, whose futures increasingly seem to be wagered by two small circles of powerful men in Beijing and Washington. It’s reported with the eye and written with the grace that made Age of Ambition so indispensable. He joins us from D.C. And Evan, welcome back to Sinica.

Evan Osnos: Thank you very much, Kaiser. It’s always great to be with you.

Kaiser: Evan, you lived in Beijing, I think I have those dates, right? 2005 to 2013?

Evan: Yeah.

Kaiser: And Age of Ambition was, I think, in many ways, a book about individual aspiration, about people hurtling themselves at the future with an optimism that kind of bordered on recklessness. I think it captured the zeitgeist of that time where we were both living in China, the good and the bad of those years, which, again, I mean, we both experienced that very much at first hand, and it was just such a true account. Now you return, and you find a city that’s quieter, it’s richer, certainly. It’s more convenient and more automated.

I’m always sort of impressed with how seamless the whole kind of digital experience is. But it’s also more surveilled.

Evan: Yeah.

Kaiser: In some sense, sadder. I would hesitate to generalize on that sadder bit. But before we get into any of the geopolitics or too much of the tech stuff, I just really want to get a sense from you how it felt just at a personal level to walk those streets again. Where did your old instincts as a resident really serve you well? And where do they maybe even mislead you or set up false expectations?

Evan: Well, this is not, you know, certainly not the first time I’ve been back. And I tend to come back every couple of years and try to get my arms around what the latest mood is like. And I think you captured it well in the sense that one of the things that you are really struck by right now is the fact that there is a feeling of kind of technological saturation. It just is everywhere. And, you know, you kind of remember Age of Ambition.

And it’s, in that book, one of the little tiny themes that I think probably a lot of readers read right by. But if you were a China person, if you’d spent a lot of time in China, people often would bring this up, which was this pattern of people out in the countryside building things, sometimes wild things. And they were known as the peasant da Vinci’s. That’s what an artist-

Kaiser: Yeah. The submarine guy, the flying machines guy, right. The robots.

Evan: So, yeah, it’d be somebody in a village far from the sea who decided that really his life’s destiny was to build the world’s most perfect wooden submarine or something like that. There’s a reason why these became kind of these iconic objects, because they represented this slightly madcap sense of ambition, to use the relevant word. But what it really, for me at least, seemed to capture was this idea of this

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This week on Sinica, I welcome back Evan Osnos of The New Yorker, whose marvelous new essay, “The Future, Made in China,” chronicles a tech-focused return trip to Beijing, where he lived from 2005 to 2013 — first for the Chicago Tribune, then as The New Yorker’s China correspondent. Evan is the author of Age of Ambition: Chasing Fortune, Truth, and Faith in the New China, which won the National Book Award, as well as Wildland: The Making of America’s Fury and The Haves and Have-Yachts.

His essay is far more than another breathless account of China’s advances in robotics and electric vehicles. It’s a meditation on what China’s technological ascent means for the United States, for how both societies are organized, and for the rest of us, whose futures increasingly seem to be wagered by two small circles of powerful men in Beijing and Washington. We talk about the Xiaomi Hyperfactory, “Chinamaxxing,” the export control debate, and the deeper contest Evan identifies: not democracy versus authoritarianism, but humanism versus scientism.

• 3:04 – Walking Beijing’s streets again: quieter, richer, more surveilled

• 11:26 – The Xiaomi Hyperfactory: choreography, awe, and what’s actually real

• 18:10 – Doomed to coexist: Evan’s message for the American reader

• 24:15 – Schrödinger’s China: joke or juggernaut?

• 27:16 – The limits of knowability in an increasingly opaque system

• 31:56 – Threat narratives vs. “Chinamaxxing”: America’s two China conversations

• 43:20 – “Thank Trump”: America’s self-inflicted wounds

• 47:29 – Revisiting the Sullivan doctrine and export controls

• 53:10 – Mankind 2000: humanism, scientism, and rival oligarchies

• 1:02:48 – Convergence: arriving at dystopia from opposite directions

• 1:07:21 – Self-strengthening redux: Levenson and America’s meum-verum gap

• 1:17:53 – The other Sputnik moment: the backlash against tech oligarchy

Paying It Forward

• Yi-Ling Liu, author of The Wall Dancers: Searching for Freedom and Connection on the Chinese Internet — Evan admires how her work grapples with the competition between scientism and humanism across national borders.

• Chang Che, who writes for The New Yorker and The Guardian — watching China’s technological developments up close, “creating history in real time.”

Recommendations

• Evan: How to Rule the World: An Education in Power at Stanford University by Theo Baker — the youngest-ever Polk Award winner on how a rising generation at Silicon Valley’s feeder school perceives its opportunities and obligations. Also True Grit by Charles Portis — splendid, sentence-savoring dialogue.

• Kaiser: Butcher’s Crossing by John Williams, author of Stoner — a Western with the same sentence-level craft; for fans of Melville and Cormac McCarthy.