This week China’s drive for control produces outcomes it cannot fully contain. The August PMI data reveals a split economy where AI hardware exports mask a domestic demand collapse, Beijing redesigns its entire power grid around three specialized layers to serve distinct industrial load profiles, Germany abandons its cautious middle path and backs EU defensive measures against cheap Chinese imports, Xi Jinping’s purge wave reaches his personal secretary and fractures the PLA’s chain of command, and a glacial collapse at the Nepal border exposes the full cost of imposing information blackouts on a disaster zone. Beijing advances with disciplined ambition on every front, yet the mechanisms of control that hold the system together generate new points of failure at each turn. Follow me through the reports.

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First Signal: The PMI Split That Won’t Close

Start with the numbers that track where China’s economy actually stands. China Manufacturing PMI: AI Boom Hides Domestic Crisis examines the divergence between the official NBS manufacturing PMI, which held in contraction at 49.8 in August, and the private S&P RatingDog PMI, which rose to 51.5. The gap is not a statistical anomaly. Export-facing factories are running hot on AI infrastructure orders, processing chips, server racks, and data center hardware for global buyers front-loading ahead of anticipated tariff hikes. New orders in the non-manufacturing sector plunged to a 44-month low of 44.1 points, and the auto dealer vehicle inventory ratio reached 62.3 percent as unsold domestic vehicles accumulate. Exporters face margin compression simultaneously: input prices rise while buyers demand price reductions. The numbers indicate a dual-track economy where high-tech export strength sits on top of a structural collapse in domestic consumer demand that government stimulus has failed to reverse.

This domestic demand failure happens against a backdrop of aggressive state-directed infrastructure redesign that reaches every segment of China’s power system.

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Second Shift: How China Retired the Baseload Model

At the infrastructure level, the state is engineering a decisive departure from conventional grid design. China’s 3-Layer Grid Replaces Baseload details the architecture replacing the old centralized baseload approach: three specialized layers, each matched to a distinct load profile. Nuclear, targeted at 110 GW of new capacity by 2030, anchors heavy industry despite projections that put nuclear at only seven percent of total electricity generation by then. Metropolitan areas run on large-scale solar grids, with cumulative capacity targeted at 1,880 GW by 2030, requiring annual additions of 100 to 130 GW. Remote data centers draw from localized renewable and storage clusters, exemplified by the Inner Mongolia Galaxy Campus with its 12.8 GWh battery installation supporting one million AI chips. The system is not decentralized. It is spatialized and tightly state-planned. That roughly 360 TWh of wind and solar output (26 percent of total renewable production) was curtailed in the first half of the year for lack of transmission capacity signals the strategy’s central constraint: generation investment races ahead of grid infrastructure.

This state-directed infrastructure logic, applied at industrial scale, is generating a direct counter-reaction from China’s largest trading partner in Europe.

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Third Clamp: Berlin Closes the Open Door

For years, Germany’s government blocked EU moves to accelerate action against Chinese industrial subsidies. That position ended at Schloss Neuhardenberg. Industry Push Works: Germany Hardens Line on China tracks the coalition’s agreement to back a “strengthened position” against cheap Chinese imports, with a cabinet mandate to propose concrete measures before the October EU summit. The shift is industry-driven: BDI, DIHK, VDA, and Volkswagen CEO Oliver Blume demanded action, with specific asks including closing tariff loopholes on plug-in hybrids and enforcing “Made in Europe” component thresholds. Public sentiment has moved decisively: 60 percent of CDU supporters and 49 percent of the general German population now view China as a rival or competitor. Purely electric vehicles reached a 29.3 percent market share in Germany in July, a segment where Chinese manufacturers are highly competitive. China’s export-led overcapacity strategy has alienated its most economically consequential European ally, forcing Berlin to abandon the cautious neutrality it held for years.

These external pressures compound an internal leadership crisis that runs far deeper than any trade dispute.

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Fourth Fracture: The Purge Reaches Xi’s Inner Office

Political purges in Xi Jinping’s China have moved systematically through the military, the financial sector, and the diplomatic corps. What happened this week marks a different threshold. China’s Purge Wave: Xi Jinping Removes His Personal Secretary details the NPC Standing Committee’s removal of Zhong Shaojun and eleven other deputies, stripping them of parliamentary immunity. Zhong was not a peripheral figure: from 2007 he headed Xi’s personal office, and he led the CMC General Office, the bureaucratic node governing military information flows and personnel decisions, until April 2024. He Weidong, Miao Hua, Zhang Youxia, and Liu Zhenli are among the other senior commanders recently purged. Reports from the Jamestown Foundation indicate that Zhang Youxia and Liu Zhenli were dismissed for telling Xi his timeline for enabling a Taiwan invasion was “unrealistic.” Removing the commanders who offered the most technically grounded military assessments fractures the PLA’s operational chain of command and eliminates the institutional check on strategic miscalculation.

This information-control logic reappears at China’s Nepal border in a very different crisis.

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Fifth Exposure: The Numbers That Cannot Be Reconciled

Finally, the gap between official Chinese figures and Nepali data after the Gyirong disaster exposes just how far information control reaches when the state feels threatened. Disaster in Tibet: China Silent After Glacial Collapse describes what happened on August 26: a glacier on Langtang Lirung collapsed, sending debris and floodwaters that destroyed the Gyirong Port border crossing. Within hours, censors removed surveillance footage and eyewitness accounts from Chinese social media. Official Chinese figures report 16 dead and 546 missing. Nepal reports 903 confirmed deaths, 1,473 injured, and 4,247 missing. Despite the blackout, the government deployed nearly 800 rescue workers, 150 vehicles, search dogs, and speedboats by evening, with Premier Li Qiang visiting in person. The state was not paralyzed by the disaster. It was paralyzed by the disaster’s visibility. The fear driving censorship is not chaos at the border but spontaneous cross-ethnic solidarity and public organizing, precisely the dynamic that followed the 2008 Sichuan earthquake.

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The Grip That Fractures

An AI export wave pushes the PMI above contraction while domestic new orders slide to a 44-month low, documenting the split economy in a single data release. Beijing redesigns its entire grid around state planning priorities, embedding control in physical infrastructure even as curtailment rates expose the gap between ambition and execution. Germany reverses course under industry pressure, closing the political space China’s export strategy relied on and forcing the EU’s most cautious member into alignment with France, Italy, and the Netherlands. Xi’s purge removes the officers who told him the truth about Taiwan, leaving the PLA’s command structure hollowed out for the sake of loyalty. At the Gyirong border, the censorship response outpaces rescue coordination, and the gap between 16 official deaths and 903 on the Nepali side documents what information control costs in a disaster zone. China advances outward with disciplined ambition, yet the same control mechanisms that project strength generate new structural fractures from within.

Which development stands out most to you? Share it in the replies. Your read steers the next course. Until next week.

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The majority of the parliamentarians now removed from the National People’s Congress had already been ousted from their positions beforehand. He Weidong and Miao Hua had already been removed at the fourth plenum of the Central Committee last October. Investigations against Zhang Youxia and Liu Zhenli for serious violations of party discipline and laws were announced in January.

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The Fall of Xi Jinping’s Confidant

Zhong Shaojun’s case had not previously entered the public spotlight, as he was not arrested following his demotion.

Zhong Shaojun’s career was almost entirely tied to Xi Jinping’s rise and began with his collaboration with the future general secretary when Xi became party secretary of the eastern Chinese province of Zhejiang in 2002. He followed Xi Jinping to Shanghai and then, in 2007, to Beijing, where he headed Xi Jinping’s personal office.

When Xi Jinping assumed command of the Central Military Commission (CMC) in November 2012, Zhong Shaojun moved to lead the CMC General Office. The CMC is the highest military command body of the People’s Republic of China. It holds supreme command over all armed forces of the country and directs national defense policy.

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Within the People’s Liberation Army (PLA), Zhong Shaojun is considered a core member of the so-called Zhejiang Faction. The CMC General Office, which Zhong Shaojun headed until April 2024, is the most important bureaucratic control point of the Chinese military. It controls information flows, personnel decisions, and institutional access to the CMC chairman.

After his time at the CMC, Zhong Shaojun became Political Commissar at the People’s Liberation Army’s National Defense University (NDU) in 2024, but was already replaced last October. Since he neither retired nor took on a subsequent assignment, he was effectively considered to have fallen from power. His exclusion from the Chinese parliament thus represents the indirect confirmation of his removal from power.

However, his case differs significantly from those of the other senior military officers who have been removed from their posts in recent months. While investigations against Zhang Youxia and Liu Zhenli for serious violations of party discipline and laws were officially announced in January, in Zhong Shaojun’s case there has been neither a publicly known arrest nor a formal expulsion from the Communist Party. The revocation of his mandate is therefore the first publicly recognizable state step against the former confidant of Xi Jinping.

According to media close to Falun Gong, Zhong Shaojun’s dismissal is connected to the business activities of his mother, who had founded a company that supplied the army with tea. Falun Gong continues to maintain a dense network within the People’s Republic, though the accuracy of reports from this sect is not always reliable.

As parliamentarians, NPC deputies enjoy special legal protection. With the revocation of his mandate, this parliamentary immunity lapses, removing a significant legal hurdle for any future prosecution. In the case of the generals already detained, the NPC is thus completing the state component of a purge that had previously begun at the party level.

Purge in the Military-Industrial Complex

Of the remaining deputies, only four others were known by name at press time, all of them connected to the military-industrial complex. The majority are former CMC members who were removed from their positions during the winter of 2025/26. The only civilian on this list is the mayor of Nanchang, Gao Shiwen, who previously held a senior position at the state defense conglomerate China Aerospace Science and Technology Corporation (CASC).

Additionally, General Zhao Zongqi was expelled from the Chinese People’s Political Consultative Conference (CPPCC).

With the removal of the deputies from parliament, another stage of the current purge wave has been completed. However, neither have they been expelled from the party nor have formal charges been brought against them. In Zhong Shaojun’s case in particular, it will be interesting to observe whether Xi Jinping will actually prosecute his former confidant or whether the demotion simply marks the end of his public career.

No More Professional Expertise in Military Leadership

For Xi Jinping, the underlying situation has not changed. The CMC continues to consist of only two people, one of whom is the general secretary and the other a political functionary, meaning there is no professional expertise at the head of the highest military body. As a result, China is functionally incapable of launching a potential attack on Taiwan. There are serious doubts about the PLA’s military capabilities. According to the Jamestown Foundation, Zhang Youxia and Liu Zhenli were dismissed because they considered Xi Jinping’s deadline for enabling the Chinese military to carry out an attack on Taiwan by next year as unrealistic and openly contradicted the general secretary. With a non-functioning chain of command, waging war is all the more impossible.

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The massive build-out of nuclear power is therefore only one part of a far larger transformation of China’s electricity system. China is increasingly aligning its energy supply with the different load profiles of its industrial clusters, metropolitan areas, and energy-intensive data centers. The result is a power architecture in which nuclear, renewables, storage, grids, and the spatial relocation of demand each fulfill distinct roles.

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The Lesson of Fukushima: The Moratorium on Inland Reactors

On 11 March 2011 at 14:46, a magnitude 9 earthquake struck off the coast of Japan. The resulting tsunami damaged the coastal Fukushima nuclear plant. Three of the six reactor blocks suffered meltdowns; four were destroyed. The disaster triggered a global debate about the risks of nuclear power. China was no exception. The State Council suspended all ongoing approval processes for new nuclear plants. The moratorium on all inland reactors was extended in October 2012 and has never been lifted. Existing inland projects were either decommissioned or repurposed.

The moratorium can be explained by China’s geography. The country has two largely separate river systems: the humid south, fed by the Pearl River and Yangtze, and the dry north, home to the Yellow River and the Amur along the Russian border. These systems have been connected by canals since the seventh century. The waterways cover roughly 80 percent of the country’s landmass, with the water-rich south supplying drinking water to population centers in the arid north. A serious nuclear accident would make radioactive contamination of distant regions unavoidable.

Coastal reactors are cooled by seawater. While salt water corrodes pipes more quickly, it also means that in the event of an accident, radioactive material would be flushed into the sea rather than contaminating the drinking water supply of vast swaths of the population.

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Nuclear expansion is currently confined to coastal areas, though this boundary is beginning to soften. In the northwestern province of Gansu, a thorium molten salt reactor (TMSR) is under construction, a design that requires no water cooling. A second technology generating excitement is the Linglong One small modular reactor (SMR), for which agreements have already been signed for two sites in Jilin and Heilongjiang provinces, though final approval has not yet been granted.

Nuclear, Solar, and Cloud Clusters: The Three-Layer System in Practice

China’s power grid design is less oriented around the concept of “baseload” (with peaks covered by flexible, dispatchable technologies) and more around the question of which consumer requires which form of energy. From this, a three-layer architecture is now emerging.

China’s industry is organized into large clusters that require not only electricity but also process heat. Each cluster concentrates on specific industries.

The industrial clusters are large and regionally specialized. Around Shenzhen, the entire hardware value chain is concentrated, from semiconductors and components to end devices and automobiles. In the Yangtze Delta, machinery, automation, chemicals, and shipbuilding dominate, while the northeast and the Bohai Rim host major heavy industry, petrochemicals, and shipbuilding sites.

All of these clusters share a common characteristic: they demand a highly uniform load for both electricity and heat, distributed steadily across daily and seasonal cycles. This makes them ideal partners for nuclear reactors, which similarly deliver a near-constant output.

The inland moratorium reflects the particular risks a serious accident would pose in China’s water-rich regions. Based on empirical historical frequency, the probability of a serious accident within the next 50 operating years stands at 75 percent. Physicist He Zuoxiu of the Nautilus Institute argues that the risk is even higher in China’s case, given that the fragmentation across many different reactor types strains training and oversight resources. Adding to this concern: in Chinese-operated projects, from the Amur Gas Chemical Complex to a mining accident earlier this year, serious incidents recur because safety regulations are not observed.

The large metropolitan regions, among them the Jing-Jin-Ji area encompassing Beijing, Tianjin, and Hebei; the Zijiang-Su-Hu cluster, comprising Shanghai, Suzhou, Hangzhou, and 20 further cities that together constitute the world’s largest megacity cluster; and in the south the Greater Bay Area, anchored by Shenzhen, Hong Kong, and Macao, display a different load profile, shaped by the rhythms of human activity. Electricity demand concentrates in the intensive daytime hours and eases at night. Electric vehicles are introducing more volatile demand, but not necessarily a fundamental shift in peak consumption patterns. The 15th Five-Year Plan places renewables, and above all photovoltaics, at the center of supply for these areas. The cumulative solar target for 2030 stands at 1,880 GW, implying annual additions of roughly 100 to 130 GW. By June of this year, 72.1 GW had been installed. The solar day is to be managed with short-term storage and virtual power plants.

Wind and solar are complementary not only across seasons but also through nocturnal low-level jets. These form when the ground cools after sunset and the lower air layers decouple from the earth’s surface. With ground friction eliminated at night, wind accelerates between 100 and 500 meters altitude like a ball rolling downhill, exactly the height range where modern wind turbines operate. In the nighttime hours when photovoltaics produce nothing, turbines therefore benefit from unexpectedly strong and steady airflows.

The current constraint is the missing transmission lines connecting renewable energy hubs such as Inner Mongolia to demand centers, which remain insufficiently built out. In the first half of this year alone, roughly 360 TWh were curtailed, equivalent to 26 percent of total wind and solar output, or nearly a full month of coal power. The current five-year plan allocates 4 trillion yuan (around 510 billion euros) for new high-voltage transmission lines. Coal is thus being rebuilt from primary energy source to system buffer.

The third and newest layer of China’s power architecture is the “Western Energy for Western Use” concept, part of the “East Data, West Computing” strategy (EDWC), designed to supply energy-intensive data centers being built in Inner Mongolia, Xinjiang, Gansu, and Ningxia.

The showpiece project is the Galaxy Campus in Inner Mongolia. The cluster spans sites across seven regions of Inner Mongolia with a combined capacity for one million chips. Power comes from a local wind farm paired with a 12.8 GWh storage cluster. The storage capacity provides roughly six hours of autonomy without wind. Inner Mongolia is one of China’s primary hubs for wind and solar production.

Coal Becomes a Reserve: The Three-Layer Grid Replaces the Baseload Concept

China is not building its electricity sector around the principle of baseload with flexible peaking on top. Instead, it is aligning energy supply with the differentiated needs of each consumer group. Nuclear plants cover the steady load of the large industrial clusters; renewables combined with storage and flexible demand management serve the variable needs of the metropolitan areas; and for data centers, China goes one step further by relocating energy-intensive demand to regions with especially favorable renewable generation conditions.

This structure differs markedly from the energy systems of other industrialized nations, which tend toward more decentralized supply. Despite its growing importance, nuclear power will rise from its current share of roughly four to five percent of electricity generation to around seven percent by 2030, with the final target of ten percent likely not reached until around 2040. Over the same period, coal is to transition from the dominant fuel to increasingly a system reserve.

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Services Collapse: Domestic Demand Fails to Recover

Together, the two PMI surveys paint the familiar picture of a divided Chinese economy. While exporters are enjoying rising demand, domestic demand remains weak. The weakness is particularly visible in the non-manufacturing sector, where new orders fell to a 44-month low of 44.1 points, accompanied by an order backlog that dropped to a four-month low of 42.8 points. ING‘s economics team notes that existing support measures, such as interest-rate subsidies, have had only marginal effects.

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Exporters’ satisfaction is tempered by the fact that not only did input prices rise, but companies simultaneously had to accept price reductions on their products. New orders nevertheless increased, which is unusual for this time of year. The Christmas season is over, and orders for spring production typically do not arrive until winter.

This demand is driven by orders for IT hardware, including chips and related equipment such as server racks and other data center infrastructure. And despite the latest tariff round from President Trump, orders in the consumer segment are being brought forward, as importers fear a new escalation following the Trump-Xi summit scheduled for September.

On the domestic market too, demand from the AI and high-tech sector is the driving force, while consumer companies are struggling. Construction firms are showing equally weak performance.

The RatingDog PMI does note one silver lining: expectations for future business are no longer as bleak as they were in January. This is feeding through to employment. Yet even though new orders rose, companies did not take on additional workers. Put positively: they also did not cut jobs. Evidently, the new orders are insufficient for private-sector companies to fully utilize their existing capacity. At the same time, inventories of unsold goods are building up.

BYD is a case in point. The Shenzhen-based company now generates more revenue from export markets than from its domestic operations. At the same time, the Auto Dealer Vehicle Inventory (VIA) rose to 62.3 percent in August, meaning the volume of unsold vehicles sitting on dealership lots continues to grow.

Companies producing primarily for the domestic market have, however, been able to raise prices. These are predominantly large, state-owned enterprises whose clients also come from the state sector, making cost pass-through considerably easier. This is also reflected in the fact that large enterprises are the only category in the NBS panel trading above 50. The smaller the companies in the NBS panel, the weaker their performance.

Three Global Threats Loom Over China’s Export Boom

The PMI data came in better than expected, but they confirm the familiar picture: domestic demand is weak, the export sector is strong. The AI boom is increasingly becoming the driving force, while consumer-goods producers are growing more sensitive to tariff threats. However, Trump’s signature trade policy is likely to become considerably harder to sustain after the midterm elections. That removes one persistent source of threat but also eliminates the need for the constant front-loading it has prompted.

The second risk to China’s export boom lies in the growing AI bubble in the United States, compounded by mounting public opposition to ever more data centers. The AI bubble is also driving up prices in other areas, such as cloud services. Storage prices are rising as well, feeding through into consumer electronics costs and likely dampening the Christmas shopping season.

The third warning sign is the increasingly hardened stance of the European Union toward China. The bloc has given China until the EU summit in mid-October to make concrete concessions in the trade dispute. Chancellor Friedrich Merz has abandoned his previously accommodating stance toward the People’s Republic and is looking for ways to protect German industry.

There are still no signs of a recovery in the domestic market. As ING notes, the measures taken so far are having little effect. Consumers are showing increasing signs of fatigue: previous stimulus rounds have triggered front-loading here too, and a genuine recovery is not in sight until the broader economic conditions improve and the wealth losses from falling property prices come to a halt. There are no signs of either.

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Glacier Collapse in Tibet: State Censorship Moves Immediately

That same morning, the surveillance footage appeared on the Chinese internet and went viral on social media. In many cases, users did not merely express distress but linked the act of sharing the footage to calls for help and support for those affected. Yet as quickly as the images spread via WeChat and other platforms across China, they disappeared just as fast. “In the blink of an eye,” the state censors deleted not only the videos but also forced smaller state-run media outlets that had published eyewitness reports and footage to remove them within hours.

At the same time, the Chinese leadership demonstrated its capacity for action, dispatching Premier Li Qiang to Gyirong in person while Vice Premier Zhang Guoqing coordinated operations on the ground. By the evening of August 26, nearly 800 rescue workers, 150 vehicles, search dogs and speedboats had been deployed to the region.

Summer 2026: Extreme Weather and Flood Disasters

All year long, China has been battling severe flooding. The typhoon season reached its peak with Typhoon “Dolphin”, while in June and July, heavy rainfall events struck the provinces of Sichuan, Guangdong, Guangxi, Shaanxi and Gansu.

But while state television showed footage of flood-undermined roads in Shaanxi at the end of July, as well as rescue workers carrying supplies including water and rice on foot along destroyed mountain paths, the media have remained largely silent about the disaster in Tibet. One Chinese citizen only learned through contact with foreigners that a construction site belonging to his relative in Tibet had been completely destroyed.

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When 51 people died in mid-July in a severe landslide triggered by flash floods in Chongqing, a wave of criticism swept through social media. The early warning system that China had built proved inadequate. The censors allowed the public criticism to stand. And in the Communist Party’s internal journal Qiushi, the head of China’s meteorological authority, Chen Zhenlin, acknowledged grave systemic failures.

Failure of Early Warning Systems and Contradictory Death Tolls

The early warning system also failed in the case of the glacier collapse in the Tibet-Nepal border area, a system that China and Nepal had jointly developed in recent years. It was designed primarily for monsoon floods, not for catastrophic glacier collapses. The Nepali monitoring stations installed upstream were destroyed by the ice mass before they could transmit a signal.

Chinese state media completely suppressed the early warning system’s failure. Xinhua and CCTV reported on the construction of new, mobile weather stations in the immediate aftermath of the disaster. This was presented to the public as a “success” rather than a response to the inadequate installation of weather stations.

Bhutanese journalist Tenzing Lamsang documents the contrast between Nepal’s transparent reporting and China’s information blackout.

Yet even organizations that regularly and sharply criticize China over its Tibet policy, such as the International Campaign for Tibet (ICT), have explicitly praised the Chinese first responders for their courageous efforts under life-threatening conditions. At the same time, the ICT has called on Beijing to release complete and verifiable information. According to official Chinese figures, as of this article’s deadline, only 16 people are reported dead and 546 missing. The Nepali side reports 903 confirmed deaths and at least 1,473 injured and 4,247 missing. This discrepancy, combined with images of the total destruction of the border crossing, makes the Chinese figures hard to credit.

A Sensitive Border Region and the Fear of Losing Control

For China, the region where the disaster occurred is sensitive territory. The People’s Republic marched into Tibet in 1950 and annexed it a year later. Unrest resurfaces repeatedly in Tibet itself and in Sichuan, where many Tibetans live. China pursues a policy of the Sinicization of Tibet, through which the Chinese government systematically drives the cultural, social and demographic assimilation of the Tibetan population into the dominant Han Chinese culture. The goal of the Communist Party of China under President Xi Jinping is to gradually dissolve the distinct Tibetan identity in order to consolidate political control and “national security” in this strategically important border region. International organizations repeatedly condemn the systematic repression. For foreigners, it is relatively complicated, even under normal circumstances, to enter the Tibet Autonomous Region of Xizang, as Tibet is known in Chinese. A special permit is required, and traveling there without an escort is difficult.

This transforms the Langtang Lirung catastrophe into more than just another natural disaster in a summer defined by floods and landslides. The Chinese government cannot permit the spontaneous expressions of solidarity from the public. Because from that solidarity, as the example of the great Sichuan earthquake of 2008 shows, private relief efforts can emerge that lead to contact between Chinese and Tibetans. A fraternization that risks the leadership losing control of the narrative about Tibet.

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After the Coalition Retreat: Stricter EU Rules Against China

Merz and Macron had agreed in mid-July that the economics, finance, and foreign ministers of France and Germany would draw up a joint “roadmap” on how Europe could better protect itself against China, while in parallel the National Security Council is conducting an internal mapping of Chinese economic vulnerabilities. Building on this, the coalition agreed on a common position at last week’s retreat. Chancellor Friedrich Merz stated after the retreat that the federal government was working on a “strengthened position to protect against cheap imports from China.” He tasked the cabinet with drawing up proposals by the EU summit in October to address trade imbalances between the EU and China. Finance Minister Lars Klingbeil accused the People’s Republic of “simply not playing by the rules.” He warned that the federal government could no longer act “naively” in trade matters. He stated explicitly: “We must defend the interests of our own economy so that we are not left holding the bag.” Mere dialogue, he said, had reached its limits. Interior Minister Alexander Dobrindt explicitly endorsed this position.

Behind the publicly displayed unity lies a substantial internal tension within the coalition and particularly within the CDU. While the Foreign Ministry under Johann Wadephul supports a harder line against China, the Economics Ministry led by Katherina Reiche acts with considerable hesitation and warns against market interventions.

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Economy Under Pressure: Industry Associations Demand Protection From China

Parallel to the coalition’s shift, German industry is increasing pressure on Berlin, since it is suffering under the steadily growing imports from China, particularly in e-mobility and mechanical engineering. The major industry associations, including the Federation of German Industries (BDI), the Association of German Chambers of Commerce and Industry (DIHK), and the German Association of the Automotive Industry (VDA), are demanding additional protective mechanisms and a clear political stance.

Oliver Blume, CEO of Volkswagen, called for a level playing field, the closing of tariff loopholes on plug-in hybrids from China, and “Made in Europe” rules to increase the share of European-made components. At the same time, the German automotive industry is pressing the federal government to lobby the EU for a further relaxation of CO2 fleet targets and to allow continued sales of plug-in hybrids, “highly efficient” combustion engines, and electric vehicles with range extenders. This demand is anachronistic given the sharply rising share of battery electric vehicles (BEV) across the EU in recent months. In the EU, the BEV share rose from 15.6 percent in the first half of last year to 20.7 percent in the first half of this year. In Germany, the largest automotive market in the bloc, purely electric vehicles reached a 29.3 percent share in July, clearly ahead of petrol cars, which attracted only 18.9 percent of buyers, less than one in five. Among vehicles with alternative drivetrains (NEVs), hybrids and electric cars, Chinese manufacturers are significantly more strongly represented than in the combustion segment. An extension of combustion engine sales plainly makes it easier for Chinese manufacturers to enter the market. This cannot be in the interest of German automakers.

Germany’s Hesitation Undermines EU Strategy

Andreas Mischer of the Mercator Institute for China Studies (MERICS) warns against an undermining of the common EU strategy: Germany’s hesitation risked undercutting the common line, should Berlin fail to align with other member states. Even the bloc’s largest economy must follow a common strategy, Mischer argued. He is referring to the so-called non-paper from France, Spain, Italy, the Netherlands, and Lithuania, which called for a reform of European trade policy to combat unfair market practices more quickly. The countries advocate accelerated anti-dumping and anti-subsidy proceedings, closing legislative loopholes against tariff circumvention, and sector-wide protective measures instead of case-by-case reviews. Germany had actively blocked this paper. German policy is attempting a middle path between a harder approach, as demanded by the non-paper and now by German industry, and the fear of losing existing markets through overly aggressive policies. Meanwhile, German exports to the People’s Republic are falling continuously, and German companies producing for China in China are losing further market share, above all the automakers.

The coalition’s harder line is also likely related to the fact that 60 percent of CDU supporters view China as a rival or competitor with which Germany is in conflict, while 49 percent of the general population share this view. 35 percent said they see China as a necessary partner. This marks a slight increase from 33 percent who expressed this view three years ago. Germany is the most China-sceptical country in the survey.

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This week, the gap between Beijing’s projections and the ground beneath them widened on every front. A consumer credit expansion ran into a wall of deliberate savings, growth targets got quietly rebranded as qualitative achievement, China’s AI enthusiasm revealed itself as structured survival anxiety, the Northern Sea Route proved to be a logistical fiction, and an industrial flagship on the Amur River exploded days before its scheduled opening. Beijing reaches across consumer markets, trade infrastructure, and strategic partnerships, yet the household balance sheet, the physics, and the gas pipeline return something other than compliance. Follow me through the reports.

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First Clamp: Stimulus Into the Wall

Start with the credit expansion that hit its limit on arrival. China Unveils New Stimulus for Consumer Crisis details Beijing’s restructured consumer credit program: the pool of eligible financial institutions grew from roughly 100 to around 400, and the interest-subsidy ceiling rose from approximately 440 to 740 US dollars per loan. The retail data for July tells the other side. Nominal sales expanded just 0.6 percent year on year, a figure that barely survives deflation at 0.5 percent consumer price inflation. Car sales dropped 17 percent, furniture 8.8 percent, and jewelry 10.1 percent. Chinese households repaid a net 165 billion US dollars in debt by mid-year, directing income into balance-sheet repair instead of the spending cycle Beijing was engineering. The figures indicate that expanding the credit pool does not move a population intent on reducing its debt exposure.

This household resistance parallels a state narrative that quietly reframes what growth means.

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Second Shift: The Rebranding of Growth

Against falling retail figures, Beijing moved to redefine the success criterion itself. Slower Growth Ahead: Beijing Prepares Its People tracks how state media is pivoting from high quantitative GDP targets toward a “qualitative growth” framework, preparing a population conditioned by decades of expansion for a structurally lower trajectory. China’s GDP grew 4.7 percent in the first half of the year, landing in the middle of the official 4.5-to-5 percent target corridor. State commentaries acknowledge that new high-value industrial sectors are not generating enough jobs to replace those lost in traditional industries, pushing unemployment up and household wealth down. To project international confidence, state media highlighted a visiting US business delegation, which turned out to be a second-tier group organized by the China Council for the Promotion of International Trade rather than major corporate names. The shift reflects a leadership managing expectations while the economic arithmetic runs its own course.

Such narrative repositioning shapes how Chinese workers and consumers absorb structural pressure.

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Third Exposure: Fear Behind the Approval Rate

Behind the headline AI approval numbers, a different mechanism operates. China’s AI Rush: Don’t Miss the Last Bus examines what drives them. More than 85 percent of Chinese respondents in Stanford University’s 2026 AI Index Report said AI brings more benefits than risks, far exceeding Western survey averages. The article traces this to a structural survival anxiety rooted in historical precedent: the Xiagang reforms of the late 1990s eliminated more than 24 million state-sector jobs and ended the Iron Rice Bowl, leaving a workforce that understands the state can abandon it. The 996 work culture, 12 hours a day for six days a week, is not enthusiasm. It is the price of staying in the race. The official “AI Plus” agenda amplifies the pressure further, creating a polling environment where positive responses are politically expected. The article reveals a population running on historical trauma as much as on technological confidence.

These survival anxieties shape China’s external projections by the same structural logic.

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Fourth Illusion: The Route That Cannot Bear Its Own Claim

Across trade publications and state media, the Northern Sea Route found an audience ready to believe. Arctic Shipping: The Suez Mirage provides the arithmetic the promotion omits. Sea Legend Shipping deployed seven vessels with a combined capacity of approximately 20,000 TEU, representing well under 0.1 percent of total China-Europe container capacity. Shipping one container from Shanghai to Hamburg via the Arctic costs just over 10,000 US dollars, nearly four times the standard rate, because icebreaker escort fees run around 470 US dollars per container and insurance premiums run 400 to 900 percent above a standard Suez transit. The Northern Sea Route recorded just 103 transits last year. The Suez Canal clears that annual volume in three days. Russia’s 2030 target of 100 million tons requires 15 to 17 nuclear icebreakers; only 8 are currently active. The route is a geopolitical hedge, not a commercial infrastructure.

This projection gap surfaces with lethal directness at the Sino-Russian frontier.

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Fifth Crack: When the Showcase Explodes

Finally, the most expensive failure of ambition this week had a body count. Disaster at China Border: Putin’s Megaprojekt Blows Up examines the explosion at the Amur Gas Chemical Complex, a 60-to-40 joint venture between SIBUR and Sinopec that Chinese state banks sustained with a 4.6-billion-US-dollar credit line after Western contractors withdrew. At least seven workers died, six of them Chinese nationals, and nine further Chinese workers remained missing. Two weeks before the blast, Russian authorities issued a symbolic 50,000-rouble fine (around 570 euros) for serious deficiencies in explosion protection. China bypassed Russian emergency services and dispatched its own consular search team. The explosion exposes that Russia’s substitution of Western industrial partners with Chinese firms comes with severe operational compromises, and that the partnership runs on capital and labor while trust functions as a separate ledger.

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Force Without Purchase

The week’s five stories share a single structural logic. Beijing expanded its consumer credit architecture, and households absorbed the room into debt repayment. It reframed growth as qualitative while job losses in traditional industries continued to mount. It built AI enthusiasm through state narratives, but the optimism sits on 24 million Xiagang layoffs from the 1990s. It marketed the Arctic route as a trade corridor while three Suez days cover the entire Arctic annual volume. At the Amur River, the flagship partnership exploded ten days before its cameras arrived. China projects control across consumer markets, trade routes, and strategic partnerships, yet the household balance sheet, the gas pipeline, and the frozen sea return something other than compliance.

Which thread stands out most to you? Share it in the replies. Your read steers the next course. Until next week.

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In the United States, skepticism toward the AI revolution is growing even as the use of AI tools simultaneously becomes more routine. Anthropic and OpenAI, with Claude and ChatGPT, are reaching ever deeper into professional life, while resistance is directed less against the models themselves than against the infrastructure on which they run. Data centers consume vast amounts of electricity, already pushing up power prices for private households in some regions. The high water consumption compounds this, hitting a resource already in short supply in the southwestern United States. Lake Mead and Lake Powell, the region’s two most important water reservoirs, have now dropped to levels that place pressure not only on water supply but also on hydropower generation.

In China, the relationship with artificial intelligence appears to be an entirely different matter. According to the Stanford University’s 2026 AI Index Report, more than 85 percent of respondents say that AI brings more benefits than risks. In the West, this pronounced openness toward technology is often explained by China’s political system: the development and spread of AI there, so the argument goes, follows a state agenda that populations within an authoritarian system have little choice but to adopt.

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China’s AI Hype, or the Fear of Decline

Qian Zilan, who researches at the Oxford China Policy Lab, traces China’s affinity for artificial intelligence to the historical experiences of its population with the sweeping economic upheavals of the 1990s. Her thesis holds that enthusiasm for AI is less an expression of genuine technological excitement than a fear-driven survival mechanism: a collective boarding of the “last bus,” born of the trauma of mass layoffs and the deeply internalized experience that the state, in a pinch, catches no one.

The reform and privatization policies of Deng Xiaoping from the late 1970s onward generated competitive pressure that state enterprises were increasingly forced to confront, and in northeastern China, the heartland of heavy industry, produced in the 1990s an adjustment pressure that the moribund state-owned firms could not withstand. The result was the mass layoff of more than 24 million state-sector workers by 1999 and widespread depression. The loss of jobs meant not only the loss of income but the loss of social existence itself. The Chinese business journalist Wu Xiaobo published in the FT China in 2002 an anatomy of the destitution and hopelessness in Shenyang. The state largely withdrew and left workers to their fate. The so-called Xiagang wave was the end of the “Iron Rice Bowl,” the system that had at least not left the population to starve.

In the south, particularly around Shenzhen, conceived as a model city for the “New China,” the region benefited from the reforms that Deng Xiaoping set in motion and that Jiang Zemin and Zhu Rongji carried forward. A boom in the Pearl River Delta created a new middle class. Those same years saw the emergence of Chinese technology giants like Alibaba, Tencent and Baidu. An entire generation in the south came to associate computers and connectivity with a radiant future; the same generation in the north experienced modernization as loss, humiliation and abandonment by the state.

In communist China before the Deng reforms, everyone was at least equally poor, but that period was also the first, with the exception of the years following the Great Leap Forward, in which the state felt both obligated and able to prevent at least the starvation of its population. The new era reproduced the same inequality that had already marked imperial China: alongside a tiny number of unfathomably wealthy individuals, it permitted a precariat still visible today in the migrant workers who populate China’s cities.

In China, the developments of the late 1990s gave rise to a mindset that the anthropologist Xiang Biao calls a “last bus mentality”: a collective, chronic panic that missing the next major trend is tantamount to permanent exclusion from social advancement. Only education, or what the communist leadership presents as such, combined with self-optimization, the 996 culture of working twelve hours a day six days a week, and above all the creed that new technologies promise a better world, holds the threat of decline at bay.

Qian Zilan’s explanatory framework has no shortage of problems. That Chinese people are broadly more open toward AI and new technologies than Western societies are is nevertheless hard to dispute. What she cannot do is explain that openness through a historical trauma that falls short of bearing its weight.

The 1990s Trauma: Why Chinese Board the AI Bus

Questionable, however, is the assumption that this attitude can be explained primarily by the trauma of the Xiagang wave. The term “last bus mentality,” coined by Xiang Biao, does accurately capture a part of the Chinese approach to technological change: the fear of missing the next major step in development and thereby permanently falling behind. Education, self-optimization, the 996 culture and the willingness to adopt new technologies as early as possible become means of securing one’s own social advancement, or at least of preventing decline. Yet the existence of this mentality does not in itself mean that it emerged from a single historical trauma.

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There are, to begin with, the surveys themselves. Qian Zilan takes the high approval ratings as evidence for the high approval ratings, unquestioned. As a researcher who relies on surveys, she ought to point to the problems that arise in China with polling, and in particular with polling conducted by foreign institutions. Whether respondents actually share their honest opinions with interviewers is a subject of inquiry in empirical social science, and the United States has developed tools to correct raw data for this distortion. In China, familiarity determines the degree of disclosure. The “in-group,” family and close friends, learns what an individual actually thinks; the further a questioner stands from one’s own social circle, the less they learn of genuine opinion. A survey researcher from a foreign research institution is the archetypal stranger. He receives no authentic answer, not because the respondent is consciously deceiving, but because sincere expression of opinion toward a “stranger” is simply not a recognized social category.

The second problem is political in nature and reinforces the first in the same direction. Artificial intelligence is not a neutral technology topic in the People’s Republic: the “AI Plus” agenda of the State Council signals clearly to any respondent what a politically safe answer looks like. In a political system where dissent can carry consequences, respondents say not what they think but what they believe to be politically desired. Within a collective, this effect is self-reinforcing. Because no one knows what others truly think, individuals lack a reference point for a dissenting statement, even when their private views diverge entirely from what they express. The result is a surface of apparent consensus that remains stable until an external shock renders private preferences visible.

In other words: the finding that Chinese people hold more positive views of AI development than Americans may well be correct, but the survey results themselves should be treated with caution.

From Empire to Today: China’s Old Battle Against Technological Inferiority

Still more problematic is Qian Zilan’s historical framing. As she herself describes, the Xiagang wave produced trauma only in certain regions of China, while in the south the policies of Jiang Zemin triggered a wave of euphoria. And China’s history is rich in national traumas that could equally serve as explanatory material for today’s AI enthusiasm.

Most concrete is the trauma of the “sent-down youth” experience during the Cultural Revolution. A large part of today’s leadership elite in the Communist Party underwent this experience, regardless of whether they were later counted among the princelings, the Communist Youth League, the Shanghai faction or Xi Jinping‘s networks in Zhejiang and Fujian. What they share is the experience of a poor and technologically backward China, far inferior to the Soviet Union and above all to the United States. For those who lived through it, modernization is not merely economic development but the precondition for ensuring that China never falls into that position again. New technologies therefore stand for the overcoming of that backwardness and are understood not as a threat but as a necessary component of national rise.

Deeper still is the trauma of “gunboat diplomacy,” which culminated in the Unequal Treaties. The mighty walls that had protected Chinese cities for centuries, of which the most impressive example is the nearly fully intact city wall of Xi’an, offered no protection against modern cannon. The Chinese population was forced to witness how foreign warships, with comparatively few guns, established a military superiority against which even heavily fortified cities were powerless. The consequence was the Unequal Treaties, through which parts of northeastern China fell to the Russian Empire, Hong Kong was ceded to the British Crown, Qingdao was made a German colonial possession, and Shanghai was opened as an entrepôt for the colonial powers. The city was thereby divided into a district with its own foreign police and jurisdiction and a Chinese-controlled zone.

The history of Chinese inferiority reaches even further back, to when European missionaries arrived in China and brought with them knowledge and technology that China did not possess. The German Jesuit Johann Adam Schall von Bell knew the Copernican model in the seventeenth century, yet taught in China the Tychonic worldview accepted by the Catholic Church. At the same time, he could calculate solar and lunar eclipses more accurately than Chinese astronomers using European astronomical methods. A few decades earlier, the Jesuit Matteo Ricci had brought to the Middle Kingdom, alongside Euclidean mathematics, Western clocks, astronomical instruments and mechanical devices largely unknown in China until then. As a mathematician and cartographer, Ricci later worked at the imperial court in Beijing.

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Fear of Uprisings: The Real Reason for China’s Tech Strategy

Qian Zilan’s explanatory framework is original but falls too short to account for the full weight of China’s historical traumas and their positive encoding of modern technology. Nor is the insight that the Chinese state abandons its people in moments of crisis anything new. China’s history is a succession of uprisings and revolts, and most of them arose from desperation and destitution, fueled by movements that promised relief, among them the Five Pecks of Rice Rebellion, the Red Turbans and the White Lotus. The fear of precisely such a revolution, one that might one day sweep away communist rule, is what compels the party to maintain at least a rudimentary level of provision, not the desire to establish a genuinely communist society in which hardship, hunger and exploitation are absent. The AI hype is a flight forward, for the population as much as for the party. For the population, it risks turning into a dead end.

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Explosion Halts Mega-Project with China

Last Monday, a violent explosion followed by a major fire struck the Amur Gas Chemical Complex (AGCC) near Svobodny in Russia’s Far East. The facility is owned 60 and 40 per cent respectively by Russian petrochemical group SIBUR and Chinese state conglomerate Sinopec. By press time, seven deaths had been confirmed, including six Chinese nationals; nine further Chinese workers were reported missing.

The accident struck the largest Sino-Russian industrial project just before its planned inauguration by President Vladimir Putin. The project illustrates how completely Moscow depends on Beijing’s capital, labour and markets. The planned annual capacity of 2.7 million tonnes of polyethylene (PE) and polypropylene (PP) would have made Russia the world’s largest base polymer exporter. Operator SIBUR claims that the facility’s main equipment was not damaged. The assessment cannot be independently verified.

The project, construction of which began in August 2020, was originally scheduled for completion in May 2024. Following Russia’s invasion of Ukraine, western prime contractors including the German Linde AG and Italian Maire Technimont withdrew. Chinese companies stepped in to replace the European partners, also supplying the majority of the workforce. Different figures exist for the total cost. Financing for completion was taken over by a consortium of Chinese state banks, which provided a credit of 4.6 billion US dollars.

Putin’s Showcase: A Mega-Project Against Western Sanctions

The AGCC served as a flagship project for Sino-Russian cooperation and stood under Putin’s personal oversight. He regularly cited it as a model example of “world-class enterprises” in the Far East and received continuous progress briefings. It was meant to demonstrate that Russia is capable of absorbing the West’s sanctions pressure through deepened cooperation with China.

Among the seven confirmed dead were six Chinese nationals; nine further Chinese citizens were reported missing. The Chinese Consulate General in Khabarovsk dispatched its own working group to the accident site to investigate the incident and conduct its own search for further victims. This behaviour signals that the Chinese side does not fully trust the Russian authorities.

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In the months leading up to the explosion, several safety-relevant events had occurred. In spring, an inspection identified serious deficiencies in explosion protection. On account of these deficiencies, the AGCC was fined a symbolic 50,000 roubles (around 570 euros) two weeks ago. Twelve days before the explosion, residents of the neighbouring village of Tschernigowka complained of a strong smell of gas. During the night of 16 to 17 August, the smell had dramatically worsened according to residents’ accounts. Russian authorities did take air samples at the plant boundary, but ongoing commissioning work was not halted.

Following the accident, social media quickly circulated rumours that a pro-Ukrainian act of sabotage had caused the explosion, and the network “Russia for Russians” even claimed responsibility. It appears far more likely, however, that a lack of care was the cause of the explosion. Safety deficiencies and the disregard of safety regulations are common to both Russia and China. The serious mine disaster in Shanxi at the end of May is also likely attributable to severe violations of safety regulations.

Helpless Without the West: The End of Russia’s High-Tech Illusion

If SIBUR’s account that the central equipment remains intact proves accurate, the damage is limited, though the project has been set back by months. Should it emerge, however, that the accident results from a flawed design and that the facility cannot safely be operated, this would demonstrate that Russia, in another area beyond the aviation industry, is failing to compensate for the withdrawal of western partners in the face of western sanctions in yet another high-technology sector.

The deaths of Chinese workers will certainly deepen the image in the Chinese public of a backward Russia. The reaction of the Chinese Consulate General signals the profound mistrust that exists on the Chinese side towards Russia. In this sense, the accident is also a setback for the supposedly boundless Sino-Russian friendship.

And finally, the incident is a slap in the face for Vladimir Putin himself, under whose personal oversight the project stood and who repeatedly held it up as a model proof that Russia is capable of compensating for western sanctions through Chinese capital, Chinese buyers and Chinese labour. All the more so given that Putin himself was due to open the facility ceremonially just days later.

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Unofficial Warning: Party Dampens Expectations for GDP

In China’s leading medium, the People’s Daily, a collective of authors published a three-part series on the state and outlook of the Chinese economy following the State Council meeting last Friday. The commentaries are intended to convince the population, on the one hand, that the Chinese economy is strong and defies “wind and waves,” while at the same time lowering expectations for economic growth. GDP growth of 4.7 percent in the first half of the year is “essentially in line with current conditions” and “meets the potential economic growth rate,” the text states. In spring, the leadership had set a growth corridor of between 4.5 and 5 percent as its target. Michael Pettis of Peking University describes the text as a “warning.”

Traditionally, economic growth is less a reflection of the actual performance of the Chinese economy than it is proof of work by the political leadership, which is responsible for the prosperity of the population. The admission that GDP growth is moving toward the middle of the prescribed corridor is therefore already an admission that the leadership cannot prevent a weaker economic development.

To disguise this, the collective of authors argues that observers should focus less on the numbers and more on the “quality” of the economy. But “qualitative growth” has already been a fixed part of the political communication of the ruling elite for years. Against this backdrop, the renewed reference to successes in the high-tech and AI sector looks less like a new explanation for China’s economic strength than like an attempt to divert attention from the weaker overall economic development.

In doing so, the authors do not simply claim that growth of 4.7 percent is particularly high; instead, they describe the rate as an appropriate growth rate under current economic conditions. This shifts the benchmark. The focus should no longer be on whether China achieves its politically set growth target, but whether the growth achieved corresponds to what the economy can deliver under the given circumstances.

Admission: Property Crisis and Debt Burden Economic Growth

For the first time, the collective of authors explicitly acknowledges that the reduction of risks in local government debt, the property market, and among small financial institutions is weighing on economic growth. The cleanup has “objectively had a certain contractionary effect” and requires “the tribute of a certain amount of economic growth.” This short-term price, however, will be paid with long-term stability and sustainable development.

To properly assess this admission, it must be borne in mind that the authors are not simply the editorial staff of the People’s Daily. The author pseudonym “Zhong Caiwen” signals that the texts were produced in close coordination with higher-level authorities.

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This simultaneously provides the leadership with a justification for weaker growth. Should the Chinese economy grow more slowly than originally expected, this can no longer be interpreted merely as cyclical weakness. Instead, the lower growth rate appears as the deliberate consequence of an economic cleanup necessary to clear the legacy burdens of past years.

At the same time, China’s role as a global growth engine, anchor of stability, and technological driver of innovation is described. Around 30 percent of global economic growth is attributable to China, one of the commentaries states. The 4.7 percent growth in the first half of the year is in line with the annual target and ranks among the highest growth rates among the major economies.

Window Dressing: Dubious Proof of Success

Here, however, the text exposes itself: to substantiate this claim, the authors point to a visit by a delegation of US business representatives who traveled to the People’s Republic on a trip organized by the China Council for the Promotion of International Trade (CCPIT) and spoke favorably about future sectors. This is a delegation from the second, if not third tier. Not heavyweights like Tim Cook, Stephen Schwarzman, Jane Fraser, Ray Dalio, or executives from Qualcomm, Pfizer, FedEx, and Boeing, who regularly attend the China Development Forum (CDF). Equally, the commentary does not reference the supposedly “still-high” foreign investments, since these are sharply declining — which is closer to a vote of no confidence.

The commentators’ goal is to relativize the significance of a particular growth figure. This is consistent with the explicit rejection of excessive reliance on debt-financed stimulus programs. The leadership does not want to pursue a path of high debt and high deficits to generate additional short-term growth. Instead, it is betting on structural measures intended to stabilize economic development over the long term. In doing so, the series simultaneously pushes back against the demands of senior Chinese economists such as Liu Shijin and Li Daokui, who are calling for stronger economic stimulus.

In this way, the leadership is attempting to prevent lower growth in the future from automatically appearing as an economic policy problem. What matters more, the argument goes, is whether the economy becomes technologically more capable, whether new industries emerge, and whether existing risks remain under control.

Job Losses and Crisis: Weak Growth Hits the Population

Here, however, a legitimacy problem arises for the Chinese leadership. The implicit Chinese social contract stipulates that the Party provides for prosperity and in return the people leave governance in the Party’s hands. But if the leadership now declares that it can no longer provide for prosperity to a sufficient degree, it is no longer fulfilling its side of the contract. Why, then, should the people continue to accept the Party’s claim to leadership?

The commentary also refrains from holding out the prospect of an overall economic recovery and instead points to the “quality” and rising competitiveness of individual industries. The message for the reader is that the country must brace itself for continued rising unemployment and loss of prosperity. The individual indicators of GDP show that while the new industrial sectors do generate high value added, they are not creating new jobs to replace those being lost in other areas.

The series is therefore not a tribute to the resilience and progress of the economic restructuring. Instead, it is preparing the population for weak growth and a continuing difficult environment for Chinese citizens. The property crisis will continue, which means a loss of prosperity; the growth sectors are not replacing the losses in traditional industries, which means jobs will disappear; and consumption will remain weak, which will further diminish entry-level opportunities for young workers. The commentary series is an adaptation to permanently lower growth dressed up in gestures of triumph, amounting to nothing less than the economic decline of large parts of the population.

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China Express Launches: The Arctic Route’s False Promise

Based in Ningbo, the Chinese shipping line “Sea Legend Shipping” launched the “China-Europe Arctic Express” (CAX) on August 15, offering weekly container service via the Northern Sea Route from China to Felixstowe, Rotterdam, Hamburg, Wilhelmshaven and Gdynia. The final arrival is scheduled for October 24. The seven vessels Sea Legend Shipping has deployed have a combined capacity of approximately 20,000 standard containers (TEU).

These parameters alone make clear that talk of an alternative to the Suez Canal is premature. The combined capacity of seven ships does not even match a single Megamax-24 vessel, which offers roughly 23,000 to 24,000 slots, with around ten such ships plying the Shanghai-Europe liner trade per week, not counting the other major ports of Ningbo, Tianjin or Shenzhen. Add the Neopanamax class with 15,000 to 19,000 TEU. The new “alternative” amounts to well under 0.1 percent of total container capacity on the China-Europe corridor.

Moreover, navigability on the Northern Sea Route is not available year-round, but limited to under three months of liner service during which the passage is “ice-free.” “Ice-free” does not mean an open sea: the sea-ice concentration falls below 15 percent. That makes sailing without an icebreaker escort possible, but only for ships with a high ice class. For ordinary container vessels, the Arctic seas remain off-limits. Beyond Trash Ice and Ice Cakes, flat fragments up to 20 meters in diameter, both relatively harmless, multi-year ice (MYI) and Floebergs present real threats to navigation. MYI reaches a density and hardness close to compact glacier ice and can form a compressed Jammed Brash Barrier in the East Siberian Sea, hundreds of meters to kilometers wide and up to 20 meters deep. None of these ice types are captured by satellite data, which forms the basis for classifying a route as “ice-free.” Last year, the genuinely ice-free window during which the Northern Sea Route could be transited without an icebreaker lasted just two weeks.

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Danger Despite Icebreakers: Russian Tanker Sustains Severe Hull Damage

Even with an icebreaker, transiting the Arctic Ocean is not without risk, as a Russian vessel recently demonstrated. The Russian insurer AlfaStrakhovanie reported that a tanker had suffered severe hull deformations from sea ice while under icebreaker escort. The damage was put at roughly 650,000 US dollars. In the event of a casualty, there is virtually no infrastructure along the coast to render assistance. Russia has no comprehensive rescue services for crews, no ocean-going tugs to take stricken vessels in tow, and the few ports that exist cannot carry out repairs.

Russia also lacks sufficient icebreakers to develop the Northern Sea Route further. The official target is to transport 100 million tons of freight on this route by 2030. Last year, just over one-third of that, namely 37 million tons, was shipped via the Northern Sea Route. By internal calculations, reaching the 2030 target would require Rosatom to field 15 to 17 nuclear-powered icebreakers. Only eight active nuclear icebreakers are currently available. Three more are under construction: the Chukotka, the Leningrad and the Stalingrad and scheduled for service between 2027 and 2030. The Rossiya is also being built, intended to be the most powerful nuclear icebreaker ever constructed and the first of the Leader class. The costs have risen from a planned 1.4 billion US dollars to an estimated 2.2 billion US dollars due to sanctions and procurement problems, with completion now expected no earlier than 2030.

Prohibitive Costs: The Arctic Passage as an Expensive Alternative

Added to all this are the costs of shipping a container via the Northern Sea Route to Europe, which are substantially higher than current elevated transit rates on the Shanghai-Rotterdam corridor, last week at 4,400 US dollars per 40-foot container, or roughly 2,200 US dollars per standard container. Icebreaker escort alone costs around 470 US dollars per container; insurance premiums run 400 to 900 percent higher than a standard Suez transit and around 40 percent above the Cape route. On top of that comes the general permit for transit through Russian territorial waters, which must be paid to Russian authorities. The relatively small ships are less efficient to operate than standard Megamax-24 or Neopanamax vessels, and their construction and operating costs are higher still because of the special ice-class build requirements. These additional costs are not offset by the shorter voyage, so a voyage departing on September 15 from Shanghai to Hamburg is offered for just over 10,000 U.S. dollars—almost four times the cost of a voyage via the standard routes.

Even as the China-Europe sea route becomes more interesting in the context of climate warming, it remains decades away from being a genuine alternative to traditional shipping lanes. Year-round navigability will not be achievable until around 2100; until then, the navigable season will expand only slowly. Infrastructure, above all icebreaker availability, remains the binding constraint, translating into significantly higher costs for shippers. Last year, the Center for High North Logistics recorded just 103 transits on the Northern Sea Route. The Suez Canal, by comparison, currently handles around 33 transits per day. The entire annual Arctic shipping traffic is thus squeezed through the Suez chokepoint between Bab el-Mandeb and Port Said in just three days. Before COVID and the Houthi attacks, the daily rate was over 50 transits.

Asia’s Logistics Giants Plan Expansion Despite Polar Risks

More dangerous than rockets, though, are the hazards of sea ice, which can severely damage vessels even with icebreaker support or in nominally ice-free conditions. The probability of a collision with ice is currently higher than the probability of being struck by a Houthi weapon.

The further development of the Northern Sea Route is of geopolitical interest not only to Russia and China, but also to South Korea, which is advancing its Arctic ambitions through the Arctic Shipping Route Special Act and the development of five ports as Arctic transit hubs. The shipping line PanStar Line is planning a first trial voyage from Busan to Tromsø and back. But even the PanStar Acro, the vessel assigned to the voyage, is a dwarf by normal container-shipping standards, with just 2,700 TEU.

As a genuine alternative to the Suez Canal, which is how Sea Legend Shipping markets its service, the Northern Sea Route is further away than Germany is from the completion of the Brenner Base Tunnel’s northern approach. Most people alive today will not see regular commercial shipping between Asia and Europe via the Arctic.

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The state program has already supported the issuance of new loans worth roughly 3 trillion US dollars in the first seven months of the year, an increase of just over 4 percent compared to the same period last year. The current stimulus package builds directly on these existing structures.

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Expanding Credit Instead of Direct Transfers

The focus is not on new direct transfers to private households but on an expansion of existing credit instruments. In addition to certain bank loans, installment payments via credit cards for car purchases and renovations will now also be subsidized. Working capital loans for small and medium-sized enterprises fall under the expanded provisions as well. The Finance Ministry is thus primarily trying to extend the reach of measures that have so far been limited in scope.

For implementation, the pool of participating financial institutions has been expanded from roughly 100 to around 400. In addition to state banks, the network now includes local banks, private banks and foreign institutions with a credit rating of at least AA+. Credit ceilings are also moving upward. The eligible amount for small and medium-sized enterprises rises from roughly 7.4 million to around 11 million US dollars, while service-sector companies can now claim up to roughly 2.9 million US dollars compared with 1.5 million previously. For private consumer loans, the ceiling on the interest-rate subsidy rises from approximately 440 to around 740 US dollars. Many observers are skeptical, however, that this expanded stimulus package will achieve the broad impact sought.

Against the backdrop of the latest consumption figures, the limits of the policy intervention become clear. According to data from the National Bureau of Statistics published on August 15, retail sales in July grew by just 0.6 percent year on year in nominal terms. Accounting for consumer price inflation of 0.5 percent, real growth is barely positive. The weakest areas were precisely those that were supposed to benefit most from existing consumption programs. Car sales fell 17 percent, building materials 14.2 percent, gold and jewelry 10.1 percent, and furniture 8.8 percent. Even the new Chinese stimulus package is unlikely to trigger a turnaround in these sectors in the short term.

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Paying Down Debt Instead of Spending: Why the New China Stimulus Package Falls Flat

Two key metrics, net household borrowing and the gap between income growth and consumption expenditure, reveal how little confidence the population currently has in the economic outlook. Rather than taking out new consumer loans, households repaid a net 165 billion US dollars by mid-year. At the same time, disposable income rose 5.2 percent in the first half of the year while private consumption expenditure increased by only 3.7 percent. A growing share of additional income is thus flowing not into spending but into savings.

The effectiveness of the scrappage program is waning further, as the car market makes plain. Despite an expansion of the measures, car sales fell by a double-digit percentage in July. Even though the program triggered roughly 178 million purchases this year alone, with a subsidy volume of around 27.6 billion US dollars generating total sales of roughly 194 billion US dollars, the effect is running out of steam. That a purely credit-based stimulus package can remedy this is widely considered unlikely, since households merely bring forward purchases they would have made anyway.

Beijing’s Old Playbook

Liao Min also highlighted the orientation of the 15th Five-Year Plan, under which spending on education, social security, healthcare and housing is set to rise to around 1.8 trillion US dollars this year. Despite this announcement, a substantial share of government support continues to flow into infrastructure, industry and the stabilization of local government finances. The latest stimulus package fits this pattern. Beijing continues to follow the old playbook, yet the numbers show that its effectiveness is declining. This is especially the case given that local governments are heavily indebted and new loans are servicing interest rather than funding new investment.

The underlying problem of China’s domestic demand thus persists. Private households have rising incomes but less wealth. The decline in property values, which hits the consumption-oriented middle class hardest, combined with poor labor market prospects and a broadly pessimistic outlook, is eroding consumer confidence. Without direct wealth support, this stimulus package too will dissipate against the worries of consumers.

With the measures just announced, it is confirmed that the Politburo views the figures on economic growth and the general economic environment as bad, but not yet bad enough to consider a change in policy. The Chinese stimulus package on the table provides clear evidence of that.

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This week the five reports converge on the same structural bind. China’s humanoid robot industry claims 85 percent of global shipments on the back of state subsidies, a leading economist argues that AI cannot close the structural employment gap this industrial push creates, Beijing’s coercive port campaign against Panama ends in a strategic retreat, July economic data reveal high-tech sector output surging as consumer spending flatlines and private investment contracts, and a Plaza Accord 2.0 proposal frames China’s trade surplus as the product of a domestic market too broken to absorb what Beijing builds. Even as the supply side scales at record speed, the demand side is contracting on multiple fronts, and the international system is running out of capacity to absorb the difference. Follow me through the reports.

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First Surge: How China Built an 85 Percent Grip on Humanoid Robots

Start with the fastest industrial land grab of 2026. 85% Market Share: China’s Humanoid Takeover tracks how Beijing turned a nascent hardware category into a supply-chain conquest. Global humanoid robot shipments rose more than 3.7-fold in the first half of 2026, reaching 19,100 units. China captured 85 percent of all deliveries. Unitree posted 220 million euros in revenue last year and 36 million euros in net profit. AgiBot crossed 130 million euros in revenue and delivered 15,000 units by June 2026. Beijing cleared Unitree’s STAR Market IPO in 73 days via a special pre-review mechanism, with offline demand exceeding supply by a factor of 2,760. One structural gap persists. China depends on foreign AI chips and sensors for the intelligence layer, the same bottleneck that caps its semiconductor program. The pattern is familiar. Solar and EVs first, now humanoid hardware, all driven by state subsidies, accelerated capital markets, and a domestic supply chain that foreign rivals cannot replicate quickly.

This supply-side surge occurs while China’s labor market faces a structural deficit that automation deepens rather than closes.

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Second Warning: The Economist Who Said AI Cannot Rescue China’s Labor Market

The official unemployment rate does not capture what is happening. AI Won’t Save China: Top Economist’s Dire Warning examines why China’s high-tech push cannot replace the employment engine the property crash is dismantling. Factoring in discouraged workers who have left the labor force, China’s adjusted urban unemployment reaches 10.2 percent, against an official 5 percent. Youth unemployment officially tops 15 percent. A Chinese cement company employs a median of 20,174 workers. A chip company of comparable economic value employs 830. Fixed-asset investment is now contracting outright, a structural break that has occurred only twice before in the People’s Republic’s history, after the Great Leap Forward and during the Cultural Revolution. State subsidies have mechanized production at the cost of payrolls, severing the link between growth and household income. With 44 percent of urban workers in gig roles without safety nets, no volume of AI spending restores what China is losing.

This employment fracture ties into a wider pattern where coercive leverage abroad carries the same ceiling as the economic pressure Beijing fails to convert into domestic demand.

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Third Limit: Beijing’s Panama Campaign Ends Without a Reversal

China’s port diplomacy ran into a wall. China Lost Panama: Beijing’s Port Revenge Backfires details the retaliatory campaign Beijing launched after Panama’s Supreme Court stripped a Chinese-affiliated conglomerate of the Balboa and Cristóbal terminal concessions at the Panama Canal. Between March and June 2026, Chinese authorities detained 431 Panama-flagged vessels in Chinese ports under “safety inspections.” Monthly detentions peaked at 140 in May, against a baseline of 21. China was responsible for 91 percent of all such maritime measures against Panamanian ships across Asia-Pacific during this period. CK Hutchison’s subsidiary launched international arbitration seeking over 2 billion US dollars in damages. None of it reversed the ruling. The concessions passed to a Western consortium of MSC, Maersk, and BlackRock. Beijing’s campaign closed with a damaged reputation in the Global South, the region it presents as the alternative to Western conditionality.

This geopolitical setback occurs alongside a domestic picture the July data make impossible to ignore, where high-tech output surges and the broader economy does not.

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Fourth Fracture: July’s Numbers Show Two Economies Running in Opposite Directions

The July numbers do not describe a transition. China’s AI Hype Can’t Hide the Domestic Slump shows the widening gap between state-directed high-tech output and private economic activity. Semiconductor production rose 20.7 percent year-on-year. Industrial robot output climbed 30.2 percent. NEV production jumped 29.9 percent. Against this, only 4 of 70 tracked cities saw new-home price gains in July, and not a single city recorded a year-on-year increase in the resale market. Real estate investment fell 19.2 percent from January through July. New construction starts declined 24.0 percent. Developer funding shrank 20.3 percent. Nominal retail sales grew 0.6 percent in July, flat in real terms against 0.5 percent inflation. Overall fixed-asset investment contracted 6.7 percent through July. Private companies cut equipment spending by 9.4 percent. Household borrowing has declined for 16 consecutive months. The state grows one economy while the private sector deflates another.

This fracture between state-forced output and private-sector contraction adds weight to the Plaza Accord 2.0 debate, which frames China’s surplus as the product of a domestic market too broken to absorb what Beijing builds.

Fifth Misreading: Why Plaza 2.0 Addresses the Symptom, Not the Source

Finally, the global frame that connects all five stories. Global Crisis Made by China: Will Plaza 2.0 Save Us analyzes the case for a coordinated international response to China’s export-displacement strategy. China’s trade surplus grew 20 percent in the early months of 2026, topping an annualized rate of over 1.2 trillion US dollars. The OECD estimates that state subsidies account for 60 percent of Chinese exporters’ market share gains. Economists Brad Setser and Jürgen Matthes calculate a structural yuan undervaluation of 19 percent, with true undervaluation estimated closer to 30 percent. China has built annual NEV production capacity of 55 million vehicles against a domestic market that absorbed 30 million passenger cars in 2025. Germany is losing an estimated 10,000 industrial jobs per month. A Plaza Accord 2.0 targets currency misalignment, but the source of the surplus is structural overcapacity built on subsidized production that a domestic market too broken to consume cannot absorb. Currency realignment alone does not close a factory.

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Force Without a Market

China’s humanoid industry claims 85 percent of global shipments before meaningful demand exists, executing the same supply-chain conquest that reshaped solar panels and EVs before it. Yet the economist’s structural case shows that the subsidized capital model powering this expansion actively destroys the payrolls needed to generate the household income to consume what is produced. Against this, Beijing’s Panama campaign demonstrates that coercive leverage has a ceiling. The terminal concessions are gone, the reputational cost in the Global South is real, and the campaign produced no reversal. The July data close the circuit. Private companies cut equipment spending by 9.4 percent, households reduce borrowing for the sixteenth consecutive month, and not a single city records a year-on-year resale price gain in property, even as state-directed sectors scale at record rates. China scales output at home and abroad with state force, yet the demand needed to sustain this, on domestic markets and in the global system pressed to absorb its surplus, is not forming.

Which shift stands out most to you? Share it in the replies. Your read steers the next course. Until next week.

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How Trump’s Pressure Ended China’s Canal Control

Since 1997, the Panama Ports Company (PPC), a subsidiary of the Hong Kong-based conglomerate CK Hutchison Holdings, had operated the container ports at both entry points to the Panama Canal, Balboa on the Pacific side and Cristóbal on the Atlantic side. The contract was extended in 2021. CK Hutchison subsequently ran into financial difficulty and sought to sell 43 of its global port terminals in 23 countries, including PPC, to reduce its debt load. Then came Donald Trump‘s takeover of the White House, as he moved to roll back Chinese influence over a vital artery of the United States.

Beijing tried to secure a controlling stake in PPC for the state-owned shipping conglomerate COSCO, but in January of this year Panama’s Supreme Court declared the concessions for the two port terminals at Balboa and Cristóbal unconstitutional, and a consortium of MSC, Maersk and BlackRock took over operations. PPC has launched arbitration proceedings before the International Chamber of Commerce (ICC) and is seeking damages of more than 2 billion US dollars for illegal expropriation and violations of investor protection agreements.

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Beijing Demands MSC and Maersk Step Down

In March, China’s Ministry of Transport summoned executives from both companies to Beijing, accusing them of complicity in an unlawful expropriation and demanding their immediate withdrawal from Balboa and Cristóbal. Both companies would face consequences for access to Chinese ports if they refused, officials implied. Both shipping groups declined, arguing that a withdrawal would not return the terminals to Chinese control but would instead hand them to US operators, which Beijing would likely find even less palatable.

On the same day, COSCO suspended container services at the Balboa terminal and rerouted cargo, laden and empty, to other ports, significantly disrupting the port’s operations. In addition, Chinese leasing companies, which finance a substantial share of the world’s new ship orders, pressed ship owners to stop registering newbuilds under the Panama flag, making this a condition of future financing.

China Harasses Ships Flagged in Panama

After the fruitless March meeting with Maersk and MSC, China sharply escalated its campaign against Panama, as Chinese authorities detained increasing numbers of Panama-flagged vessels in Chinese ports under the pretext of “safety inspections.” Within a few months, these inspections rose from an average of 21 cases per month to 140 in May of this year. In total, 431 Panamanian ships were detained between March and June. Throughout last year, more than 4,600 ships registered in the Central American country called at ports in the People’s Republic. Across the Asia-Pacific region, 91 percent of these measures against Panama-flagged ships originated from Chinese authorities.

In mid-July, a high-level Panamanian diplomatic delegation traveled to Beijing. Panama made no substantive concessions. Foreign Minister Martinez Acha Vazquez made clear that Panama regarded the Supreme Court ruling as constitutional and would not accept the revocation of the concession as grounds for economic coercion. But China appeared satisfied by the gesture that Panama remained interested in good relations. Representatives of both countries renewed the Maritime Transport Agreement of 2018, which guarantees Panama-flagged ships most-favored-nation status at Chinese ports, preferential port fees and simplified administrative procedures. The “safety inspections” dropped to 16 for the entire month of July after the diplomatic initiative.

Trump thus wins the power struggle with China at least directly on his doorstep. China can at most raise costs for American consumers, but these pale in comparison to what Trump’s own tariffs have caused. China, meanwhile, has damaged its reputation as a reliable partner for small states from the Global South.

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Last week, Unitree became the first Chinese company in the sector to be listed on the STAR Market of the Shanghai Stock Exchange. Demand exceeded supply in the offline segment by a factor of 2,760. As the second Chinese company in the sector, AgiBot launched its listing process in Hong Kong in July, targeting a valuation of up to 5.6 billion euros. At the end of July, the US government responded with a ban on imports of new Chinese humanoid robots and quadruped systems.

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From Lab to Factory: Robots Conquer the Market

The lead does not rest on production figures alone. As the number of industrial applications grows, the market is shifting from pure development and demonstration toward actual deployment. In 3C manufacturing, on production lines, in logistics and in the service sector, humanoid robots now handle tasks ranging from assembly and the manipulation of delicate components to folding clothes and preparing coffee. A contract for the deployment of nearly 100 units at Fulin Precision Engineering also shows that some companies are already planning larger fleets.

The industrial base gives Chinese manufacturers a considerable advantage, as the production of modern systems draws on a large number of established components and supply chains that exist at scale in China. Motors, electronics, batteries, sensors and mechanical parts can all be sourced and scaled within a densely networked production ecosystem. For a product whose costs must fall as volumes rise, this industrial infrastructure is a key factor.

The two IPO candidates show that the sector has now produced companies whose business has moved well beyond the development phase. Unitree posted revenue of around 220 million euros and a net profit of around 36 million euros last year. The company sold 5,632 humanoid robots and more than 33,000 quadruped models between 2023 and last year. AgiBot also exceeded the 130-million-euro revenue mark last year and had delivered 15,000 units of various types by June 2026.

While Unitree is already reporting a profit, no comparable figures are available for AgiBot. Yet the valuation ambitions are broadly similar. With up to 6 billion euros for Unitree and up to 5.6 billion euros for AgiBot, the capital market is placing high expectations on a sector whose economic development is far from complete.

The shipment figures prove that Chinese manufacturers produce and sell humanoid robots in comparatively large volumes. What remains unproven is whether those volumes can translate into sustained high profits. AgiBot has not disclosed any profit figures at all. Pricing data for individual models and actual production costs are also absent. Without this information, it is hard to assess how much economic value actually underlies the high revenues.

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Hardware Power with Chip Weakness: The Robot Conflict

Technologically, the picture is less clear-cut than the shipment data suggest. China has built a clear lead in hardware and industrial manufacturing. On the software side, the situation is considerably more open. The ability to deploy humanoid robots reliably in unstructured environments remains an unsolved challenge. High Chinese market shares therefore reflect above all a strong industrial position, not automatically unchallenged technological leadership.

The rapid IPO of Unitree was supported by a special pre-review mechanism of the STAR Market. Clearance within just 73 days reflects the political will to position a flagship project on the stock market as quickly as possible.

With the import ban imposed by Washington at the end of July, the US market is losing significance for manufacturers such as Unitree and AgiBot, at least for now. Economically, this should be manageable for the companies, as their production volumes are still modest and the Chinese domestic market alone offers considerable sales potential. Add to that Europe, Asia and other regions where Chinese suppliers are selling their products. More interesting is the question of components: in AI chips and sensors, China remains dependent on foreign technology despite its strong position in robotics. The actual scale of this dependency cannot be quantified with available data.

Subsidies and Overcapacity: The State’s Robot Problem

Humanoid robots are another example of how Chinese industrial policy works. As part of “Made in China 2025,” the sector was built up with familiar instruments: subsidies, state-funded research and development at universities and research institutes, and political support that now extends all the way to the stock market. The successful launches of both companies were accelerated by the securities regulator and heavily promoted by “Team China.” At the same time, the sector exhibits the familiar problem: state-backed investment drives numerous companies into the same future market, creating capacity that demand has not yet caught up with.

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Floods Hit Industrial Output

July’s NBS data stand out first for the fact that electricity production fell 0.1 percent year-on-year. Several forces are at work simultaneously. While July was somewhat hotter than a year earlier, it was also significantly wetter. Flooding in multiple regions caused industrial disruptions and accounts for part of the explanation for lower power output. The NBS data say nothing about actual electricity demand, while Ember reports demand rising from 1,009 TWh in July 2025 to 1,038 TWh.

Hydropower plants benefited from the heavy rainfall, with output rising 6.7 percent. That came largely at the expense of coal-fired generation, which fell 3.5 percent. Adding to the pressure is the strained state of China’s coal industry. After a serious mine accident in May, regulators ordered sweeping safety inspections. In Shanxi, China’s most important coal province, more than 100 mines were temporarily idled in whole or in part. The daily production shortfall was estimated at more than 300,000 tonnes of raw coal. China has offset some of the gap through higher imports, but domestic coal output still fell 10.1 percent in July.

Source: National Bureau of Statistics (NBS)

Weakness in electricity-intensive construction, as well as steel and cement production, is also contributing to the soft power figures. China’s property sector is now in the fifth year of its crisis. In July, only four of the 70 cities tracked by the NBS recorded new-home prices above year-earlier levels. In the resale market, which is more important for household wealth, not a single city posted a year-on-year price gain. Even Shanghai, the strongest market for new homes, still sat 2.0 percent below year-earlier levels for used properties.

The real estate crisis therefore continues to hit China’s middle class hardest. For this group, property functions as an ironclad savings vehicle against life’s uncertainties: illness, unemployment, children’s education, and above all retirement security rest on the value of the family home. Real estate investment fell 19.2 percent from January through July, new construction starts declined 24.0 percent, and completions dropped 23.2 percent. Available funds at property developers fell 20.3 percent, with domestic loans recording an especially sharp decline of 32.1 percent.

Real Estate Crisis Keeps Eroding Wealth

Source: CEIC, NBS, ING Think

The wealth destruction shows up in consumer spending as well. Retail sales rose just 0.6 percent in nominal terms in July compared with a year earlier. With inflation running at 0.5 percent, consumer spending was essentially flat in real terms. Consumer behavior, however, is shifting.

Source: CEIC, ING Think

China’s consumption structure is moving from goods to experiences, from content to identity products. In the first half of the year, domestic trips reached 3.46 billion, cinema revenues hit 30.4 billion yuan, and gaming spending reached 188.5 billion yuan. Service retail grew 5.3 percent, while goods retail added just 1.3 percent. The headline retail figure therefore captures a shrinking share of actual consumption. A portion of spending is migrating into categories that barely register in official retail statistics.

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The NBS data also confirm another trend: rural areas are gaining ground on cities, with retail growth outside Beijing, Shanghai, and Shenzhen outperforming the major urban centers. Combined with property data, an interesting picture emerges: the wealth damage from the real estate crisis appears shallowest in the Shanghai region. Another data point, however, explains what looks like a contradiction. Retail figures show that large chains such as RT-Mart, Lianhua, and Yonghui are losing customers while small independent sellers are gaining them. It is the wet markets selling everything from fresh fish to produce, the independent convenience stores, and the night markets that emerged during the pandemic and have since become a fixture of urban consumer culture.

Taken together with high urban unemployment, which Chinese economist Li Daokui estimates at over ten percent, and the large share of informal employment, all of this adds up to an economic picture far less uniform than the aggregate NBS data suggest. Wealth is increasingly unevenly distributed across regions, population groups, and sectors.

State Drives Restructuring as Local Credit Crunch Paralyzes Municipalities

Source: CEIC, ING Think

Behind this uneven picture lies the restructuring of the Chinese economy. The July data underscore how strongly the state is driving this transformation and, equally, how damaging the credit squeeze on local governments has become. Fixed asset investment (FAI) fell 6.7 percent year-on-year through July. Domestic private companies appear least willing to bet on the economic outlook: they cut equipment spending by 9.4 percent, while foreign companies reduced spending by only 5.4 percent. Even state-controlled entities invested 3.3 percent less.

The hardest hit is China’s rust belt in the northeast, Manchuria, where investment in fixed assets fell 24.6 percent. The scale of the decline is comparable to deindustrialization. The NBS data hint at China’s investment in its own future only indirectly. The share of intellectual property in total FAI has reached 14.8 percent, rising 9.1 percent in July. What is clearly visible is the output of this transformation: semiconductor production rose 20.7 percent, output of new-energy vehicles (NEV) jumped 29.9 percent, and industrial robots climbed 30.2 percent. In the first half of the year, machinery and electronics exports grew 20.1 percent. The results show up in production and export data; the cause, namely investment in the underlying technology, is largely invisible in FAI statistics.

Source: CEIC, ING Think

The same logic applies to the AI industry, which carries a high electricity demand. But the July data make clear that production losses in traditional industries and the decline in construction activity are not being offset by the AI sector.

The latest economic data also make clear that the broader population is not yet benefiting from the new growth areas. Credit data reveal a crisis of confidence among households. Household borrowing has declined for 16 consecutive months, a clear signal that Chinese families have little confidence in their economic future. The prolonged property crisis deepens this problem by targeting exactly the asset base on which a large share of China’s middle class has built its financial security.

High-Tech and AI Have Yet to Provide a Stable Anchor

China is working to convince observers that its economy is undergoing a transformation. The July data confirm that restructuring is happening. But they make equally clear that while high-tech and AI are maturing into important growth drivers, they cannot yet compensate for the slowdown in the rest of the economy. Industry, real estate, private investment, and consumption are all growing far more slowly than the strategic future industries.

Monday’s economic data disappointed, missing expectations by a significant margin in some categories. Goldman Sachs cut its third-quarter growth forecast to 4.6 percent after the July data release, warning of downside risks.

Beyond the domestic picture, the risk is growing that China’s anchor, its export sector, is coming under pressure. The international community is increasingly unwilling to accept China’s policy of deliberate overproduction. The People’s Republic may have weathered Trump’s aggressive foreign policy largely unscathed so far, but if the EU, the United States, and other major industrial nations coalesce into a trade NATO against China, Chinese goods will run into closed doors and Xi Jinping’s dual-circulation strategy will hit a dead end.

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The Wealth Illusion: High Unemployment and Investment Crisis

This K-shaped development splits the Chinese economy into a traditional sector that manufactures cheap consumer goods for the Western world, including toys, furniture, clothing, shoes, and electronic devices such as phones and tablets, and a new high-tech sector encompassing the electric vehicle industry, the chip industry, and not least the AI sector. While the former has contributed less and less to economic growth in recent years, the latter has expanded significantly. But the automotive sector in particular reveals a second K-shaped split: between a weakening domestic market and steadily rising exports.

Li Daokui disputes this market narrative and calls it dangerous, because it conceals the real problem. A narrow upward strip, Li Daokui argues, is structurally too weak to sustain the broad mass of workers in employment over time. The true macroeconomic crisis is the overall cooling that has gripped China for three years and has yet to be adequately named in either the political debate or market communication.

As evidence for his thesis, Li Daokui cites the unemployment rate among urban residents, which officially stands at around 5 percent. This figure, however, only captures those whose last job and official residence (their “hukou” ) were in the same location. Adding “discouraged workers,” meaning those who have left the labor force without finding employment, Li Daokui arrives at an adjusted urban unemployment rate of 10.2 percent. The situation is particularly critical for young workers, where the official unemployment rate already exceeds 15 percent. This figure reflects only part of the transformed Chinese labor market: a growing share of the workforce is employed in the gig economy, working as courier drivers, food delivery riders, Didi drivers, and similar roles. Together with the vast population of migrant workers, well over half of China’s urban population likely now earns a living in informal employment without social security.

As a second indicator, Li Daokui notes that fixed-asset investment (FAI) has been contracting for several months. This, the Harvard graduate argues, has occurred only twice in the statistical history of the People’s Republic: in 1961, in the wake of the Great Leap Forward, which triggered the worst famine since the end of the civil war, and in 1967 during the Cultural Revolution. Li Daokui thereby makes clear that he views the current investment weakness not as a cyclical phenomenon but as a structural break.

The figures from the statistics authority for the first half of the year confirm that investments in the high-tech sector are growing, while those in traditional industry are declining.

Cheap Capital Destroys Jobs: The Devastating Logic of State Subsidies

A more structural explanation for this finding comes from Michael Pettis, Senior Fellow at the Carnegie Endowment for International Peace and professor of finance at Peking University. Pettis shares Li Daokui’s diagnosis of a structural growth blockade but locates the problem at a different point. China’s unit labor costs, Pettis argues, are among the lowest in the world relative to productivity. Under normal market conditions, such a labor surplus should drive companies toward more labor-intensive production models. The opposite is happening. A large share of Chinese growth is concentrated in capital-intensive industries. For Pettis, this indicates that in China, capital rather than labor is the cheaper factor of production, a result of the structural subsidization of capital by the state, particularly in politically favored sectors.

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For Pettis, high growth rates in the high-tech sector do not automatically signal the emergence of a viable future growth model. When capital is artificially cheapened, that very capital inflow tends to channel investment into sectors that build large production capacity while creating comparatively few jobs.

Li Daokui locates the root of the problem in the collapse of the two growth engines that powered China’s rise since the 1990s: real estate and local infrastructure. The bursting of the real estate bubble is slowly eroding wealth, especially among the middle class. This is reflected in a consumer boycott that is especially visible in the automotive sector. This year, sales have fallen by around 20 percent despite state subsidies.

Around 41 percent of total government spending over the past two decades was attributable to local governments, generating an enormous multiplier effect for growth, as Li Daokui notes. He places the primary blame for the current cooling on the fiscal paralysis of local authorities.

Unlike local governments, the central government carries an official debt ratio of under 30 percent. Many local government units, however, are indebted far beyond the total GDP of their jurisdictions. New borrowing is therefore not invested in new infrastructure projects but used to service old debt. The provincial picture is similar. At least seven regions, including the provinces of Guizhou, Gansu, and Yunnan, as well as the megacities of Tianjin and Chongqing, carry government debt exceeding 100 percent of their economic output. Further provinces such as Sichuan and Jilin are approaching that threshold.

From this imbalance, Li Daokui derives the demand that the central government relieve local budgets, thereby restoring their capacity to take on new debt, make investments, and generate economic growth.

At precisely this point, Michael Pettis parts ways with the therapy proposed by Li Daokui. A central government takeover of local debt would, in his view, provide municipalities with short-term fiscal room to maneuver. But China’s underlying problem would not be resolved. Local governments did not invest poorly because they were fundamentally incapable of sound investment decisions. Rather, they operated for years within a growth model that compelled ever-greater investment, even as the economic returns became increasingly questionable.

As long as those growth targets remain unchanged, a central takeover of local debt would merely shift the problem from one balance sheet to another. The municipalities would invest again and, in doing so, perpetuate the very logic that brought China into its current debt predicament.

The Rhodium Group‘s calculations show that China today requires three to four times as much capital to generate the same amount of growth as two decades ago.

The End of Work: The AI Revolution Is Breaking the Employment Model

This raises a question that neither Li Daokui nor Michael Pettis explicitly addresses. Both ultimately assume that the employment problem can be solved through economic growth: more growth creates more demand for labor and thus more jobs. The AI revolution, however, is increasingly calling that equation into question.

Chinese economic data already illustrates how high value creation in the high-tech and especially AI-adjacent sectors can emerge with comparatively few but highly skilled workers. According to calculations by the Rhodium Group, a typical Chinese cement company employs a median of 20,174 workers, while a typical Chinese chip company employs just 830. Both generate comparable levels of economic value.

A parallel finding emerges in the United States. Chief financial officers expect AI to drive a labor productivity increase of more than 2 percent this year, even as the share of routine office tasks in total working hours declines. Productivity is cutting vertically through the economy: ever more value is being created with ever less human labor time.

This shifts the fundamental problem for China. The question is no longer solely how economic growth is generated, but how the resulting income and wealth gains are distributed to the broader population. The scenarios “Europe 2031”, “AI 2027” and “AI 2040: Plan A” already sketch a possible future in which prevailing notions of work and income are fundamentally overturned.

For China, this question takes on particular weight. If high-tech and AI generate an ever-larger share of value creation while directly employing only a small fraction of the population, rising productivity can no longer be translated into mass income through job creation alone. The relevance of this question is already visible in the “Lying Flat” movement, which the Chinese government has classified as a potentially dangerous development.

Li Daokui closes his lecture with what seems like an optimistic conclusion: China need not change its therapy, only increase the dosage of the medicine. China’s economic data, however, suggest that the diagnosis does not yet reach far enough.

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Pekings aggressive export drive is stoking global fears of a severe disruption to world trade and forcing policymakers to act. In the run-up to the G20 summit in December, the debate over economic distortions is visibly gaining momentum. While the European Union is increasingly focused on concrete countermeasures, Beijing’s powerful Ministry of Commerce is playing down concerns and flatly denying the existence of overcapacity. Now Michael Froman, president of the influential Council on Foreign Relations, is entering the debate with a weighty American voice, picking up the idea advanced by Friedrich Merz for a new Plaza Accord.

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China’s Displacement Strategy: The Export Model Hits Its Limits

China’s exports reached roughly 3.8 trillion US dollars last year, according to data from the customs authority GACC. The trade surplus grew by around 20 percent in the first months of the current year, to over 1.2 trillion US dollars. The OECD expects global economic growth of just 2.8 percent. This creates a mathematical problem: in the not-too-distant future, Chinese exports will encounter a world market that can no longer absorb what China produces. For now, Beijing is pursuing a deliberate displacement strategy, albeit one born of necessity.

The exports are compensating for weak domestic consumption, visible in the trade statistics as a surplus of more than one trillion US dollars last year. This year, too, despite rising imports, the 2025 mark will likely be reached, if not exceeded. The crisis in the domestic economy stems fundamentally from the collapse of the property market in the early 2020s. This set off a cycle of consumer reluctance and deflation that continues to work its way through the economy. Without the gains from exports, China would have been mired in a genuine recession for years. But even without a technical recession, the official data, however embellished, show that China finds itself in a state of severe economic stress, visible in the youth unemployment rate of roughly 17 percent (NBS, 2026) and through the gig economy, in which around 44 percent of urban workers earn their income outside the protections of unemployment insurance, health insurance, or any other form of the social safety net. Add to this continuously falling property prices and rents, which are destroying the wealth of the middle class.

China employs two fundamental mechanisms in its displacement strategy. First, the state deliberately deploys subsidies to relieve the burden on industry. These operate throughout the entire value chain, from cheap land and construction subsidies to infrastructure, wage cost coverage, and the outsourcing of in-house research and development to state universities. The OECD estimates that direct and indirect subsidies account for 60 percent of the gains in market share achieved by Chinese exporters. The central bank supports exports through an artificially suppressed yuan. According to calculations by economists Brad Setser and Jürgen Matthes, IMF data point to a structural undervaluation of 19 percent, though they estimate the true undervaluation is closer to 30 percent. On top of this comes a structural cost advantage on the supply side: German industrial products have become around 40 percent more expensive relative to Chinese ones since early 2020, an effect of the energy price shock, supply chain disruptions, and the parallel exchange rate movements, a figure calculated by Matthes for the Cologne Institute for Economic Research.

At present, Chinese producers are displacing those from other traditional export nations, above all Germany. In the former export world champion, approximately 10,000 industrial jobs are being lost every month as a result of aggressive Chinese methods.

MOFCOM Rejects the Accusations: No Overcapacity in China

China disputes that the country is producing any overcapacity at all. The powerful Ministry of Commerce, MOFCOM, contested in a paper published at the end of July that any link exists between subsidies and overcapacity, pointing instead to similar subsidies in the United States and Europe. In Beijing’s view, such support constitutes a legitimate, WTO-compliant form of innovation promotion.

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MOFCOM explains China’s large trade surplus as an expression of the country’s high national savings rate, citing it as evidence against the thesis that China has overcapacity. Classical export nations like Germany and Japan, after all, also achieve high export volumes and the resulting trade surpluses. Yet Germany itself illustrates the limits of this Chinese argument. German exports have always been demand-driven. China, by contrast, is flooding the world market with goods that were never actively sought.

The picture is equally skewed when it comes to subsidies. It is certainly true that China uses them to drive innovation, as in electric vehicles (the so-called NEVs), but in doing so it has built production capacity of roughly 55 million vehicles, while the Chinese market absorbed around 30 million passenger cars in 2025, with insufficient global demand to take up the rest. The result is a brutal price and survival war that is currently culminating in the cannibalization of domestic automobile brands.

The Limits of Arithmetic: The World Is Not Enough

Froman describes in his article in “Foreign Affairs” the logical endpoint of a Chinese strategy that will ultimately defeat itself. In the not-too-distant future, Chinese supply will meet a world market that can no longer absorb it. The price and survival war already visible in the Chinese auto market will reach global dimensions, first producing a deflationary spiral and ultimately a collapse of the Chinese system. At that point, things will turn ugly for the world economy, because the shockwaves will hit the Global South hardest of all, the very region China claims to champion. The nations of Africa and Latin America serve as raw material suppliers to China. If their demand collapses, the consequences for those suppliers will be immediate. This effect is amplified by the fact that China has become the largest bilateral creditor for many developing countries, and defaults among borrowers carry the risk of further sovereign insolvencies. Sri Lanka and Pakistan have already shown just how uncompromising China can be in responding to payment failures. The situation is further complicated by the fact that western governments, burdened by high public debt accumulated through pandemic and energy crisis spending, have far less fiscal room for maneuver in a crisis response than they did in 2008.

Froman deliberately leaves unspoken what follows next. What is conceivable, however, is that the world economy will catch the “Chinese disease” and sink into a stagnation trap. The world market absorbs ever fewer goods, China in turn buys ever fewer raw materials, and exporters cut prices. Western export nations cannot sustain the race to the bottom and lose more and more jobs. Meanwhile, the rising nations of the Global South sink deeper into a debt trap.

G20 Agenda: The Obstacles to a Plaza Accord 2.0

In his essay, Froman offers a way out. For him, waiting for the next global economic crisis is not an option. Like German Chancellor Friedrich Merz, he therefore advocates a new Plaza Accord that the United States should put at the center of the G20 summit agenda in Miami in December. Washington should make China’s trade imbalances the core issue of the summit.

Yet Washington is precisely the greatest weakness in this plan. The Plaza Accord of 1985 was forged under entirely different political conditions. The United States then possessed the authority to rally its allies behind a common strategy. Trump‘s trade policy, by contrast, relies on bilateral pressure and has damaged the trust of many partners. There is also the fact that Beijing will likely attach its own demands to any currency negotiations, in particular regarding American restrictions on semiconductor exports.

Nevertheless, Froman’s proposal identifies the most effective lever available against China’s export model. With individual products, the West must document subsidies and market distortions case by case. The exchange rate, by contrast, operates across the entire economy. This is precisely why the question of yuan valuation is likely to become increasingly central to western trade policy.

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This week Beijing moved on every front and slipped on every seam. Chip exports hit $216 billion, state funds drove $8.4 billion into AI and semiconductor firms, Russia’s refinery output fell to a 21-year low while Beijing extracted better energy terms, factory margins compressed under weak consumer demand, and a ski resort database in Zhangjiakou put 12,000 surveillance files on the open internet. China is projecting outward with growing precision, even as the domestic economy cannot absorb what the industrial base produces and the surveillance state cannot secure what it collects. Follow me through the reports.

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First Surge: China’s Chip Machine Hits $216 Billion

Start with the number that resets the baseline. China Doubled Chip Exports: $216B AI Trade Boom documents how semiconductor exports reached $216 billion in the first seven months of 2026. The value nearly doubled year-on-year, even as unit volumes rose only 6.2 percent. Vehicle exports tracked a parallel trajectory: 6.40 million units by July, a 53.7 percent increase over the same period last year. The divergence between value and volume is the key signal. China is not shipping more chips; it is shipping more expensive ones. Processing trade jumped 59.7 percent while general trade grew 14.5 percent. The figures indicate that China is not decoupling from global supply chains. It is ascending them.

This export surge ties directly into the capital strategy Beijing is deploying at home to build the industrial base that drives it.

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Second Move: The National Team Buys the Future

The export numbers do not emerge from markets alone. China Deploys Its ‘National Team’ to Win AI Race details how Beijing is using state-owned investment firms to channel capital into AI and semiconductor companies, turning the $28 trillion domestic stock market into an industrial policy tool. China Reform Holdings and China Chengtong Holdings deployed $8.4 billion to expand stakes in strategic tech firms. ChangXin Memory Technologies raised $9.8 billion in its IPO, the second-largest in mainland Chinese history, with its shares surging 466 percent on the first day. US private AI investment stands at $285.9 billion against China’s $12.4 billion, yet government guidance funds have invested an estimated $184 billion in AI since 2000. The strategy is deliberate: limited state outlays leverage larger flows of private capital into sectors Beijing cannot afford to lose.

This domestic investment logic has a direct geopolitical extension: Beijing applies the same leverage extraction to energy, where a weakened Russia has run out of alternatives.

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Third Squeeze: Russia’s Refineries, Beijing’s Terms

The Kremlin’s fiscal position is deteriorating faster than its public statements suggest. Russia’s Oil Revenue Plummets 27 Percent reports that gross oil revenues collapsed from 968.5 billion rubles to 692.3 billion rubles in July, a 27 percent decline in a single month. Russian refinery throughput fell to a 21-year low of 3.8 million barrels per day, with 4.3 million barrels of daily processing capacity damaged or offline. India’s payments for Russian fossil fuels rose 59.7 percent year-on-year, providing partial relief. China increased its payments by 15.6 percent while stalling negotiations on the Power of Siberia 2 pipeline. The data suggest Beijing is operating as a monopsony buyer, securing discounted energy from a seller with nowhere else to turn.

These external gains occur against a domestic backdrop of margin compression that no policy instrument has yet resolved.

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Fourth Strain: Factories Without Buyers

The industrial expansion visible in export figures does not reach China’s factory floors. China Factory Prices Drop as Domestic Demand Fails shows how manufacturers are trapped between rising upstream costs and falling consumer prices. Coal mining prices rose 27.1 percent year-on-year after a major mine accident cut raw coal output by 9.7 percent in June. The Consumer Price Index fell to 0.5 percent in July, well below the consensus of 0.8 percent; a government-mandated fuel price reduction pushed the transport index from 15.3 percent to 0.8 percent in a single month. Upstream production goods remain 4.8 percent above year-earlier levels. The margin squeeze is not cyclical. It reflects a structural deficiency: Chinese factories produce for export because domestic consumers cannot absorb the output at profitable prices.

Such structural compression applies to the surveillance state too: the same gap between ambition and execution runs through the security architecture itself.

Fifth Exposure: The Database That Walked In

Finally, a story about what China’s ambitions look like up close. “Snow Ruyi.” China’s Ski Resort Leaks Secret Dossiers on Foreigners examines a database in Zhangjiakou containing 12,000 records on foreigners, including roughly 700 full profiles tracking bank transactions, medical histories, and smart TV viewing habits. Journalists accessed the system with the username and password already filled in on the public login page. Individuals like journalist Sophia Yan were profiled despite never having visited Zhangjiakou, indicating the reach of China’s Sharp-Eyes network extends far beyond local geography. The database categorized subjects by intelligence affiliation, flagging Five Eyes citizens separately. The exposure reveals a “Chabudwellian” system: surveillance unbridled in its collection and careless in its protection, an architecture that serves the state’s appetite for data without securing what it takes.

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The Strain Beneath the Surge

The week’s five stories share a single grammar: outward projection sustained by inward compression. China is advancing on every strategic front, with chip exports at $216 billion, state capital flowing into AI firms through the National Team mechanism, and energy terms tightening around a Russia with no alternatives. Yet the domestic economy contradicts this picture: factory margins are collapsing because consumers cannot carry the weight of industrial output, and the surveillance apparatus collects everything while securing nothing. Russia’s declining oil revenues add the fifth dimension: Beijing extracts leverage from external weakness even as it manages the same structural fragility at home. China is projecting outward with growing technical reach, yet the system that drives this projection is consuming itself from within.

Which shift stands out most to you? Share it in the replies. Your read steers the next course. Until next week.

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Snow Ruyi: From Olympic Scandal Venue to Winter Sports Destination

It was an iconic landmark of the 2022 Olympic Winter Games, the ski jump “Snow Ruyi” near the city of Zhangjiakou with its four million inhabitants, roughly an hour by high-speed rail from Beijing.

The structure is modelled on a ruyi sceptre, a ceremonial object meant to symbolise power, perfection and control. The ski jumping competitions, however, were more a collection of chaos and incompetence and stood as one of the biggest scandals in the sport’s history. The venue is notorious for its powerful gusts and extreme cold, which drew fierce criticism from athletes. But the scandal was not caused by China’s hosts. It was the Olympic committee itself, whose controversial decisions turned the mixed-team event into a farce.

The proximity to the capital makes Zhangjiakou a popular weekend getaway in winter for China’s beleaguered middle and upper classes seeking relief on the ski slopes. In China, it is one of the few ski destinations. The region has modern lifts and vast hotel complexes but a modest vertical drop due to the geography. It is more comparable to Saalbach-Hinterglemm, Winterberg or Hunter Mountain in Vermont than to Zermatt, Chamonix or, to stay in Asia, Niseko in Japan. Even within China it cannot match the ski stronghold of Yabuli. Its appeal lies primarily in its accessibility.

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No wonder, then, that ski-enthusiastic foreigners from the capital and the neighbouring city of Tianjin make their way to Zhangjiakou. Even visitors from Shanghai travel to the province to unwind.

Shopping, Bank Account and TV Habits: The Complete File on Every Foreigner

They might be less relaxed if they knew they were potentially part of a database whose sole purpose is the surveillance of the few foreigners living in Zhangjiakou: tourists and journalists. The database holds not only the usual details (name, passport and phone number, WeChat account and bank transactions), but, via the nationwide “Sharp-Eyes” network, of which Zhangjiakou’s surveillance system forms a part, it also contains movement profiles. The trackers know not merely which train a visitor took but which seat he occupied, which ski lifts he used at the resort, where and when he bought what at a supermarket, how high his electricity bill is and what illnesses he has. Recorded is who meets whom, how often, and what television series he watches in the evening via smart TV. None of this depends on whether the person lives in Zhangjiakou, is only visiting, or has never set foot in the city at all.

This appetite for data contrasts with a modest number of entries. The database contains only 12,000 entries in total, of which just over 700 are full profiles, mostly the few international students from Pakistan or India studying at the nearby Hebei North University.

Chabudwellian: The Authorities’ Flawed Surveillance

That is why Fergus Ryan of the Australian Strategic Policy Institute coined the term “Chabudwellian.” The portmanteau blends Orwellian surveillance with the Chinese phrase “cha bu duo”, roughly translated as “good enough.” It captures the Chinese contradiction between unbridled data collection and the simultaneous imperfection of the system, visible in the unusually weak access controls for a security apparatus. Its discoverer, journalist Marc Hofer, found the login page already filled in with username and password. He simply had to press “Enter” and could scroll through the entries.

Of the roughly 12,000 records, 300 are dedicated to journalists, including Sophia Yan of the Daily Telegraph, who had never been to Zhangjiakou. Profiles of wanted persons from Hong Kong and Taiwan were also found. The remaining foreigners were divided into different risk categories: citizens of the USA, Great Britain, Australia, New Zealand and Canada are bundled into a joint category named after the intelligence alliance “Five Eyes.” A further category covers key countries: Egypt, Iran, Israel, Morocco, Pakistan and Sudan, all Islamic states with the exception of Israel. Separate folders hold people from Hong Kong, Macau and Taiwan, as well as foreign students, spouses of Chinese nationals and so-called “key persons”, a term used for activists and wanted individuals.

Foreign residents in China have long grown accustomed to pervasive surveillance. The Zhangjiakou database, however, offers a rare look at how deep the Chinese authorities’ appetite for data goes, and equally how unsystematic and at times amateurish the surveillance apparatus is. Similar systems are known from other cities. Two years ago, the data leak from the company I-Soon revealed how the data are used to monitor people abroad as well. Expats who have spent years in China, such as the author of this article, must reckon with the possibility that they remain under observation even after returning home, particularly if they are journalists or activists.

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