Henry Huiyao Wang on Chinese investment in Europe, the dispute over competitive conditions, and Europe’s room for maneuver between China and the United States.

What role could China play in Europe’s industrial renewal? Henry Huiyao Wang proposes using corporate partnerships built over decades to bring new investment to Germany. In his view, Chinese capital and technological capabilities could strengthen European industrial sites. He also considers Europe’s political approach to China economically damaging. The conversation reveals the expectations and assumptions behind those ideas.

Wang is the founder and president of the Center for China and Globalization in Beijing and a former counselor to China’s State Council. He worked at China’s foreign trade ministry and held senior fellowships at Harvard Kennedy School and the Brookings Institution. The CCG organizes dialogues with international economists, business leaders, and former government officials. His career combines experience within China’s government system with an extensive international network.

I spoke with him on the sidelines of the China Outbound Investment Forum in Beijing on October 17, 2026, about relations with Germany and Europe. Wang advocates Chinese investment in Europe, a revival of the investment agreement with the EU, and a dialogue among the three major economies of China, the United States, and the European Union. I also questioned him about subsidies, exchange rates, and weak Chinese domestic demand.

Following this week’s publications in China.Table and The Pioneer, we have deliberately chosen to publish the full conversation so readers can form their own view of Wang’s reasoning.

We briefly provide context on the most important factual issues and clarify significant inaccuracies. Other figures and causal claims in the interview reflect Wang’s personal views and assessments.

The conversation took place in English. Both the German translation and the English version have been edited for readability.

René Ruschmeier

Mr. Wang, thank you for this opportunity. Germany and China have a trading relationship going back decades. How do you assess the relationship today, and which changes in recent years will matter most for its future?

Henry Huiyao Wang

I think China and Germany are two of the most important trading nations in the world. Germany is the largest trading nation in Europe, and China is the largest in Asia and in the world. What really matters is that China has worked with Germany and the European Union for so long.

Around 5,000 to 6,000 German companies operate in China. A month ago, I attended a reception for German Unity Day. The new German ambassador said that more than 5,000 German companies operate in China and generate substantial revenues. Among European countries, Germany probably has the strongest economic presence, the deepest knowledge of China, and the most extensive cooperation with the country.

These longstanding relations have produced many successful joint ventures. Think of BMW, Mercedes Benz, Volkswagen, BASF, Merck, or Bosch. So many German companies depend on China for their international competitiveness. A large part of trade between Germany and China consists of semifinished products, many of them made by German companies in China. These products go to Germany, where they are turned into finished goods and sold around the world. In this way, Germany achieves a trade surplus with the rest of the world.

Politicians in Germany may make their own statements about this. German companies themselves know that without China, they would not be very competitive in the world. That is an important fact that too few people mention.

René Ruschmeier

People in Germany are increasingly concerned about jobs and the competitiveness of Germany and Europe as China advances rapidly in technology and industry. What would you want a German audience to understand about this development, and how would you respond to those concerns?

Henry Huiyao Wang

There are several ways to respond. I would suggest applying the joint venture model in reverse. When China opened up in the 1980s and 1990s, Volkswagen sold the Santana in China for twenty years. Volkswagen was the most popular car brand in China at the time.

I think this model could now be applied to Germany. Many German companies have extensive experience in China and work with Chinese partners. Volkswagen, BMW, and Mercedes Benz, as well as General Motors from the United States and Toyota from Japan, have just extended their agreements with their Chinese partners for another twenty or thirty years. Why should these joint ventures not invest in Germany?

Volkswagen recently closed some factories. Why could Volkswagen Shanghai and Volkswagen China, together with their Chinese automotive partners, not come to Germany and use those factories for new technologies and electric vehicles? I think the factories closed because the technological transition was too slow. Demand for vehicles with combustion engines is weakening, while electric vehicles are gaining importance.

The Chinese partners in those joint ventures could invest in Germany together with Volkswagen Shanghai and Volkswagen China, bringing the latest Chinese technologies and Chinese capital. Japan did something similar in the 1980s and 1990s. Japanese cars were being sold everywhere, and many people were worried. Twenty or thirty years later, those worries had disappeared. The companies produced locally, hired local workers, generated local revenues, and contributed to local social benefits. Both sides benefit. I think that is the way forward.

To make this possible, we need to improve the political environment and move away from sanctions, ideologically driven decisions, and negative narratives about Chinese companies such as TikTok, Huawei, and ZTE. If Germany welcomes Chinese investment, it could benefit the most.

Chinese companies are already investing heavily in countries that are friendly toward them. Spain is one example. The Spanish prime minister has visited China four times in four years, and the Spanish king has also visited during that period. Investment also goes to Hungary, Serbia, and Slovakia. Those countries have friendly relations with China.

Germany should change its negative attitude toward China and enable substantial Chinese investment. That could address the problems local politicians worry about, particularly unemployment and lost revenues.

René Ruschmeier

You mentioned the political environment. A week ago, European Trade Commissioner Maroš Šefčovič was in Beijing. The European Council has also discussed these questions over the past two days. How do you assess the visit and its results? Where do you see the strongest prospects for progress in these political discussions?

Henry Huiyao Wang

I welcome it very much. The visit is important and shows that both sides are keeping cool heads and acting rationally. A pragmatic approach makes it easier to resolve the problems and calm the situation.

China has reduced its exports of hybrid vehicles, been more accommodating on supplies of rare earths and other critical minerals, and agreed to price limits for some product categories. China is meeting European needs and demands and has made compromises. Europe is also being less aggressive than China had expected.

If Europe were really to force a trade war with China, would China be afraid? I do not think so. China is not afraid of the trade war with the United States and is sustaining that conflict. Trump has already been back in office for two years. China would likewise not be afraid of a trade war with European countries.

There is also the extent to which Germany and other middle powers depend on China. Such a conflict would be difficult for them. If more than 5,000 German companies are operating here, there must be 50,000 European companies in China, from France, Italy, Spain, Belgium, and elsewhere.

China exports about 500 billion worth of goods to the European Union. Of that, 250 billion consists of semifinished products. If tariffs were imposed on those products, the European Union’s trade with the rest of the world would go into deficit. It is currently in surplus. You need to look at the whole picture, including the composition of China’s exports.

Around 30 percent of China’s exports are made by multinational companies. For electric vehicles exported from China to Europe, their share is 25 percent. That includes Tesla, BMW, Mercedes, and other manufacturers. Those connections also need to be considered.

René Ruschmeier

Let us stay with the risk of a trade war and the German perspective. A few weeks ago, German Chancellor Friedrich Merz and French President Emmanuel Macron proposed a stronger European instrument to respond to Chinese trade practices. Some German media have called it a kill switch for trade relations between China and Europe. What practical steps could both sides take to prevent an escalation that would benefit none of the countries or economies involved?

Henry Huiyao Wang

There are many things they could do. I consider the German and French leaders’ push for such measures highly political and unwise. I understand the domestic pressures they face. President Macron has probably already become a lame duck and needs to sound tough. Chancellor Merz has a very shaky coalition and wants to show that he is still in charge. They are essentially addressing their domestic audiences and fighting for their political survival. That is bad for business.

They could learn from President Trump and have the courage to come to China and talk to China. European leaders should demonstrate their commitment to dialogue through regular visits. The American and Chinese leaders could meet four times in six months, with visits in May and September, a meeting at the APEC summit in November, and another at the G20 summit in December. These high level contacts are important. Where do we see comparable visits by European leaders to China? We do not see them. This is a way to keep the situation under control and find a way to work with China.

One practical common goal could be peace in Europe. When I was invited to the Valdai Club meeting in Moscow, I asked President Putin what role China could play in peace mediation, peacemaking, and peacekeeping. I proposed a trilateral meeting between President Trump, President Xi, and President Putin on the sidelines of the APEC summit. Putin called it a very good idea. He said that China had always promoted peace, had a philosophy of peace, and now had the economic and military strength to make such a contribution.

European leaders could join that process. We could then have another meeting within the United Nations framework to establish a peace framework. After that, peacekeeping forces could be sent, including troops from European countries as well as China, India, Brazil, South Africa, and others. At the G20 summit, together with European leaders, we might be able to witness the final step toward peace. That would be a major contribution by China.

European politicians should stop constantly blaming China for supporting Russia. China conducts normal trade. The United States is now also making deals with Russia, for example on diesel. I do not see much criticism of that from European leaders. Europe should apply consistent standards, adopt a new approach to China, and work with China to resolve these issues.

Editorial context on investment, trade, and Russia

European leaders have visited China, including Macron on December 3 to 5, 2025, and Merz on February 25 and 26, 2026.

The joint statement by the EU and China of October 9, 2026, on the European trade commissioner’s visit records an understanding on hybrid vehicle trade, further procedures on price undertakings for battery electric vehicles, and facilitation of export licenses for rare earths and permanent magnets. Implementation of the agreements is still pending.

The EU has also targeted companies in China and Hong Kong for supporting Russia’s military industry or circumventing export restrictions. Describing all these relationships as normal trade leaves those measures out of account.

René Ruschmeier

You would like to see more visits by European leaders to China. There is certainly a great deal of discussion about China in Europe. Let us go through three issues that repeatedly arise in the competitiveness debate. The first is the renminbi exchange rate and the allegation that it is undervalued. How do you assess that, and what is your response to European governments?

Henry Huiyao Wang

I see this as a gradual process. Over the past ten or twenty years, the renminbi has appreciated by around 30 percent. A dollar used to buy eight, at times almost nine renminbi. Now it buys fewer than seven. I have also read about an appreciation of five percent over the past two or three years.

More could certainly be done. We need goodwill and a suitable way forward. At our conference, for example, the former commerce minister proposed reviving the comprehensive investment agreement between Europe and China. We should create a good negotiating atmosphere. On that basis, we could address the renminbi, so called overcapacity, and subsidies.

René Ruschmeier

Subsidies and overcapacity are the other two issues. Do you acknowledge that these three problems exist and that Chinese policymakers should be willing to address them?

Henry Huiyao Wang

China has already taken one concrete step immediately after an agreement with the European trade representative. Just last week, it announced a reduction in the tax rebate for exported electric vehicles. Manufacturers used to receive a certain percentage of their taxes back when they exported. The more they exported, the larger the refund and the stronger their competitive position.

The government has now announced that it will cut this rebate by five percent. I think the total rebate is about ten percent. The reduction is due to take effect in a few months. If you consider this tax rebate a subsidy, that is already a step toward reducing it.

René Ruschmeier

Looking back over the debate of the past six or twelve months, many people in Europe mainly remember the Chinese commerce ministry rejecting these criticisms. It denies that the renminbi is undervalued and criticizes, for example, the OECD’s MAGIC database on government support. This creates the impression in Europe that China acknowledges none of the three problems. What stronger arguments could establish a shared basis for discussion?

Henry Huiyao Wang

I was at the World Trade Organization last month and took part in several panel discussions with American representatives and ambassadors from Europe and the United States. Basically, every country subsidizes its economy. Think of American industrial programs and the CHIPS Act. The European Union has similar instruments, and China also uses such measures. We can discuss that. As I said, after meeting with the European Union, China has already voluntarily cut its tax subsidy by five percent.

For the renminbi, the longer term trend has been appreciation. Over ten or twenty years, it has already appreciated by around 30 percent. That need not be the end of the process. Further appreciation is possible, but it requires an overall package of measures, a good negotiating atmosphere, and an agreement among those involved. Unilateral action is problematic. The Plaza Accord shows what strong appreciation can cause. After the sharp appreciation of the yen, Japan slipped into a recession for thirty years. In a country of 1.4 billion people and the world’s second largest economy, such measures need to be considered very carefully.

China really does not recognize the overcapacity accusation. Perhaps 70 to 80 percent of German cars are sold outside Germany, and nobody talks about overcapacity. Japan sells 80 percent of its cars worldwide, and that accusation is not made there either. Nor does anyone talk about overcapacity when 70 percent of aircraft are sold outside Europe. China produces twenty million electric vehicles and sells four to five million abroad. That is then described as overcapacity. We need comparable international standards for making such judgments.

Chinese companies are willing to invest in Germany, France, Italy, and Spain. We need a better political environment for that. Regularly attacking, sanctioning, and accusing China makes it harder to ask China to buy more. I think China’s capacity to absorb additional imports is already reaching certain limits. Domestic consumption would also need to be strengthened.

China’s capacity for overseas investment is still far from fully utilized. At our conference, you can see many Chinese companies interested in investing abroad. That offers a way toward a solution.

Editorial context on competitive conditions and agreements

The announced change to the export rebate for the listed new energy vehicles is four percentage points, from 13 to 9 percent, effective April 1, 2027.

Longstanding nominal appreciation of the renminbi provides only a limited answer to questions about its current real valuation. The IMF points to real depreciation caused by lower Chinese inflation. The OECD finds substantial differences in government support within its company sample. High export ratios alone do not settle the overcapacity question.

For the agreements discussed here and later, negotiations on the investment agreement with China were concluded in principle in December 2020. The agreement is not in force. Negotiations on the free trade agreement with India concluded in January 2026. Entry into force is a further procedural step that is still pending.

René Ruschmeier

Another argument in Europe is that China’s domestic economic problems increase the pressure to export. Two issues stand out. Household demand is weak, and some economists describe a development shaped like the letter K, with different parts of the economy moving apart. China is investing heavily in advanced technology. How do you also assess the situation of people in the gig economy and the broader workforce? What should China do about these developments?

Henry Huiyao Wang

I agree that the property market has slowed. Every economy has periods of expansion and periods of stagnation. China’s property economy is probably in such a stagnant phase.

China has considerable potential to stimulate domestic consumption. I have made a proposal to the government. China has 300 million migrant workers. In the past, all apartments for urban residents were privatized, creating a middle class of 400 million people. The 300 million migrant workers already living in cities have not yet been able to acquire private ownership of their rural homestead land in the way their urban counterparts could.

I would encourage the government to privatize that rural homestead land as well. Migrant workers could sell it and use the proceeds to buy an existing apartment in a city. They could then become permanent urban residents. This could add another 100 to 200 million people to the middle class. That policy does not yet exist. It might come in the future.

The property sector, which used to be a major growth driver, has now weakened substantially. China is shifting toward what I call synergies. It has five million 5G base stations, ten times as many as Europe and the United States. It has 60 million charging points for electric vehicles. Seventy percent of the world’s high speed rail network is in China, as are seven of the ten largest container ports. There are also 1.23 billion smartphone users.

This dense connectivity creates synergies and increases productivity and efficiency. There is also work taking place around the clock. Hard work is deeply rooted in Chinese culture. China is not a welfare society. My European friends have been spoiled by their welfare systems. August is a holiday. You send a message and do not receive a reply for a week or two.

In China, many places can be reached within a few hours by high speed train. WeChat and digital connectivity allow continuous communication and avoid wasting time. Together with robots, artificial intelligence, and other technologies, this creates very high productivity. The resulting gains can offset the slowdown in property. Productivity has increased substantially. That also explains the strong demand for new Chinese technology products.

René Ruschmeier

Should China further develop its welfare state and provide more support to poorer households to increase demand?

Henry Huiyao Wang

China is constantly working on that. It has already built the world’s largest education system. Education is compulsory and free for students from kindergarten through ninth grade. Some 1.3 billion people have some form of health insurance, in both cities and rural areas. Some of that coverage is very basic, but it exists. Another 1.2 billion people have access to some form of social security.

China has already built the largest social security system, along with large healthcare and education systems. Benefits have not yet reached European levels, and they are continuing to expand.

The number of days off has also increased. There is Golden Week and ten days off. Around Chinese New Year, there are almost another ten days, and in May there are five. That gives people more opportunities to travel, shop, and do things. Domestic consumption is rising.

China also encourages its citizens to travel abroad and spend money there. But there is the visa issue. China now allows citizens of almost all European countries to enter without a visa. I see very little equivalent opening by European countries. Chinese citizens can travel to Serbia without a visa. They do not have that freedom for other European destinations, even though they want to go to places such as Spain. Countries in the Middle East, such as Qatar and the United Arab Emirates, allow them to enter without a visa, as do Thailand and Malaysia. Why do European countries not open up as well?

Germany and the European Union should allow Chinese citizens to enter without a visa. They could at least begin with residents of Beijing, Shanghai, and other particularly wealthy cities. Hong Kong could be included. A first step would be to open entry to residents of the ten leading and wealthiest provincial capitals and major cities.

René Ruschmeier

The great majority of Chinese people cannot afford a vacation abroad. That is also part of the issue.

Henry Huiyao Wang

That is not true. Even before the pandemic, calculations put the number of Chinese people traveling abroad at 150 million. Perhaps half traveled to destinations such as Hong Kong, Macao, and Taiwan. Another 60 to 70 million people traveled to other parts of the world. That is a substantial number. The European Union should allow residents of cities such as Beijing, Shanghai, and Guangzhou to enter without a visa.

Editorial context on the domestic economy and social protection

Rural homestead land in China is generally collectively owned, while urban land belongs to the state. Apartment ownership and land ownership need to be considered separately.

The official 2025 total of 301 million migrant workers includes people working locally. Around 131 million were living in cities at year end.

The energy administration reported around 24.2 million charging points at the end of August 2026.

The infrastructure figures cited do not establish an economywide offset to the property crisis through higher productivity. The IMF still identifies weak private demand and recommends stronger social protection.

General compulsory education starts with primary school and covers nine school years. Kindergarten is outside that requirement.

René Ruschmeier

I have read your book about the development of international relations, China and the Next Global Order. In it, and in your public contributions, you frequently advocate a G3 approach involving China, the United States, and Europe. What do you expect from such a dialogue? What responsibilities should Europe take on, and what benefits would the format offer the three economies?

Henry Huiyao Wang

By the G3, I mean the world’s three largest economies. The European Union remains one of them. We are already seeing a strategic equilibrium emerge between China and the United States. Both have the capacity for mutually assured destruction. In a sense, that forces them toward mutually assured construction. They have to reach agreements, coexist peacefully, and move from strategic rivalry to strategic stability. President Trump has made that shift.

This gives the European Union a great opportunity to gain the most from its relationships with both sides. It needs the United States for some of its security, and China can make a major contribution to its economic development. Europe can move away from the idea of a conflict between China and the West and act with strategic independence. Depending on the issue, it can align with the United States or China and make its decisions on the merits of the matter.

China and Europe have common interests on many issues. These include multilateralism, the United Nations, artificial intelligence, climate change, global debt, and international development. We belong to the World Health Organization and support the Paris climate agreement. On this common basis, China and Europe should work together to sustain the international order.

The European Union can act as a mediator and coordinator. I have even proposed a G3 summit. European leaders could maintain good relations with both the United States and China. China and Europe have some of the longest historical traditions and a rich heritage that we cherish. Europe’s political systems and values are closer to those of the United States, whose history goes back only 250 years. Both relationships bring advantages and difficulties.

Europe can benefit from its relations with both sides as a mediator and promoter of peace. Such a structure could create more stability and greatly enhance the European Union’s role. Since Europe is relatively weak in defense, it could shape its relations with China and the United States to serve its own interests. I therefore think the G3 approach offers a good path toward greater strategic autonomy and an independent approach to both powers.

René Ruschmeier

Many of our readers lead European companies. If a German company is considering its next investment in China, where do you see the most credible opportunities for profitable growth over the next three to five years?

Henry Huiyao Wang

German companies are very good at adding value. Europeans still have great strengths in trade in services. German companies can help develop China’s services sector internationally.

Another field is education. Germany has good institutions for crafts and vocational training. Their experience would also be valuable to China.

There is also manufacturing. Germany has advanced technology and great expertise in precision manufacturing. These strengths should be combined with China’s new technologies, for example in products addressing climate change and in electric vehicles. Companies could then work together in ASEAN countries, Latin America, Central Asia, and Africa. Both sides can build on fifty years of cooperation between their industries through joint ventures.

Germans also work hard. They are precise, punctual, and diligent. I see many similarities with China in that respect. Both countries have a good industrial base. Why should the roughly 5,000 German companies currently in China not become 10,000? Another 5,000 German companies could use China’s large market and supply chains to strengthen their competitiveness around the world.

German companies should look at the economic connections as a whole. If you have a trade deficit with China while achieving a surplus with the rest of the world, you should also recognize that success. There are many opportunities to work together.

I see great hope for the future in the connection between German industry and China. China is becoming a fitness room. An industrial training center. If you want to be competitive in the world, you first have to be competitive in China. Competition there helps you eliminate redundant structures, inefficiency, and waste. Companies become leaner and more competitive. If you can win the market in China, you can win the market in the world.

René Ruschmeier

Finally, looking three to five years ahead, how do you expect the economic positions of Germany, the European Union, and China to develop, and what will that mean for their relations?

Henry Huiyao Wang

The next four or five years will be critical. Relations between Germany and Russia will take a long time to recover because of the war in Ukraine, possibly five to ten years. Germany also faces high energy costs. It should use the opportunities for affordable green energy offered by Chinese technologies, including electric vehicles, solar panels, and wind turbines. Competitive Chinese products for the energy transition could strengthen German industry’s competitiveness.

Germany could also take a leading role within the European Union and show that the joint venture model between German and Chinese partners still works. That could provide an example for other European countries.

Germany and France in particular should move away from a bloc approach between the West and China, become more strategically independent, and adopt a neutral position between the United States and China. This could mean fewer sanctions and less harsh political rhetoric, creating a more welcoming environment for Chinese companies. It would include more frequent visits at the highest political level in both directions. That creates a better atmosphere for cooperation.

We also need a stronger institutional framework. The European Union has a free trade agreement with India. Why should it not have one with China? There is also the comprehensive investment agreement between Europe and China. Why not resume it and improve it? Our former commerce minister proposed at today’s conference that we revive it with new additions.

If we can reach an understanding with the relevant ministers and representatives of the European Union, we should resume the investment agreement. We signed it eight years ago. It therefore already provides a good foundation. We should greatly reduce the negative factors and expand cooperation.

Substantial Chinese investment in Europe would solve many of the problems politicians face. It could create jobs and generate revenues. At the same time, more German companies could invest in China and earn profits that support German industry.

Volkswagen and Mercedes owe part of their economic success to their large profits in China. Those profits allow them to support production in their home market. With the rise of electric vehicles, Germany is falling behind technologically. Volkswagen and other companies can no longer generate the same large surpluses to finance their operations in Germany. In my view, that explains Volkswagen’s closures.

We need a sustained improvement in the approach between China and Europe, more trust, and good relations. This requires strong political leadership that moves beyond populism, makes difficult decisions, and improves conditions for business. If business is successful, employment improves, voters are happier, and government becomes more stable.

René Ruschmeier

Thank you, Mr. Wang. Is there anything else you would like our readers to know?

Henry Huiyao Wang

I think I have made my main points.

On the surface, that looks like a real pickup. A closer look tells a less encouraging story.

• Nearly all of the growth came from China’s record trade surplus, which rose almost 30% y/y. Consumption and investment added very little.

• Joe Peissel calls it “hollow growth.”

On this episode, Dinny McMahon (Trivium’s Head of Markets Research) fills in for regular host Andrew Polk. He sits down with Joe (Trivium’s Lead Macroeconomist) to unpack:

• Why nominal GDP grew 6%, its fastest pace since 2022, and why that comes from cost pressures caused by the Iran war rather than a healthier economy

• The price-versus-volume story behind September’s export boom

• Why September’s pickup in retail sales and services spending owes more to the iPhone 18 launch and an early Mid-Autumn holiday than to any real recovery in consumption

• Why Beijing’s latest support package, including its new mortgage subsidy, will help China hit its growth target but won’t fix weak demand

• And why Beijing’s bet that tech-led growth will eventually lift household spending isn’t paying off

Transcript

Dinny MacMahon: Welcome to the latest Trivium China Podcast, a proud member of the Sinica Podcast Network. I’m your host, Head of Trivium’s Markets Practice, Dinny McMahon, standing in for your usual host, Andrew Polk, who I believe is having a nice lie-in this morning. And today, I’m joined by my colleague, Trivium’s Lead Macroeconomist, Joe Peissel. How are you doing, Joe?

Joe Peissel: Hey Dinny, I’m good, thanks, and very envious that Andrew’s having a nice lie-in.

Dinny: Aren’t we all? Joe is here to discuss China’s third-quarter GDP data that dropped a couple of days ago. But before we get into that, Andrew would never forgive me, literally, if I skipped the vibe check. So, Joe, how’s your vibe?

Joe: Well, I’ve got a cold. I don’t know if you can tell. I’m kind of over the worst of it. But equally, I don’t want to put a downer on the pod. So, I mean, bad vibes from the cold, good vibes from talking to you, Dinny, as always. How about that?

Dinny: Sweet talker. Okay, I can cope with that. As for me, I am just digging autumn. I mean, when I was in Chicago, autumn was always that sort of bit of a blink, and you miss it sort of thing. But I’m just enjoying this slow-change season in North Carolina. I mean, the summer has been so hot and steamy, you’d sort of barely want to step outside. But with the weather like this, it’s just been delightful. So, that’s my vibe, sort of just enjoying this interregnum before the winter hits.

Joe: Yeah, it sounds glorious. I mean, it’s raining here, and it’s windy, and it’s cold. So, your vibes sound better than mine.

Dinny: Yeah. Well, the listeners can’t see the sort of backdrop to where I’m doing the podcast. I mean, I feel like I’m living in a forest. So, yeah, very happy to be in this part of the world. Anyway, with that out of the way, we also have to do some 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 China’s policy landscape.

That, of course, includes domestic policy in China, 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. Or if you just have comments on the pod content, reach out to us. We always love to hear feedback from our listeners. And then finally, please do tell your friends and colleagues about Trivium, both about the business and about the podcast. It really helps us grow the company, and we truly appreciate the word-of-mouth recommendations.

And while you’re at it, leave us a rating on your favorite podcast platform. So, with that out of the way, let’s get into it. Joe, are you ready to roll?

Joe: I’m ready to roll, Dinny?

Dinny: Okay, let’s do it. Well, at the beginning of the year, China set a GDP growth target range of 4.5% to 5%. And at the time, the Premier even said that they were going to aim for higher, which in hindsight was a bit ambitious. But the range seemed reasonable and things got off to a good start. But in the second quarter, the growth slipped out of the range to 4.3%. But the latest data for the third quarter shows that it’s come back a bit. It’s now at 4.5%, right? Smack bang on the lower edge of that range. So Joe, have things really picked up? And if so, what’s driving it?

Joe: Yeah, well, headline growth has picked up, right? It’s kind of a modest improvement from Q2 on a year-on-year basis. And then if we look at the quarterly breakdown, quarter on quarter, so, how much economic activity there was in Q3 relative to Q2, that grew by 1.2%. And this is seasonally adjusted, right? To account for any sort of implications due to seasonal fluctuations. So, 1.2% quarter on quarter growth, that’s up from 0.9% quarter on quarter growth that we saw in Q2. So yeah, that suggests that the economy’s grown faster. There’s actually some acceleration of this momentum.

On the surface, it looks like a genuine pickup, right? If we look at the headline data. If we break that down into separate growth components, though, we see that nearly all of the growth is coming from exports, or more specifically from China’s record trade surplus. So, the difference between what it exports and imports. So, this grew by almost 30% year on year in Q3, China’s trade surplus. So, it’s going from one record-breaking year to another record-breaking year. This is doing all the work, all the heavy lifting for China’s GDP growth.

If we look at other areas of the economy, domestic consumption or investment, they’re doing very little. Investments fall in, consumption’s kind of bumbling along, really low growth rates. So, yes, headline growth has picked up, but in the macro wrap that we published today, we refer to as hollow growth. It’s really relying on one growth driver only.

Dinny: Well, one of the other things that jumped out at me from that note that you wrote is that nominal GDP grew at 6.0%. Now that’s much higher than the 4.5% real GDP number. I mean, that’s significant in and of itself, but it’s particularly significant given that for about the last three years, nominal growth has lagged GDP. So, what’s going on here? I mean, why is there such a divergence with the real GDP number? And before you get into that, can you just give us a quick breakdown of what the difference between nominal and real GDP actually is? Why we care about either or both or one more than the other?

Joe: Sure. So, we generally look at real GDP. That’s the headline growth. That’s the 4.5% that you see in newspaper headlines. And that’s also what the government is referring to when it says it’s four and a half to five percent growth. This is real GDP growth. What we mean by real growth is stripping out price effects. So, you can think of economic activity in simple terms is the amount of output that is produced multiplied by the prices it’s sold for.

And that’s economic activity. The issue with that measure is that if you have inflation, but no increase in volume output, then it looks like there’s been a large increase in economic activity, when in reality, it’s just an inflationary phenomenon. And actually, in terms of economic activity, the amount that manufacturers produce or the amount that consumers consume in volume terms hasn’t actually gone up. So, real GDP is important because it tells us what the economy is producing in volume terms, more or less. That’s a bit of a simplification. But this is why we generally care about real GDP.

Nominal GDP incorporates that price effect. So that is output multiplied by price. And, although we generally talk about real GDP, nominal figures are also important, mainly or primarily because they’re heavily correlated. Nominal GDP is heavily correlated with a bunch of other indicators that we care about, things like corporate profits, things like tax revenues, tax receipts. So, that’s the difference. Nominal GDP incorporates price effects, whereas real GDP strips them out. So, as you said, in Q3, nominal growth was 6%. And this is the fastest growth we’ve seen in, I think, four years since 2022.

Now, that gap between real and nominal growth, that’s what we call the GDP deflator. And that’s a measure of economy-wide deflation. As you rightly said, the GDP deflator has been negative, been in deflationary territory for the past three years. So, we’ve seen nominal growth actually slower than real growth. And over the past couple of quarters, that’s reversed. Nominal growth is now going faster than real growth, which is what you normally expect in a healthy economy. So, so far, so good.

The issue is this large gap between real and nominal growth. And that is driven more or less by price effects from the Iran war. So, what we’re seeing is higher input costs are creating this cost-push inflation that’s inflating the value of economic activity, but it’s not actually translating into any additional volume terms. It doesn’t necessarily mean manufacturers are producing more or consumers are consuming more. It just means they’re paying more for those goods and services. And we see that particularly in the September data. So, in September, PPI, producer price inflation, grew 5% year on year, really fast, really high rates of inflation.

And in fact, that is the fastest growth in PPI since the energy shock hit in March. So, cost pressure has come back in a big way. That’s why we’re seeing such high nominal growth. It’s just an inflationary phenomenon. It’s not necessarily good news for the economy.

Dinny: Okay, well, I think that’s got some implications for trade as well. So let’s go back and talk a little bit about the trade surplus. Because, as you said, I mean, this is the thing that’s propping up growth at the moment. Now, it was probably what, about 15 years ago or so that there used to be an argument, because this isn’t the first time that we’ve seen large trade surpluses from China. I mean, they’ve never been this big before, but China’s trade surplus has been kind of an ongoing source of contention for the world for at least 20 years at this point.

I think it’s maybe 15 years ago, there was an argument that was like, look, don’t worry about China’s trade surplus. It’ll eventually ride itself. China is a growing, maturing economy. And ultimately, an economy the size of China can’t grow forever from exports. I mean, it’s just, it’s too disruptive. It’s too much of a burden on the rest of the world. Everything will eventually right itself. And clearly that’s wrong because we’re now seeing China, the second biggest economy in the world, effectively drawing the lion’s share of its economic growth quarter on quarter from its trade surplus. So, what is driving this surplus?

What exactly is it that is allowing the world’s second biggest economy to extract so much value from net exports?

Joe: Yeah. So, I think going back to this idea before that China’s exports won’t keep, or China’s trade surplus won’t keep growing. There’s also this idea, as China gets richer, its consumers are going to buy more goods. And so these imports are going to go up. And that just hasn’t happened for various reasons. So yeah, as I mentioned earlier, the surplus across Q3 was another record. It was around the region of $365 billion.

That’s up almost 30% from Q3 2025. And in September alone, exports grew by over 36%. That is just mind-blowing rates of growth. That’s the fastest growth in exports in over 15 years, not including disruptions during the pandemic, which led to all these weird data distortions. So, if we kind of exclude pandemic years, September’s growth in exports was the fastest we’ve seen in over a decade and a half. Now, it’s important to note that a lot of that growth is due to increases in export price, not necessarily in export volume.

And I’m going to give you some numbers to demonstrate this. So, semiconductor exports, China’s semiconductor exports, in value terms, they increased over 100%. They more than doubled in September in value terms. But if we look at chip exports in volume terms, they increased by 2%. So, this is entirely a price story, right? Chip exports went up so much because of an increase in price, not an increase in volume. If we look at mobile phone exports, they grew 15% in value terms. In volume terms, they actually fell by 13%.

So, exporters are shipping less mobile phone units now than they were this time last year. But they’re earning more money for every unit sold because they’ve increased prices. And we see the same story in all sorts of other export categories — in home appliances, in various metal exports, where the value of these goods is growing a lot faster than it is in volume terms.

Now, this value surge is coming off the back of what is really a global AI memory chip shortage because of the AI boom. So that’s leading to a spike in the price of memory chips, which are really important components in a bunch of electronic goods like mobile phones, for example. and also high commodity prices and high energy prices from the Iran war. So what that means is that at some point, presumably, this price shock starts to fade. And when it does, China’s export growth is going to slow.

And that emphasizes or highlights that China’s GDP growth, now that it is relying on this single growth driver, is actually quite vulnerable because it’s really reliant on this huge price surge on the back of the memory chip shortage and the high commodity and energy prices. The other challenge for Chinese exporters is, of course, geopolitical tensions and trade tensions. And the EU is a good example here because China and EU recently held trade talks.

So, China’s surplus with the EU hit an all-time record in September. It was, I think, close to 35 billion. And there’s kind of growing pushback in Brussels against what they term these unsustainable trade surpluses that are hollowing out European industry. So, from a Chinese growth perspective, relying on this growth driver leaves you vulnerable, not only to a time when this price shock fades, and exporters can no longer sell their goods at an elevated price, but also to trade tensions, for example, with the EU or with other trade partners like the U.S., and so forth.

Dinny: So, what we’ve pretty much got then is a growth machine that’s being held up almost exclusively by exports, but the foundation, I mean, almost kind of the reliability of that growth from exports being able to continue indefinitely is very much under question, if for no other reasons and for geopolitical reasons. And I guess also because of the potential for price adjustments.

So, I guess the question is, and it’s something that we come back to again and again on the podcast is, is where does consumption stand in all this? Because you can’t really comfortably and securely run an economy on sort of one pillar, which is really seemingly what China is doing at the moment. So, in September, we saw retail sales growth pick up 1.1%. Now, the thing is that it’s quite good relative to August. I mean, in August, growth collapsed to sort of 0.4%. So it is a meaningful pickup in September. Yeah, it’s not much, but it’s something. I guess the question is, is this something to cheer about?

Joe: No. Next question. No, I’m kidding. No, it’s not. I mean, the fact that we’re celebrating 1.1% growth in retail sales tells us everything we need to know about China’s consumption dynamics, right? 1.1% growth, still extremely low. Despite the pickup from August, it’s still a bleak outlook for Chinese consumption. I think the more positive data point we can take from September is services consumption. So consumption of services, so things like tourism and eating out and entertainment. This rose by 5.8% in September.

So, really decent growth in consumption of services. But the issue is, both with the services consumption growth, but also with this modest pickup in retail sales, or the consumer goods sales growth, is that it’s being affected by short-term factors. So, the reason retail sales of consumer goods picked up to 1.1% is mainly driven by sales of mobile phones, which grew over 30% year on year. And that’s driven by the launch of the iPhone 18, which had this really successful product launch in China in September and led to a surge in mobile phone sales.

This lifted aggregate consumer goods sales. But that’s just a short-term, one-month boost to consumer goods sales. We’re not expecting that to carry on. Same idea with services consumption. As I said earlier, that grew 5.8%, really decent growth rate. But that’s partly impacted because China’s mid-autumn festival took place, I think it’s September 25th this year, whereas last year, it took place in October. So, in September this year, consumers have had an extra day of holiday, which is going to lead to a boost in things like tourism spending, entertainment, accommodation, transport. All of these things are leading to greater aggregate growth of services consumption.

But again, that’s a short-term phenomenon. And in fact, I expect a lot of this growth to reverse in the October data once the holiday effect drops out, once the iPhone effect fades out as well. So, I mean, to wrap all this up, the story of consumption is, yes, September’s data was an improvement, but it’s just a short-term phenomenon. Consumption is very much still in the doldrums.

Dinny: Yeah, that’s a good point about the holidays, Joe, because I mean, this year, the Mid-Autumn Festival and the National Day holiday were so close to each other that I think a bunch of people, I think it was certainly the case in our office, that people took off the days between the two holidays. And guess what? They all fell in September. So it’s not even just the formal days, but people taking additional days off to effectively get sort of an uber-long break. And as you said, this is not going to repeat. This is not going to boost the October data.

So, the bright, any sort of silver lining we had in September is going to dissipate for the data for October, which kind of begs the question, what does the run to the end of the year look like for the economy? I mean, I sort of started off by talking about the growth target for the year, 4.5 to 5%. In the next few months, we’ll get a sense of whether Beijing achieved that or not. What should we expect over the next couple of months before 2027 kicks off?

Joe: Much the same as we’ve seen so far, really. China’s supply side will do well. So manufacturing in September grew 6%, and it’s going to continue to grow strong. High-tech sectors, they’re expanded by double digits year on year. So, we can think of things like electric vehicles, ships, aerospace equipment, the higher value add semiconductor chips. Output manufacturing of these products is going to continue to grow strongly. And of course, China is going to continue to rely on exports to boost growth.

The domestic economy, domestic demand is going to stay weak. Investment’s likely going to continue declining. So very much an extension of what we’ve seen over the past couple of quarters. In terms of actual GDP growth, year to date, the economy has expanded 4.6%. So, it’s within China’s target of 4.5% to 5%. And it’s very likely the economy is going to hit its growth target, particularly with this recent policy support package. I know you talked about this in another podcast, Dinny, in late September, policymakers released a package of policy support.

So, we saw extensions of cheap credit, additional borrowing quotas for local government, a mortgage subsidy. All of these policies will help guide the economy to hit its growth target. But nothing that Beijing has released so far is actually going to fix the underlying issues in consumption and private investment, which is why we’re just going to see more of the same.

Dinny: Well, I mean, on that bright note, from where I’m sitting, it kind of feels like China’s economy is kind of in a weird spot at the moment, right? So, as you said, we finally got a bit of stimulus. We’ve been waiting for ages to see whether Beijing would sort of pump a little bit more credit or support into the economy. We finally got that end of September, beginning of October. The policy banks are being deployed to invest more in infrastructure. And there’s an extra, what? 550 billion renminbi for local governments to deploy before the end of the year. Some of it’s to supplement the budgets, some of it’s for infrastructure.

But even when you take all that together, no one’s under any illusions. I mean, this doesn’t really fix anything, right? I mean, particularly when it comes to the domestic economy, this sort of chronically weak household spending, this sort of downward slide of investment. This new support, I think, is really mostly about ensuring that growth hits the target and that investment recovers a bit. And it’s almost as though Beijing is waiting for the economy to right itself, which is kind of an idea that comes up a bit in some of the official commentary that you see in the state media. There’s this argument that China’s economy is currently occupying a gap, right? There’s this gap between the old economic growth model and the new one.

And that’s where things stand at the moment. We’re in this sort of gap. And there’s going to be pain before the economy emerges in its new form. And I think there might be an element of truth to that. I mean, at the moment, property is a drag on growth, and that will eventually change when investment stops falling. It might be another year, it might be another two or three, but at some point, when property rights itself, that will be a fill up to the economy. And if Beijing can get anti-involution right, it might be able to deliver better profit growth from new industries, and that’ll boost tax revenue and kind of give the government greater discretion on how it supports growth.

But, for whatever the reason, it seems as though we’re in a bit of a holding pattern at the moment where Beijing has just really decided to provide a little bit of support, but overall, the approach is to wait and see. Would you more or less agree with that, Joe?

Joe: Yeah, I agree. That’s their approach. I’m not convinced it’s going to work. So I think, as you said, Beijing’s effectively bet in that supply side tech growth lifts household demand and generates new growth drivers. But I think the issue is a lot of these new growth engines. So think of things like AI, high-tech sectors, high value manufacturing, often they employ fewer people. And so, we don’t necessarily, on aggregates, see an increased income flow to households. So, this transition that Beijing’s waiting for isn’t necessarily self-correcting.

And certainly, the data so far doesn’t show that this is happening. Income growth is falling, unemployment remains high and growing, actually, and consumer confidence is still in the doldrums. We wouldn’t expect any of these things to be happening if Beijing’s hypothesis that supply side tech growth lifts household demand was actually taking shape. I think maybe we’re looking at it, maybe I’m looking at it through too much of a short-term lens. And over the medium-longer term, this self-correcting idea can take place.

But certainly, for now, it’s not. Just quickly on the property downturn, I mean, it’s true at some point the property market stops falling and that’s a boon to the economy, I suppose. What we’re seeing now in the property market is a permanent deleveraging, right? As opposed to a cycle, a cyclical cycle waiting to pass. So even when the property sector does finally bottom out, which could still be years away, it’s never going to return to be a growth engine for the economy. So, the economy has permanently lost one of its most important growth engines.

Part of the stimulus “package” or support package that Beijing rolled out earlier this month was a mortgage subsidy. Are you optimistic about the impact that will have on property demand?

Joe: No. I mean, it may boost demand at the margin. This is a one percentage point interest subsidy for first-time home buyers, for homes that don’t exceed a certain price. The maximum savings, the maximum subsidy available is 50,000 RMB. I mean, that’s not going to move the needle for most buyers. It may do so in smaller markets where houses are cheaper. So think about third-tier cities, for example. But even then, buyers have these deflationary expectations. The reality is buyers expect house prices to keep falling. And so, from a first-time buyer perspective, waiting actually saves more than taking advantage of this subsidy.

And we see that now. I mean, the property markets in freefall, house prices continue to decline. So, a real fit for the real estate sector would require a much bigger fiscal commitment than this modest mortgage subsidy.

Dinny: No, no, fair enough. Well, by the sound of it, we are in a bit of a wait-and-see pattern. Although I think the real question is how long is Beijing willing to wait and see? If this doesn’t turn out to be self-correcting, at what point does Beijing do something about it? And on the other side of the equation, I mean, I guess it’s the other side of the same coin, how much pain is Beijing willing to take, and for how long? Anyway, I’m guessing this is going to be a theme of the conversations we’re going to be having for quite some time.

But having said that, thanks for all of this, Joe. It’s been really great to dive into this stuff with you, and I appreciate the time.

Joe: Yeah, thanks for having me on, Dinny.

Dinny: Thanks, everybody, for listening. Bye now.

• But fixed asset investment — long a bulwark of economic growth — shrank.

• And China’s punchy nominal GDP figure was driven by cost-push inflation from the Iran war, which inflates the value of activity without adding any volume.

Meanwhile, final consumption — a measure of household and government spending — accounted for just 46.7% of economic growth so far this year, the lowest share since 2013.

That leaves one pillar holding up the whole show: the trade surplus.

• The difference between what China exports and imports hit a record USD 365 billion in Q3.

• In September, exports grew 36.3% y/y, the fastest pace since 2013 (pandemic years aside).

But this fantastic trade performance is driven by price, not volume:

• Semiconductor exports rose 136% in value in September — but only increased 2% in volume.

• Mobile phone export values rose 14%, while the number of units shipped fell 13%.

Despite the doom and gloom, China’s economy will comfortably hit its annual growth target of 4.5–5%, with GDP up 4.6% y/y so far this year. A slew of policy support unveiled in late September will help carry it over the line.

But while China’s growth target is safe, the patience of its trading partners is another matter.

• China’s monthly surplus with the US hit USD 34 billion in September, a 20-month high, while its surplus with the EU reached a record USD 34.8 billion.

In short, China’s headline growth will be fine — as long as the rest of the world keeps buying.

Joe Peissel, Lead Macroeconomist

What you missed

US-China

Chinese and American officials are reportedly engaged in “intense negotiations” on a list of concrete outcomes for the upcoming meeting between Xi Jinping and US President Donald Trump on the sidelines of the APEC summit in Shenzhen next month.

• The US-China Board of Investment (BoI), announced during Trump’s visit to Beijing in May, is reportedly high on the list of proposals.

Econ and finance

The People’s Daily ran an essay by former IMF deputy managing director Zhu Min arguing that China and the rest of the world both need RMB internationalization.

• Zhu calls for ‘further improvement of the capital management framework,’ with no mention of convertibility, which aligns with Beijing’s preference for expanding the RMB’s global role without relinquishing control over capital flows.

The commerce ministry (MofCom) and eight other agencies issued guidelines on using technology to boost domestic consumption.

• The guidelines outline ways companies can leverage AI and emerging technologies to make products more attractive, including by providing better goods and more customized services.

• But bureaucrats are poorly placed to tell companies how to innovate. Firms selling into China’s ultra-competitive consumer market already have every reason to supply what shoppers want, and the new guidelines add little to that incentive.

Corporates

MofCom and the science ministry (MoST) released a revised draft catalogue of technologies subject to export controls, including sweeping restrictions on solar manufacturing technologies.

• The proposed controls target key technologies and manufacturing processes for upstream polysilicon, wafers, and cells — the highest-barrier segments of the supply chain where China controls ~90% of global capacity.

Tech

The draft export-control catalogue also added 23 AI technologies.

• Export bans would cover technology behind models trained on nationally sensitive “core data,” and AI tools that generate malicious code or evade cyber defenses.

The industrial ministry’s (MIIT) think tank warned in its annual embodied AI report that “bubble risk is accumulating” in China’s humanoid robot sector.

• The report called the bubble a necessary stage of development, likening it to the dot-com bust and the 2015-2018 EV shakeout, and predicted market competition to clear out weak firms within three years.

Net zero

Green fuels became the latest target of Beijing’s anti-involution drive.

• A deputy director at the macro planner (NDRC) said: “The NDRC is drafting a plan to guide the rational siting of major projects in response to investment overheating across certain segments of the hydrogen industry.”

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: “It doesn’t give you heartburn” (不烧心 bù shāoxīn)

Context

Micro-dramas (短剧) have become hugely popular in China over the last few years. Episodes are typically 90 seconds to two minutes long. The format emerged on Douyin and Kuaishou around 2018. It grew rapidly during the pandemic in 2020 and 2021. And by 2024, the total revenue of the micro-drama industry overtook China’s box office for the first time.

Now micro-dramas are being transformed by AI, with more than 90% of the output being made using AI tools. These have made it cheap to adapt fantasy and sci-fi web novels that were once far too expensive to film. In the first half of 2026 alone, nearly 222,000 new AI micro-dramas went online, and 1,055 of them surpassed 100 million views.

And now AI micro-dramas are giving rise to new online slang. One such phrase seems to be everywhere online at the moment:

“It’s a bit on the pricey side, but it doesn’t give you heartburn.”

贵是贵了点，但吃了不烧心。

And with that we have our Sinica Phrase of the Week!

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What it means

“It doesn’t give you heartburn” is a new internet meme. Broken down, it translates as “not” (不 bù), “burn” (烧 shāo), “heart” (心 xīn).

Together, “burn” and “heart” (烧心) mean “heartburn” as in the English, which is the burning feeling caused by excess stomach acid brought about by poor quality food or drink.

The phrase “it doesn’t given you heartburn” started out in a common micro-drama plot which features a street-food stall owner who insists on using good quality but more expensive ingredients. As his costs go up, he raises his prices to cover them. And customers drift off to the rival stall next door, which keeps prices low by using poor quality, cheaper ingredients.

Eventually, though, customers realise this end up coming back to the original street seller. Even though his prices are more expensive he is reliable, provides good quality, and his food “doesn’t give heartburn” (不烧心).

“It doesn’t give you heartburn” has now spread into everyday use. It took off as a meme across the Chinese internet in early October, and by October 16, videos under the Douyin topic had passed 2.84 billion views.

As it spread, the meaning has evolved to convey a sense of being “reliable” or “honest”, or someone or something which won’t let you down.

One writer at Sanlian Lifeweek (三联生活周刊) even applied it to a car:

“This car is a bit on the pricey side, but driving it doesn’t give you heartburn.”

这车贵是贵了点，但是开着不烧心。

In other words, it’s “reliable”.

The meme has even crossed the Taiwan Strait. Taiwan’s Want Daily (旺报) reported that it had become an all-purpose way of judging whether something is dependable.

It’s also used sarcastically, for example:

“Working overtime is a bit tiring, but it doesn’t give me heartburn.”

我加这个班，累是累了点，但是它不烧心。

Here it means “it’s not a big thing”.

The linguist Peng Jiafa (彭家法) says the phrase owes its success partly to the huge reach of short dramas. But it also reflects public concern about food safety. Its newer meanings, “reliable” (靠谱) and “honest” (讲诚信), describe exactly what consumers want, and are not sure they will get.

Which brings us back to the dramas themselves. Cheap, repetitive and churned out by the thousand, they are hardly high quality. But for the millions glued to their screens across China, they don’t give you heartburn.

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 fluency back today!

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

RealTime Mandarin

#299: Inside China’s AI micro-drama boom and why it “doesn’t give you heartburn”

I’ve got back from a two-week trip in China. I went to Shenzhen, Shanghai and Beijing…

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Xidan, in central Beijing, has long been a commercial center of the capital. Lying just West of Tiananmen Square, it is today a major shopping and entertainment district, bringing people from across the city. It is also a transportation hub, with a subway station at the junction of two major lines as well as an airport shuttle. Bus routes radiate from Xidan across the city.

Its relatively central location has made Xidan a gathering place not just for people in search of goods or services, but for those with a political message to send. In the late 1970s, Xidan was the site of Democracy Wall, where Beijing residents issued calls for political reform in the wake of the Cultural Revolution. Fifty years earlier, though, Xidan’s central symbolic location and its logistical significance came together to make the neighborhood a battleground in the struggle surrounding the city’s modernization. On October 22, 1929, thousands of rioters exited through Xidan gate and turned east onto Chang’an Boulevard, marching toward and then past the government buildings, and then south and east through the city, leaving a trail of destruction.

The target of the rioters was the streetcar system that had, both literally and symbolically, been at the center of change in the city. Beijing in 1929 was, like much of China but in a more concentrated fashion, caught between a future, represented by a half-formed Republic, and an imperial past that–to paraphrase Faulkner–wasn’t even past. It was, as described by the title of a pathbreaking volume edited by William Skinner and Mark Elvin in the 1970s, The Chinese City Between Two Worlds, but neither of them seemed to be doing particularly well. “As Old Beijing crumbled, new Beijing rusted,” wrote David Strand in his book Rickshaw Beijing, “...two forms of decay.”

(Beijing in 1929 was many things, but one thing it was not was, oddly, “Beijing.” When the Republican government moved to Nanjing in 1927, it was decided that the former capital could not retain its name as “northern capital,” so it was renamed “Beiping” (Northern Peace), a label the city had received in earlier periods when it was not the capital. I’m anachronistically continuing to call the city “Beijing” in this column for simplicity.)

Strand’s book, subtitled “city people and politics in the 1920s,” takes as its central metaphor for understanding the city the rickshaw and the men who pulled them. Even today, as a tourist attraction in various cities, the rickshaw is presented and commonly assumed to be a relic of China’s ancient past…but it is neither ancient nor Chinese, at least in its origin. The rickshaw was invented in the mid 19th century, in Japan, and although it relies on human labor for power, it embodies cutting edge technology of the time: inflatable rubber tires and ball bearings are essential to its success.

Agile and inexpensive to maintain, rickshaws came to Beijing in the 1880s and immediately provoked controversy. The rickshaws’ soft tires and light weight made

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Our phrase of the week is: “more haste, less speed” (欲速则不达 yù sù zé bù dá)

Context

One of China’s top car review platforms, Dongchedi (懂车帝), is at the centre of an ongoing media controversy. It began on the 8 October, when the platform published a 100–0 km/h stopping distance test for the new Maextro V800 (尊界V800).

The Maextro is a ultra-luxury automotive brand launched jointly by Huawei and JAC (江淮汽车) in May this year. The V800 is the flagship car of the brand, launched in August.

The video published by Dongchedi showed that all three V800 cars tested failed because the brake pedal bracket snapped on each one when braking, in almost exactly the same place. The testers had to use the Park gear to bring the cars to a halt which meant the stopping distance went from a normal 38 metres to 140.

The V800 follows a popular “asset-light” (轻资产) model of producing cars. Huawei brings its superior design and technology capabilities, and JAC builds the cars. This means new vehicles can be brought to market much faster.

The story has drawn attention to the dangers of this kind of rushed vehicle development, known as “rapid-production cars” (速成车). These are models which are designed and brought to market quickly by relying heavily on computer simulations instead of real-world testing.

As one writer concluded, by deploying a very old idiom:

“Fundamentally, this isn’t an engineering issue.

It’s a risk management decision that reflects a carmaker’s priorities.

More haste, less speed.”

这本质上是个风险控制的问题，无关车企的造车能力，只取决于车企们造车的态度。“欲速则不达。”

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

What it means

“More haste, less speed” is the English translation of a classical Chinese idiom. The individual characters mean “to want” (欲 yù), “speed” (速 sù), “then” (则 zé), “not” (不 bù), “to reach” (达 dá). Literally, it means “want speed, and you won’t get there.”

The idiom comes from the Analects (论语), the collected sayings of Confucius (孔子). Confucius lived from 551 to 479 BCE and is China’s most influential philosopher. He is the founder of the school of thought that has shaped Chinese society for more than two thousand years. The Analects was compiled by his disciples after his death.

In the chapter, Zilu (子路), one of Confucius’s students, Zixia (子夏), is appointed to govern a place called Jufu (莒父). Zixia was among Confucius’s “seventy-two favoured disciples”. He came from a poor family, but was known for his learning and integrity.

Before he set off to take up his new post in Jufu, Zixia asked his teacher for advice on how to govern, to which Confucius responded:

“Do not be in a hurry. Do not chase small gains.

If you seek haste, you will not reach your goal.

If you chase small gains, great things will not be achieved.”

“无欲速，无见小利。欲速，则不达，见小利，则大事不成。”

Confucius’s point was to not push for quick results, and not let small advantages distract from the bigger picture.

The idiom appears often in later writing. Sima Guang (司马光), the Song dynasty statesman and historian best known for the Comprehensive Mirror to Aid in Government (资治通鉴), used it in a letter to a friend:

“More haste, less speed.

How can an illness of half a year be cured in a single morning?”

夫欲速则不达，半岁之病岂一朝可愈？

Millenia later, Mao Zedong (毛泽东) used the idiom in a speech on cultural work:

“‘More haste, less speed’ does not mean we should not be fast.

It means we must not act blindly, because blind action is bound to fail.”

“欲速则不达”，这不是说不要速，而是说不要犯盲动主义，盲动主义是必然要失败的。

In modern Chinese, “more haste, less speed” is a warning against impatience and cutting corners. It’s also used in a shorter four-character form (欲速不达). In English, it can also be translated as “haste makes waste”. But we prefer the British “more haste, less speed”, which keeps the idea of speed as in the original Chinese expression.

Today, China’s carmakers are competing against each other to get new models on the road as quickly as possible. The “asset light” model of the V800 means the new vehicle has got to market faster, but without the usual rigorous real-world testing.

Which is a warning to other car makers that it’s not just about how fast you can design and launch new products to market.

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

#298: Huawei’s new luxury automotive brand hits the brakes

Car review platform Dongchedi (懂车帝), which is owned by tech giant ByteDance, is at the centre of an ongoing media controversy which is still unfolding in China. It began with the platform buying three new Maextro V800 (尊界V800) cars to perform a 100–0 km/h stopping distance test for its channel…

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7 days ago · 2 likes · 1 comment · Andrew Methven

Just like MofCom’s July essay on overcapacity, the piece takes aim at the fundamental premise of Western policymakers’ complaints rather than answering them directly.

• Beijing has now taken two key economic issues that advanced economies keep raising – the currency and overcapacity – and essentially said “suck it up, we’re not changing.”

• The upshot: China is going to press this model until something breaks.

On this episode, Trivium China Podcast host Andrew Polk sits down with Dinny McMahon (Trivium’s Head of Markets Research) to unpack:

• The PBoC’s three arguments defending its currency policy – from competitiveness to the lack of any agreed way to value a currency – and why Dinny thinks there’s some truth in each, while the essay as a whole “misses the wood for the trees”

• Why capital controls complicate the case for a stronger RMB: with deposit rates thin and property and stocks sagging, how much money would leave if China let it?

• The PBoC’s proposed fix: adjusting global imbalances by having deficit countries (read: the US) tighten their budgets while surplus countries like China boost consumption, and why Dinny calls this a pie-in-the-sky solution

• Why Beijing’s playbook with Europe looks like buying time, trading small concessions for room to keep its model intact

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 again- I think this is three in a row- by Dinny McMahon, Trivium’s Head of Markets Research. Dinny, let’s keep the streak going, baby. How are you doing, man?

Dinny McMahon: Yeah, too, right, mate? I was feeling unloved, but at least now I’m back in the rotation again. You haven’t forgotten me.

Andrew: Yeah, it’s good to have you back. Well, we just had a lull in the summer days, and then I had quite a few outside guests on. We’re going to keep mixing those people in, but it’s good to have you back in the rotation. While I’m having you on today, we’re going to do another quick reaction podcast because, last week, the PBOC published an essay in both English and Chinese, defending China’s exchange rate policy and sort of pushing back on foreign calls for the renminbi to appreciate. We’re going to talk through that essay — what it argues, whether the arguments hold up, and kind of what it tells us about Beijing’s thinking, not only about the renminbi, but also about the trade surplus and the growing sort of geopolitical tensions around that.

We will do some quick housekeeping since this is one of our shorter pods. Just a quick reminder, Trivium is a strategic advisory firm that helps businesses and investors navigate the China policy landscape. So, if you need any help on any of the issues that we’re talking about today or any policy issue related to China, please reach out to us at hq@triviumchina.com. All right, Dinny, are you ready to get into it?

Dinny: Yep, let’s roll.

Andrew: All right. So October 8th, just late last week, I think Thursday, the PBOC, that’s the central bank, published this essay, again, both English and Chinese, which is definitely notable. Anytime China publishes something in English, it’s like — hello, foreigners, we would like for you to pay attention to this issue. The essay was blandly titled, “The PBOC’s Views on the RMB Exchange Rate.” But that sort of belied some more- not bombshell findings, but a little bit more sexy content than the name would imply.

Anyway, it was a defense of China’s currency policy and an attack on those foreigners calling for RMB appreciation as a way to wind back China’s trade surplus, which is something especially the Europeans have been calling for in their trade negotiations with China recently. And this, interestingly, is not the first time we’ve seen a big piece like this. At the end of July, the Ministry of Commerce also published a similar essay on overcapacity, explaining why calls for China to rein in its overcapacity were totally without merit. So, seems like this may be the start of a growing trend. Dinny, why don’t you walk us through the argument that the PBOC makes in this paper so we can kind of understand what’s going on here?

Dinny: Yeah, right. So it kind of comes down to three key arguments. The first is that the PBOC is saying, look, China’s export strength is the result of its global competitiveness, not its undervalued currency. So, all the innovation, all the industrial upgrading it’s been going through over the last few years- that’s why China’s got this massive trade surplus. It’s got nothing to do with the currency. That’s the first point. The second is they’re arguing, look, exchange rates aren’t determined purely by the trade balances. So, to foreigners who are saying, “Hey, there’s this massive trade surplus; it’s indicative that the value of the renminbi is way off.” PBOC is saying, “Look, the value of a currency isn’t purely determined by the trade balance. It’s also influenced by factors like economic growth, monetary policy, geopolitics, random economic shocks.”

And so you can’t point to any one thing and go, “Aha! The currency is undervalued.” And then the third point is that you know there is no one standard globally accepted method for coming up with what an appropriate value of a currency is. So, there’s a bunch of different methods. They don’t always come up with the same answer. So, there’s no point pointing and saying, “Hey, according to these calculations, the renminbi should be 20% higher,” because the PBOC is saying, “Yeah, but which method is right?” There is no way of kind of coming up with answers.

So, that’s sort of a summary of what the essay was getting at. As you said, no bombshells here, but it’s kind of putting everything together as a coherent rebuttal to those arguments that the answer for the rest of the world to China’s trade surplus is the currency.

Andrew: Yeah, I think that last point is particularly notable in my mind about the PBOC arguing that there’s no real well-established methodology for evaluating a currency’s appropriate level. Well, first of all, I think the rebuttal among the IMF and Western economists, and the EU would be that, well, actually there’s a bunch of different methodologies and they all say that China’s currency is undervalued by X%, call it 12% to 25% or whatever. But they all agree directionally. They might not agree exactly on the proportionality.

But the reason I bring this up is this was also a key argument in that MOFCOM paper on overcapacity, which was overcapacity doesn’t have a globally recognized definition. And in fact, we would argue that overcapacity is not even really a thing. So, sort of the old, I take issue with the premise of your complaint, or the premise of your question is sort of what they’re going with, it seems like here. Does that sound right?

Dinny: Yeah, absolutely. They’re taking on the topic for debate, you know, the actual parameters for debate. So yeah, no, I think you’re spot on.

Andrew: Well, I mean, it just reminds me, I don’t know if they’re doing themselves any favor because this is like what your most annoying friend does when you argue with them, right? It’s like, well, you know, it’s like, “I’m not going to answer your question. And in fact, I’m going to attack the very premise of your question.”

Dinny: Do you have anyone in mind?

Andrew: They know who they are. I’ll just leave it at that. All right. Well, so, obviously my feelings on the matter are somewhat out there, but would you, broadly speaking, say that these arguments have merit going through each of them?

Dinny: Yeah, on some level. I mean, there’s no denying that Chinese firms have become incredibly competitive globally. They’re selling incredibly well-designed, cheap, high-quality electric vehicles, batteries are cutting-edge. Across a host of technologies, yeah, Chinese firms have become globally competitive. The other argument that the exchange rate isn’t determined purely by the balance of trade; yeah, I mean, that’s a fair argument. You kind of look at if China didn’t have capital controls in place, then the value of the currency wouldn’t necessarily appreciate. In fact, sure, you’ve got a trillion dollars coming into the economy every year from the trade surplus.

But if you got rid of capital controls, just how much money would like gush out of the country? I mean, anybody with any savings in China at the moment, given a choice, would move their money overseas. Bond yields keep falling. Interest rates on deposits, bank deposits, are wafer-thin. The property prices are still falling. The stock market is declining or moving sideways pretty much if you’re investing in anything other than AI. I mean, if you’ve got money in China and you’re looking overseas and you’re looking at rising U.S. bond yields and you’re looking at U.S. stock markets, just looking around the world, everywhere else, you’re going to get a better yield on your money anywhere else in the world at the moment if you’re a household saver in China.

So, there’s that question of, like, yeah, sure, you’ve got all this money coming in through the trade surplus. But if you didn’t have these barriers in place, just how much money would be leaving the country? And that’s what the PBOC was getting at. Hey, it’s not just trade surpluses that determine it; it’s also monetary policy, and interest rates are pretty cool.

Andrew: Yeah, I’m laughing because that’s a funny argument for the PBOC to make, which is, well, you know, if we didn’t have these capital controls, then a bunch of money would leave the country, so maybe the currency is actually overvalued.

Dinny: I’m reading between the lines here. They’re not exactly going into detail on this particular point. But anyway, look, that’s kind of where it’s coming from. It’s got these list of three arguments, and there’s a certain amount of truth to all of them, but it kind of misses the wood for the trees a bit.

Andrew: Yeah. Fair enough. Well, it’s exactly, again, like the MOFCOM paper on overcapacity where there’s an element of truth to everything they argue, but very clearly pretty heavy spin on the ball in terms of them trying to justify their approach. But can you tie this to the trade surplus for us specifically? Because that’s obviously what everybody cares about. I mean, no one really cares fundamentally what the currency is or what the currency price is. They only care about it insofar as it distorts trade practices. So, how does the paper reflect the PBOC’s thoughts on the trade surplus?

Dinny: So, it has a solution. And we’ve heard this in other places before. I think that we may have even seen a version of this in the MOFCOM essay on overcapacity. It frames the issue not about being its own trade surplus, but it frames the problem as being about global imbalances of which China’s trade surplus is perhaps part of it. And so, when it comes to imbalances, it’s not just that China exports so much, but the other side is that the U.S. in particular borrows too much. And so, PBOC’s solution to global imbalances writ large is that deficit countries, and we’re talking about the U.S., but it doesn’t call out the US by name, but that deficit countries should consolidate their fiscal positions, raise the domestic savings rate, and strengthen industrial competitiveness, while surplus countries, China, should boost consumption and investment.

And what that really means is that China is saying, “Hey, the U.S. should balance its budget.” But of course, I mean, that would be kind of recessionary almost by definition. The other side of the equation would be that China would boost domestic demand. So, kind of in a perfect world, China would create global demand by sort of expanding household spending or whatever, just as the U.S. demand was shrinking. And that would ideally help offset those sort of recessionary forces in the U.S. because it could export to China and everything would be wonderful.

And I mean, it doesn’t sort of lay all this out in great detail, but this is sort of the implications. And of course, that’s a wonderful idea, but it’s absolute pie-in-the-sky sort of stuff because China has proven itself incapable of boosting domestic demand, right? I mean, this is not something it needs to do in concert with the rest of the world. There doesn’t need to be a global pact for everyone to agree, “Well, we’ll rebalance on our side if China rebalance is on your side.” China’s been trying to boost domestic demand since it came out the back end of COVID and has been absolutely unable to do it for a bunch of reasons that we’ve talked about on the podcast.

So, the way out, and, of course, of the U.S. side as well, to think that the U.S. can kind of rein in its deficit, I mean, the only thing the two parties seem to have in common at the moment is they’re both willing to borrow more and more. So, I mean, the idea that this is feasible at any sort of point in time, it’s completely unreasonable to think that this is the solution to anything. And that ultimately is why the currency is so important, because in the past, it’s been the tool that rebalances trade when domestic political considerations preclude making hard decisions, right?

So, in some ways, it’s ideally an automatic stabilizer. And of course, it never really works that way without political agreement. So, you kind of need things like the Plaza Accord. But that is why people are talking about it, because there is a potential for currency to rebalance things when, domestically, politicians and governments can’t make those readjustment decisions.

Andrew: Yeah, I agree with you that China can raise its consumption rate without global coordination and global rebalancing. I will say this is one where I have a little bit of kind of sympathy for the Chinese argument, which is, at least from the U.S. side, we never seem to sort of look at our own domestic imbalances or domestic economy, which is U.S. savings rate could rise substantially, right? Which is the opposite of China’s overly high savings rate, which a lot of people would say is the fundamental issue of weak consumption and overinvestment and, therefore, the large trade surplus.

And some kind of coordination on that actually might make a little bit of sense. But I do feel like when people talk about this conversation from the U.S. side, it’s just China needs to do this, China needs to do this, China needs to do this. It’s kind of like, my view is if you’re sitting at a table and somebody keeps bringing you food and you keep eating it, getting mad at them for your gluttony. So, at some point you can just stop eating it, which I guess is sort of what the tariffs are about. But anyway, I think a little bit more self-reflection from deficit countries might be worthwhile. Anyway, I’ll get off my soapbox. But where does all that sort of leave us in terms of your main takeaways from this essay?

Dinny: Yeah, well, I think that the PBOC and the MOFCOM essays, they’re similar in that Beijing is taking two issues that advanced economies have complained about and pretty much said, “Suck it up, we’re not changing.” So that, I think, in some way, is the real significance of the PBOC essay. It’s not that it’s sort of a standalone rebuttal to calls to appreciate the renminbi. It is part of a broader trend where Beijing is kind of sticking its heels in. And of course, the problem with this is that Beijing, I think, sees discussion of overcapacity and currency revaluation as an attack on China. And I guess to a certain extent, there is probably an element of that.

But I think there is also perhaps a good faith element from outside of China, whether it be the U.S., or the EU, where foreign capitals are trying to look for an issue that they can negotiate over. Because the big issue here is the trade surplus. What they’re trying to do is kind of come up with some sort of common ground whereby we can end up in a more sort of balanced trade sort of environment. And so, Brussels, D.C., they’re looking for an issue that they can negotiate over. And I think it’s interesting with the overcapacity issue because the EU only started talking about it, only raised it after Beijing started talking about it.

I think it was what, December 2023, at the Central Economic Work Conference? Beijing started talking about overcapacity as being a potential threat to the industry over the next 12 months. We hadn’t seen this in years. Within a month or two, the EU was like, “Hey, overcapacity, this is something that we really need to deal with.” And so, it was kind of the EU trying to find common ground with Beijing, something they could kind of discuss. And then, of course, Beijing stopped, for that exact reason, stopped using the word overcapacity and started using involution.

And so, I think part of the issue here is, part of the problem is that Beijing is like, we’re not going to countenance currency revaluation. Overcapacity isn’t even an issue to be discussed. But the other side of the equation is that the EU, in particular, is kind of looking for common ground. And every time it raises an issue, it gets absolutely shut down. And we’re kind of getting to a point where this trade surplus with the EU, the EU seeing its industry being potentially hollowed out, I mean, things are starting to get existential. So, the question is, I mean, if Beijing is just going to go, “Nah, we’re not going to engage on sort of every complaint,” well, it kind of suggests that we’re heading in one direction.

It means there is no holistic solution. And it means relations are just going to keep deteriorating until something breaks. And I’m not quite sure. I don’t think any of us really know what that sort of looks like, but it’s potentially something very, very different from the global trade order we have at the moment.

Andrew: Yeah, I tend to agree with you. I just want to unpack a couple of things. One is kind of this idea that China is saying it is what it is. The model is the model. Deal with it. I totally agree with that’s increasingly the message, both from this paper and the MOFCOM paper, and from the messaging I was hearing back in March around the China Development Forum. This is kind of what people, especially European officials, had been telling me that they were kind of hearing from the Chinese side.

I also think it’s really interesting that, in both of these essays, China points to, so we already talked about that we’re going to take issue with the premise of your complaint, but they also point to innovation as China’s key sort of development or key competitive edge that is driving the surplus. They’re saying, like, “You’re just upset because your citizens are buying our goods because they’re so much better. And your companies are buying our B2B products because our company, our manufacturing companies are so much better.”

And so, this is just an outcome of China’s innovation ecosystem. And I think that them making that argument, first of all, falls on deaf ears. But I think this is also one where there’s been on the ball, but also they probably believe it. I think in part, that’s a good faith argument. And they just feel, I guess, this is another piece, maybe just kind of understanding the Chinese policymaker mentality is they feel all of these arguments, I think, are really just kind of specious arguments that the West makes up to contain China, right?

Oh, you’ve got overcapacity. Oh, your currency, whatever it is, whatever the reason for the trade surplus is, it’s not because your companies are good and you have innovation and everyone wants to buy your products, it’s because of all these other things. These are things you’re cheating on or distorting the market. And Chinese officials feel attacked by that. Again, I think it’s part disingenuous, part genuinely believing in their own innovation, and part genuinely feeling attacked. And the reason I bring all that up is because I think it goes back to what you just ended on, which is it’s very hard to see common ground for negotiation under those circumstances.

I actually was really surprised, as we’re talking here on Monday, October 12th, the EU-China negotiations over the weekend seemed to have actually produced positive momentum in terms of they seem to have this agreement on China being willing to produce sales of hybrid vehicles from China into Europe. But I think, ultimately, my view is China is dug in. And even with this positive sort of cyclical turn in the negotiations, the structural part of the negotiations is China digging in, and this kind of coming to a head.

And I actually wonder if it’s kind of the Europeans taking this small concession from China and being satisfied, and China sort of hoping that that diffuses what was clearly building European frustration, and China’s just going to go back to what it was doing structurally. And then six months from now, Europeans will be up in arms and negotiating and a line in the sand again. Anyway, I’m just rambling a little bit, but trying to tie all these together from my perspective. Any thoughts on any of that?

Dinny: Yeah, mate, I don’t think you’re rambling at all. I think that’s exactly what China is doing. I think the Chinese have worked out how to engage with Europe. And I mean, one of the great complexities of Europe is that it is not a single nation. And trying to cobble together a single trade policy, a single policy on anything with so many disparate countries is incredibly difficult.

And so, I think China makes a concession now, it’ll make some parties in Europe relatively happy for a while. Others will still be upset, but it’ll buy it time. China’s played this game before. Ultimately, all it needs is time. If you kind of look at the solar sector, solar manufacturers in the United States, it’s hard to believe, but the United States once had solar manufacturers. And they took China to the WTO, and they asked for support from the U.S. government. And eventually, it got those things. And it eventually won cases, I think, in the WTO.

This isn’t really my area, but my understanding is that the remedies came so late that by the time they came through, those manufacturers had already lost so much market share and they’d already lost. And Chinese firms were in a dominant position, and there was no real way to kind of claw back the market. And so, I think China kind of knows it can play a similar game with Europe. It offers some concessions now, and then the problem gets worse in other areas, it gets worse in new areas, and it takes time and effort to kind of build up the consensus within Europe to go after the next thing.

That’s not to say that Europeans might not pivot. They might change their approach. They might get a broader consensus in place that allows them to take a harder line. I mean, all these things can happen, but I assume that what the Chinese are doing is just what I outlined.

Andrew: Yeah. Well, we will continue to follow this stuff. I guess we should wrap up here, but just one final comment from me is that the most unsurprising thing about this PBOC document is just that, on the exchange rate, is that the PBOC is not going to unilaterally re-evaluate the currency. Basically, since the early ‘90s, they’ve thought that Japan revaluing through the Plaza Accords was one of the number one things that led to the Japanese economy tanking and the Japanese bubble bursting.

And everyone knows the parallels between China and Japan, and it’s just not going to happen. They’re not going to take that, what they see as a risk. It’s not even a risk in their mind. It would almost certainly lead to a reduction in economic activity, a negative impact on asset prices, huge fallout in the trading regime. It’s just not going to happen from their side. You agree with that? Then we can wrap up.

Dinny: Absolutely. Yeah, no question at all.

Andrew: Yeah. All right. Well, we’ll leave it there. Thanks for this, Dinny. Really great to dive into this stuff with you, and I appreciate the time.

Dinny: No worries, mate. Pleasure as always.

Andrew: Thanks, everybody, for listening. Bye, everybody.

An autumn of decisions. What German policymakers have been unable to deliver appears to be especially high on the agenda in Brussels. Last week was exceptionally eventful for the reorientation of trade relations between Europe and China.

Whether it also produced meaningful results, or even amounted to a success, will become clear in the weeks and months ahead.

Immediately before the visit by European Trade Commissioner Šefčovič, German Chancellor Merz and French President Macron presented a joint paper of remarkable clarity. The European Commission is to receive an instrument that, as a last resort, would allow trading nations to be immediately excluded from the European single market.

Political circles in Berlin, meanwhile, were speaking of a “second strike weapon” and a “kill switch,” with no audible doubts that the instrument would be directed primarily at China.

That is reason enough to take a careful look at these developments.

Is a threat to exclude China from the European single market credible?

How are different economic and geopolitical voices responding to the initiative?

And how should companies with exposure to China respond now?

The central question is what conditions Europe must establish for its market power to enable a durable understanding. Our yardstick is whether Europe can sustain its economy through the period before such an understanding is reached.

Remembering Cuba

As increasingly forceful metaphors of war enter the debate over strained trade relations, it is worth asking what we might learn from these analogies.

In October 1962, the United States discovered Soviet missile installations in Cuba. Kennedy demanded their dismantlement and imposed a naval blockade described as a quarantine. For thirteen days, the threat of nuclear war loomed. The crisis had been preceded by the failed Bay of Pigs invasion in 1961, carried out by Cuban exiles supported by the United States. The eventual resolution combined the Soviet withdrawal of the missiles with an American pledge not to invade Cuba and an initially secret understanding on the withdrawal of American missiles from Turkey. A direct communications link between Washington and Moscow was established in 1963.

This offers a framework for assessing European trade policy toward China.

A threat requires credibility.

Your own vulnerability must be understood and politically bearable.

An understanding requires conditions under which both sides can change their behavior.

The nuclear dimension of that conflict also sets a clear limit to the analogy. Economic measures operate through companies, supply chains, investment, and prices, with consequences distributed unevenly across time and society. These differences deserve particular attention when concepts from deterrence policy migrate into the trade debate.

Avoiding conflict should be one measure of success in economic policy. Its value lies in a durable framework that preserves fair business opportunities and reduces critical vulnerabilities. The costs of persistent distortions and a failure to adapt must also enter the calculation.

An Understanding in Beijing or Just Buying Time

After Merz and Macron published their “nonpaper,” EU Trade Commissioner Maroš Šefčovič traveled to Beijing and met with Chinese Commerce Minister Wang Wentao and Vice Premier He Lifeng. The joint statement concluding the talks contains 16 points. These include an understanding on trade in hybrid vehicles, further discussions on possible tariff reductions, continued proceedings on price undertakings for electric vehicles, and technical dialogues on market access and regulation. Another ministerial meeting is planned for January 2027, followed by the next round of trade talks in March.

On export controls, China is to further facilitate licensing for rare earths and permanent magnets through the existing expedited process. The European side intends to work with the relevant authorities in member states to advance priority licenses for certain goods with both civilian and military uses. The two sides also agreed on advance warning and greater transparency in procedures for adding companies to control lists and removing them.

In his closing remarks, Šefčovič highlighted three outcomes. The understanding on hybrid vehicles, he said, opens the prospect of reducing Chinese hybrid vehicle exports by more than half relative to the projected trajectory over the next four years. Potential tariff reductions would affect European exports currently worth nearly €4 billion and could save at least €225 million in duties. A further easing of export licensing was the third outcome.

The Chinese business publication Caixin explains that the announced reduction in hybrid vehicle exports refers to the Commission’s forecast for the next four years. It means limiting exports relative to their expected trajectory in the years ahead. The measures intended to achieve this have not yet been disclosed. China’s Ministry of Commerce emphasizes that escalation was avoided and states that Chinese companies’ actual export interests have been safeguarded.

In China’s assessment, the negotiations have initially avoided an escalation. Whether they deliver tangible results or merely buy more time remains to be seen.

A Threat of Retaliation Requires Credibility

The statements issued by both sides after the negotiations make no reference to the paper by Merz and Macron. Whether it nevertheless came up during the talks, and what effect it may have had on the course of negotiations, remains a matter of speculation.

The proposal is nevertheless now on the table and requires further discussion within the EU.

In their accompanying letter to Commission President Ursula von der Leyen, Berlin and Paris place particular emphasis on faster European decisions. For the instrument’s subsequent activation, Merz and Macron propose that a measure put forward by the Commission be adopted unless a qualified majority opposes it. Establishing the instrument in law requires a separate procedure. The proposal is intended to apply regardless of the country targeted and to address severe, persistent, or systemic market distortions.

The instrument is intended to enable a broad range of interventions that could, if necessary, extend to immediate exclusion from the single market. The precise scope of such an exclusion remains open.

We therefore see two features in the paper whose combination is central to this new “weapon” for potential future trade wars.

“An immediate cut-off.” It remains unclear whether the measure would cover all trade with a country or only individual product groups. The wording allows for a country to be targeted, which would in itself constitute an extraordinarily drastic measure, comparable to the current sanctions on Russia, which still contain exceptions.

Reversing the majority rule. A qualified majority must object, or the measure takes effect.

Viewed in this light, it is understandable that the proposed “cutoff” has become a “weapon,” a “second strike weapon,” or a “kill switch” in media coverage and political debate.

This brings us back to the logic of nuclear deterrence and the proposal’s Cuban Missile Crisis vibes. Of the conditions for successful deterrence outlined above, the first two are particularly relevant here. The threat must be credible. It must also be particularly credible that the party making the threat is prepared to bear the consequences for itself.

In the EU context, this also means that, even under a reversed majority rule, it must be credible that at least a majority of member states will be prepared to bear the consequences of deploying such a powerful trade policy weapon and defend that decision politically at home.

A trade policy instrument with this kind of power is not entirely new. Since December 2023, Europe has had an instrument to counter economic coercion, the Anti-Coercion Instrument, or ACI. Its conditions for use concern attempts to influence sovereign political decisions through trade measures or restrictions on investment. The Commission describes its underlying objective with remarkable clarity.

“The primary objective of the ACI is deterrence. The instrument will, therefore, be most successful if there is no need to use it.”

Questions & Answers regarding the Anti-Coercion Instrument

At its core, the aim is deterrence that makes using the instrument unnecessary. The same can probably be said of the paper by Merz and Macron.

The new initiative also addresses a broader set of problems. Before countermeasures of this magnitude are activated, economic coercion and systemic distortions of competition require a diagnosis that can be substantiated and instruments suited to it. A sound policy must explain which behavior is to change and which economic damage is to be contained.

Further international support emerged during the week. On October 7, 2026, a subset of G20 trade ministers published a joint ministerial statement on structural excess capacity. The signatories include the EU, Germany, France, the United States, India, and Japan. China is not among them.

“We call on all countries to take steps to eliminate structural excess capacity and production in their economies, including by ending the use of non-market policies and practices that distort markets and contribute to the problem.”

Sectoral working platforms are planned, initially covering vehicles, batteries, chemicals, mature semiconductor technologies, and solar modules. This gives Europe an opportunity to coordinate data, diagnoses, and measures more broadly with international partners.

How far this support will extend in a specific future conflict remains to be seen.

Credibility grows with the ability to translate shared positions into decisions and implementation.

Is Europe Ready to Bear the Costs of Retaliation

In 1962, the United States threatened the Soviet Union with retaliation. The resolution of the crisis combined credible military threats with reciprocal concessions and a way out that allowed both sides to save face.

If the EU wants to credibly threaten a cutoff of trade relations in 2026, that threat will have an effect only if it is credible that the overwhelming majority of member states would be willing to bear the associated costs.

For Germany, the recently published semiannual report of the Commission for the Review of Security Relevant Economic Relations between Germany and China, dated October 2, 2026, can help convey the potential costs of a cutoff in trade between the two countries.

“In the China Commission’s assessment, Germany’s overall economic security … in relation to China has deteriorated since the commission was established. German supply chain dependencies on China have intensified …

The strongest dependencies, and those most relevant to security policy, concern critical raw materials that underpin numerous technologies of the future and are indispensable for digitalization, the energy transition, industrial production, and defense technologies. … Estimates suggest that the EU sources up to 90 percent of its requirements for heavy rare earths and certain magnet products directly or indirectly from China. Without rare earths and permanent magnets, there will be neither an energy transition nor a modernization of Germany’s armed forces.

Geopolitical concentration risks resulting from accumulated dependencies are also a form of market failure. Progress in reducing them remains limited. In 2025, as in previous years, China was Germany’s most important source of imports, accounting for 12.5 percent of the total.”

In the context of our argument, supply chain dependencies, China’s importance as a source of imports, and the supply of critical raw materials describe the costs of a cutoff involving China. At least in the case of critical raw materials, the exposure extends beyond Germany to the EU as a whole.

For the European debate, this raises an essential question.

Given these extreme dependencies and the resulting costs of a cutoff, is the threat to use this instrument credible at all?

Our analysis also considers time. A supply interruption can affect production as soon as existing inventories are exhausted. Losing an export market affects orders, margins, and investment. Building new technological capabilities, in turn, requires its own development timelines.

For a critical input, what matters is inventory coverage, qualification of an alternative supplier, approval, and the time until a technically suitable replacement can be delivered. If securing an alternative takes longer than the business can tolerate an interruption, an operational gap emerges. A new trade policy instrument must be assessed against that gap.

A panel of economic experts from Germany and France, also reporting this week, recommends diversifying critical supplies and strengthening capabilities that cushion interruptions and make economic coercion more difficult. At the same time, they call for an assessment of the costs to consumers and companies in each individual case. Their benchmark is a targeted rebalancing of interdependence.

“The EU’s response to China’s growing industrial dominance should target the dependencies that create scope for economic coercion. …

Any such strategy must weigh the gains from resilience and deterrence against the costs ultimately borne by European households. Broad restrictions on Chinese imports or untargeted preferences for European production would impose substantial costs without necessarily improving economic security.”

This requires a precise diagnosis of China’s competitiveness. In his Chatham House report on Europe’s industrial future, James Kynge examines pharmaceuticals, electric vehicles, wind energy, and machine tools. He describes an interplay of research, industrial networks, scale, competition, and state support.

His findings call for taking China’s technological capabilities seriously and improving Europe’s own productivity and investment conditions.

For our argument, this means that European trade protection measures should make a demonstrable contribution to adaptation. That requires a goal for the capabilities to be developed or preserved during a period of protection, a timetable, and an assessment of the resulting costs.

Interests can also diverge within a company. A European group may source Chinese components, conduct research in China, and face Chinese competitors in European markets at the same time. The political category of China exposure must therefore be translated into specific functions, locations, and time horizons.

Room for Negotiation Requires Conditions

One final document from this week is a paper by the Jacques Delors Institute developing a Structural Rebalancing Instrument. The authors propose tariff rate quotas under which additional imports above defined thresholds would face higher duties. The design includes conditions for subsequent easing and a solidarity fund intended to cushion the costs of possible retaliation across member states and sectors. The authors acknowledge that some design questions require further legal examination.

They also address the negotiating strategy toward China.

“So what is to be done? Two routes remain. Plan A is to negotiate with China. Plan B is a new instrument built for the problem. Europe needs both so it can speak softly while carrying a sizeable stick. …

The Commission should ask for three things: (1) verified volume restraint in the sectors where injury is documented, counted through the joint monitoring mechanism the two sides have already built; (2) capacity commitments in the sectors Beijing’s own campaign against ‘involution’ has named; and (3) the exchange rate issue to be placed on the agenda in the IMF and the G20.”

The legal design remains decisive. Conventional agreements on voluntary export restraints are generally prohibited under WTO rules. The legal basis on which the understanding is to be implemented must therefore be clarified.

The three conditions in our analysis nevertheless come together here. An instrument needs a credible prospect of application, the ability to bear its economic costs, and conditions for reaching an understanding. Jointly financing potential consequences could also be regarded as an investment in European cohesion.

The European Council Must Consider Implementation

The European Council sets the EU’s political direction. In our view, its meeting on October 15 and 16, 2026, should produce a mandate to give concrete form to the understanding reached in Beijing and prepare Europe to act effectively in economic affairs.

Three decisions deserve priority.

First, the Commission should present an implementation plan for the understanding reached in Beijing. Companies need clarity on the design of measures concerning hybrid vehicles, on export licenses, and on progress in market access. In our view, an initial public report by the end of November would be appropriate. Where quantified outcomes are promised, the baselines, assumptions, and methods for verifying them should be published.

Second, the Commission and member states should promptly compile an initial joint assessment of critical dependencies and the possible consequences of interruptions. With the participation of affected companies, they should gather specific information on the ability to bridge disruptions, secure alternative supplies, and establish alternative capacity.

Third, it must be clarified whether the instrument proposed by Merz and Macron should be added to the EU’s policy toolkit and what signals could reinforce the credibility of its enforcement.

The design of a new instrument should also specify its triggers, scope, and conditions for easing measures.

China Exposure Belongs on a Timeline

For executive and supervisory boards, assessing the developments unfolding in recent weeks begins with a more precise description of their companies’ own ties to China. Revenue and invested capital alone provide an incomplete picture. Critical inputs, development capabilities, customers, and local partners belong in the same assessment, a review of the company’s China exposure.

Every significant dependency should be linked to the duration of an interruption the business can tolerate and the realistic time needed to establish an alternative. If these periods are far apart, a decision is needed on inventories, alternative sources, capacity, or changes to the business model. The costs and forgone opportunities associated with these precautions must also be assessed.

Companies should also represent their interests to policymakers with reliable data. Those calling for protection measures or warning of their consequences should be able to explain what they would mean for production, customers, employment, and investment. This also improves the quality of the evidence on which European decisions are based.

The second strike weapon and the kill switch signal a new ambition for Europe’s use of economic power.

Its credibility begins with the ability to bear the economic consequences of its own decisions.

Its success will be measured by whether Europe reduces critical vulnerabilities and creates durable conditions for competition and mutual understanding.

A Personal Note

China.Table is once again seeking the Top 100 figures in the German speaking China community and is inviting nominations. If our work makes a meaningful contribution to your understanding of the China debate and to better business decisions, we would be very grateful for a nomination.

Henrike Scholz is accepting nominations at h.scholz@tablebriefings.de until October 23, 2026.

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Our phrase of the week is: “tourist-trap souvenir trio” (冤种三件套 yuān zhǒng sān jiàn tào)

Context

This year’s Mid-Autumn Festival and National Day holidays were only three working days apart. So many people took the opportunity to combine them into one long holiday.

The travel platforms Ctrip (携程) and Tongcheng (同程) reported that cross-city trips leaving the day before Mid-Autumn Festival or on the day itself were up 18% compared to the Dragon Boat Festival break.

But many of those travellers came home with the same complaint: wherever they went, it felt as if they had been there before. A Weibo hashtag asking “How Homogeneous Have Scenic Spots Become?” (现在的景区同质化有多严重) has already racked up tens of millions of reads on the platform over the last couple of weeks.

And one phenomenon being discussed is the souvenirs on sale at these destinations, with a new phrase coined to describe them:

“The most classic of them all is probably the tourist-trap souvenir trio: hand cream, city fridge magnets and themed ice cream.”

其中最经典的，大概逃不过这“冤种三件套”：护手霜、城市冰箱贴以及文创雪糕。

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

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What it means

“Tourist-trap souvenir trio” (冤种三件套) is our translation of two internet slang terms combined into a new expression.

Broken down, the characters mean “wronged” (冤 yuān), “type” (种 zhǒng), “three” (三 sān), “piece” (件 jiàn), “set” (套 tào). A more literal translation would be “the sucker’s three-piece set.”

The first term in this new combo is the northern dialect slang, translated as “total sucker” or “gullible victim” (冤种). Originally common in places such as Chaoyang (朝阳) in Liaoning province, it described someone who has suffered an injustice and is left brooding over it.

In recent years, the rise online of “gullible victim” began with bloggers from the northeast, who used it in short videos to mock themselves with exaggerated self-pity:

“I’m just a big sucker” (我是个大冤种)

That stripped away its heavier original meaning, and it came to describe anyone who has done something foolish. In December 2022, “sucker”, along with its stronger form “big sucker” (大冤种), was named one of the top ten internet buzzwords of the year by Language and Writing Weekly (语言文字周报). It also made our own list that year.

The other part of this new phrase is the “three-piece set” (三件套). It’s become a popular template online. It is used to mock, or self-mock, the signature combination of three things, always negative, that defines a group of people, a lifestyle or a predicament.

The best known example of this is the “workhorse trio” (牛马三件套) which is a “mortgage” (房贷), a “car loan” (车贷) and “carrying on the family line” (传宗接代). These are the burdens expected of young people in China to shoulder for life. Another common one is the “middle-class poverty trio” (中产返贫三件套) which is having a maxed-out mortgage, a spouse who stays at home full-time, and children who study at international school.

This latest “three-piece set” is made up of three types of so-called “limited edition” (限版) branded souvenirs which seem to be on sale in every tourist destination across China. These are “hand cream” (护手霜), “city fridge magnets” (城市冰箱贴) and “themed ice cream” (文创雪糕) in the shape of local landmarks.

Over-priced and poor quality, the items in this “three-piece set” are probably all produced by the same supplier in Yiwu (义乌). So many tourists have stopped buying this tat and instead they browse, try the samples, take their selfies with the item, and walk away.

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

#297: What is China’s “tourist-trap souvenir trio”?

This year’s Mid-Autumn Festival and National Day holidays were only three working days apart. So many people took the opportunity to combine them into one long holiday by “taking three days, and getting thirteen off” (请3休13…

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13 days ago · 8 likes · 2 comments · Andrew Methven

• In a recent Qiushi essay, central bank (PBoC) Governor Pan Gongsheng laid out why credit growth has to slow.

Trivium made this call back in July, when deleveraging sounded like a wild idea given how weak the economy is.

• Dinny McMahon’s take: “We feel quite validated.”

On this quick-reaction episode, Trivium China Podcast host Andrew Polk sits down with Dinny (Head of China Markets Research) to unpack:

• The three conditions Beijing needs to enable deleveraging, and why the Iran war and the export boom checked two of them

• Where Beijing is already pulling back on borrowing: policy bank bonds, bankers’ acceptances, and special-purpose bonds

• Why Beijing cares so much: a debt-to-GDP ratio of 305%, up more than 50 points since 2021, and an aging population that will require borrowing capacity in the future

• The “sprint and reset” theory: Beijing is ratcheting investment down to a new base while exports hold up, and Dinny’s verdict that it’s making hay while the sun shines

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 am joined, once again, but actually for the first time in a while, by Trivium’s Head of Markets Research, Dinny McMahon. Dinny, it’s been a minute. How are you doing, brother?

Dinny McMahon: Yeah, it has been a while. I’m feeling a bit rusty. We’ll see if I can get back into my stride.

Andrew: Yeah, well, you better jump in because the listeners have a high bar in terms of what they expect from you. So we will put you to the test today. We’re going to, today, do another one of the sort of shorter podcasts, quick React podcasts with Dinny. I’ll have a longer podcast with him on monetary policy next week. We actually just got a lot of content coming out, so I hope people are enjoying it.

I wanted to do this quick react podcast with Dinny specifically around this idea of China’s deleveraging, which Dinny has written about before and was really early on in terms of highlighting China’s efforts to deleverage. And then we got the clearest sign yet that is happening from a piece by the PBOC Governor Pan Gongsheng, kind of highlighting some of this stuff. I know we’re going to talk about that in a minute, Dini, but can you just remind us where that piece was in just a quick two seconds on that piece?

Dinny: So, Pan Gongsheng wrote an essay in Qiushi just a few days ago. And broadly speaking, the piece mostly just goes over his talking points from a speech that he gave at the Lujiazui Financial Forum back in June, which was mostly about needing to slow credit growth and allocate credit more efficiently. But what really jumped out at us was that he started talking about specifically the debt-to-GDP ratio. Really, for the first time in ages, any sort of senior Chinese official has really started talking about it specifically. And his take was, look, it’s risen a lot in recent years.

That’s because deflation has pulled down nominal growth, and it’s because Beijing has needed to increase debt to maintain a stable economy. I mean, he didn’t say it explicitly, but the context, of course, is that Beijing or China needs to keep borrowing to fill the hole left by the property market. So that was kind of the unspoken implication of his comments. But the key part that really sort of jumped out at us was that Pan said this. He said that China needs to avoid a situation where credit growth exceeds the needs of the real economy, causes idle and stagnating funds, further pushes up the debt-to-GDP ratio, and makes it difficult to eliminate outdated production capacity and inefficient enterprises.

And broadly speaking, he said, look, he thinks China can maintain a basically stable debt-to-GDP because credit growth is coming down. I mean, we heard that, and we felt quite validated because this is what we’ve been arguing. That China is deleveraging, specifically, it’s bringing down its debt-to-GDP ratio. And there is Pan saying China needs to do it for all these reasons.

Andrew: Totally. So, this is what prompted us to do this quick react pod today. We’ll walk through Dinny’s kind of previous argument, maybe touch a little bit more even on Pan’s essay in Qiushi. So that’s sort of the rundown for today. Of course, I also have to just very quickly do a little bit of housekeeping. Just to remind people, 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, like, for example, macro policy, which we will talk about today. And it also includes policy towards China 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’ll do a little bit more of an abbreviated version of this today. The second piece is just tell your friends and colleagues about Trivium, please. It really helps us out. We know that a lot of you are doing this and super appreciate it. Those word-of-mouth recommendations really help us to grow the podcast, and they help us to grow our business. So, thank you for doing that. Please continue to do so. All right.

So, Dinny, let’s dial back. At the end of July, we put out, and I hit that we hard, the royal we, which was really not the royal we– It was you put out a note saying that China is deleveraging. And, I mean, it was very kind of counterintuitive at the time because growth, well, and even still maybe is so, although, like we said, Chinese officials are clearly acknowledging this more explicitly now, but growth was weak and it seemed not the time to deleverage, right?

Everyone’s saying what China needs is more stimulus, more spending, more borrowing, more investment, more fiscal expenditure, of course, funded by government borrowing. But what you meant was what you already touched on, was that Beijing is actively trying to reduce its debt-to-GDP ratio. That, again, sounded a little bit counterintuitive, maybe even crazy, some would say at the time, especially with household spending barely growing, investment incredibly weak, got infrastructure weak, property manufacturing, everything contracting in terms of investment spending year on year from 2025 levels.

But you also made this argument that there were a couple of things creating the space for them to do this, and those were exports and inflation. So, just talk me through your argument from back in July to kind of level set.

Dinny: Cool. So, the idea was that ultimately to deleverage, you kind of need to fulfill three conditions, right? Or three conditions need to be in place to sort of effectively deleverage. One is you need inflation because it reduces the real value of the debt. And that’s something that China really hasn’t had for the last three years. It’s been struggling with borderline deflation for consumer prices and sort of endemic deflation for producer prices.

And so, it hasn’t really been able to bring down the stock of debt through inflation because it’s been struggling with inflation. But then we had the Iran war this year, and all of a sudden that got flipped. So for the first time in years, we had inflation and laying the groundwork or the conditions where China could conceivably deleverage. The second thing you need is you need a source of growth that isn’t driven by debt. And I mean, in China, the motors of growth over the past 20 years have been mostly debt-driven.

It’s been property investment. It’s been infrastructure investment. Most recently, it’s been investment in manufacturing. So instead, you needed something that would drive the economy, sort of help bolster nominal GDP, but it wasn’t aggressively adding to the stock of debt while they did it. And lo and behold, that’s what we’ve got with sort of the export boom that China’s really enjoyed since, what, the middle of last year, maybe a little earlier, and so with exports going gangbusters, China can generate growth without racking up the debt at the same time.

And then the other thing, the other condition that really needs to be met is that China needs to pare back the borrowing. The state needs to borrow less; firms need to borrow less. And that’s kind of what we’ve been looking for signs of happening as well then. And we’ve been seeing it. Various parts of the economy, certain groups are borrowing less, and some of that has been incredibly surprising given what you just said, Andrew. I mean, we’ve got chronically weak domestic demand in China in this environment.

You would think that the thing Beijing would be doing is looking to ramp up borrowing to sort of get the economy going, and yet some of the levers that would traditionally have pulled, we’re seeing a pullback, a contraction of debt or far less debt being deployed than would otherwise be the case, normally be the case.

Andrew: And now, thank you for letting that out, but now you feel vindicated because of what Pan just said in this Qiushi article. Walk us through that again. I know you’ve touched on it, but maybe tell us a little bit more about Pan’s side, and why do you think he’s coming out saying this now?

Dinny: Yeah, when he gave that original speech at Luijazui in June, the way that I read that was that was the first time that kind of put me onto the idea that Beijing might be deleveraging. He didn’t say it explicitly, but there was a lot of talk about, you know, it doesn’t matter that credit growth is slowing. The important thing is how credit’s deployed. We need to be focusing on efficiency. We need to squeeze out inefficient and misused leverage.

It seemed to be laying the philosophical foundations for why credit growth not just is slowing, but why it should be even slower. And so, when a few months later, he comes out with this Qiushi article, which pretty much makes all the same points, but then goes specifically to the debt-to-GDP issue, talking about how it’s rising, talking about how we can’t continue to let it rise, I’m like, okay, this is clearly what they’ve been building towards.

Andrew: Yeah. So, let’s extend that a little bit further. You said in your report back in July that if China generates 5% real GDP growth and inflation of 2%, right? Nominal GDP around 7%. Now we’ll see what the actual nominal growth numbers are. And, of course, we know there are challenges around the real GDP numbers, but I think it’s safe to say that the government is working off the official nominal GDP numbers. So let’s call it 7%. That if that’s the growth rate, then China can start deleveraging, or at least stabilize the debt-to-GDP ratio if total social financing or overall credit slows to 7% by the end of the year.

And you said that growth might be even slower than that, both on the credit side of like, we could probably look at TSF growing even at 6.9% year and year by December. How is that prediction looking on both sides?

Dinny: Yeah, I think we’re on track. I mean, as you said, the key thing here is what is China’s nominal GDP this year? Because the reason they haven’t been able to deleverage over the last few years is because nominal GDP has been so weak. What is it? 3.5%, 4%. But this year, because of inflation, it looks like we could get 7%, maybe a little bit higher, maybe a little bit lower. But whether China deleverages then or not, a big part is whether, well, is credit growing faster or slower than that pace of nominal GDP. So, if we’re aiming for 7%, can China get to total social financing TSF growth of 7% by the end of the year? Yeah, that is not difficult at all.

August, it was 7.2%. Almost every month, the pace of year-on-year TSF growth is declining by 0.1 percentage points. And so, another four months left in the year, I wouldn’t be surprised if TSF growth in December was like 6.8, even 6.7% year on year. So yeah, I think on the slowdown of the credit side of things is really coming together. I think the bigger question is, will inflation hold up? Will GDP growth achieve a minimum of 4.5% as Beijing was aiming for? I mean, that’s the real questions. Credit growth, no, it’s slowing sufficiently aggressively. That deleveraging is certainly within a shot.

Andrew: Now, we talked about this before on the podcast, I think with you, myself and Joe Peissel, our lead macroeconomist. I mean, you would expect rapidly slowing credit growth to lead to further slowing of economic growth, particularly in real terms. But there is a few things going on here. Talk us through kind of the missing link on what Beijing is expecting to kind of keep economic growth moving in an environment of weakening credit growth?

Dinny: It’s all about exports. That’s really what it comes down to. Consumption is not part of the solution at the moment. They talk about it all the time, but the consumption solution hasn’t changed since the end of COVID, which is unlocking latent demand. They haven’t done anything meaningful to really reinvigorate household spending. And if debt isn’t rising, which really is, you know, you’re not doing anything to reinvigorate investment, it’s a purely a export-led story. So, what you have is an expansion of manufacturing on one side and you have net export growth on the on the other, and those two things are what are driving the economy at the moment and what needs to continue to happen to deleverage.

Andrew: Yeah, and I would also say this is a little bit of a curveball, it’s not exactly on our map for this conversation, but you wrote about it in the past couple days, which is also Beijing is acknowledging that this environment will continue to depress investment, which they are totally fine with and are trying to improve sort of the targeted nature of investment, like what it goes towards. They want to make sure investment goes towards national priorities and boost the efficiency of investment to the extent they can, right? So, would you say that those goals are in concert with the deleveraging agenda?

Dinny: Yeah, absolutely. These are two sides of the same coin. They’re not just like, “Well, we need to reduce debt because we’re worried that it’s getting out of control.” They also have, I guess, a theoretical framework built around why they shouldn’t be investing as much as they used to be, why they shouldn’t be pumping as much credit into the economy. And so, whereas we’ve seen this real shift in the way that authorities talk about the role of investment in the economy, and specifically the role of infrastructure.

So, traditionally, investment and infrastructure in particular, they were ballast for the economy. They were the lever Beijing pulled whenever it felt as though the economy just wasn’t strong enough. And at various times, pulling that lever meant pumping more credit into the housing market. At other times, it meant pushing more credit into infrastructure. Most recently, it involved pushing more credit into manufacturing, but now the way Beijing talks about it is that the point of investment isn’t to create growth the point of investment is to raise the efficiency and productivity of other industries.

And so, that’s a real shift. It means that investment isn’t a lever to be pulled anymore. It’s far more strategic; it is about generating the productivity gains in other parts of the economy, which Beijing sees as being essential to driving growth. And so that’s a real change. They talk now a lot more about needing to improve the efficiency of infrastructure, not generating wasteful investment. And so that kind of very much goes hand in hand with sort of this deleveraging push because, on one hand, it’s like, well, we can’t afford to rack up debt the way that we used to. On the other hand, they’re saying, you know, we don’t even want to do that anymore because the point of investment has changed.

Andrew: Yeah, this also kind of aligns with a kind of piece of analysis that I was telling to our clients when I was in Shanghai a couple weeks ago, which is you’ve made the case that they’re sort of trying to take advantage of this moment of higher inflation and strong exports to sort of create this environment for deleveraging. But I would also say that exports as an outlet for growth in a deleveraging environment, those exports become even more important, right? And so, Beijing’s message or Beijing’s thinking, I think, is the stakes for this model for the export reliance are so much higher, right?

Because we recognize that we need those to keep us growing at this moment. And so, we’re not going to unilaterally disarm. And we’re going to increasingly send the message to folks like this is the model, get used to it. And also, our ability to defend our industrial policy, which is part of what underpins the export machine, becomes more and more and more important, which is why you see Beijing taking such a tough line on trade negotiations, in particular, I think with the EU. There’s additional reasons for them taking such a tough line with the U.S. But I think that need to defend the exports, need to defend industrial policy and the sort of innovative aspects of the aspects of industrial policy that support innovation.

I think the stakes are getting higher and higher and higher for their need to do that. And that’s one reason why you see them being so tough. But that’s just another point I wanted to add in. The question I wanted to ask you, the next question, is why does Beijing care so much about deleveraging? I mean, you know, I think people are pretty familiar with the arguments of why too much leverage can be dangerous. But Beijing seems obsessed with this stuff at times.

Dinny: Yeah, look, I think there’s a few reasons for it. I think it’s a starting point. I mean, what, according to the Bank for International Settlements, at the end of the first quarter, China’s debt-to-GDP ratio for the whole economy, so that includes households, corporations, government, take it all together, debt-to-GDP ratio was 305.2%. I mean, that’s really high. Not the highest in the world. I mean, there’s other countries. France are higher.

But importantly, that ratio has increased more than 50 percentage points since the end of 2021. I mean, that’s a really aggressive increase at a time where China was kind of sort of weaning itself off a debt-led growth model, right? it deliberately popped the housing bubble because the debt was kind of accumulating at a rapid pace. And so, even after the deleveraging campaign, even after deflating the housing market, we had this rapid expansion of debt relative to the size of the economy.

Now, of course, the pace of debt accumulation had slowed down, but so did the pace of growth. And so, the overall burden of debt has increased rapidly. Now, the real issue here is that what happens if it continues to grow at this pace? And realistically, it will surpass Japan’s current level by the middle of 2030 if it continues on its current pace. Now, of course, Japan is actually, its GDP ratio is actually declining at the moment. So, if Japan keeps declining, China continues on its current pace, I mean, they could cross over in the next two, three years. Now, of course, there’s nothing wrong with that. That’s not a real milestone.

But psychologically, I mean, Japan has been the poster child for indebted national economies for the last 20 years. For China to surpass Japan, I think it would be quite a hit to the way China both perceives itself and the way that it presents itself to the rest of the world. So of course, that’s a starting point, right? That’s why I think there’s like, “Mm, okay. This thing is getting a little bit out of control.” The other issue, and this is the real issue, is that at some point in the not so distant future the demands on the Chinese state, the spending demands are going to increase exponentially.

It’s because the population is aging so aggressively, and so healthcare costs are going to go up, pension costs are going to go up. At the very same moment, the population, the workforce is shrinking and shrinking, so the tax base is getting smaller. And so, regardless of what China does with the economy, it seems a pretty sure thing that at some point in the not-so-distant future, fast-approaching future, Beijing is going to have to start spending more and more and is going to have to borrow to meet those obligations.

So, assuming it’s going to have to borrow more for an indefinite period of time in some point in the future, ideally, it needs to borrow less now because every dollar that it borrows now is one less dollar it’s not going to be able to borrow in the future when it really needs it.

All right? So, if it’s borrowing now it’s all about trying to hit an arbitrary GDP target. If it’s borrowing in 15 years’ time, there’s nothing arbitrary about it. It’s borrowing because it needs to pay people’s pensions and meet health care obligations. So, that’s the real difference. And so, what it needs before that point in time comes, it needs more runway. It needs a greater space, greater fiscal space that will allow it to borrow more when it really needs to.

And so, to be in this position at the moment where the debt-to-GDP ratio has racked up 50 percentage points over the last four years, four and a half years, that can’t continue, because if it does, it’s hamstringing itself. Assuming it’s making life more difficult for itself in the not-so-distant future.

Andrew: Yeah, well said.

Dinny: Up to a point. Well said, up to a point.

Andrew: So, one last question then is, I think what everybody’s wondering is what that means for sort of traditional macro policy over the rest of this kind of economic cycle, we’ve been making now for a while that, I mean, for literally for years, like basically since we started this company, that Chinese policymakers are increasingly moving away from the old-style stimulus. You should stop expecting stimulus. I think that’s, like, now everyone understands that that’s not how they manage the cycle anymore.

But I would say this even goes further. In fact, it’s like not just not stimulus, but actually we’re putting on the brakes sort of through deleveraging. So, not only no gas, but actively kind of pulling back through the deleveraging campaign. Is that kind of how you think about macro policy at the moment?

Dinny: Yeah. So, on one level, you’ve got a slowdown in credit growth, and that’s natural, right? It’s slowing down because there’s just not as much credit demand. And then on the other side, you’ve got active government efforts to kind of slow down the accumulation of debt. And so, there’s a few really interesting places that are worth looking at. First is with the policy banks. So, the policy banks have always kind of been the go-to tool, source of, you know, sort of an avenue through which Beijing injects credit into the economy when it needs to stimulate.

And what we’re seeing with the policy banks at the moment is in this moment of relatively weak domestic demand, credit’s going in the other direction. So, the total stock of outstanding policy bank bonds, and bonds are the main source of funding for the policy banks, actually contracted 500 billion RMB in the first half of this year. That is unprecedented. At the same time, PBOC lending, the stock of PBOC lending to the policy banks, also contracted 500 billion RMB.

Now, that’s not so unusual. That PBOC lending has gradually contracted to almost nothing over the past, since 2024. But for that to be happening at the same time that the policy banks are actually retrenching their outstanding bonds, that is incredibly unusual. So that’s one thing. One of the big tools Beijing has always used to stimulate weak growth is being retrenched. Second thing that’s really interesting, but not surprising, is that the PBOC is trying to squeeze out sources of credit that are really not adding anything to the economy. And so, we’ve seen this before during the deleveraging campaign. That was the first thing they tried to do.

We’re deleveraging. This was 2016-17. The deleveraging campaign, first step is we get rid of the credit that’s not really doing anything for the economy. And so, the PBOC is trying the same trick again. And what they’re trying to do is reduce the amount of discounting of bankers’ acceptances that the banks are doing. No point going into details into exactly what that means. But we describe discounting a banker’s acceptances as low-calorie credit. It’s something the banks do when their lending volume in any given month has been particularly weak.

It’s a way to sort of boost their data. And it’s something that the banks have leaned into incredibly heavily this year to make their lending data look better than it is. So, the PBOC has effectively turned around. It’s trying to significantly reduce the degree to which that is going on. And I think the third thing that’s worth noting is what’s happening with how local governments are using special purpose bonds. Now, special purpose bonds were set up as the tool through which local governments funded infrastructure investment. And that is what they were for years.

And then a couple of years ago, Beijing started allowing local governments to use the funds raised from these bonds for other stuff, specifically to pay down hidden debt, which is… I mean, it’s paying down off-balance-sheet loans, stuff that local government financing vehicles have borrowed. So, it’s effectively a debt swap. A debt that a local government financing vehicle has borrowed, gets swapped effectively for an explicit bond borrowed by local government.

And it’s also these special purpose bonds are also being used for land buybacks. And again, this is kind of, it’s almost a debt swap thing going on as well. Local governments issue bonds. They buy back the land from developers that don’t need it. And those developers, more or less, they use those funds to pay down their own debts. And so, these bonds aren’t creating new debt. For the most part, they’re just resulting in the debt being shuffled around the economy. And what that means is that far less is being used to invest in infrastructure.

And so, that’s what we saw in August. I think only about a third of the money raised from the issuance of special purpose bonds actually went into infrastructure investment. Now, we think that’ll improve over the next few months for various reasons, but the underlying force that’s sort of driving this is that Beijing is insisting that infrastructure projects are financially sustainable. And local governments are finding it increasingly difficult to find those sorts of projects.

Beijing could relax those standards if it really wanted to. It could say, “It’s okay. We accept that you know these projects can’t pay for themselves, but in the short term, they’re important to ensure a certain degree of domestic demand and economic activity,” which is something that they’ve been relatively okay with in the past. But they’re not because their priorities have changed. And so, that’s kind of the three big areas where we’re seeing deleveraging at the moment, and we’re on the lookout for more because really I don’t expect this to be the end of it.

Andrew: Yeah, this has been great. Real last question this time is so the last “deleveraging campaign,” which I would call really more of a financial de-risking campaign that we saw started 2017, really kind of ran for three years, 2017 to 2019. Then, of course, the pandemic sort of blew everything up, right? Then kind of required a different policy response. I know they haven’t laid out official documents on this stuff, we’re just kind of at the early the front end of it, but, I don’t know, what’s your sense of how protracted this effort will be and what that might mean for growth over the next couple years?

Dinny: That’s a really good question, Andrew. I’ll be frank, I haven’t thought that far. I mean, my thinking at the moment is that, well, where is the pain point? At what point do they blink because they’re not generating the economic growth that they thought was important. I think we all kind of thought the same thing about the deleveraging campaign back in 2016, ‘17, ‘18, ‘19. It’s like, does this get to a point where they’re too worried about financial stability, they’re too worried about the slowdown in growth, and that they blink? And ultimately they didn’t, they stuck to their guns.

But this time, I really don’t know. I think, for all the reasons we’ve talked about, this is something that they want to do permanently. There’s a recognition that they can no longer lean into debt just to generate growth. Like, one renminbi of debt needs to generate, at the very least, a comparable amount of nominal GDP. That has not been the case for years. For one, additional dollar of nominal GDP has required significantly more debt than that. But that can’t go on indefinitely. So, I think ideally what they’d like to think they’re doing is they’re turning over a new leaf.

They are putting in place a new economy which does not require large amounts of debt to operate. And I think this is why they keep talking about the need for services, not just an expansion of consumer services, but business services to drive the economy. This is why they keep talking about the need for asset revitalization. The idea of taking existing assets and getting more wealth out of it rather than borrowing to create new assets. I mean, this is kind of the background noise to sort of this deleveraging.

They want a fundamentally different economy, and they think they’re putting in place the bits and pieces that will allow them to do it. Whether they can or not is a completely different question. Those sorts of structural changes typically take time. So, I think what they think they’re doing is a permanent thing. It’s just a question of whether the pressures on the economy cause them to blink at some point.

Andrew: Yeah, actually, I think that’s right. But also, let me throw something out there that I was just thinking as you were saying all that is maybe they just stick with it as long as kind of the export wave holds up, right? It could just be like path dependent. And what I mean by that in particular is I was thinking the exact same thing you were in terms of level setting to a new place. Maybe they’re trying to ratchet down investment in a way to a new base. Certainly, they are in the property sector, but maybe even in infrastructure manufacturing as well.

Once you get it down to that new base, which you can do in basically a couple of years, right? And you use the tailwind from exports to sort of reduce like unneeded credit growth and unneeded investment, then you’re at a new base of growth for that, or that new base of activity, and then you can get growth out of that new base of activity, right? You start getting year-over-year GDP growth out of investment because it’s smaller, right? In a way, maybe they’re just trying to reset. They’re trying to sprint and reset.

Not only we’ve seen them for years now doing re-rendering how property’s relationship with the economy. Maybe it’s an entire thinking about overall investments relationship with the economy and debt’s relationship to economic growth. And they think they can sprint through it while exports are strong. What do you think about that?

Dinny: I think you’re onto something, Andrew. I think that might be exactly what they’re trying to do here. They’re making hay while the sun shines, right? They’re making the most of the exports. Because, I mean, realistically, net export growth, the exports cannot continue growing the way that they have indefinitely. I mean, to think that it would even go for another couple of years, good Lord, that would be mind-blowing. But if they make the most of that now, take the pain from accepting a contraction in investment across the board, because that’s what we’re seeing.

I mean, this year we’ve seen a contraction in investment in property and infrastructure and manufacturing. I mean, for them to do what you just said, to reset to a lower level, and then once they’re at that lower level, growth can restart again, albeit at a significantly slower pace, that makes a lot of sense.

Andrew: Well, and it also means you, by definition, increase the size of your more innovative parts of your economy as a proportion of overall GDP. And you get growth from there as well as those continue to grow. So, I mean, it’s a little, I don’t know if Machiavellian is the right word. You know, if they can pull this off and this is what they are thinking, it’s actually quite sophisticated. I guess most people wouldn’t want to give them that much credit, but we’ll see.

I think it also speaks to why, when the IMF comes out and everyone else and says, “What you need at this moment is more fiscal support.” They’re like, “Bro, that’s not what we’re trying to do.” You know what I mean? I mean, maybe they don’t say it in those exact words.

Dinny: Or maybe they do. Maybe they’re like, “You know, mate, we should talk to each other more often. This has been really useful.”

Andrew: Yeah. Yeah, totally. I mean, it is, I mean, helping get my juices flowing for sure. Listen, man, I appreciate you laying this out for listeners. This was super helpful for me. It’s fall now, so we’ll get you back in rotation on the pod. Really appreciate the time today, man. Thanks for walking us through it.

Dinny: No worries, mate. It’s a pleasure as always.

Andrew: And thanks, everybody, for listening. See you next time. Bye, everybody.

This week on Sinica, I’m joined again by Afra Wang, the Bay Area-based writer behind the AI newsletter Concurrent, who was last on the show in January to talk about her Wired piece on The Morning Star of Lingao and China’s “Industrial Party.” She’s back with two new pieces of on-the-ground reportage that get beneath the surface of China’s apparent AI techno-optimism: her New Yorker Lede piece on Liangzhu, the town outside Hangzhou where laid-off and burnt-out tech workers have gone to vibe code in each other’s living rooms (and where AI and BaZi fortune-telling have become strangely intimate), and a forthcoming New York Magazine piece on China’s sprawling, lucrative, and largely unregulated “learn AI, get rich” education industry. We talk about why 93% of Chinese respondents tell Gallup that AI will mostly help their country, what that number conceals, and whether what looks like optimism is sometimes closer to acceptance.

Afra’s pieces discussed in this episode:

• What China’s Vibe-Coding Capital Can Tell Us About the A.I. Boom — The New Yorker, September 23, 2026

• [Her forthcoming New York Magazine piece on China’s AI education industry — [LINK TK, expected after October 12]]

• You’ve Never Heard of China’s Greatest Sci-Fi Novel — Wired, January 2026, and our January 2026 Sinica conversation about it

• Subscribe to Afra’s newsletter, Concurrent

Also mentioned:

• Optimism About AI Globally Widespread Despite Uneven Adoption — the Microsoft-Gallup survey

• China’s OpenClaw gold rush — MIT Technology Review

• Damien Ma and William Adams, In Line Behind a Billion People: How Scarcity Will Define China’s Ascent in the Next Decade

• Evan Osnos, Crazy English — The New Yorker, April 2008

• Lian Si 廉思, Journey Without a Map 无图之旅：一代青年的自我寻路

• Ken Liu on Chinese science fiction — Sinica, 2016

06:51 – Walking into Liangzhu’s living rooms: the San Francisco déjà vu, and the grimness beneath the techno-optimist story the West wants to hear

10:14 – Setting the scene: a real-estate developer’s utopian village, Neolithic ruins, Xi Jinping’s intervention, and a “road-to-food ratio” low enough to build real community

17:30 – Child of the layoffs or child of DeepSeek? The post-COVID “ego death” of Chinese tech — and a quibble about the word “crackdown”

21:42 – Master Qi and the living room as a social form: what Liangzhu offers that a Beijing office or a WeChat group can’t

24:11 – What the 93% really tells us: optimism, acceptance, or FOMO when you can’t protest a data center

29:26 – “Westerners get restless when they can’t protest; Chinese people get restless when they haven’t found a teacher”: qiúzhī 求知, meritocracy as religion, and the company called Shēngcái Yǒudào 生财有道

32:48 – Inside Shengcai Youdao: the “prosperity evangelist” conference room, the ladder from ordinary member to CEO class, Mr. Tree’s Hilton seminars, and who’s actually paying 3,000 yuan a year

37:44 – Scam or ladder? The state’s war on the “paid knowledge” mess, Dragon Ball referral credits, and the security guard running Claude Code on his phone during his shift

41:03 – How it compares to the Valley’s course-sellers; selling hope and upward mobility, echoes of Crazy English, and “the prosperity gospel with Chinese characteristics”

45:30 – “Take us to Silicon Valley!”: what the West means to a room of one-person companies building apps for the U.S. App Store

47:18 – Xiao Kai, the 25-year-old AI filmmaker from Heilongjiang: murder mysteries as model-friendly plots, government commissions, WaytoAGI, and the local-government AIGC fever

55:28 – Lian Si’s Journey Without a Map: a Party insider tells young people to “make peace with the ordinary” while everyone else says learn AI or be left behind

59:59 – FateTell and the gray zone of AI fortune-telling: tarot slot machines in Shenzhen, crystal shops, and Liangzhu as “China’s Sedona”

1:04:13 – Levy, the BaZi cosmology, Sam Altman’s chart, and Kaiser plays the skeptic: the Yijing as “humanity’s first statistical decision model,” the Whole Earth Catalog, and New Age re-imported from the West

1:12:27 – Do they actually believe it? Speech fasting, BaZi compatibility in hiring, and Chinese syncretism at work

1:14:45 – When the local government falls in love with the scene: Crazy Thursday, incubators, “new quality productive forces,” and why Liangzhu’s peak may already be over

1:19:42 – Are Chinese people really cavalier about AI safety? Pragmatism, scarce compute, trust in state capacity, the blind spots of EA — and a preview of Afra’s third piece on China’s “industrial AI slop”

Paying It Forward:

Zilan Qian, a GovAI fellow researching AI governance in China who writes the Substack Until Zilan Finds a Better Name and is a must-read on how AI-safety concepts like “loss of control” translate (or don’t) into the Chinese context. Her most widely shared piece: Why America Builds AI Girlfriends and China Makes AI Boyfriends.

Recommendations:

Afra: Ken Liu’s new collection, The Passing of the Dragon and Other Stories, whose title borrows a metaphor from Ursula K. Le Guin.

Kaiser: Marilynne Robinson’s Home, the second of the four Gilead novels — set in the same few weeks of 1956 as Gilead but seen from inside the Boughton household, as Glory and her prodigal brother Jack circle a secret the book doesn’t name until nearly the end.

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 get how all these Substack subscriptions can really add up. I mean, they do for me for sure. So, I try to offer a lot. You get not only Sinica Podcast, but you get the Sinica Chinese Phrase of the Week from Andrew Methven. You get podcasts and roundups from the terrific folks at Trivium. You get my very favorite podcast, the indispensable China Global South Podcast. And you get the historian Jay Carter’s This Week in China’s History, an outstanding column, now publishing much more frequently. So please do subscribe so I can continue to bring you these conversations and a lot more.

Over the past year and a half or so, and especially just these past several months, I’ve had the odd experience of watching a technological fever take hold in China in a way that I haven’t really seen since the arrival of the mobile Internet, maybe even the Internet itself back in the mid-late ‘90s. Back in March, on a Friday afternoon, close to 1,000 people were lined up outside Tencent’s headquarters in Shenzhen. They had their laptops in hand so that Tencent cloud engineers could install OpenClaw for them. The open-source AI agent harness with the little red lobster logo. Baidu did the same thing in Beijing a few days later.

Raising a lobster became the phrase of the season. All these retirees were supposedly doing it. Grade schoolers were doing it. AI engineers, of course, were doing brisk business installing this stuff. A Beijing software engineer actually told MIT Technology Review that his 77-year-old father had asked him to set up a lobster. A cottage industry just sprang up of guys who’d come to your apartment and install one for like 500 kuai. And a few months later, by early summer, according to some people, those same guys were fielding even more requests to uninstall them than to install them. But hey, so it goes. AI agents got a mention in the Government Work Report. Hefei was handing out compute vouchers to one-person companies.

It was a really giddy, a little unhinged time, and I confess it was a great deal of fun to watch. The same basic Chinese techno-optimism that seems to underlie this AI fever seems to show up in all the available polling data. The Microsoft-Gallup AI adoption survey this year asked people whether AI would mostly help or mostly harm people in their country. And in China, I guess this shouldn’t surprise too many people: 93% said ‘help.’ First in the world. In the United States, it was only 36% that put the U.S. in the bottom five. It was sandwiched between Afghanistan and Malawi.

So, these numbers have fed a lot of chatter in the West about whether Chinese people are simply cavalier about AI, wondering whether they’re just blind to the risks or naive or worse. But honestly, there’s not a lot of data behind that chatter. And what there is tends to be sort of secondhand anecdotes. What’s really been missing is on-the-ground reportage, reporting with real color, with real texture by someone who knows the tech worlds of both sides of the Pacific, who can read a co-working space or a living room hangout in Hangzhou and their counterparts in San Francisco with equal fluency and who happens also to write really compellingly, really beautifully.

So, thank God we have Afra Wang, who is easily among the most exciting of the crop of younger writers tackling China and technology. Someone whose voice and judgment I’ve come to really implicitly trust and to rely on. Afra is a Bay Area-based journalist who writes the AI-focused newsletter Concurrent. Definitely subscribe to that one. She was last on the show in January, I think it was, to talk about her Wired piece, where she was writing for Wired magazine for their big China issue. She wrote a great piece on the Morning Star of Lingao, the sprawling crowdsourced time travel novel that serves as the kind of urtext, as we said on the show, of China’s industrial party, the gōngyè dǎng, the loose online ideological current, I guess, movement, I don’t know, that treats engineering capability and manufacturing-led growth not just as the true source of national wealth and power, but as something close to a creed.

They make a fetish of getting the tech tree completely right. That was one of my favorite conversations of the year so far, and it made her the obvious person to bring back for this. So, she’s here today with two pieces actually to talk about; the first ran in The New Yorker on September 23rd. It was titled “What China’s Vibe Coding Capital Can Tell Us About the AI Boom.” And it takes us to a place called Liangzhu, a town on the northwest outskirts of Hangzhou, where burnt-out tech workers have gone to vibe code really on their own terms. And where it turns out the AI and BaZi fortune-telling thing have become strangely intimate. The second piece is actually forthcoming.

Maybe around the time that this podcast drops, you guys will have access to it. It’s in New York Magazine, and it’s on China’s AI education industry, the paid make-money-with-AI courses, the self-organized vibe-coding tutorials that you find all over the place, AI filmmakers, a guy from Dongbei who we’re going to meet, and what she finds when she looks beneath the surface of all that apparent techno-optimism, which, as you will hear, isn’t always simple optimism. Afra Wang, welcome back to Seneca. Thank you so much.

Afra Wang: Thank you for this generous introduction, Kaiser. I’m really flattered, really happy to be back to share my new pieces.

Kaiser: It’s wonderful to have you. And as always, hit pause and check, if it’s after October 12th that you’re listening to this, you should be able to get the New York Magazine piece. It doesn’t have a title yet, but you’ll find it. Just look for Afra’s name. And then the New Yorker piece, definitely hit pause, read that, come back, and we’ll jump right in. So Afra, the last time you were on, we spent a good while on what it’s like for you to be kind of a cultural in-betweener. Actually, not just cultural, but kind of a tech culture in-betweener.

And this time you really put that to the test. You walked into these spaces in Liangzhu, into a living room with shoes lined up at the door, this being an Asian household, laptops all over the carpet, everybody is half-knowing everybody else. And you say your first reaction was deja vu. It could have been a house party in San Francisco. I’ve had that exact same experience where I’ve been in tech spaces in China and it’s felt exactly like the Valley or the city. Then there’s the differences that started to register almost immediately as well. So maybe let’s begin there. What did feel the same and what turned out to be different? And what was illuminating about those differences especially?

Afra: Yeah, the reason why I discovered this Chinese vibe coding capital, Liangzhu, was really because some really contrarian, interesting programmers I know by going to these open-source meetups. And one of those strange people says Liangzhu is a place you need to check out. So, that’s why I trusted their judgment because they’re weird enough to tell me, like, where the actual tech periphery is. So, I went to Liangzhu, and I hung out with a lot of Vibe coders for many days, went to their living rooms, listened to the open sharings, participated in their crazy Thursdays, as well as just visiting different companies.

And like each one of them are all, in a sense, very different from Alibaba or Tencent — not building super apps, but really building like whimsical, interesting little things. And I think in a sense, like sentiment bias and, on ground, there is a lot of grimness. I think simply because China’s economy is doing terribly bad. So, that’s why you have this contradictory phenomenon where all the Western media, the Western discourse, want to hear about these awesome stories of the technological optimist story from China. But all the journalists who are in China understand that the texture of the society just want to report about the youth unemployment and the grimness, the darkness, the desperation.

So, this is like the huge contrast I observed in those living rooms where young people, first and foremost, they are teaching each other about AI. And second, a lot of them are unemployed or call themselves OPC, one-person company, call themselves influencers, call themselves vibe coders, which in nature is also true. There’s some core that’s genuine. I don’t want to be cynical about that. But at the same time, many of them are in a situation where they don’t have stable income.

They constantly worry about being left out. So that’s why I discovered this vibe coding town as well as this really interesting phenomenon about this lucrative and unregulated, and sprawling AI education industry. Because the vibe coders I met, when I was asking them about their financial source, a lot of them said, “I sell class.” 我买课。 And then when I asked follow-up questions, I realized a lot of their income source are not actually from Vibe coding or not actually from selling software to other people, to the Westerners, but sell classes to other Chinese people and then themselves also register classes.

Kaiser: I mean, before we get too much further, I want to talk a little about this place, Liangzhu. I’ve never been there. Like I said, it’s on the northwest suburbs of Hangzhou. Help us set the scene there. There are Neolithic ruins there. I know that there was this Liangzhu culture there. I don’t know if people have been out to Banpo Village. I imagine it’s that, but there’s also like this Tadao Ando designed building of a very famous Japanese architect, still living. It’s called the Village Cultural Arts Center. I looked at it. I encourage you to check it out online. It’s quite a stunning building. The big roof, I guess, you say. What’s the Chinese, what do people call it in…?

Afra: They just call it that “da wuding” and then another one is “dà gǔcāng,” the big barn.

Kaiser: Yeah, the big barn. But there are like people sipping oat milk lattes and people actually lying on the grass, which is not something you typically do in Chinese cities because there’s all these little signs that say don’t trample on the grass. And then there’s this backstory involving apparently how Xi Jinping actually went there back in 2003. But anyway, how did this place, I mean, it seems like sort of an unlikely place to become the vibe-coding capital, as you call it, of China. How much of that was planned and how much it was just sort of spontaneous?

Afra: I want to break down a few components about the creation of Liangzhu or how this vibe-coding capital became what it is today. There are a few factors. The one factor is it was essentially a real estate project. Liangzhu Wenhuacun, the Liangzhu Cultural Village, was a part of this infrastructure build out in the real estate boom. So, I think back then, certain real estate developers like Hengda, the one that built Liangzhu, had this vision of this post-urban village, this utopia village. So, they pretty much have this concept of Xianjian building the country in their mind. So the way they built Liangzhu was not building 12-floor high-rise buildings to house people. Rather, in Liangzhu, you don’t see any high-rise buildings.

The living condition really much resembles the Bay Area or Orange County, if you know the American suburb.

Kaiser: Like detached housing?

Afra: Yeah, detached housing.

Kaiser: Wow.

Afra: Yeah, a lot of single-family houses. A lot of the buildings that you don’t need an elevator because they’re four floors tall, five floors tall. And the houses in Liangzhu are also spacious, right? With 3,000 yuan, 4,000 yuan a month, you can rent a 2B2B. You can rent a 3B2B even. You can have an actual living room that you can house people. So in Beijing, people are joking about this lu/fan bi, road food ratio. It means if you eat your food for two hours, but if you spend two hours on the road as well, so your Lu/fan bi, your road food ratio would be one.

But in Liangzhu, this road food ratio is actually incredibly low. It’s because you only need to like walk five minutes to go to your friend’s place to eat with them and then

Read more

This week on Sinica, I’m joined again by Afra Wang, the Bay Area-based writer behind the AI newsletter Concurrent, who was last on the show in January to talk about her Wired piece on The Morning Star of Lingao and China’s “Industrial Party.” She’s back with two new pieces of on-the-ground reportage that get beneath the surface of China’s apparent AI techno-optimism: her New Yorker Lede piece on Liangzhu, the town outside Hangzhou where laid-off and burnt-out tech workers have gone to vibe code in each other’s living rooms (and where AI and BaZi fortune-telling have become strangely intimate), and a forthcoming New York Magazine piece on China’s sprawling, lucrative, and largely unregulated “learn AI, get rich” education industry. We talk about why 93% of Chinese respondents tell Gallup that AI will mostly help their country, what that number conceals, and whether what looks like optimism is sometimes closer to acceptance.

Afra’s pieces discussed in this episode:

• What China’s Vibe-Coding Capital Can Tell Us About the A.I. Boom — The New Yorker, September 23, 2026

• [Her forthcoming New York Magazine piece on China’s AI education industry — [LINK TK, expected after October 12]]

• You’ve Never Heard of China’s Greatest Sci-Fi Novel — Wired, January 2026, and our January 2026 Sinica conversation about it

• Subscribe to Afra’s newsletter, Concurrent

Also mentioned:

• Optimism About AI Globally Widespread Despite Uneven Adoption — the Microsoft-Gallup survey

• China’s OpenClaw gold rush — MIT Technology Review

• Damien Ma and William Adams, In Line Behind a Billion People: How Scarcity Will Define China’s Ascent in the Next Decade

• Evan Osnos, Crazy English — The New Yorker, April 2008

• Lian Si 廉思, Journey Without a Map 无图之旅：一代青年的自我寻路

• Ken Liu on Chinese science fiction — Sinica, 2016

06:51 – Walking into Liangzhu’s living rooms: the San Francisco déjà vu, and the grimness beneath the techno-optimist story the West wants to hear

10:14 – Setting the scene: a real-estate developer’s utopian village, Neolithic ruins, Xi Jinping’s intervention, and a “road-to-food ratio” low enough to build real community

17:30 – Child of the layoffs or child of DeepSeek? The post-COVID “ego death” of Chinese tech — and a quibble about the word “crackdown”

21:42 – Master Qi and the living room as a social form: what Liangzhu offers that a Beijing office or a WeChat group can’t

24:11 – What the 93% really tells us: optimism, acceptance, or FOMO when you can’t protest a data center

29:26 – “Westerners get restless when they can’t protest; Chinese people get restless when they haven’t found a teacher”: qiúzhī 求知, meritocracy as religion, and the company called Shēngcái Yǒudào 生财有道

32:48 – Inside Shengcai Youdao: the “prosperity evangelist” conference room, the ladder from ordinary member to CEO class, Mr. Tree’s Hilton seminars, and who’s actually paying 3,000 yuan a year

37:44 – Scam or ladder? The state’s war on the “paid knowledge” mess, Dragon Ball referral credits, and the security guard running Claude Code on his phone during his shift

41:03 – How it compares to the Valley’s course-sellers; selling hope and upward mobility, echoes of Crazy English, and “the prosperity gospel with Chinese characteristics”

45:30 – “Take us to Silicon Valley!”: what the West means to a room of one-person companies building apps for the U.S. App Store

47:18 – Xiao Kai, the 25-year-old AI filmmaker from Heilongjiang: murder mysteries as model-friendly plots, government commissions, WaytoAGI, and the local-government AIGC fever

55:28 – Lian Si’s Journey Without a Map: a Party insider tells young people to “make peace with the ordinary” while everyone else says learn AI or be left behind

59:59 – FateTell and the gray zone of AI fortune-telling: tarot slot machines in Shenzhen, crystal shops, and Liangzhu as “China’s Sedona”

1:04:13 – Levy, the BaZi cosmology, Sam Altman’s chart, and Kaiser plays the skeptic: the Yijing as “humanity’s first statistical decision model,” the Whole Earth Catalog, and New Age re-imported from the West

1:12:27 – Do they actually believe it? Speech fasting, BaZi compatibility in hiring, and Chinese syncretism at work

1:14:45 – When the local government falls in love with the scene: Crazy Thursday, incubators, “new quality productive forces,” and why Liangzhu’s peak may already be over

1:19:42 – Are Chinese people really cavalier about AI safety? Pragmatism, scarce compute, trust in state capacity, the blind spots of EA — and a preview of Afra’s third piece on China’s “industrial AI slop”

Paying It Forward:

Zilan Qian, a GovAI fellow researching AI governance in China who writes the Substack Until Zilan Finds a Better Name and is a must-read on how AI-safety concepts like “loss of control” translate (or don’t) into the Chinese context. Her most widely shared piece: Why America Builds AI Girlfriends and China Makes AI Boyfriends.

Recommendations:

Afra: Ken Liu’s new collection, The Passing of the Dragon and Other Stories, whose title borrows a metaphor from Ursula K. Le Guin.

Kaiser: Marilynne Robinson’s Home, the second of the four Gilead novels — set in the same few weeks of 1956 as Gilead but seen from inside the Boughton household, as Glory and her prodigal brother Jack circle a secret the book doesn’t name until nearly the end.

• In fact, Chinese state media outlet China Daily went further, calling Amodei’s suggestion a “self-serving bid for profit.”

The back-and-forth has led to an ongoing debate around whether China takes AI safety seriously.

• Kendra Schaefer’s take: China does take AI risk seriously — but what it won’t accept is the premise that its own progress is the problem.

On this episode of the Trivium China Podcast, host Andrew Polk sits down with Kendra (Trivium’s Head of Tech Policy Research) to unpack:

• Why China’s response to the “pacing the frontier” debate looks dismissive on the surface, and why that reading misses how much AI regulation Beijing is already planning

• How pursuing open-weight models has become a geopolitical position for China, with roughly 70% of derivative models on Hugging Face now built on Chinese base models

• China’s new argument in the distillation fight: that banning it is an unfair trading practice and proof of US efforts to assert technological hegemony

• The one thing that could flip Beijing’s calculus on managing open-weight releases, a major security incident, and how China’s COVID-19 playbook suggests it would shut the door rather than share what happened

• Whether the new U.S.-China AI safety dialogue, set to kick off in November, has any path forward

Give it a listen and let us know what you think.

Transcript

Andrew Polk: Hi, everybody. Welcome to the latest Trivium China Podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium co-founder, Andrew Polk, and I am delighted to be joined today, once again, for the first time in a while, actually, by Trivium’s Head of Tech Policy Research, Kendra Schaefer. Kendra, welcome back. How are you doing?

Kendra Schaefer: Hey, I’m doing good. Glad to be here again.

Andrew: Yeah, always glad to have you on the pod and excited about our conversation today. We are going to get into a conversation I’ve been actually wanting to have with you for about 10 days now. We’re going to talk about AI, and specifically sort of the AI pacing issue that has been in the headlines and, related to that, AI safety and AI governance. And we’re going to get into China’s specific views on these things because there’s obviously also this conversation about how and whether the U.S. and China are going to coordinate on these issues.

And then, of course, just a few days ago, Xi Jinping was in Washington, D.C., and there was talk about setting up an AI dialogue. Unclear exactly what that means, but you’ve written a couple of pieces recently– one on kind of China’s view on AI pacing and AI safety and AI governance, and then separately on the challenges that will likely impede a robust AI dialogue between the U.S. and China because they’re really kind of coming at these things from different starting points. So, we’re going to get into all of that today. But of course, before we do, we have to start with the customary vibe check. How’s your vibe today, Kendra?

Kendra: You know, I’m actually feeling gypped. I listened to a podcast you did with Joe last week, No Vibe Check.

Andrew: Yes, yes. So, wait, are you feeling cheated because I’m making you do it or because I didn’t make him do it?

Kendra: A little bit of both. I want to know if Joe got a special dispensation or if there was just, like, some failure of the audio and it had to be cut out.

Andrew: No. So for you and for other listeners, on our shorter quick reaction podcasts, I try to keep the intro shorter so that proportionally, I guess it takes up less of the time, and we get straight into it. So, we kind of have what I view as our sort of anchor longer podcast each week, and then the shorter quick turn, quick reaction ones, I try to keep a little bit tighter. So that’s why Joe was off the hook.

Kendra: Oh, that’s a little look behind the curtain for me. I’ll have to get booked on one of those sweet, sweet quick take slots.

Andrew: Well, the problem with the quick reaction ones is they always end up being 45 minutes anyway.

Kendra: Of course. It was a good podcast.

Andrew: Yeah, I thought it was great. Joe did a good job. Unfortunately, we were going to do a follow-up, and it’s just because of the holiday in China, we couldn’t quite have him back on. But we will be talking about outcomes from the Xi-Trump meeting on the AI front today. And I’m sure we’ll be talking about all those issues on an ongoing basis. For my part, I am just, again, a little peek behind the curtain, in a weird headspace because, we’re going to lose listeners because of this, but I’m a Manchester City Football Club fan. It’s an English Premier League team.

Kendra: Appalling.

Andrew: They just got handed down a monumental fine, effectively, for financial cheating.

Kendra: Oh, really?

Andrew: This has been the big news in the soccer world over the past week or so. And I’ve been listening to a lot of analysis on what it will mean. And as a fan, as a supporter, it’s very complicated feelings. And I’m sure for the players, it’s even more complicated. But anyway, I’m emotionally conflicted. And that’s the energy I’m bringing into this podcast.

Kendra: Good, good, good.

Andrew: Well, whatever that means. If I say anything weird, you know, listeners will know why.

Kendra: I’ll know it was them.

Andrew: Exactly.

Kendra: I’ll know it was soccer.

Andrew: Exactly. Before we get into the meat of the content, we also quickly have to do the housekeeping as well. Just a reminder up top, 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 issues, including AI and technology, which we will talk about today, as well as policy towards China out of Western capitals like D.C., London, Brussels, and others, which we will also talk about today. So, we’ll kind of cover the gamut on the AI policy front. But if you need any help on that front on any of these regulatory issues, 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 want more Trivium content, please check out our website. Again, triviumchina.com. We’ve got a bunch of subscription options for people to stay on China policy developments. Kendra and her team write an excellent daily tech policy update. It keeps you clued in to everything that’s happening in the China tech policy front. And then we’ve got markets’ notes. We’ve got general China watcher notes for people in business who need to just kind of stay up to date on what’s going on in China. So, check that out. You’ll definitely find the China policy intel option you need on our site.

And finally, please do tell your friends and colleagues about Trivium, both about the business and about the podcast. I say it every time, but I can’t say it enough— It really helps us grow our company and to grow the listenership. And these word-of-mouth recommendations from current clients or just people who know Trivium, people who heard the podcast mean a lot in terms of getting other folks interested in our work and helping us to grow our listenership and grow our business.

So, we really do appreciate those. Please do keep those coming. All right, Kendra, are you ready to get into it?

Kendra: Yeah, let’s get into it.

Andrew: So there’s obviously, I think I can say obviously, I over rely on the word obviously, but I think it’s true that anyone who’s been paying attention will have seen this explosion of conversation around AI safety, you know, and the so-called need to pace the frontier, which was in large part sort of kicked off at least this recent episode by sort of almost infamous Pacing the Frontier Letter released by, I think, the CEO of Anthropic, which essentially argues that AI development is moving so fast it could pose existential risk to humanity and kind of trying to call on the other U.S. labs to work together to deliberately introduce friction into their own processes so that they can ensure that the guardrails around AI keep up with the innovation, and that regulators also step in and take a look. Have I got that basically right, Kendra?

Kendra: Yeah, that’s right. I mean, the response to that, I mean, that was just one tiny part of what happened over the last two weeks. There was a massive sort of response to the Pacing the Frontier letter. Obviously, the Trump administration loudly and roundly rejected the very idea of regulating AI, essentially said he would not sign off on any kind of pacing, did not intend to regulate, and ultimately said that the U.S. couldn’t afford to slow down because China’s not slowing down.

And then China sort of entered the chat and came after Anthropic, came after the U.S., came after many of the ideas that had been put forward. There was a sort of diplomatic statement by China rejecting the idea of a coordinated slowdown with the United States or with U.S. labs. State media outlet, The Global Times, hit back against Dario Amodei’s letter, sort of casting doubt on the motivations behind him posting that letter.

China Daily released an op-ed calling the letter, “Self-serving bid for profit,” by a U.S. tech elite. And then what was also really interesting was that China’s intelligence services, the MSS, had a couple of interesting releases, or MSS-related bodies and people also publicly posted on this. Most notably, Spymaster Chen Yixin, China’s minister of state security, published an essay on AI risk in which he kind of addressed some of these existential risk, and in which she kind of also obliquely sort of poked it at U.S. labs and criticized them of being sort of hypocritical. So, just sort of an outpouring of discussion on this issue from all corners.

Andrew: That’s right. Yeah. And then, of course, just to further lay the groundwork in terms of developments that have happened that we’ll be reacting to today, there was also, as I mentioned, the Xi Jinping-Donald Trump meeting in Washington, D.C.

Kendra: Not to be forgotten.

Andrew: Exactly. And a lot of speculation that sort of there might be some more substantive discussion between the two on AI safety. That didn’t really seem to happen, I think, in part because there wasn’t actually much substantive conversation in the meetings. Joe and I talked about that, a lot of sort of more ceremonial type developments, but not a lot of really deep policy discussion. That said, Scott Bessent, the U.S. Treasury Secretary, and He Lifeng, the vice premier in charge of the economy, who’s also the lead negotiator with the U.S., effectively have established this U.S.-China AI safety dialogue that they announced, I think, a couple of days officially before the Xi-Trump meeting.

And one of the outcomes of the Xi-Trump meeting was that that dialogue will have its first official meeting in November or around November. And the idea is that it will, we think, in a minimum report, be a reporting channel for AI safety incidents. Does that all sound right?

Kendra: Yes. Yeah. So there was a ton of drama, right? The result of all that back and forth is that I think we now understand much more clearly what China’s emerging positions are regarding issues like AI safety, cooperation with the U.S., distillation, etc. It’s just a lot clearer where Beijing stands now than it was even a couple of weeks ago. And of course, understanding Beijing’s positions on those issues are really important because those are the positions that Beijing’s going to, you know, they’ll evolve, of course, but they’ll take those positions into any future dialogue with the U.S.

In November, these positions will have solidified a little bit, and that is what negotiators will come into the room thinking. So, it’s been very interesting to see some of those sort of Chinese talking points around AI and AI safety evolve.

Andrew: Yeah, for sure. I think it’s hugely important for all of us, and the U.S. in particular, to understand the priorities in Beijing around these issues, to understand kind of where they’re coming from, what they’re trying to achieve. We, of course, don’t have to agree with those priorities or goals, but that will sort of help us understand the space for coordination, the space for negotiation, and the limits around any dialogue or the possibility space for any dialogue.

I think also we’ll talk about today, I think a lot of folks probably incorrectly think that China isn’t interested at all in AI safety. I think that really couldn’t be further from the truth, but you will talk us through that, and then we will kind of end up talking about some of the challenges that we foresee for the AI dialogue overall. But we’ll start with this piece that you wrote, really outlining China’s emerging positions on AI safety, and boil down China’s view to a few really key points. So why don’t you walk us through your piece, and we’ll kind of go through all of that.

Kendra: Yeah, for sure. That’s a great segue and introduction. You mentioned that there’s quite a bit of conversation around the fact that maybe China doesn’t necessarily care that much about AI safety. I mean, one of the most confusing aspects of the Chinese commentary on AI safety has been a very sort of contradictory positioning on it. Some of those commentaries appear to sort of brush off the idea that AI represents an existential risk to humanity or even a consequential risk to national security and the economy.

Right? Some of the articles that we saw come out, some of the conversations we saw come out over the last couple of weeks when they were talking about Anthropic’s view on AI safety- that it does present an existential risk, that it does need to be addressed immediately, that regulators need to step in, that governments need to sort of, you know, immediately coordinate and take emergency measures was pretty dismissive.

The Global Times essentially said, “Tech companies have strong incentives to portray AI as more powerful, mysterious, and even dangerous than it actually is.” So that makes it sound like, no, we don’t think that we think all of these AI safety conversations are overblown. But meanwhile, you look at other Chinese official commentaries and what they do is sort of dwell on the risks represented by AI and sort of outline them and spend a lot of time sort of hyping them up. So, a similar kind of hype cycle, also from sort of official sources.

I mentioned that the MSS, sort of spymaster, had written this piece and his piece effectively, I mean, you know, he spends all his time doing threat assessments, I’m sure, but his piece enumerates a laundry list of major AI risks that he thinks China has to guard against — Risk to national security, risk to critical infrastructure, risk to party ideology, risk to personal data, risks to social stability.

And the state sees social stability as essentially a fairly existential concern. And so those are fairly extreme risks. So these kind of statements, when they’re taken out of context or when they’re viewed in isolation, sort of make it difficult to assess where the state, the Chinese state, the top leadership of China stand on AI risk and how they are guiding, intend to sort of guide China through this next five, 10 years of AI development.

One risk in particular is kind of at the top of everybody’s mind, which is, you know, there’s a segment of the AI safety community, I think particularly Anthropic is sort of representing that segment of the community, that believes that releasing the weights of, you know, near frontier models, as Chinese labs do, right? Chinese labs sort of have these open weight and open source models, represents a sort of more significant threat than closed models from a safety and security point of view.

And they want China to regulate the release of those model weights. They essentially want Chinese regulators to step in and prevent Chinese labs from releasing open-weight LLMs unless they have gone through some kind of safety assessment and that they have been checked to ensure that they don’t help develop biological or chemical weapons or they can’t be used as cyberattack tools, etc. So, I mean, that’s an understandable concern, considering the fact that in a sort of open-weight model, once it’s released, you can’t be recalled, right? There’s no take-backsies.

And so even if it’s later discovered that that model is dangerous, that’s kind of, well, whoopsie-daisy, there’s very little you can kind of do about it. Even if the state puts out a regulation at that point, it’s like too late, right? But at the same time, it’s also kind of undeniable that if Chinese regulators step in to regulate AI model safety in that way, it will slow down Chinese labs and it would place China’s current sort of AI development momentum in danger. So, given all of that, China appears to have totally rejected the invitation, verbally and vocally rejected the invitation to sort of yank the leash on open-weight releases.

It is not interested in, you know, at the behest of a foreign model maker essentially telling its labs to stop. And in fact, several state media outlets sort of threw cold water on the Pacing the Frontier letter and were expressing distrust of Anthropic’s motivations for taking that position, right? In response to their post, Global Times said that Anthropic’s position is “Less about safety than about consolidating control over AI technology.” And the next day, Chinese foreign ministry spokesperson took the podium and sort of waved off Anthropic’s warning as fear-mongering.

So, that makes you think China’s not taking AI risk seriously at all and that it’s ignoring all of it and that it’s kind of walking away from the entire idea. But we think that’s a totally incorrect interpretation.

Andrew: Yeah, let me jump in there. I think I don’t want to front run you here, but one of the best points you’ve made, I think, in your piece, which I think we’ll bring up now is, I mean, the U.S. labs and the US government are basically saying one way to keep AI safe is to not let China have it. Right. Basically, right? So, if your starting point on AI governance and AI safety is China doesn’t lead the frontier or even come close to the frontier in AI, then obviously the Chinese are not going to sign on to that vision of AI safety.

And then you can also, I think, understandably see from their point of view, if a fundamental view of the U.S. labs is that open-weight models are not inherently safe. And the open-weight models, that’s China’s angle on its attempt to be at the frontier. That’s also sort of implicitly saying China’s approach to AI is inherently unsafe. So, talk to us about how those kind of ideas fit in. And then you can tell us, is China taking AI risk seriously or not even kind of beyond those definitions?

Kendra: Yeah, you’re exactly right. I mean, I think what China is rejecting when it says all of these things about Anthropic or when it says, you know, this is fear-mongering or we don’t sign on to those ideas, what they’re actually rejecting is the suggestion that China’s progress in AI is problematic or that any attempts to… and they’re basically saying that an attempt to block or restrict Chinese development is a violation of its rights to develop technology and develop its economy. And that’s essentially the argument that China is making.

And Global Times essentially said that in not so many words or explicitly said that rather. They said, “Amodei’s proposals seek to portray China’s legitimate development in AI as a threat and further fuel confrontation between China and the U.S. in the field. Such rhetoric is inappropriate, groundless and hostile.” So, the idea is, listen, no matter what the next step is in terms of U.S. and China AI cooperation, whether or not we ought to cooperate on the technicals, and we can get into that in a minute, even though we recognize the risks presented by AI, that’s a no-go of a starting point, right?

Us not being allowed to develop it, or our development of AI being risky, that’s not a position from which we’re willing to cooperate with you on that. So no, thank you.

Andrew: When you say us, you’re saying this from China’s perspective, right?

Kendra: Yes, this from China’s perspective, exactly. But that doesn’t mean China doesn’t recognize the risks presented by AI or the risks presented by open models. And I mean, over the last several years, I think Chinese policymakers have kind of attempted to raise awareness about AI risk. There’s lots of policy documentation, including, probably most notably, there’s a new AI safety governance framework. It’s Chinese. It gets updated every year. It’s put out by this sort of cybersecurity body, TC260.

And every year we read it, it’s this about, you know, 150-page document. And it outlines sort of China’s vision on where risks are and what safety is and what are the particular issues and domestic AI safety. And so, they have listed things like loss of control of AI systems as a critical risk to the technology in that document, right? So, they’re certainly aware of the risk and they’re certainly concerned about it. They’re also 100% guaranteed to take actions that, in their view, will make AI development safer, at least for domestic networks.

And they’ve actually been extremely explicit about that, right? Xi Jinping has kind of said just a couple of months ago at the World Artificial Intelligence Conference, he kind of made a note in his speech that, “Yes, China supports AI, they support AI development, they intend to develop AI, and then he had a whole other paragraph about, and yet that doesn’t mean that we won’t write laws. We are going to regulate, we will control the risks of that technology, etc.” We’re not just reading the tea leaves from a couple of lines from Xi’s speech, we’re actually reading policy documents where they’re starting to outline exactly what kind of regulation they’re thinking about.

One of the more interesting regulations, for example, was this kind of potential plan to issue sort of network identifiers, basically IDs, you know, can China’s networks be, essentially their DNS networks, be modified to sort of issue IP addresses to individual agents that are acting online? So that’s a way to sort of control and trace and track the behavior and activity of agents as they sort of proliferate across the internet.

I mean, we expect there to be a situation where there’s more agents online than humans, blah, blah, blah, blah, blah. So, there are a lot of sort of pathways towards regulation China has taken and is already taking. And I think what all this boils down to is when we say we can’t slow down AI because China won’t slow down AI, what the Trump administration means by that is we cannot place a single solitary regulatory burden on any technology company because China won’t. And that is patently untrue.

China is one of the most regulated digital environments on Earth. They will absolutely domestically regulate artificial intelligence. In fact, if the U.S. fell off the face of the earth tomorrow morning and did not say another word about artificial intelligence, five years from now, China will have placed an eye-watering amount of regulatory burdens on their AI companies to prevent essentially the state from losing control of those networks and platforms. That is what the state does. So, I think that that probably means China probably thinks that kind of regulation will function as part of a pacing mechanism over time.

That for China, pacing is we are going to institute regulation, as we always intended to do, in a rational way that corresponds to the stack of regulations, that fits in with the network regulations and Internet controls we have already instituted. That’s just one of those points where I think it’s a false equivalency. I think it’s probably just two kind of governments talking past each other when one says, “Well, we can’t regulate because China’s not going to.” It’s like China’s actually going to regulate quite a lot.

Andrew: Yeah. As I think anyone who’s a China watcher knows, the fundamental priority of the Chinese Communist Party is to stay in power. And that there’s a lot of like things that flow from that. For the most part, you want social stability. It’s not a democracy, but you’re responsive to your people because that’s one way you stay in power. Another way you stay in power is not creating a technology that’s so powerful that’s going to take down your own government. Right?

Kendra: And letting it run wild. Like you want to harness the power. I mean, the state has always tried to harness the power of a technology while mitigating the risk. And that actually leads me to another really interesting point, because China has a conception of risk in terms of what risks digital technologies outside of AI represent that have existed for the last 20 years that have been implicit and inherent in every sort of digital regulation that has kind of come out of the state.

And that is the thinking that they will also apply to artificial intelligence, right? I mean, the state has always been concerned about things like cyber threats to critical infrastructure, the use of digital tools to violate personal privacy or leak state secrets, being dependent on foreign countries for digital technologies and services, psychological harms of digital technologies. So, those things have been true for all digital regulation.

China will prioritize that type of risk when it comes to AI. And then it will also have to sort of, when the regulation comes in, the state has to figure out its way forward in terms of dealing with the specific risks that AI represents that other digital technologies do not represent. That’s things like loss of control, hallucinations, opacity, and sort of unexpected behavior, cyber threats and vulnerability discovery, algorithmic bias, that sort of thing. Again, all of that stuff is definitely coming regardless of what the U.S. does.

And China has been pretty kind of clear on that. And I think what we’re often seeing is the U.S. side has its own understanding of how it wants China to think about risk right now. And it keeps kind of lobbing this definition of risk over the fence and going, ”We need you to adopt this definition of risk right now immediately and come sit down with us and talk about it.” And China’s like, “No, go away.” Right? And it’s this kind of mess.

Andrew: Yeah. Well, I mean, the reason I bring up the CCP’s ultimate goal of maintaining power is just sort of like that, it strikes me, that that’s a place sort of maybe to start the conversation from the U.S. side to say, “Listen, we know that you want to control this technology for reasons of social stability, regime safety,” all of that stuff. How do we then apply that beyond the borders of China? Like, what is the Chinese conception of AI safety mean in terms of where there’s overlap with the US conception of AI safety? And maybe that’s a starting point. It’s not an ending point by any means, but maybe kind of conceding.

Yeah, we understand you’re worried about this technology too. Let’s figure out where we can overlap. Might be a starting point. Maybe I’m being too naive there. But then you also made the point about there’s one thing in particular you think that could really push the Chinese side into overdrive in terms of its willingness and incentive to control, especially open releases, much more aggressively.

Kendra: So, I mean, I think in terms of what you just said, I mean, we’ll probably, maybe we can come back to that later, I think probably the best way for the U.S. and China to sit down and cut through all of the nonsense here is by just sticking to the technicals. There are lots of technical safety risk that can be solved and should be solved and must be solved between two parties, and can be solved without focusing on these sort of ideological concerns. But unfortunately, some of those technicals are becoming ideological concerns. And one case in point is on the issue of sort of open weight models, right?

I mean, we really noticed that in a lot of the Chinese rhetoric, open source models or open weight models, open tools essentially, had become a sort of techno-political position. China appears to basically be leaning even harder into open source as a way to, one, to sort of gain global market adoption for Chinese technology, but also as a sort of geopolitical instrument. And what we’re basically seeing is that with increasing frequency, Chinese officials are sort of pointing to China’s provision of open models as evidence that China is acting in the common interest of global innovation and scientific discovery.

And then it’s contrasting that with the U.S. approach and essentially painting that closed approach as sort of monopolistic or, you know, problematically hegemonic or something like that. I’ll give you a quote here. I wrote down a little quote from the Ministry of Commerce, who was actually addressing, I thought this was pretty interesting, was actually sort of responding to U.S. accusations that Chinese models distill from U.S. models as we know that they do. And essentially what MOFCOM said was, you’re attacking us for distillation, but U.S. companies distill from our open models.

And they said, “Regarding artificial intelligence, China encourages open source, open collaboration, and sharing. China’s open source models are shared with global companies, including U.S. companies, facilitating the development of related models. Reports from U.S. companies on their model development also reveal that they extensively distill Chinese models. Conversely, the U.S. has repeatedly and unilaterally accused Chinese companies of engaging in industrial-scale distillation.” And I’ll come back to that distillation issue in a second.

But what’s interesting there is the politicization of open source, right? And we saw an even more significant and even more kind of vocal example of this in Minister Chen, the minister of MSS, his letter. He said, “Some countries, leveraging their accumulated advantages in basic artificial intelligence theories, model architectures, and core computing power, use the pretext of maintaining national security to restrict the introduction of cutting-edge technologies and equipment,” blah, blah, blah, blah, blah, “by means of entity lists, technology controls, monopolizing industry standards, and creating closed source ecosystems.”

That was the first time I ever saw closed source be likened to some kind of non-tariff barrier to trade, which is essentially what he’s arguing, that it’s this sort of like trade barrier to decide to close off your software, which is a little bit, which is a little ridiculous, of course. But at the same time, it’s not really the point of whether or not it’s correct. The point is, this is such a more politicized view of open source than we saw even a few years ago when the state was already broadly supportive of open technologies, but hadn’t sort of hitched its wagon to that position so thoroughly. Right?

Andrew: Well, and I actually wonder if this is frustrating to the Chinese labs, because I talked with Linghao, a member of your team before. You know, his position was sort of like the Chinese labs might go more towards closed weights down the road to increase their profitability. Right? So, this sort of you tying yourself so politically to this, I think, cuts off that avenue, probably for the Chinese models.

Kendra: A hundred thousand percent. A thousand percent. I think it’s actually going to create a real problem for the Chinese labs, right? So, it’s like a big financial strain to keep training open models, particularly because, as the compute requirements for sort of staying at the frontier, move ahead and move ahead, it becomes, you know, more and more of a strain. And Chinese labs keep doing it. I mean, I’m kind of arguing now that they’re kind of in an involutionary period.

They keep doing it because all their competitors are doing it. Whoever steps out of the open-source playing field in the Chinese market first is going to lose.

Andrew: Yeah, I don’t even know if you can politically at this point, right?

Kendra: Well, that’s the point. It’s like if you remove the politics from this issue in China entirely and you just let the labs do what they were going to do, the cycle they were in was they were all going to try to stay open as long as possible to drive their competitors out of business. And then they were probably going to start falling off with some of them closed sourcing and probably some consolidation, which many in the Chinese tech ecosystem have said is probably healthy, like a healthy place for the market to end up.

So right now, the decision to go closed in China, I think, again, without politics, is already a decision to kind of exit the front-runner race for the moment. Maybe not forever, but for right now, that means you’ve tapped out. You’ve been wrestled to the ground and you’ve tapped out. But that still would have been an easier decision if the state had not hitched China’s star to open source at this point, right? And so now, not only do you have to contend with, gosh, am I really ready to kind of step back from this? Can I find a closed-source path, maybe in a particular industry vertical or in a series of like, you know, using some kind of proprietary data or something like that that people are willing to pay for?

Now it’s a political position. And now an open source model needs to persist within China probably longer than it otherwise necessarily would have.

Andrew: Yeah. Well, I want to sort of circle back to something I raised earlier that we didn’t quite get to, but I think it’s related to all this, which is something that might change the calculus for the Chinese government towards open-weight models, towards the governance of open-weight models, towards like tying their masts to open-weight models, is if there is some kind of major security incident from an open-weight model that was released.

And then whatever happens may be beyond the control of the lab that released it. But as the U.S. labs are saying, like once you release it, it’s beyond your control. Can you talk to us about the risk of that and how that might impact how Chinese leaders think about like how they’re conceptualizing AI safety?

Kendra: Yeah, I mean, I think the primary thing to remember there is that nobody, not the U.S., not China, not the best minds on the planet who are all feverishly working to try to figure it out, have a foolproof global standard for AI safety checks. That has not been determined. So if our best and brightest minds don’t have it, the regulators definitely don’t. And so, there is a desire, both in the U.S. and China, for there to be some kind of safety testing mechanism, which regulators, both in the U.S. and China, have tried to sort of voluntold, you know, companies are getting like voluntold to go through quasi-governmental safety. It’s a bit of a mess, right?

Andrew: MM-hmm.

Kendra: But even if the state came in and said every single model that is released in China or the U.S., every single model that is released starting tomorrow morning has to go through a significant, stringent series of safeguard tests and they have to meet the following criteria before they can be put out, what are those tests and what’s that criteria? That just has not been decided. So, it’s a little bit of a circular problem, right? It’s like, yes, we all think there are risks here. We don’t 100% know how to mitigate them.

Even our best closed-model AI companies are experiencing misalignment issues with their models. So, I’ll put that on the table first. Even if regulators wanted to control it, they kind of couldn’t. What they could do is say, you can’t release open-weight models publicly. Or you cannot take an open-weight model, what a Chinese regulator could theoretically say is, “Labs, you may no longer release open weights above a certain power threshold on the public internet.” That would present a massive problem to China’s development potential and momentum right now.

China’s backing of open technology and the provision of open-weight models by Chinese labs, I would argue, is proving to be one of China’s most effective, not only market positions, market products, but also sort of geopolitical positions in recent memory. There is real global market demand for open models that is translating into real soft power for China. I would argue that is the first time that’s ever happened, particularly in a sort of frontier greenfield technology like this.

So, regulators are having to contend with the idea that, you know, do we really want to kill the goose that’s laying all these golden eggs? So, we already know that sort of behind closed doors, there is a mechanism by which the labs are being asked to verify or check these models with the state before they’re being released. It’s not an official mechanism. It’s not official regulation. There’s no clear guidance, but there’s some kind of checks and balances going on. But like I said, that certainly doesn’t mean that those models are safe because they can’t be because we don’t have the test for them because we don’t know what those tests are supposed to look like.

So, to your original point, the only thing in that scenario that would immediately and urgently cause the Chinese government to stop equivocating about whether or not global momentum is more important than safety or are these safety risks really that risky, and does that equate to that because they’re weighing the risks of we lose our opportunity to be sovereign in this technology forever because we fall so far behind the united states that we cannot kind of keep up versus we cause some major international safety incident that gets a bunch of fingers pointed at us.

Those two questions are very difficult to weigh, so if there was a major incident, obviously that will kind of likely result in some kind of knee-jerk response from the state to kind of shut it down for a minute.

Andrew: Well, and the second question I was going to ask you about this, which sort of relates to the AI dialogue between the U.S. and China, which we’ll get into more in a minute, that was prompted by a discussion from the Brookings podcast, the Brookings China team, Ryan Haas, Jonathan, Kyle Chan over there, great podcast, people should check it out. But I think it was Jon was mentioning, if there’s an incident from a Chinese open-weight model, I think the experience of the pandemic would suggest that the Chinese state may not be exactly transparent with the rest of the world on what happened, right?

And that would just compound the problems exponentially, I think. I don’t know if you have any thoughts on that.

Kendra: You have no idea what a good equivalence, I think, that is. And I’ll tell you why. Because China has taken a whole bunch of steps, just like during COVID, we’re going to we’re going to run with this analogy farther than I’m sure you’re comfortable with, but just like during COVID, right, China had its own ecosystem to control the spread of the virus internally. Its primary concern, its number one concern, was keeping its own population safe. So, whether that meant shutting the borders, quarantining people, whether they wanted to be quarantined or not, kind of rolling out these quarantine control systems that were pretty unwieldy, it instituted a domestic ecosystem of checks and balances and controls designed to keep its population safe.

And China’s domestic internet is also designed with many more technological checks and balances than the U.S. internet or most internets, right? The internet in most countries. There are controls on who can log into social networks. In the U.S., anybody can log into a social network and can anonymously set up an email account and anonymously sign in and set up a social media account and start posting content without verifying that you’re a real person, right?

Andrew: Yeah.

Kendra: Happens all the time. In China, you can’t do that. You have to show a ID, like a real ID, in order to get your account. So, there’s a sort of technological choke point there where an autonomous actor would have trouble acting in that network environment in a way that it would not have trouble causing quite as much havoc externally. So, I actually have had this thought. I mean, this is just something I’ve been percolating on for a couple of days. China’s networks, due to some of the censorship and control mechanisms that are in place in some of the network architectures, might actually kind of be safer from some of these attacks than international networks.

And therefore, I do think there’s a risk that if there was a major incident, China would just be like, closing the door.

Andrew: Yeah. Totally.

Kendra: Shutting down incoming flights. Like, we’re good in here, you know.

Andrew: Yep. Totally. I think this is a fundamental challenge with discussing AI safety with the Chinese.

Kendra: A hundred percent.

Andrew: Like I said, they have their definition, and it’s AI safety for us, not necessarily AI safety for all. And that is going to be a big challenge to break through. We’ll get into more of that when we circle back to the dialogue, but that’s all good points that I think are well taken.

Before we come back to the safety dialogue, though, I just wanted to pivot real quickly to another one of the issues that all these kind of public statements by various actors on the Chinese side have been zoning in on as well, which you have also highlighted a bit, which is the distillation issue. So, can you just talk to us a little bit more about how the Chinese are thinking about that, how they’re teeing up that as a, I guess, a back and forth between the U.S. and China.

Kendra: Yeah, well, I’ll recap it really quickly for anybody who doesn’t spend all day online reading about distillation disputes. So, Anthropic and OpenAI sort of recently accused Chinese labs, including DeepSeek and Moonshot and Alibaba and Zhipu and sort of all the main labs have undertaken these large-scale campaigns to extract data from higher quality U.S. models. In other words, what the labs do is they make tens of thousands of user accounts on, say, Claude or something like that. And then they ask Claude questions designed to extract sort of chains of reasoning or answers that will help them train their own models. And so there’s no dispute over whether or not that’s happening. It’s happening. Nobody has said that’s not happening.

The Chinese have kind of acknowledged that it’s happening and the U.S. labs have provided fairly significant evidence that it is happening. But the dispute there is how should that be treated under the law, right? Anthropic has kind of characterized it as industrial scale IP theft. And U.S. officials, and Scott Bessent in particular, have sort of signed on to that characterization, and they’ve threatened, I think he threatened on Twitter to sanction — still calling it Twitter. Oh, my God, I’m sorry — threatened on X to sanction Chinese labs for kind of doing that.

I think there’s an international debate around whether or not distillation constitutes IP theft or if it rises to the level of a national security concern that requires a sanction. I mean, that’s kind of, I don’t know if the law supports that. I mean, you could argue the law supports that. I’m not sure if that’s totally true. But it’s certainly true that it violates the terms of service of those, you know. I mean, Claude doesn’t allow that. In its terms of service, it says don’t do that, right? So, you’re not supposed to do that.

And the Chinese government has previously sort of defended distillation on the grounds that, listen, everybody does it. It’s a common AI industry practice. U.S. firms distill from Chinese models. I personally think those arguments are shaky because it’s like a government defending a contract violation. That’s a weird position to take. It’s true, U.S. firms do distill from Chinese models because Chinese open models have open licenses that say you can distill from them. So, there’s no contract violation. And like companies can set whatever conditions they want on their product.

It’s like closed is closed. So, I think the interesting piece of this is that China’s new position, which has emerged over the last couple of weeks of conversation, is that the law should say that banning distillation is an unfair trading term, which is wild. They’re not the only ones that have made that argument. There are quite a few people in the U.S. tech community who have also said you should probably just allow distillate, right? to prevent bans on distillation because what they’re doing, I mean, that shared human knowledge, much of which wasn’t paid for.

That was like scraped from the open internet in many cases. So, saying that that’s yours, right, there’s all this kind of debate about whose data is that. Anyway, MOFCOM explicitly said, “We’ve noted that some USAI companies are abusing their competitive advantage by including broad geographical restrictions and other unfair terms in their user agreements.” In other words, they’re blocking Chinese users from logging in, right? “The U.S. accusations regarding distillation appear to endorse these unfair trading terms. The U.S. approach is a typical example of using the pretext of combating distillation to exercise industrial monopoly.”

Now, that argument is still very tenuous. Of course, if you think a trade term is unfair, you should litigate it. You don’t just blow over the top of it, right? I mean, I think that’s the rules we’ve kind of…

Andrew: I don’t know.

Kendra: I don’t know. I mean, put it this way. I think if the rules were reversed, if the U.S. was doing that to Chinese companies, I don’t think Chinese regulators would be quite as fond of the practice as they seem to be going in this direction. But the rightness or wrongness isn’t the point I’m trying to make. The point I’m trying to make is the Chinese official discourse is now kind of starting to tie distillation to a broader narrative of the U.S. tries to prevent distillation because it is engaging in technological hegemony, which is a very interesting narrative. It’s an interesting point to take. So, I’m curious to see if that point sticks around.

Andrew: Well, I mean, I think, you know, the smart part about that is that it feeds into the broader Chinese positioning of we’re creating an open technology for the world to use.

Kendra: Right.

Andrew: And I mean that I’ve talked with Eric Olander on the pod. That’s very clearly the approach. We want the rest of the world to take up our technology because it’s open and it’s cheap and then we’ll figure out the business model afterwards. But we want to ensconce ourselves in the sort of AI foundational layer, AI supply chain, whatever you want to call it. And then we’ll figure it out from there. I mean, it’s not a bad strategy.

Kendra: It’s working. Actually, what’s really interesting about that is that when Chinese regulators first started supporting open source, it was like a fringe idea, really. It was sort of a fringe policy idea. There has been general support for open source tech, particularly open source tech that could help China overcome U.S. dominance in certain technological areas for many years. And there are many, a few, probably three or four, really, standout Chinese open source projects. There’s an open source blockchain network that China has kind of developed. There are some open-source semiconductor, kind of firmware, basically, like chipset architectures. I think there’s even a couple of open databases.

There’s OpenHarmony, the mobile operating system that was originally developed by Huawei and that, I think, donated to an open-source foundation. So, there’s been a couple of like small projects that have gained some ground over the years. We’ve watched them five, six years, kind of seen them take a couple of steps here and there. But nothing like this. The thing is that all of those open source projects were competing in an arena where there was already a dominant U.S. player that had essentially taken over the stack.

If you’re working with mobile operating systems, you’re still working with either Android or iOS for the most part or some fork thereof. You’re still mostly on U.S. origin chipset architectures. There really isn’t that much room left. But here we have it. Last month, Hugging Face published new statistics on how many derivative models, models that people kind of spun off, were based on Chinese models versus U.S. models versus EU models, etc. 70% of derivative models globally are based on Chinese open models.

So, it’s actually working, which is part of the reason why I think they’re getting so… you know, now it’s like, oh, my gosh, this thing that we kind of did on the side, didn’t really care about, didn’t really think about has suddenly kind of taken…

Andrew: It’s finally happening.

Kendra: Yeah, and it’s happening. That’s exactly it. That’s exactly it.

Andrew: Amazing. Well, I mean, that’ll definitely shape the back-and-forth for sure between not only the governments, but the labs going forward. I do want to pivot to the AI safety dialogue, to the extent that, or the AI dialogue at all, to the extent will exist. I think, as a starting point, I think you made the keen observation that basically China’s starting point is that the U.S. is going to have to pick a lane, which is we can prioritize AI safety, or you can prioritize AI containment of China.

But the coordination on AI safety or AI containment of China, but the two together are largely incompatible. Why don’t you walk us through? We’ve touched on it a little bit, but walk us through kind of what you see going on there.

Kendra: I mean, this is the message that I think a lot of our listenership and particularly anybody who’s worked in an MNC in China will be extremely familiar with. China sends this very consistent message to the U.S. government, also to U.S. companies and U.S. companies doing business in China: you can enjoy the benefits of China’s sort of manufacturing ecosystem and large consumer market. Or you can advocate for measures to contain China, but you don’t get to do both of those things.

You’re going to get slapped with some kind of retaliatory penalty if you try to do both of those things. You can enjoy a good relationship with China and your Chinese regulators, or you can have Taiwan listed as the separate company on your website, but you cannot do both of those things. You need to pick one, right? And so, they’ve kind of been fairly successful, I think, at sort of laying that, it’s like using that strategy. I think that type of messaging is essentially now being extended into the AI space. And I’ll quote actually Global Times, who once again put it quite succinctly, talking about Anthropic here.

“On the one hand, Amadei acknowledges that global efforts to pace AI development would ultimately require cooperation with China. On the other hand, he advocates for restrictions on chips, computing power, and models to slow China’s AI development, while explicitly seeking to widen the U.S. technological lead over China.” So, the message there is pretty clear, right? It’s like U.S. labs and officials have to choose which goal they want to prioritize. If they think that cooperation with China is the fastest path to ensure a safer world for all, then they need to cool it on the rhetoric.

And if they think that advocating for China containment measures is a sort of swifter path to safety, then they should just abandon any hope that there’s going to be any kind of cooperation, significant cooperation on safety in one way or the other.

Andrew: I think that’s a fairly reasonable standpoint from China, to be honest. Again, people will beat me up for saying that kind of thing, but from a logic standpoint, it holds up. I would just say, though, the obvious question from that is the key question, which is, given those realities, is there really any path forward for cooperation between the U.S. and China on AI safety?

Kendra: I think there is. And as I said earlier, I think the issue is really to… I hate to just push a narrative that China sort of outlined. And that’s not what I’m trying to do. But I do think that we’re not going to solve the U.S.-China tension. We’re not going to solve capitalism versus communism. We’re not going to solve every market issue we’ve ever had with Chinese companies’ behavior in the global market. Those issues have been ongoing for 20 years. Right? But the technicals of AI safety are solvable in the near term.

The issues around where does risk actually sit? Where does liability actually sit? When do we need to call you when there’s been some kind of safety incident? At what point do we need to notify you or through what kind of channels do we need to discuss when the AI that we’re developing has done something scary? What does scary mean? A lot of the time what we’re talking about, well, this week anyway, is recursive self-improvement, which is models that build themselves and improve themselves.

That’s this kind of threshold that we’re running towards where it’s not human developers making models better and releasing them. It’s models sitting in a box deciding how to improve themselves over and over and over so rapidly that we don’t know what is happening anymore. Do we need a channel? What are the markers or technical engineering measurements at which we would say, “Uh-oh, the model has done this. We need to now, we need to talk to you or shut off this training pathway.” So, those kind of conversations, if we could keep the other stuff out of them, which I’m not particularly optimistic about, but if we could keep the other stuff out of them, I think that is actually a pathway we could choose to pursue.

Andrew: Okay, where does that leave us then? I mean, we’ve got this meeting that’s supposed to happen in November to kick off the AI dialogue, but is any kind of cooperation dead in the water in your view, or should we have some kind of optimism that the two can figure it out?

Kendra: Oh, I always hate these questions because it’s like I feel both optimistic and pessimistic about it at the same time. Again, I do actually think here and maybe now it’s my turn to be naive, but I do actually think there’s a path forward. And that path forward is that we focus on the specific things that we want to resolve on the technical level.

Let me give maybe a more concrete example. Instead of the U.S. messaging that China developing open-weights, China should stop developing and releasing open weight models because China’s development and release of open weight models is dangerous and irresponsible and China should stop, blah, blah, blah, blah, blah. Maybe we have those conversations focused on the potential for those models to be leveraged for nefarious purposes without oversight, which is to your point earlier, right? That’s a loss of control issue for the Chinese state, right?

Just as much as it is for us, for the development of bioweapons, for cyber attacks, right? For like loss of control issues. So, if you focus on instituting, if you press China to institute domestic effective regulations on those particular threats for models, right? Because a bioterror threat is just as scary in China as it is anywhere else, right? Within the boundaries of its own existing sort of digital regulatory regime, that’s probably a more actionable message that will push regulation in China forward than sort of push regulators to institute controls on those models, right?

Then sort of focusing on the method by which the model is being proliferated, basically saying, you know, you shouldn’t do open weights is, like we said, kind of off the table unless there’s an incident, or at least for right now. If you focus on the technicals, you could even make room for really interesting discussions, right? Really interesting pathways forward that maybe regulators don’t even need to be involved. The government doesn’t even need to be involved. What if, for example, I kind of thought, NVIDIA is about to buy Hugging Face. They’ve already announced they’re buying Hugging Face. That’s the model distribution platform.

Why don’t we run safety checks that every single model that gets uploaded to that platform, regardless of origin, receives? You have a bunch of engineers all going through this one single portal. I think, if you really care about AI safety and not the geopolitics, there are actually ways, I think, to push safety forward in China, even if China is a little bit reluctant to cooperate. On the other hand, China will have to enter those meetings and have to fight against its own lack of transparency.

It’s really hard to cooperate on technicals even if China is unwilling to share the reality of its own technicals with the U.S., which it will be very reluctant to do that. So, I think the technicals are probably the best path forward, but I don’t think…

Andrew: Even that’s not easy.

Kendra: Even that’s not an easy task, yeah.

Andrew: Well, I guess we shall see. Something tells me that this is a conversation that we will be having on an ongoing basis until humanity is extinct. So, it could just be a couple more months.

Kendra: I, for one, look forward to the nap.

Andrew: Yes, it’ll be… At least we can all rest.

Kendra: Yeah.

Andrew: Well, Kendra, great to see you. Great to have you back on the pod. Thanks for enlightening us all on this. It’s been super helpful. I really appreciate it.

Kendra: Yeah, good to talk to you.

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

• Foreign Affairs: How China Is Winning Friends and Influencing People by Eric Olander and Lizzi Lee - https://www.foreignaffairs.com/china/...

• Sinica: The Fever Has Broken — For Now by Kaiser Kuo - https://www.sinicapodcast.com/p/the-f...
  

📌 Topics Covered in This Episode

• Shifting American Attitudes Toward China and Cooperation

• Chinamaxxing and the Rise of China’s Appeal

• Generational Divides in U.S.-China Relations Today

• The Fragile Détente Between Washington and Beijing

• China’s Performance Legitimacy and American Dysfunction

• Why Greater China Literacy Matters for Policymakers

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Our phrase of the week is: “universally acclaimed” (脍炙人口 kuài zhì rén kǒu)

Context

Liu Huan (刘欢) is one of China’s best-loved singers. He died on September 25, at the age of 63.

The news broke the next day when a short obituary was published by the University of International Business and Economics in Beijing, where he had taught for more than thirty years.

Liu is probably most famous outside China for his performance at the opening ceremony of the 2008 Beijing Olympics, when he sang the theme song “You and Me” (我和你), with the British singer, Sarah Brightman.

Inside China he is best known for creating the theme tunes and music scores for some of China's most popular TV series in the 1980s and 1990s.

He sang the theme songs for the police drama Plainclothes Police (便衣警察) and Snow City (雪城) in 1988, wrote and sang the music for A Native of Beijing in New York (北京人在纽约) in 1993, and sang "Song of the Heroes" (好汉歌) for Water Margin (水浒传) in 1998.

Later, he became a familiar face to a new generation as a judge on hit music talent shows such as The Voice of China (中国好声音) in 2012 and Sing My Song (中国好歌曲) in 2014

Social media feeds have been full of tributes to Liu over the last week. A tribute by music critic, Li Wan (李皖) in Lifeweek (三联生活周刊) summed his life up as:

“Most of Liu Huan’s performances came in the opening and closing themes of hit TV dramas.

These were universally acclaimed masterpieces sung in the spotlight on the great stage of their era.”

刘欢表演、表现的场所，大部分都是热播电视剧的片头片尾曲，时代舞台上聚光灯下的脍炙人口之作。

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

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What it means

“Universally acclaimed” is the English translation of a classical four-character idiom (脍炙人口 kuài zhì rén kǒu). The individual characters mean “finely minced meat” (脍 kuài), “roast” (炙 zhì), “people” (人 rén) and “mouth” (口 kǒu).

It originally described delicious food that everyone loves to eat. Today, it’s used to praise poems, writing and songs that are widely loved and acclaimed.

The roots of the idiom lie in Mencius (孟子), a record of conversations between the philosopher Mencius (孟子) and his disciples. Mencius (c. 372-289 BCE) is regarded as the most important Confucian thinker after Confucius himself.

The story begins with two of Confucius’s own disciples, a father and son. The father, Zeng Xi (曾皙), was especially fond of “sheep dates” (羊枣), a small, round, purple-black fruit. After he died, his son Zengzi (曾子) could not bring himself to eat them. Followers of Confucius held this up as a model of devotion to a parent.

Generations later, Mencius’s student, Gongsun Chou (公孙丑), found this puzzling. So he puts the question to his teacher, which is recorded in the chapter, Exerting the Heart, Part Two (尽心下):

“Zeng Xi loved sheep dates, and his son Zengzi could not bear to eat them after his father’s passing.

Gongsun Chou asked: ‘Which tastes better, roast meat, or sheep dates?’

Mencius said: ‘Roast meat, of course!’

Gongsun Chou said: ‘So why did Zengzi eat roast meat, but not sheep dates?’

Mencius said: ‘Roast meat is a taste everyone shares. Sheep dates were his father’s taste alone. In mourning observance, one avoids a deceased parent’s personal name but does not avoid their surname. The family name is shared by many, whereas the given name is his alone.’”

曾皙嗜羊枣，而曾子不忍食羊枣。

公孙丑问曰：”脍炙与羊枣孰美？”

孟子曰：”脍炙哉！”

公孙丑曰：”然则曾子何为食脍炙而不食羊枣？”

曰：”脍炙所同也，羊枣所独也。讳名不讳姓，姓所同也，名所独也。”

Mencius’s point was that everyone loves roast meat, so eating it did not remind Zengzi of his father. But the sheep dates reminded him of the loss of his father.

From then on, “roast meat” (脍炙) came to stand for things everyone enjoys.

The full four-character idiom first appears in Gleanings from the Tang (唐摭言), a collection of anecdotes about Tang dynasty scholars and the imperial examinations. It was compiled by Wang Dingbao (王定保), a scholar-official writing during the Five Dynasties period (907-960). Quoting lines of poetry, he wrote:

“Lines such as ‘The sound of water is always in my ears, the colour of the mountains never leaves my door’ and ‘Sweeping the floor leaves shadows of the trees, dusting the bed brings forth the music of the zither’…

All of these are universally acclaimed.”

如”水声常在耳，山色不离门”，又”扫地树留影，拂床琴有声”……皆脍炙人口。

This meaning still stands in modern Chinese.

“Universally acclaimed” can describes a poem, a story, or a song that is widely appreciated by many. As in “a song that is on everyone’s lips” (脍炙人口的歌曲).

And that is how Liu Huan’s songs are remembered by many people in China today.

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

#296: Singer Liu Huan dies at 63

Liu Huan (刘欢) is one of China’s best-loved singers. He died on September 25, at the age of 6…

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20 days ago · 2 likes · Andrew Methven

A young child sits crying, maybe screaming, depicted in a black-and-white photograph. The child appears to be alone, wearing sandals and disheveled — maybe bloodstained? — clothes. The background is the wreckage of Shanghai’s South Station. Corrugated metal siding is strewn across the tracks, blown from their place by Japanese bombs.

In 1937, Japan had just embarked on its full-scale invasion of China (though encroachment on China’s territory had begun in 1894 in the Sino-Japanese War, and then continued in 1931 invasion of Manchuria). Starting with the Marco Polo Bridge Incident in July, Japanese armies invaded coastal cities. The campaign included some of the first known aerial bombardment of civilians, an atrocity brought to global awareness in large part through this photograph.

The word “iconic” is overused but it’s appropriate here. The image is so heartbreaking and visceral that it has become almost a universal image of the cruelty of war. The picture’s status makes it therefore a little shocking to hear it described by journalist Harold Isaacs as “one of the most successful propaganda pieces of all time.” To get at what Isaacs meant requires a little unpacking of the photograph, how it was taken and published, and what the meaning of “propaganda” is.

Taken by Chinese-American H.S. Wong (Wang Haisheng 王海升), known in English as “Newsreel,” the photo first appeared in the pages of Life Magazine, the American pictorial weekly published by Henry Luce. Luce was, and would remain, the most powerful American voice in “the China lobby.” He had himself been born in China’s Shandong province to Presbyterian missionary parents, before moving to the United States for prep school in Connecticut and then Yale. Launching a magazine empire that would come to include, besides Life, Time, Fortune, and Sports Illustrated.

From the start of his career, Luce retained an attachment to China, and used his media (and whatever means he could bring to bear) to influence American policy. Virulently anti-Communist, Luce made Chiang Kai-shek and his American-educated wife May-ling Soong household names in the United States: they would appear, together or separately, on the cover of Time 11 times. As Japanese pressure, and then aggression, against China increased, Luce worked hard to drum up support in the United States for Chiang’s government and against Japanese expansionism in Asia.

Which brings us back to the photograph at the Shanghai South Railway station. It is without doubt one of the most powerful illustrations of war. The child, alone, in pain, and under attack, represents the entire Chinese nation. The caption in the magazine

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I have a confession to make. After many long years watching the U.S. and China descend into ever-deepening acrimony, recrimination and mistrust, for the last 11 months or so I’ve felt stirrings of hope, and a near-term optimism that has only deepened as I’ve subjected it to closer scrutiny. That it should be happening under this particular American administration is hard to process for me. But here we are: Despite all the admonitions of wise analysts whose opinions I usually trust, I’ve come to a different read, based mainly on discernible changes in the American mood. I’m sensing that the fever has broken and the patient may live on a good bit longer.

Unsettling as it is that it should be happening during the Trump presidency, what’s more unsettling still is that it’s happening in part because of the presidency of someone as feckless, petty, and obtuse as Donald Trump. I’m not finding that easy to come to terms with. Yet when I take honest stock of the current state of the U.S.-China relationship, I’m compelled to admit to considerably more optimism than I’ve felt since the first Trump trade war began back in 2017.

Yes, I know that it’s entirely possible things could turn again, and quickly — that Trump is above all things mercurial. And let me assure you that I’m not ignoring or discounting the many structural factors that have combined to drive the U.S.-China relationship toward deepening competition, toward more adversarial postures. From interests to ideology, from the shifting balance in comprehensive national power to fundamental systemic differences, I realize these things aren’t going to go away.

But some of the superstructural drivers, and I’ll get into what those are, do seem to be subsiding, and I want to make the argument that cooling temperatures, a lowering of the blood pressure spike that both sides have experienced, is allowing the heat generated from friction — friction arising from the more irrational drivers of conflict — to abate and to dissipate, leaving both Washington and, I hope, Beijing, better positioned to manage rationally those more stubborn structural drivers. It buys us all time to take a deep breath.

The second of what could very well be four leader-level meetings this year is now finished, and things did not, at least, go terribly awry. This will mean we can hit snooze for another sixty days on that alarm sounded last October — the Trump administration’s threat to massively expand the Entity List through the Affiliate Rule, and China’s threatened retaliation on rare earth elements.

My expectations were low, and I didn’t anticipate we’d see much beyond relatively minor Chinese purchase commitments, and some announcements intended to make it look as though the Board of Trade and Board of Investment had some substance. China’s tightening of controls on fentanyl precursors in the days ahead of Xi’s visit, clearly meant as a goodwill gesture, were encouraging. I didn’t expect to see a joint statement committing to a slowdown on frontier AI models (and now, with Trump explicitly rejecting it, that seems even less likely than it did before the summit), but at least the two sides are now talking about AI safety with a vocabulary that overlaps a lot more today than it did even a year ago. There is at least some mechanism — even if it’s just Scott Bessent and He Lifeng swapping mobile numbers — for notification in the event of an AI safety incident.

That the two sides were able to sit down at all is because, in part, the fever has broken. The long night of abject moral panic in the U.S., this spasm of fear brought on by the sudden falling away of American national confidence, has been moving into a different, less dangerous phase.

Again, I get that we’re not out of the woods. I know how fickle both Donald Trump and, let’s be honest, the American electorate truly are. So I’m not betting on this to endure. But the shifts I’ll talk about have bought some precious time, during which hackles can come down and the paranoia of panic can finally abate.

Even to have gotten to this point feels like a win.

How we got here

I’ve spent much of the last decade trying to figure out exactly what went wrong: what was it about China’s rise, beyond the simple dynamics of the playground, that truly explains the deep psychological discomfiture that China’s rise caused in the United States. I won’t rehash all of the reasons that I’ve concluded were at the heart of this, but suffice to say for now that China’s meteoric ascent undermined several important pillars of American exceptionalism — beliefs that had become axiomatic in the American understanding of its place in the world and why its primacy and hegemony were natural and inevitable, and should endure indefinitely.

There was the American belief that a functioning free market economy was only possible under the auspices of political democracy — the first pillar of exceptionalism to fall, as China marketized while remaining a single-party, tightly controlled state.

There was the belief that technology possessed a kind of volition, and that it was inherently emancipatory and especially with the advent of social media would free people living under authoritarian rule — recall how the U.S. media gleefully named various “color revolutions” and Arab Spring uprisings after American social media products, thus, “the Twitter Revolution,” the “YouTube Revolution,” the “Facebook Revolution.” Then somehow we went from believing in tech as the death knell of authoritarianism, to believing tech was authoritarianism’s trusty handmaiden.

There was another idea that linked technology and political systems: the belief that political freedom was a necessary condition for genuine technological innovation. China, in this imagining, was incapable of real innovation — just imitation, or outright theft. While I’m glad to see that this idea has perished — because for one thing it was simply never true — I’m worried about the strange overreaction, that China now appears in the American imaginary as this invincible technology juggernaut.

Two more pillars have fallen recently, too — both related and both very much in connection with China. The U.S. has always been in outward denial about the efficacy of industrial policy (even as it practiced it in quiet), until China’s challenge seemed to have completely upended things and we saw the U.S. under both Trump and Biden openly embrace industrial policy in form if not in name. From the Biden administration’s Inflation Reduction Act to the Trump admin actually taking shares in Intel and other American companies, we’re now in an age of American industrial policy, without as far as I can tell having had a real national conversation about it.

And of course, related to this is the longstanding American belief in free trade, which endured for 70 years or so from the end of the Second World War and was another pillar of our exceptionalism. It’s now been eroded to the point where politicians on both sides of the aisle now champion even quite robust forms of economic protectionism.

I believe that as these pillars have fallen away, and as the collapse has in each case been directly attributable in the American mind to China, the U.S. experienced a dizzying crisis of confidence. Moral panic — threat inflation, demonization if you prefer, scapegoating — were the result.

The height of this moral panic took place during the early months of the COVID epidemic, when Donald Trump released the hounds, as it were: the full-court press of the spring and early summer of 2020, when he directed nearly every government agency to go hard after China. As I watched this happen, I was struck by how much it resembled something happening in the U.S., domestically, at precisely that same moment: the Black Lives Matter protests that followed the death of George Floyd, and specifically, the reaction to those protests from conservative whites. What I saw was the white man in America staring down the demographic reality that within his lifetime he would live in a majority minority nation, and his response to this was to lash out in a spasmodic, inchoate, often violent paroxysm. Zoom out from this microcosm to the global macrocosm and we see the U.S., the global “white male” who had enjoyed primacy for so long, coming to the recognition that America’s day in the sun, too, might be coming to an end. The reaction has been the same: an inchoate spasm, embodied in the person of Trump and his MAGA movement, directed primarily against China.

As 2020 came to an end, Biden won, and I thought that perhaps the worst was over. I don’t need to go through how thoroughly disappointed many of us were — those who wanted to see a rapprochement, or at least a détente, between the U.S. and China, to see the damage that Trump had wrought deliberately unwound and salved. Instead, we saw tariffs remain in place, even more aggressive moves to starve China of key technology exports, and an explicitly ideological framing of the relationship: Democracy vs. Authoritarianism. Alliances with “like-minded nations” were restored, with China often in mind: NATO, in need of a new mission before Russia’s full-scale invasion of Ukraine, began looking east. AUKUS, the Quad — from my perspective, despite having voted Democratic all my adult life, this was even worse: it was deliberate, not stochastic. The FBI continued to racially profile ethnic Chinese researchers. And especially after the so-called Sullivan Doctrine kicked in in October of 2022, my sense was that we’d reached a real nadir in the relationship.

And then, of course, Donald Trump returned to the White House in January of 2025, this time having won the popular vote and not just the Electoral College. There was no evidence that his biliousness toward China had lessened in the least. There were inveterate China hawks everywhere in his administration: Marco Rubio, Mike Waltz, Elbridge Colby, even Peter Navarro was back. And so I buckled in for what I assumed to be an even bumpier ride.

The fortnight that started it

But even before the first gilding could be applied to the furnishings of the Oval Office, two major triggers for a surprising and welcome shift happened in rapid succession, within days.

TikTok, as you’ll recall, went dark the night of January 18, two days before Trump’s inauguration, and the protest migration to Xiaohongshu (aka RedNote) — very tongue-in-cheek, very satirical — was already underway in the lead-up to it. Then DeepSeek R1 dropped on January 20, on inauguration day itself. You might remember that Nvidia shed roughly $590 billion on January 27.

Everyone reached for “Sputnik moment,” but where Sputnik produced fear and mobilization, the one-two punch of Xiaohongshu and DeepSeek (though the latter did produce some of the anxiety, especially for investors with a lot of money in Nvidia) produced curiosity, and among the young, something like delight.

The Xiaohongshu episode is something that those of us who are older and less online somehow failed to appreciate. It was almost tailor-made for a big, passive Chinese PR win. At a moment when American anxiety about inflation and affordability were spiking, suddenly a whole cohort of disaffected Gen Z Americans opens a portal into a world they could hardly believe existed: the world of the affluent, fashionable, cosmopolitan urbanites who populate Xiaohongshu. Was this a look into the “real” China? Well not really. But it wasn’t a Potemkin village, either: It was a glimpse into the nicest parts of a real village. Good-looking professional women in Shanghai and Guangzhou in their late-20s and thirties, with adorable pets, cute outfits, excellent English, stylish apartments, and the warmest of welcomes — what TikTok refugee wouldn’t have been won over?

There were, of course, a lot of questions that these Americans — I have, after all, described them as disaffected — had for their new friends on Xiaohongshu. Do you have to work two jobs to pay rent? What, by the way, are you paying for that 180-square-meter gorgeous apartment? How much is health insurance? What is that crazily futuristic electric car you’re driving?

The impact was by no means limited to the several hundred thousand Americans who opened accounts on Xiaohongshu during the days and weeks that followed. (Estimates range up to close to a million new accounts, but it’s unclear how active most of these were.) But it spread on Instagram and Twitter, and the phenomenon was widely reported in mainstream U.S. media. It was only a matter of time before the Chinamaxxing meme would be born.

And then came the wave of influencers: iShowSpeed, and Hasan Piker, and many others known to their followers if not to me — people who’d made their name on YouTube or Twitch, with enormous audiences and that much-prized American political quality of perceived “authenticity.”

Already, by February of 2025, it was clear to me that there was an attitudinal change underway in America — something that began as not much more than a “vibe shift,” but which as I’ll argue could prove, perhaps even has already proved, to be quite consequential.

The windfall to China’s image that the near-simultaneous TikTok Refugee wave and the advent of DeepSeek was by no means the entirety of what drove the broader changes in American posture toward China, though they did prove important. These events, combined with the influencer inundation and the whole “Chinamaxxing” trend, added up to a collective sense, especially in Gen Z (those born between 1995 and 2010) that they’d been collectively gaslighted (or gaslit, if you prefer) about China: That the American media and multiple American administrations had misrepresented fundamental truths about China. Obviously there was already a deep well of distrust of media; that’s well-attested. But this was rare, in that it felt like someone else’s successes had been withheld from view.

Yes, a lot of this is silly internet memes. But I’ve often noticed that cultural detritus — silly internet memes — will often register mood shifts before formal discourse does. Perhaps it’s always been so, and that’s why Chinese rulers way back in the Spring & Autumn and Warring States periods seem so obsessed with the songs and rhymes chanted by children.

But it’s how this shift has played out in American politics that is of chief interest to me. What follows is partial. It’s not always easy to figure out the direction of causality, or even to establish real causality between and among the observable phenomena, but this all does add up to a meaningful shift, and I hope, will prepare Americans for a much-needed reckoning with the reality of a risen China — a reckoning I sincerely hope will be calm, constructive, edifying, and above all peaceful.

What changed

Let’s start with the public, and with some of the polling that we’ve seen. Pew released a poll in March 2026 that showed favorable views of China among Americans nearly double the low point of only 14% back in 2023. People characterizing China as an “enemy” was down in just two years from 42 to 28 percent. Meanwhile the Chicago Council’s 2025 poll showed that 53% of Americans supported friendly cooperation, which was up from 40% the previous year — and the first time since 2019 that a majority favored “friendly” cooperation. Chicago Council just updated this last week, and the percentage favoring friendly cooperation has now hit 57%.

Donald Trump’s “Liberation Day” tariffs, announced in early April 2025, seem to have landed poorly with Americans. A Chicago Council-NPR-Ipsos poll taken about a year after “Liberation Day” showed 66% saying tariffs hurt the economy, with 62% opposing “decoupling” if it meant higher prices. That was a complete inversion from 2021, when about that number supported decoupling even in the face of higher prices.

The Chicago Council put out a report in August titled “Gen Z Isn’t Concerned About China,” which aligns closely with what I’m arguing. Only 34 percent of Gen Z and 43 percent of Millennials see China’s rise as a critical threat, against 62 percent of Boomers and 56 percent of Gen X; and in the 2025 survey, 59 percent of Gen Z favored friendly cooperation, up from 38 percent a year earlier.

The Pew global attitudes survey from July of this year showed that a very large majority of countries surveyed viewed China more favorably than the U.S.

The obvious question is, how much of this change — among Americans, as well as views by people around the world of the U.S. and China — can be accounted for by things that China has done, and how much of it is simply about America’s slide? The answer for me at least is that it’s both, and that sometimes it’s hard to tweeze the two apart: When Beijing responds admirably, with spine and resolve, to some move by the U.S. — a massive tariff hike, for example — are changes in perception out of admiration for China’s good response, or contempt for a feckless American policy? There’s no question that both U.S. domestic and global attitudes are shaped by both. I won’t pretend I can assign a percentage to each. But let me suggest that at the level of how a shift in popular attitude has ended up changing presidential posture toward China, and thus the policy choices that have flowed, so far, from it, it doesn’t matter all that much.

I am — I hope it goes without saying — unimpressed with Trump’s intellect, or his morality, or character, or even his business acumen. But I will grant that he possesses a low animal cunning, and a keen sense of smell when it comes to subtle chemical signals in the political winds. In this Trump is something of a master. And I wouldn’t doubt that he caught a whiff of this particular change long before it showed up in the polling data. Nor would it have been lost on him that it was happening most conspicuously in the younger generation that helped him back to the Oval Office in the first place. My sense is that he concluded that bashing China — something he never shied from in his first presidency, or on the campaign trail three times now — is no longer a good electoral strategy. Perhaps he has seen the polls — like the Pew poll from March 2026 that showed of 18-to-49 year old members of his own party, the Republicans, only 32 percent call China an “enemy” — far more than Democrats in that age range, but still, relatively low compared to the 55% of Republicans over 50 who say they regard China as an enemy. Maybe he saw the Carnegie poll from a couple of months earlier showing that only 27% of 18-29-year-olds think their lives will get worse should China actually overtake the U.S., against 52% of seniors.

And it’s for that reason, I suspect, that the China Hawks who once filled the halls of the White House, the State Department, the Department of Defense/Department of War have been sidelined. Trump has become, as many well-placed people in Washington have told me separately, “his own China desk officer.” Whether they’re in temporary eclipse or full retreat remains to be seen, but the absence of overt belligerence is striking: Voices like Elbridge Colby, who loudly and singlemindedly advocated for an end to American support for Ukraine and a shift away from Europe, away from the Middle East, so that U.S. force could be focused directly and exclusively on China over a military move by Beijing against Taiwan, have now gone quiet.

It’s very likely that Laura Loomer, the MAGA firebrand known to have Trump’s ear, had a good deal to do with the purge of China hawks. That the visit to the Oval Office that appears to have set the purge in motion took place on April 2, 2025 — Liberation Day — was I suppose a nice irony. Within just days, six NSC officials were out. Mike Waltz and Alex Wong were gone by May, with Wong smeared by Loomer in explicitly ethnic terms. David Feith and a number of career China hands — including the people who staffed State’s “China House” — were swept out in the State Department’s reorganization. The lesson people inside Trump World drew was simple: proximity to the hawk network became a liability rather than a credential.

It fits the isolationist or restraint-oriented foreign policy preferences of his base, and Trump is surely aware that he runs a deficit with the many in that base who are chafing over the Iran War.

And then there’s the policy record. You’ve all heard about the TACO Trade: Trump Always Chickens Out. You buy the dip after Trump raises tariffs sky-high, then sell once the rebound crests when, as he always does, he backs away. While this isn’t just about China, his most conspicuous TACO meals were served to him by Beijing. From the 145 percent tariffs to the Geneva climbdown in May, to further compromises when U.S. and Chinese trade representatives met in London in June and Stockholm in July, to the big one — Busan, on the sidelines of APEC in October 2025 over China’s deployment of the rare earths weapon — that’s a lot of TACOs no matter how you slice it. By the way, Trump rated the Busan meeting “a 12” and adopted “G2” language, and then not long after cleared Nvidia H200 to Alibaba, Tencent, ByteDance, and JD in December 2025.

Trump also appeared to give ground significantly on China’s big red line issue, Taiwan. After the DPP’s failed “Great Recall” effort against KMT legislators in the summer of 2025 — first one in July, second in August — Trump seems to have punished the “loser” by declining a transit request by Taiwan’s Lai Ching-te, and cancelling a national security pow-wow between a Taiwan Ministry of Defense delegation and the Pentagon. And of course after his official state visit to Beijing, Trump paused a $14 billion arms package to Taiwan, and spoke confidently of his belief that China does not intend to invade.

Chinamaxxing was, I suppose, somewhat inevitable. It’s something that only really got going about a year ago, when people on TikTok and Instagram started talking about the “very Chinese time in their lives,” marinating in Chinese infrastructure porn and obsessing on Chinese technology, from EVs to high speed rail to Huawei tri-fold phones. But for Trump and much of the MAGA movement, it’s axiomatic that politics is downstream of culture. They know full well that they’ve won elections not on specific, detailed policy recommendations but on vibes, on a kind of crude authenticity, on steering well clear of the kind of morality-driven politics and virtue signalling that, in their mind, are the hallmark of those who criticize China for its failings in human rights. For these younger Americans, 1989 is a distant memory, as hard as that might be to believe for older generations still so haunted by it. American concern for human rights, however earnest and well-intentioned, just doesn’t land as well with younger Americans for whom the hypocrisy has been laid bare — by American support for Israel in Gaza, chiefly.

It’s interesting to me that the kind of reckoning I’ve been calling for — a sober recognition of China as a risen peer that attained modernity on its own terms and by following its own, distinctly non-western path — that this reckoning seems to have arrived as a vibe first: the attitudinal revisions leaked out through memes before they show up in white papers.

By the way, it’s not just the MAGA right that’s found itself drawn in unexpected ways to China. To my great surprise, in recent years China seems to have a growing appeal, again especially with younger Americans, across the political spectrum. How can the Abundance movement, whose originators were Ezra Klein and Derek Thompson, and which may well be one of the more vital political forces in the Democratic Party today, not look at China with a kind of envy? No housing shortage — quite the opposite problem, as is the deflationary pressure felt in China. China’s relatively new infrastructure — its State Grid, fed increasingly on renewables (and just this year, China reached 50% of added generating capacity from renewable energy), its subways and superhighways and of course its high speed rail — is a source of inspiration and doubtless of envy by an Abundance movement whose bête noire is a bureaucracy helplessly tangled in red tape. China has become a kind of poster child for abundance. Sure, China has its problems. But we would do well to remember that one man’s overcapacity is another man’s abundance!

What drove it

I’ve talked a bit about some of what China did that proved attractive to some Americans, though as I’ve said it’s sometimes difficult to tweeze things apart. I think of it as two families of causes: attraction — that is, the things that China does right, and that inspire some admiration — and the things that America has botched, that you could classify under repulsion. The increasingly repellant things about America.

Here are some of the things I think China’s done well.

There’s the post-COVID reopening (2023) and the unilateral visa-free rollout to many countries. This turned a three-year black box back into a place people could see. Hence the travel-vlog boom and all that infrastructure porn.

iShowSpeed’s spring 2025 tour is maybe the key artifact of that genre: unscripted, tens of millions of views, an audience with no prior China frame at all. The Xiaohongshu TikTok refugees trend and Speed together are the moment Gen Z acquired direct, unmediated impressions.

Chinese tech beyond DeepSeek continued to turn heads. Qwen, Kimi, Zhipu and the open-weights wave, Manus, Unitree humanoids at $16,000 against Tesla’s projected $25,000, BYD and the EV push into Europe, Mexico, Southeast Asia, Latin America, the spectacular drone shows, the September 3, 2025 parade hardware, and the images of solar energy at Chinese scale have really cemented in the American mind this idea that China is advancing rapidly in technology, and as I said earlier has helped knock down this pillar of American exceptionalism that says political freedoms are a necessary condition for innovation.

Technocratic competence as the thing Americans found themselves envying. The Abundance agenda (Ezra Klein and Derek Thompson) which I’ve mentioned made “China builds tens of thousands of miles of high-speed rail while California fails to build hundreds” a mainstream Democratic talking point. “America invents, China builds” entered the vocabulary. Admiration for China arrived through the back door of domestic reform politics. Dan Wang’s Breakneck and its catchy if simplistic “engineering state versus lawyerly society” frame helped cement this.

Then there was the rare earths card. The April 2025 controls turned the Liberation Day escalation into a Geneva retreat within six weeks. Mutually Assured Disruption; the end of America’s monopoly on weaponized interdependence. TACO was the FT’s coinage, I believe, but the underlying pattern is one that was recognized quite widely: Trump threatens, Beijing holds, Trump folds, repeat.

Iran, 2026. China entered the Hormuz shock with something like 1.3–1.4 billion barrels stockpiled while the U.S. SPR sat at a 44-year low; Beijing managed to cut imports by roughly 3.5 million barrels a day, drew down rather than panic-bought, and its growing EV fleet was already displacing about a million barrels a day of demand. Meanwhile, Americans paid $4 gas all August. There was a growing recognition that China had become an “electrostate,” and it contrasted well with Trump’s America, entrenching itself as a fossil of a petrostate. Meanwhile, by CSIS’s count the U.S. burned through half its THAAD inventory and nearly half its Patriots, the exact categories a Taiwan contingency needs, on a war of choice.

Then there’s the “repulsion” family: the ways America made the comparison for them.

Liberation Day and TACO: From pretty much wherever you sit in the world, this had to look like a competence demonstration in reverse for the U.S. Meanwhile Beijing came out of it looking principled and, unlike the many countries that just acquiesced or came to grovel obsequiously, looking like Xi Jinping actually has a spine.

The scandal-and-corruption ambient noise of the second term. Luxury jet gifted by Qatar. All the stupid crypto stuff. He’s easily the most corrupt president in U.S. history but somehow it just becomes background noise. But a country cannot lecture about governance while looking like that.

Gaza quickly became a bipartisan issue, and it matters most for the young: Biden’s support, then Trump’s, drained whatever moral authority the “democracies versus autocracies” frame still had. For Gen Z this is arguably the single biggest driver of the “we were lied to” sensibility, and it predates and prepares the ground for the China revision. It was never hard for people to connect what happened on October 7, and the Israeli and American response, to the outcome of the Michigan Democratic Primary, and thence to prohibitions on the import of Chinese EVs. This was very clearly a sop to the United Auto Workers to try to salvage a state with a very large Muslim population, that had defected from Biden.

Now Trump’s own foreign policy preferences seem to have acknowledged Chinese parity, and this can’t be lost on the voting public.

First, there’s this whole retreat into a Western Hemispheric “Sphere of Influence” that we’ve seen in the major policy documents. I was listening recently to a talk by Singapore’s former Minister for Foreign Affairs George Yeo, and while I may have a bit more faith than he does in what remains of American institutions of political constraint to prevent Trump from, say, actually attempting to annex Greenland and heaven forbid Canada, it’s clear to me from the National Security Strategy and the National Defense Strategy that his priority is the Western hemisphere, and that a drawdown in the Western Pacific is part of that. Whether he’s actually entertaining something as drastic as what Jennifer Kavanagh has recently suggested (a withdrawal of American commitments from the first island chain, to include Taiwan) I’m skeptical, but all that he’s said on Taiwan, and to Japan and Korea, mean at least for this administration the “Pivot to Asia” is a dead letter.

And of course there’s Trump’s personal admiration for Xi: Trump’s obvious preference for leader-to-leader dealmaking, his monopolization of all decision making when it comes to China. Add to this his aversion to blinking first again, his growing sensitivity to affordability, his clear desire to avert any more foreign entanglements with Iran going so poorly — this is all contributing to a clear sense that Trump now thinks in terms of sharing power with Xi — something, ironically, Beijing opposes at least officially.

So what?

So what are the longer-term implications of all this? What if Gen Z, and younger millennials, and perhaps Gen Alpha too are all “China-pilled” to a degree many older Americans can’t quite relate to? I’m a bit hard pressed to think of an analogy or a precedent for this. As I said, I’m not blind to the fact that the architecture of competition is still standing, and no one’s really moving to dismantle it — not in Washington, and perhaps even less so in Beijing. We still live in a world of export controls, outbound investment regimes, entity lists, and quite aggressive force postures.

The median Republican is still not a dove. Still two-thirds of self-identifying Republicans regarded China as an adversary as recently as a year ago. Generational replacement may come, but it’s still a couple of decades off. And in China the feelings are mutual: the Carter Center data has 73 percent of Chinese respondents seeing the U.S. as a security threat, 17 percent as a friend, with favorability falling in late 2025. A détente driven from one side is fragile by construction. Now, my own sense is that China will be quick to reciprocate any appreciable decline in hostility, but so far that isn’t showing up in the survey data.

And there’s the fact that the same faculty that made Trump the first in Washington to register the shift makes him the first who will register — and then go on to accelerate — its reversal. A weathervane doesn’t hold a heading. A Taiwan Strait incident, an attributed cyber operation, a Nvidia backlash, a perceived slight from Xi, and the wind turns; when it does, Trump turns with it, and the hawks come out of the shadows and welcome their president back overnight. The personalization of policy that produced the détente is exactly what can unmake it. The most reliable instrument for reading public mood is, by definition, the least reliable guarantor of policy.

Sputnik made Americans afraid of a rival; Xiaohongshu and all the influencers peddling infrastructure porn made them curious about a neighbor. And as Americans peer in growing numbers over the fence, many seem convinced that China — despite its notoriously flaccid demand, despite the continuing property slump and the persistent youth unemployment problem — is getting something right that their own country isn’t.

Something else is happening, too, as affordability has moved to the center of American political consciousness. For decades it was an article of faith among China watchers — anyone who has sat through a China panel in the last twenty years can recite it — that the Party’s legitimacy rested on performance, on delivering the goods, while America’s rested on process: on elections, on courts, on the consent of the governed. What I think we’re seeing now is the weight shifting from one leg to the other in America itself. Process legitimacy is carrying less of the weight; performance legitimacy — can you build the thing, can you keep the lights on, can a young person afford an apartment — carries more. And if that is the yardstick Americans are now reaching for, then: Advantage, China.

The question that this mood shift poses but cannot really answer is this: What would dealing with China “as an equal” actually require of American institutions, not just American feelings? Feelings have moved, and the trend continues. Institutions, force posture, the tariff floor, the expertise base, and the Chinese public so far, have not. But despite the assaults American electoral democracy has endured in the last decade, my faith in its ability to transform popular attitude into policy remains (selectively) intact.

Xi’s visit was the first real test of whether the second list starts to follow the first. Feelings, after all, are cheap; force posture is not. But every détente I’ve ever read about began the same way — with someone, somewhere, deciding that the other side wasn’t quite the monster they’d been told it was. This time, perhaps that someone is a twenty-four-year-old on Xiaohongshu asking about the rent.

This week on Sinica, I sit down with Dr. Ruby Wang, whose new book, China Cure: The Rise of a Biotech, AI Medicine and Global Health Superpower (Agenda Publishing, out October 31, with a foreword by Kerry Brown), is the explanation general readers have been missing for one of the most consequential and least understood transformations in China today. Ruby is a rare creature in this space: a practicing physician in Britain’s NHS, trained in surgery, who worked London’s hospital wards through the first wave of COVID; the former head of the UK government’s health engagement in China at the British Embassy in Beijing; a former health adviser within the UN system; a onetime medical adviser at AliHealth in Hangzhou; and a Schwarzman Scholar. She now runs the strategy consultancy Lintris Health and writes the excellent China Health Pulse newsletter and podcast, both of which I recommend to anyone trying to follow this space.

Anyone who spent time in a Chinese hospital in the late ‘80s or ‘90s — the pre-dawn queues, the ticket scalpers, the cashier’s window at every step, the IV drips for a head cold — will find the arc of this book hard to believe. Within living memory, China sent barefoot doctors into the countryside with herbal remedies and antibiotics in army-green satchels; last year, Chinese companies signed something like 186 out-licensing deals worth a disclosed $137 billion, roughly half the global total and close to ten times the 2021 figure, with Pfizer, Bristol-Myers Squibb, AstraZeneca, GSK, and Eli Lilly all buying. Since Ruby gave a terrific interview to my friend Kyle Chan on his High Capacity podcast this spring on the apps, data flows, and clinical AI, I deliberately steered elsewhere: to her family — a deckhand grandfather, a father’s crooked splint, a grandmother’s transnational hunt for Gleevec — to the four reinforcing conditions she argues made the transformation possible, to the “China is fast because China is loose” shortcut and what’s actually behind the speed, to BIOSECURE and its successors, to the AI doctor avatars now fielding millions of inquiries a year, and to the burnout and violence that still bedevil the lives of Chinese clinicians.

• 10:31 – Two family stories from 1970s Zhejiang: a deckhand grandfather and a barefoot doctor’s crooked splint

• 15:57 – Four reinforcing conditions, part one: demographic pressure and crisis as catalyst (SARS, melamine, fake vaccines)

• 23:42 – The long view: Healthy China 2030 and why China’s health ministers are technocrats

• 27:54 – The cultural inheritance: who signs the consent form, and China’s health codes vs. Britain’s billion-pound app

• 35:26 – Grandma and Gleevec: a family’s transnational hunt for a drug in 2003

• 40:17 – The reversal: hǎiguī, copycats to first-in-class, and the tenfold surge in out-licensing

• 42:35 – Is China fast because China is loose? Where China leads (oncology, GLP-1s) and where it lags

• 50:22 – BIOSECURE, COINS, and BINSA: who loses when politics meets pharma

• 55:37 – Digital health in three systems, Ant Afu’s AI doctor avatars, and whether the silver generation can keep up

• 1:08:44 – “A lifetime of eating bitterness”: Dr. Wang of Guangzhou, burnout, and yī nào

Paying It Forward

• Yanzhong Huang, senior fellow for global health at the Council on Foreign Relations and professor at Seton Hall — the go-to voice on the geopolitics of China and health, and Ruby’s first port of call.

• Afra Wang, writer of the Concurrent newsletter — Ruby admires how she reads the cultural currents beneath technology, and finds it endlessly useful to take those insights to the health-tech angle.

• Olivia Plotnick, Shanghai-based founder of Wai Social — on-the-ground work on branding and consumer behavior across some 30 lower-tier Chinese cities, including health and wellness.

Recommendations

Ruby: Deep China: The Moral Life of the Person, edited by Arthur Kleinman with Yunxiang Yan, Jing Jun, Sing Lee, and others — what being sick reveals about society and culture in China: psychiatry, caregiving, and how patients and families have changed as the country has. Kleinman’s The Soul of Care is also worth your time.

Kaiser: Augustus by John Williams — the third of his novels I’ve recommended on the show, and the National Book Award winner: an epistolary novel of imperial Rome told through a crazy quilt of letters and fragments from family, friends like Agrippa, and poets like Virgil and Horace, each given a completely distinct voice. Quiet campus novel, anti-Western, imperial Rome — the range, and the restraint, are astonishing.

Also: Ezra Klein’s conversation with Carnegie’s Matt Sheehan — a masterclass in clarity on AI safety and the U.S.-China relationship, and the best thing to listen to in the wake of Dario Amodei’s “Pacing the Frontier” essay.