Recent catastrophic flash floods and landslides along the China-Nepal border have triggered an unprecedented humanitarian crisis. According to official data released by the Nepalese disaster authorities, the tragedy has confirmed 903 deaths and left a staggering 4,247 people missing as of Monday morning, August 31, 2026. In the immediate aftermath, the Nepalese government initially declined international search-and-rescue offers, choosing instead to let its domestic military and police handle the operations. While this stance has since been calibrated to allow a limited influx of foreign technical specialists—particularly from China and India—for specialized tasks like deep-tunnel rescues and DNA forensics, the initial refusal surprised many global observers.

This seemingly counterintuitive decision is not an isolated political move; rather, it is deeply informed by bitter historical lessons. In this op-ed written for Guancha, Prem Sagar Poudel—a veteran Nepalese journalist and President of the Nepal-China Cooperation Society—provides an indispensable local perspective on why Kathmandu remains profoundly cautious of foreign humanitarian intervention and the hidden geopolitical strings behind US and Indian aid

By Prem Sagar Poudel

The catastrophic floods and landslides that struck Rasuwa, Nuwakot, and surrounding areas have claimed hundreds of lives and destroyed roads, bridges, homes, and hydropower plants. In the face of such devastation, Nepal’s decision to deny entry to international search and rescue teams has raised many questions.

Why was such assistance declined? The answer lies in the painful lessons learned from the 2015 earthquake and the harms caused by previous aid from India and the United States. These experiences have compelled Nepal to adopt a cautious approach today.

Currently, the Nepal Army, Armed Police Force, and local communities are conducting primary rescue operations. However, during the 2015 earthquake, when 76 rescue teams from 34 countries, including military contingents from 18 nations, arrived in Nepal, the single runway at Tribhuvan International Airport became overwhelmed, forcing aircraft to circle for hours. A Chinese plane carrying relief supplies had to land at Pokhara International Airport instead. Teams from different countries converged on the same locations, while others operated according to their own standards, creating chaos rather than effective rescue efforts. This experience taught Nepal that its own security forces, familiar with the local geography and conditions, are more effective than foreign teams, and that foreign military presence inevitably raises questions about national sovereignty.

Regarding US aid, the Millennium Challenge Corporation (MCC) grant of $500 million stands as the largest single assistance project in Nepal’s history. Signed in 2017, the agreement languished in parliament until 2022, when it was ratified only after intense US pressure. Section 7.1 of the compact stipulates that the agreement shall prevail over Nepal’s domestic laws, meaning Nepali courts have no jurisdiction over MCC projects and US personnel are immune from Nepali legal processes. Many Nepalis viewed this as a surrender of sovereignty. In early 2025, the Trump administration imposed a 90-day freeze on foreign aid, though the Nepal MCC compact was later granted a waiver. During this period, however, Nepal bore the risk of covering the $190 million already spent on land acquisition and compensation—a clear financial loss. Moreover, economists estimate that 70 cents of every MCC dollar is spent on American goods and services, providing little benefit to Nepal’s local economy. The MCC became the most contentious issue in modern Nepali political history, dividing political parties, triggering street protests, and disrupting parliamentary proceedings.

Regarding the MCC power transmission line, it is important to clarify that the main 315-kilometer, 400 kV line runs from Lapsiphedi in Kathmandu through Ratmate in Nuwakot, Makwanpur, Dhading, Tanahun, Palpa, Chitwan, and Nawalparasi to the Indian border. This line is not near China’s border but traverses Nepal’s mid-hills and Terai region. However, the MCC-funded Ratmate substation is planned to connect with the Nepal-China cross-border transmission line (Ratmate-Rasuwagadhi-Kerung). This would link US-funded infrastructure directly with China’s energy grid. While Nepal Electricity Authority officials estimate this decision will save approximately 4-5 billion rupees, they have also expressed concerns about the geopolitical risks of using a US-funded substation for a cross-border line with China. This is the real geopolitical concern at the heart of the project.

When US officials sought to link the MCC with the Indo-Pacific Strategy, suspicions arose among Nepalis that this might be part of a US military strategy. Ultimately, Nepal issued an interpretive declaration clarifying that the compact is not part of any military alliance and that Nepali law would prevail. Nevertheless, the episode created deep divisions in Nepal’s internal politics and public opinion.

In the case of Indian aid, the unofficial blockade of 2015–2016 remains the most painful example. After Nepal promulgated its new constitution, India imposed an unofficial blockade that resulted in severe shortages of fuel, medicine, food, and cooking gas. Hospitals could not perform emergency surgeries, leading to avoidable deaths; vehicles remained stranded in garages for months; and daily life came to a standstill.

A Nepal Rastra Bank report projected that the economy could contract by 0.9 percent that year and warned that the blockade could push 800,000 people into poverty. This blockade was not a natural disaster but a deliberate policy of the Indian government, demonstrating that aid can be used as a tool to control a nation’s lifeline.

Nepal subsequently sought alternative trade routes through China, including Rasuwagadhi and Tatopani, but India continues to exert influence through its aid and trade treaties. In infrastructure projects funded by Indian aid, such as the Pokhara-Rupandehi power transmission line, contracts were awarded exclusively to Indian companies, barring Nepali firms from competing, which resulted in capital outflow and minimal job creation.

Another serious concern is security. During the 2015 earthquake, 18 countries sent military teams to Nepal, many bringing military equipment and weapons. The United States deployed Osprey aircraft, one of which crashed in Nepal’s northern border area while flying without prior authorization, killing six US Marines and two Nepali soldiers. This incident heightened Nepal’s security concerns—were these teams genuinely here for rescue, or were they conducting geographic and strategic mapping of Nepali territory?

The MCC-funded Ratmate substation’s planned connection to the China-border line could be perceived by China as a strategic move against it, turning Nepal into a theater of superpower rivalry. Meanwhile, India’s military assistance, which includes training and joint exercises with Nepali officers, further erodes Nepal’s military autonomy.

Additionally, some MCC infrastructure projects have been accused of proceeding without proper environmental impact assessments. Nepal’s fragile mountainous terrain makes large road, power line, and tunnel projects prone to increasing soil erosion and landslide risks. Indian-built hydropower projects have altered natural river flows, causing irrigation problems for downstream farmers. The long-term effects of these environmental damages remain unassessed.

Furthermore, classified diplomatic documents reveal that the US and Indian embassies have exerted direct pressure on Nepal’s decision-making processes regarding foreign aid. The US ambassador met repeatedly with prime ministers to set deadlines for MCC ratification, while India has influenced Nepali policymakers to maintain control over hydropower projects, thereby constraining Nepal’s internal decision-making autonomy.

Perhaps the deepest but invisible harm is psychological. The imposition of conditions, the marginalization of Nepalis in decision-making, and the attitude of foreign officials “teaching” Nepali counterparts have made Nepalis feel incapable and dependent. This has created a form of psychological subjugation, where Nepalis begin to doubt their own capabilities.

Drawing from all these experiences, Nepal has adopted a policy for the current disaster of allowing technical assistance and materials but not foreign search and rescue teams. Nepal has requested help from India and China for building bailey bridges, and India has already sent 47.5 tons of relief supplies, while the US, UK, and Asian Development Bank have announced financial assistance. Tunnel rescue technical teams from India and China have already arrived in Nepal. Currently, technical experts from India, China, Australia, and South Korea have been permitted to assist with tunnel operations, DNA testing, and forensic investigations.

In conclusion, the disasters in Rasuwa and Nuwakot have made Nepal’s decision-making reality clear. Nepal is not refusing aid—it is defining assistance on its own terms, according to its dignity, laws, and national interests. The harms caused by US and Indian aid to Nepal’s sovereignty, economy, politics, security, cultural identity, environment, and psychological confidence are precisely why such caution is exercised today. This decision is not merely an obligation to protect national interests even in the midst of disaster, but a right.

About the Author: Prem Sagar Poudel is a senior journalist and international relations analyst from Nepal. He has conducted in-depth studies on Nepal-China relations, the geopolitics of the Himalayan region, and Asian security issues.

About the Author:

Prem Sagar Poudel is a senior journalist and international relations analyst from Nepal. He has conducted in-depth studies on Nepal-China relations, the geopolitics of the Himalayan region, and Asian security issues.

The debate over global imbalances and a so-called “China Shock 2.0” has gained considerable traction lately. The prevailing narrative in much of the Western academic and policy discourse holds that China’s sectoral industrial policies, including large-scale subsidies and its “macro industrial policies” including exchange rate management and capital account control, have driven a persistent and expanding trade surplus.

This surplus, the argument runs, must be “accommodated” by deficits elsewhere, most notably in the United States, while China’s growing dominance in industrial production simultaneously accelerates the de-industrialization of advanced economies. Many Western commentators further contend that this dominance rests on unfair practices, such as outsized industrial subsidies, an undervalued currency, and capital account controls, that together generate over-saving and artificial price advantages for Chinese exports.

Various remedies have been proposed. The most prominent, and most consequential, is a call for China to revalue the renminbi by double digits within a short period, an idea that has gained currency among policymakers in the United States and Europe. Commentators have labeled the proposal a “Mar-a-Lago Accord,” invoking the 1985 Plaza Accord, in which the G5 economies agreed to appreciate the Japanese yen and the German Deutsche mark against the US dollar in order to narrow the US trade deficit with Japan.

“The Undervaluation Thesis”

Setser and his associates have advanced their argument in a series of blog posts and, most recently, in a commentary published in The Economist (Setser, 2026). The thesis rests on three claims.

First, the Chinese currency is said to be undervalued by more than 30 percent, substantially above the International Monetary Fund’s own estimate of 21 percent. Setser attributes the gap to an understatement of China’s current account surplus, arguing that official statistics should exclude gold imports and should replace a reported negative net investment income of – $128 billion with an imputed positive figure of roughly $100 billion.

Second, the undervaluation is characterized as a deliberate policy choice: the People’s Bank of China (PBOC) is said to set the exchange-rate reference rate and to intervene in the foreign exchange market, directly or by directing state-owned commercial banks, to keep the currency undervalued.

Third, this undervaluation is presented as the principal driver of China’s export competitiveness, with the sharp rise in the trade surplus following the 2022 currency depreciation, after a twelve-month lag, offered as supporting evidence.

This thesis has not gone unchallenged. Gopinath, Gourinchas, and Rey (2026), writing in The Economist, argue that an undervalued currency is a symptom rather than a cause of China’s macroeconomic imbalances, and that forcing a renminbi revaluation without addressing those underlying imbalances would fail to resolve them.

That critique is well founded, but incomplete. As this essay argues, Setser version of the “undervaluation thesis” is empirically weak and theoretically shaky on its own terms, yet it carries considerable weight in policy circles, with European and US leaders pressing for renminbi revaluation as a priority item on the G20 agenda. The stakes of getting this diagnosis wrong are high: a coercive push for revaluation would not only fail to address global imbalances but risks provoking a confrontational standoff, squandering an opportunity to pursue cooperative rebalancing of the global economy.

Nominal Appreciation vs. Deflationary Reality

The presumption of renminbi undervaluation rests on the observation that China has run a current account surplus in recent years while its nominal exchange rate in 2026 remains close to its 2022 level. This reasoning, however, implicitly assumes that the exchange rate is determined solely by trade flows.

In fact, financial and capital flows can play an equal, if not greater, role in shaping the exchange rate. Critics note that China maintains tight capital account controls; even so, capital continues to flow in and out of the country in volumes sufficient to offset the current account surplus.

Miao (2026), writing in Project Syndicate, shows that the $735 billion current account surplus China recorded in 2025 found its counterpart in capital outflows through outward direct investment, portfolio equity and bond investment, and cross-border banking flows. As Miao observes, “China’s surplus is being recycled primarily through portfolio investment, cross-border banking flows, and Hong Kong’s capital markets, indicating China’s progress on financial deepening and underscoring markets’ increasingly central role in shaping the economy.”

In other words, the surplus dollar receipts generated by the current account are being channeled into capital outflows, the supply of the dollar from exporters are met with demand for overseas investments. No outsized net dollar surplus that puts considerable appreciation pressure on the yuan, which requires official interventions to suppress the yuan value.

China’s nominal exchange rate has, in fact, appreciated in recent years; but because domestic inflation has remained relatively low, the real exchange rate has stayed subdued (see Figure 1).

Absent greater progress in China’s reflationary efforts, a further nominal appreciation would do little to lift the real exchange rate. Indeed, as Gopinath, Gourinchas, and Rey (2026) caution, a stronger nominal exchange rate could lower import prices and further dampen inflation, leaving the real exchange rate weaker still, the opposite of what proponents of revaluation intend.

Interrogating the “Underreporting” Claim

Setser’s claim that China understates its current account surplus is similarly difficult to sustain. His first adjustment, excluding gold imports from the current account, lacks a clear justification. Regardless of their purpose, gold imports must be paid for and therefore properly reduce the current account balance. There is no principled basis for treating them differently from any other imports.

His second adjustment is more consequential and equally problematic. Setser estimates China’s net investment income at roughly $100 billion, reasoning that China’s positive net international investment position (NIIP) of about $3 trillion, comparable in size to its foreign exchange reserves, should generate income of that magnitude, based at the State Administration of Foreign Exchange’s (SAFE) reported 3 percent return on reserves.

This calculation implicitly assumes that the return China earns on its non-official overseas assets is roughly equal to the return it pays on its foreign liabilities, an assumption for which there is no supporting evidence.

A large share of China’s liabilities consists of inward foreign direct investment (FDI), which typically earns a higher return than China’s own outward direct investment (ODI), much of which is concentrated in Belt and Road Initiative (BRI) countries, where the leading sectors, energy, transport, metals, real estate, and agriculture (American Enterprise Institute, n.d.), tend to be lower-yielding. In 2025, China recorded a credit of $148 billion on its inward FDI (on a stock of $3.98 trillion) against a debit of $357.6 billion on its ODI liabilities (on a stock of $3.58 trillion), while earning a net investment return of $81 billion on all other investment categories combined.

The United States offers a useful point of comparison: despite running a negative net international investment position of roughly $28 trillion, it has for years continued to earn a positive and sizeable net investment return (except for a few quarters). There is, in short, no general basis for assuming that a positive NIIP must translate into a positive net investment return.

Exchange Rate Policy: Managed Float, Not Manipulation

Setser’s second claim, that the nominal exchange rate is a policy variable set directly by the PBOC, and that since 2023 the central bank has shifted from direct market intervention to directing commercial banks to purchase dollars and suppress the yuan, does not withstand scrutiny.

China has operated a managed float exchange-rate regime since its 2005 reform. The PBOC does not set an arbitrarily low exchange rate irrespective of market conditions. Rather, each morning before trading begins, the China Foreign Exchange Trade System and National Interbank Funding Center, operating under PBOC authorization, sets the central parity rate based on market-maker quotes, prevailing supply and demand, and movements in a reference currency basket. Actual market rates are then permitted to fluctuate within a band of plus or minus 2 percent around that parity. This mechanism is designed to reduce exchange-rate volatility, a common practice among the roughly 80–85 countries, or about 43 percent of the world’s economies, that operate a managed float regime.

Commercial banks’ settlement of foreign exchange on behalf of their customers is likewise a standard practice; state ownership does not change the fact that China’s major commercial banks remain profit-oriented institutions.

As Figure 2 shows, fully 98.7 percent of banks’ foreign exchange settlement in July 2026 was conducted on behalf of customers rather than for banks’ own account. Intervening in the FX market to stabilize currency values requires purchasing and selling short-term, low-risk dollar assets, exposing the intervening institution to exchange-rate and valuation risk, a risk the PBOC would be unlikely to delegate to a banking system it must also keep stable.

This is corroborated by the PBOC’s own actions, for example, it has advised commercial banks to limit new purchases of US Treasuries and to pare down existing holdings in order to reduce concentration risk and market volatility (Reuters, 2026). Were the PBOC relying on commercial banks to conduct FX intervention on its behalf, it would have little reason to restrict their purchases of Treasuries, historically a core instrument of reserve management.

Taken together, the accusation that China manipulates its exchange rate to gain export competitiveness lacks substantive evidentiary support. As the next section argues, China’s export competitiveness in any case rests increasingly on factors other than price, particularly as the country moves up the value chain and upgrades its export structure.

Export Competitiveness in an Upgrading Economy

The claim that a large renminbi appreciation is the most practical and necessary route to resolving global imbalances is difficult to sustain once the composition of Chinese exports is examined. China’s fastest-growing export categories in recent years, semiconductor chips, industrial robots, new energy vehicles, lithium-ion batteries, and 3D printers, among other technology and green-energy products, point to a structural upgrading of the export base rather than a reliance on price advantage.

Overall exports grew by 14.7 percent in the first seven months of 2026, but exports of electrical and mechanical products grew by more than 22 percent and now account for over 60 percent of total exports. If China’s export performance were driven primarily by an undervalued exchange rate, low-price, low-value-added exports would be expected to grow fastest; instead, that category is in decline while technology-intensive exports accelerate. It is a technology premium, not a price discount, that increasingly underwrites China’s export growth.

This distinction has direct implications for currency policy. Many technology exports embed a substantial share of imported raw materials, intermediate goods, and core components. For example, 40 to 60 percent of semiconductor export value consists of imported unpackaged wafers, licensed intellectual property, and semiconductor manufacturing equipment.

A renminbi appreciation would lower the cost of these imported inputs and could, on balance, further strengthen rather than weaken export competitiveness. Further, as Zongyuan Zoe Liu (2025) argues, a stronger yuan will simply push Chinese suppliers to relocate their production and assembly to a third country, which would still rely on imported intermediate goods and machinery from China. In the final analysis, the US trade deficit remains but with changes in direct import partners due to trade diversion.

Dollar Hegemony and the Limits of Exchange-Rate Adjustment

As Gopinath, Gourinchas, and Rey (2026) argue, trade imbalances reflect underlying macroeconomic imbalances, and exchange-rate adjustment alone, absent a change in those underlying dynamics, is unlikely to achieve meaningful rebalancing. This essay adds a further consideration: the structural asymmetry created by dollar hegemony.

Because the US dollar dominates as an invoice currency, a payment currency, and a reserve currency, the United States is able to finance its net imports by creating dollar-denominated credit that the rest of the world willingly accepts. Unlike other deficit countries, the United States has not needed to undergo deflationary adjustment whereby raising exports and/or curbing imports to correct its external position.

Dollar hegemony is often described as conferring on the United States an “exorbitant privilege,” but the more precise formulation is not that the United States borrows cheaply to finance imports (there is little reason for it to borrow its own currency), but that it can settle its external liabilities simply by issuing more of its own currency and credit. Without a fundamental change in the international financial architecture with the dollar hegemony, it is difficult to effectuate a macroeconomic rebalancing.

The 1985 Plaza Accord offers a cautionary precedent. In its aftermath, the yen roughly doubled in value against the dollar, yet the US trade balance continued to deteriorate for approximately two years, a notably long “J-curve” effect, before improving by 1987. The improvement did not last; by 1992 the US trade balance had begun worsening again, a trend that persisted except during a handful of recession years. This history illustrates both the limited and uncertain effect of exchange-rate adjustment on trade balances and the practical difficulty of replicating a Plaza-style accord under present conditions.

Chinese policymakers themselves acknowledge that the renminbi remains relatively weak and can, and likely should, strengthen over time; but they have consistently and reasonably insisted on a gradual pace of appreciation that avoids creating a one-way expectation of currency movement. It is widely understood that Japan’s acceptance of the Plaza Accord was shaped in part by its security dependence on the United States, and that the resulting sharp appreciation contributed to the asset-price collapse that ushered in Japan’s subsequent “lost decades.” From Beijing’s perspective, preserving exchange-rate policy autonomy is thus both an economic and a geopolitical imperative.

Conclusion: Toward Genuine Reform of the International Monetary System

Widening global imbalances are undesirable, and the competitive pressure China’s industrial upgrading places on advanced western economies is real. Addressing these challenges, however, requires a genuine, cooperative effort to reform the global financial architecture and coordinate macroeconomic policy, not a unilateral campaign built on a contested diagnosis.

Attributing the imbalance to China’s alleged “underreporting” of its current account surplus and to currency manipulation, and then assembling a coalition of countries to impose a Mar-a-Lago-style accord, would likely prove ineffective at correcting the imbalances themselves while eroding the collective trust needed for meaningful coordination.

Seventy years ago, when John Maynard Keynes helped design the postwar international financial architecture, he anticipated the risk of persistent imbalances and the absence of any automatic adjustment mechanism to correct them, proposing an international clearing unit as a genuinely international unit of account for balance of payment settlement.

The historical record, from the Japanese yen in the 1980s to the Chinese yuan in the 2020s, suggests that fixing the value of individual currencies is not an adequate response to systemic imbalances. What is required instead is a broader overhaul of the international currency system, one capable of addressing the structural sources of imbalance rather than merely their most visible symptom.

About the Author

Yan Liang is the Kremer Chair and Professor of Economics at Willamette University. She is also a Non-Resident Senior Fellow at Boston University Global Development Policy Center and a Research Associate at the Levy Economics Institute.

I landed in China on 9 July and departed on 30 July 2026 through Guangzhou Baiyun International Airport. Twenty-one days. Five hundred and four hours. Thirty thousand two hundred and forty minutes—and every moment filled with wonder, discovery, and absolute joy. I have been admiring China from afar, but that is how long it took me to fall in love with this amazing country in person.

Before this trip, I thought I knew China. I had seen its skyscrapers on television, watched videos of its high-speed trains, heard stories about its technology, and, like many people, had formed my own picture of the country. I had grown up watching Kung Fu movies featuring legends like Bruce Lee, Jackie Chan and Donnie Yen. And closer to home, I had even watched Chinese engineers building a road in my own village. Yet, for all these glimpses, China remained a place I knew mostly through a screen, a story, or a distant encounter.

Then I arrived. And I quickly realised that China is one country, but it is also many experiences at once.

My conversation with Professor Wu Minsu at Communication University of China helped put this into perspective: China may be one country politically, but its provinces and cities carry remarkably distinct cultures, histories, landscapes, cuisines and dialects. Every stop on my journey seemed to reveal a different side of China, in the most positive way. And that was the beauty of the trip.

Guangzhou: Where Africa and China Meet

My journey in China began in Guangzhou, where I experienced something I did not expect: a little taste of Africa. Walking through parts of Guangzhou, particularly around the city’s international communities, I felt surprisingly at home. The city reminded me that China is not simply connected to the world economically; it is also increasingly intertwined with the cultures and lives of people from across the globe.

My hotel experience was another story altogether.

It was exceptionally clean, comfortable and almost entirely digitalised. The room had a huge television and technology seemed to be built into almost every detail.

And then came the World Cup. There I was, sometimes watching matches at 3 a.m., half asleep but somehow completely awake because of football. Yeah, I was rooting for Argentina; we didn’t win, but being the second runner-up is not a bad place at all.

Mr. Weng, what an amazing human being.

From hotel pick-ups to airport shuttles and all the efforts that made the stay easy, his hospitality was phenomenal. It was one of those experiences that reminds you that when travelling, sometimes it is not the touristic attractions or the city that you remember most. It is the new people you meet along the way.

Shanghai: Rwanda Meets the World

From Guangzhou, I travelled to Shanghai, where I had the privilege of speaking at Fudan University’s International Summer School, at the invitation of Professor Yin Zhiguang, Professor of International Politics at Fudan University’s School of International Relations and Public Affairs, to whom I remain deeply grateful for the opportunity.

I spoke about Rwanda’s remarkable and rapid transformation from the ashes of the 1994 Genocide against the Tutsi, and about the importance of countries in the Global South working together to exchange home-grown solutions, experiences and even traditional knowledge that may never have made it into academic textbooks.

In Shanghai, one idea kept coming back to me: development should ultimately be judged not only by buildings, roads or impressive statistics, but by the quality of people’s lives. As former Tanzanian President Julius Nyerere argued, development is about people and the totality of their quality of life. That message felt particularly relevant in China, where development is something you can see, touch, and experience in everyday life.

After Fudan, my friend Ang gave me a proper tour of Shanghai. From the beautiful Yu Garden to historic streets and, of course, food, she introduced me to another side of the city. I discovered many dishes I had never imagined existed.

And then I discovered meat with a surprisingly sugary taste. Yes, sugary meat. I am still processing that experience.

Ang was also kind enough to make sure my children received Chinese traditional attire. Now my children have something from China to remind them that their father once travelled thousands of miles away and came back with more stories than souvenirs, thanks to her gifts. Ang, thank you.

In Shanghai, Professor Liu Yu-Zhao gave us a fascinating tour of Shanghai University—from its faculties and cutting-edge technology to the remarkable contributions its alumni have made to China’s development and leadership. But beyond the impressive facilities, I took away another important lesson: China takes its history seriously and deliberately preserves it for future generations. I saw how the stories, achievements and contributions of those who came before are documented and passed on, ensuring that the next generation knows where the journey began and what they are building upon. It reminded me of a powerful saying from my mother tongue: “If you don’t know where you come from, you cannot know where you are going.” For me, preserving history is not simply about remembering the past; it is a development strategy for shaping the future.

Zhejiang: When the Future Becomes Ordinary

From Shanghai, I took China’s high-speed train to Zhejiang. The train itself deserves a story of its own. It is difficult to explain the experience of travelling at such speed while sitting in what feels like an ordinary, comfortable passenger train. Everything is orderly, efficient and remarkably smooth.

At the station, I was received by Professor Li Zhaoying.

In Hangzhou, I rode a bicycle, ate very good food and experienced something that genuinely left me speechless: a city where artificial intelligence and digital technology are not futuristic concepts. They are everyday life. I visited what felt like an artificial-intelligence city.

At one coffee shop, the entire process—from ordering to delivery—is automated and handled by robots. A robot takes the order, processes it, and drops the last scoop of my ice cream in my cup. I remember thinking: So this is what the future looks like when it becomes normal.

There is a difference between reading about China online and actually walking through its cities. Some things you read about sound exaggerated until you see them with your own eyes. Then the exaggeration disappears. The actual feeling becomes like—people don’t give China enough credit that it deserves.

What remains is the reality of a country that has invested enormously in infrastructure, technology, manufacturing, digital services and urban development. During my visit, I also had fruitful engagements with WaveMedia, Guancha, Zhejiang Media Group (ZMG), Zhejiang International Communication Center (ZICC), Changsha Media Group, Shenzhen News Group, Shenzhen TV (SZTV), Communication University of China and the All-China Journalists Association (ACJA). These engagements reinforced another important lesson for me: journalism and communication play a critical role in shaping understanding, building bridges between societies, and telling the story of development. Investing in journalism and communication to enhance the visibility of all these achievements helps strengthen our ability to tell our stories and forge new partnerships rooted in the spirit of people-to-people exchange. It is my hope that our engagements will therefore bear fruit and enable us to be the change we want to see.

And perhaps the biggest lesson for me is that the question for the rest of the world should not be whether China exists as a major development force, or whether it is the world’s second- or first-largest economy, but how countries around the globe, without exception, can cooperate with China while pursuing their own development priorities and learning from what works.

There is no room for superiority complexes—on either side. There is only room for partnership, learning and mutually beneficial cooperation. And that is what I like most about China’s foreign policy: its emphasis on cooperation, shared development and building partnerships across borders.

Changsha: Please Bring Me Water!

Then came Changsha, in Hunan Province. If I were writing this part of the story from a restaurant in Changsha, I might actually have shed a few tears—not because I was emotional, but because of the spice! What delicious food! What dangerously delicious food! Every bite was a battle between my taste buds and my heat tolerance—and, somehow, I kept going back for more.

Changsha taught me that a meal can be both an unforgettable culinary experience and a personal survival challenge. At one point, I looked around and saw local people eating while wiping tears from their eyes. That was a huge relief. I thought: *Ah! So it is not just me. *The food was spicy enough to make me question several decisions I had made in life.

But there was another discovery.

Rice is free.

I was trying to escape the spicy soups and decided to go to KFC. I bought chicken and chips, hoping that I could then enter a restaurant and simply buy some rice. The saleslady told me I did not need to pay for it.

I was confused. “Mifan ma?” I asked. Do you have rice?

She confirmed that they did. “But how much?” Nothing. I insisted. Still nothing. If you buy other dishes, the rice comes with it. If you don’t, then rice is there for free. At that moment, I realised that sometimes the greatest cultural discoveries are not found in museums.

Sometimes they are found in restaurants.

And Changsha?

This city does not seem to sleep.

For anyone who loves nightlife, Wuyi Square is the place to be. The lights, crowds, restaurants, shops and energy make the city feel permanently switched on.

If you visit Changsha, do not leave without experiencing it. Just remember to carry water. Lots of water.

Beijing: History, Class and a Tap Away

From Hunan, it was time for Beijing. The capital. The Temple of Heaven. The Forbidden City. The enormous, beautiful public spaces. The fast trains. The packed Metro Line 8.

And the people.

One thing I noticed almost everywhere was how well dressed people were. Chinese people are stylish. Very stylish. If you are not careful, you can suddenly start questioning your wardrobe.

And the smartphones!

Everywhere I looked, people seemed to have incredibly sophisticated devices in their hands. China is operating at another level when it comes to consumer technology. In Beijing, I visited the Communication University of China, where Professor Wu Minsu gave me an outstanding tour—from classrooms and libraries to the beautiful Piano Lake.

But Professor Wu also taught me another important lesson about China: convenience.

After spending days looking for Vaseline for my face, I mentioned it to her. Within seconds, she ordered it online.

Problem solved. In China, online shopping and delivery have reached a level where life can sometimes feel like a series of taps.

You need something?

Tap. Order. Wait. It arrives.

This is not simply about technology. It is about how technology has been integrated into everyday life.

A Kinyarwanda Conversation in Beijing

While in Beijing, I also had a wonderful meeting with my friend Yang Ruoxi, who works at the School of African Studies at Beijing Foreign Studies University.

I had been away from Rwanda for weeks. I had spoken English. I had heard Mandarin. I had struggled with Chinese menus. And then suddenly, I heard Kinyarwanda. Ruoxi speaks very good Kinyarwanda. She studied for her Master’s degree at the University of Rwanda.

For a few moments, Beijing felt like Kigali.

When I told her how much Chinese hospitality had impressed me, she explained that hospitality and harmony are deeply rooted in Chinese culture.

She referred to the Chinese expression:

“美美与共，天下大同” which can be understood broadly as the idea that different forms of beauty can coexist and contribute to harmony and unity.

I left Beijing with something else too.

A Chinese name.

Ms. Yang gave me the name Yu Kai-lai. I have no idea whether I will ever get used to it. But I like it.

Mr. Cha: The Human GPS

And then there was Mr. Cha Seok-Hyung. If China has a human GPS, I found him.

From metro maps to making sure I got off at the right station, from translations to practical advice on navigating cities I had never seen before, Mr. Cha was always there.

Sometimes travelling is not about eMaps. Sometimes it is about meeting the right person. Mr. Cha was one of those people. I am eternally grateful, and I will not forget him.

Shenzhen: From Fishing Village to Technology Powerhouse

Then came Shenzhen. What a city.

Shenzhen’s story is perhaps one of the clearest examples of what deliberate development, openness and experimentation can produce.

The city was established in 1979 and, in 1980, became China’s first Special Economic Zone. In the decades that followed, it transformed from a small border town into a major international centre for technology, manufacturing, finance and trade.

Standing in Shenzhen today, it is difficult to imagine the city that existed before this transformation.

Skyscrapers. Technology companies. Electric vehicles. Digital services. Modern transport. And innovation everywhere. The story of Shenzhen fascinated me because it is not simply a story about buildings.

It is a story about vision, experimentation, policy, investment, talent and the willingness to try something different. That is perhaps one of China’s most important lessons for developing countries. Sometimes development begins when a country decides to experiment.

And then came a rather exciting discovery for me: Shenzhen is home to BYD—my current dream car! I have driven and owned quite several cars over the years, but after seeing what BYD is doing with fully electric vehicles, I think I have finally found the one for my next chapter. So, if anyone asks me what car I am getting next, the answer is already decided: BYD, fully electric! It was quite a pleasant surprise to realise that the city I was visiting for its technology and innovation is also the home of the car brand that has quietly become my next automotive ambition.

What Stayed With Me

I travelled across six major destinations—Guangzhou, Shanghai, Zhejiang/Hangzhou, Changsha, Beijing and Shenzhen—spanning four provinces and two municipalities.

Of course, every place was different. But after moving from one city to another, certain patterns became impossible to ignore.

1. Discipline

There is a strong sense of order in public spaces. People queue. Transport systems are organised. Public facilities are maintained. There is a general understanding that millions of people living together in massive cities requires discipline.

2. Peace and security

One of the things that struck me most was the sense of security in public spaces. I saw people leave phones and other belongings unattended in places where, in many parts of the world, you might hesitate to do so. That general sense of public order was striking.

3. Infrastructure

China’s infrastructure is top-notch. Airports. High-speed trains. Metro systems. Roads. Bridges. Stations. Urban planning.

You travel through one city and think, *This is impressive. *Then you arrive in another city and realise there is more. The infrastructure is not simply about moving people from A to B. It is about connecting economies, cities and opportunities.

4. Quality of life

This perhaps impressed me most. When it is hot, public spaces have cooling systems. When people need transport, there are multiple affordable options. When people need food, there is an enormous variety of choices. When they need something from a shop, delivery is often only a few taps away. When they need healthcare, they can access both traditional and modern forms of medicine. When they need education, there are institutions and opportunities at different levels. Development becomes meaningful when it enters people’s daily lives.

5. Technology that solves ordinary problems

China reminded me that technology does not have to be spectacular to be transformative. Sometimes the most powerful technology is simply the technology that makes life easier.

Paying for something. Ordering food. Getting a taxi. Finding a train. Buying medicine. Receiving a package. Ordering coffee. A lot of this can happen from a phone. An important tip for a new traveller to China—install Alipay, WeChat and all its apps, including Didi; you will thank me later.

My conclusion is that the real achievement is not having the technology. It is making the technology useful to every member of society.

6. Economic development you can feel

China’s development is not only visible in GDP figures. You can see it in people’s consumption, mobility, housing, shopping habits, access to services, and purchasing power. Economic statistics tell one story. Walking through a Chinese city tells another. And sometimes the second story is more powerful.

7. Scale and long-term thinking

Perhaps the biggest lesson I took from China is the power of long-term vision and strategic planning. My visit to China brought to life many of the key development concepts I had been reading about in The Governance of China, Volume V, by H.E. Xi Jinping. What I had encountered in the pages of the book became tangible through the people, infrastructure, innovation, and development models I witnessed firsthand.

China does not seem to think only in terms of what is needed today, but in terms of what its cities, industries and people will need decades from now. A road is not simply a road; a railway is not simply a railway; and a technology park is not simply a collection of buildings. Each is part of a much larger, interconnected development vision. Under the leadership of H.E. Xi Jinping, General Secretary of the Communist Party of China, the Chinese Government has demonstrated a remarkable ability to look far ahead, set ambitious long-term goals, plan systematically and pursue those plans with discipline and consistency. What impressed me most is not simply the scale of China’s development, but the foresight behind it—the ability to anticipate tomorrow and begin building for it today.

8. Hospitality

And then there are the people.

Mr. Weng. Ang. Professor Li. Professor Wu. Yang Ruoxi. Mr. Cha and my good friend Mr. Yin Qingri, famously known in Rwanda Mr. Edward, staff members of the Chinese Embassy in Rwanda, led by Madam Lin Hang, all the young and old women, men and Chinese people I met in the metro stations, on the streets, who helped me with translations and orientation all many people whose names I may not have remembered, but whose kindness I will. Thank you.

All these unknown, kind people really made the journey easier and more personal. They reminded me that international cooperation is not only about governments, agreements and conferences. It is also about people sitting together, sharing food, exchanging stories and helping one another find their way around.

What I Am Taking Home

I came to China expecting to learn about a country. I am leaving having learned about development, people and possibilities. I have learned that technology is most powerful when it improves ordinary people’s lives. I have learned that infrastructure matters, but what matters even more is what infrastructure enables people to do.

I have learned that countries in the Global South have enormous opportunities to learn from one another—not by copying blindly, but by exchanging experiences and adapting solutions to local realities.

Throughout my stay, I managed to learn six Chinese words—enough, I thought, to survive in China! Nǐ hǎo: hello; méiyǒu: there isn’t; mǐfàn: rice; duì: right/correct; xièxie: thank you; and bú kèqi: you’re welcome. Six words may not qualify me as a Chinese speaker, but they certainly helped me navigate food, directions, gratitude, and a few everyday encounters.

And I have learned something else.

Never judge a country only by what you read about it.

Go there. Walk its streets. Meet its people. Eat its food. Try to order something in a language you do not understand.

Burn your tongue on Changsha chilli.

Make friends. And then make your own conclusions.

See You Again, China

On 30 July, I boarded my flight from Guangzhou Baiyun International Airport.

I was leaving China. But somehow, it did not feel like goodbye. It felt like the end of a chapter. I arrived with expectations. I am leaving with memories, friendships, lessons, and a much deeper appreciation of what China has become.

From the spicy streets of Changsha to the futuristic skyline of Shenzhen. From the academic halls of Fudan to the historic gardens of Shanghai. From the high-speed trains of Zhejiang to the grandeur of Beijing.

From the warmth of people to the countless strangers who smiled, helped, and welcomed me along the way.

China, you surprised me.

You challenged some of my assumptions.

You made me laugh.

You made me sweat.

You made me tear up—mostly because of the Changsha chilli!

And, somewhere between the high-speed trains, the dumplings, the robots, the metro stations, the late-night football and the endless cups of tea, you became a place I will remember fondly.

So no.

It is certainly not goodbye.

It is see you again.

About the Author

Eugene Uwimana is a Rwandan national with over a decade of experience in development, journalism, and communications. He currently serves at the UN RCO in Rwanda while also working as a part-time lecturer at East African University and Founder of AE Media.

The article was originally published on Aenewslive.com and is republished by GlobalThinkers with the author’s permission.

Since the beginning of Donald Trump’s new presidential term, the United States has maintained a broad offensive aimed at reorganizing political forces on a global scale. As demonstrated not only by the concrete moves of U.S. foreign policy, but also by the very documents outlining the strategic vision behind these actions — namely, the National Security Strategy (NSS) and the National Defense Strategy (NDS) — Latin America and the Caribbean occupy a priority position within this arrangement.

Trump’s Monroe Doctrine: A String of “Victories”

Seeking to fulfill the objective of reversing the inexorable international trend toward multipolarity, Donald Trump’s government has been fostering, through the most varied means, the destabilization of governments and political forces in the region that refuse to subordinate themselves to its hegemonist dictates.

More than the traditional U.S. effort against popular and left-wing forces in Latin America and the Caribbean, this offensive has a common and distinctive feature that reflects the current historical conjuncture: it seeks to enable the rise of puppet rulers willing to sacrifice not only the interests of the popular masses, but also those of the very fractions of their countries’ bourgeoisies that maintain fundamental economic ties with big powers — and, more specifically, with China.

Consequently, the primary target of the U.S. hemispheric offensive is not necessarily China itself, but rather the national sovereignty of the countries of Latin America and the Caribbean, insofar as its central strategic objective is to prevent their governments — whether led by popular forces or by fractions of the local bourgeoisies — from exercising free will in determining their respective foreign policies.

Such a reactionary offensive finds an echo not only in the habitual eagerness of local oligarchies to exterminate and isolate parties and social movements aligned with perspectives favoring national sovereignty and social justice, but also in the explicit desire of their most radicalized and extremist sectors to contest hegemony within the most conservative strata of their own societies — radicalizing neoliberal and surrenderist agendas, as well as repression against popular sectors.

It unfolds at different levels and with varying degrees of depth and violence. It involves mechanisms of blackmail, such as the pressure exerted on countries in the region to retreat from, or refrain from advancing more consistently in, the establishment of cooperative ties with China, as evidenced by the pressure that led Panama to leave the Belt and Road Initiative and, more recently, Colombia to signal that it will follow the same path, as well as by the series of statements by U.S. officials linking Chinese investment in Latin America and the Caribbean to threats to the national security of the United States.

It also encompasses efforts to economically destabilize progressive governments in the region, through the adoption of sudden and irrational unilateral tariffs on their products, as in the case of Brazil, or the tightening of illegal and discriminatory sanctions against the governments of Cuba, Venezuela, and Nicaragua. Finally, it invariably involves financial and political support for the most radicalized and extremist sectors of the Latin American right, which are precisely those most willing, should they assume control of their respective national governments, to implement measures of unrestricted alignment with U.S. geopolitical interests, even at the expense of the economic gains of fractions of the local bourgeoisies that sustain them.

This deepening of U.S. interventionism in Latin America and the Caribbean, under the aegis of the Big Stick of the “Donroe Doctrine,” has borne fruit, at least in the short term: the victories of conservative forces blessed by the United States in closely contested elections in several countries — including Chile, Bolivia, Peru, Ecuador, Colombia, and Honduras — have altered the hemispheric political landscape, while the remaining left-led governments have been placed on the defensive, becoming direct targets of blackmail and attacks emanating from Washington.

The kidnapping of Venezuelan President Nicolás Maduro, the intensification of the criminal economic blockade against Cuba, and the numerous sanctions against Nicaragua are an integral part of this process, as are the successive rounds of pressure and threats involving matters of Brazilian domestic politics.

What is certain is that, while these developments shift the balance of forces in favor of reactionary elements, they also deepen the sense of revulsion among local peoples toward imperialist interventionism, which once again appears without a mask, while the neoliberal and authoritarian programs of the new rulers sow the seeds of the ongoing social struggles that will eventually bring them down as well.

Brazil: Escalating Intervention by the US and Argentina

• Lula’s Approval Rating Rises

Within this context, the upcoming October presidential elections in Brazil take on a highly decisive character. Recently, Brazil became nothing less than the world’s leading destination for Chinese investment. The proactive stance of the Lula government’s foreign policy in favor of multipolarity and an international order based on multilateralism, respect for international law, and the sovereign equality of nations stands in direct opposition to the growing interventionist unilateralism of Donald Trump’s United States.

At the regional level, the Workers’ Party and its allies have for decades played a fundamental role in the cooperative arrangement among progressive and left-wing forces in Latin America and the Caribbean, and their governments, although based on a broad front encompassing various conservative fractions of the Brazilian bourgeoisie, have always been marked by their opposition to intervention by great powers in the domestic affairs of neighboring countries.

The Lula government began in 2023 amid a situation of immense political and economic instability. The exacerbated neoliberalism of Jair Bolsonaro’s preceding administration, whose economy was headed by the “Chicago Boy” Paulo Guedes, left behind a country marked by severe social and economic imbalances and a profoundly weakened state. This situation was aggravated by the effects of the pandemic and, above all, by the government’s disastrous handling of matters related to it, leading Brazil to the catastrophic position of becoming the country with the second-highest number of Covid-19-related deaths — in a context in which Jair Bolsonaro and his ministers made public statements questioning the effectiveness of vaccines and portraying preventive measures against the pandemic as unnecessary and excessive.

Finally, compounding this already difficult situation, the most extremist sectors of Bolsonarism attempted a coup d’état as early as January 2023, with high-ranking officers of the Brazilian Armed Forces becoming involved in a plot aimed at assassinating President Lula, Vice President Geraldo Alckmin, and justices of Brazil’s Federal Supreme Court.

While it is true that this scenario of radicalization imposed immense difficulties on the new government, it is also true that it provided Lula with the conditions to consolidate a coalition capable of ensuring governability, albeit under circumstances highly unfavorable to carrying out deeper transformations of the country’s economic and social structure. Various sectors of the bourgeoisie and the Brazilian middle classes rallied around the democratic platform of national economic reconstruction led by the president’s coalition, swelling the ranks of opposition to the obscurantist, denialist, and authoritarian character of the Bolsonarist far right.

Today, with the presidential term nearly complete, the change in the country’s direction is evident, with economic growth and stabilized inflation, alongside highly positive indicators regarding declining unemployment, growth in workers’ average real income, and a reduction in the population suffering from hunger and food insecurity.

Also highly significant was the government’s ability to mobilize its popular base and unify its broad and heterogeneous coalition in defense of the country against the blackmail of U.S. imperialism. In the context of Trump’s imposition of unilateral tariffs on Brazilian products last year — presented by Washington also as an instrument of pressure against the disqualification from electoral office and the judicial proceedings brought against former president Jair Bolsonaro, who would subsequently be convicted for his participation in the attempted coup d’état — not only did significant sectors of the population and social movements take to the streets in defense of the government, but broad sectors of the national business community also supported the President of the Republic’s steadfast position of refusing to yield to U.S. blackmail.

The result at the time was a substantial increase in the government’s popularity, which, despite positive economic results, had been experiencing a downward trend in the preceding months, as well as a shift in the national political conjuncture, with the government’s left wing beginning to adopt a more proactive and transformative agenda.

A clear example of this was the Lula government’s support for ending the 6x1 work schedule and reducing the weekly working week from 44 to 40 hours, which broadly mobilized trade unions and workers and provided the president with an extremely popular cause enjoying the support of more than 70% of the population. Approved in the Chamber of Deputies by 461 votes in favor to 19 against, the proposal is still awaiting a vote in the Senate.

• Foreign Interference Growing Ever Stronger

This scenario led Trump to a temporary retreat, prompting him to revise part of the tariffs imposed on Brazilian products and even to seek a modus vivendi with the Lula government, going so far as to publicly praise the Brazilian president. However, as the electoral process approaches, the U.S. offensive against the Brazilian left has once again intensified.

Recently, the United States has not only resumed the radical escalation of unilateral tariffs on Brazilian products, but has also made increasingly explicit its support for the presidential candidacy of extremist senator Flávio Bolsonaro, son of Jair Bolsonaro, while raising the level of provocations and threats against Lula and his allies.

At the end of May this year, Marco Rubio announced the designation of the Brazilian criminal organizations First Capital Command and Red Command as foreign terrorist organizations, in a context in which the United States has made use of such designations to intervene militarily in the domestic affairs of Latin American countries — as in the case of Venezuela, where the military intervention and kidnapping of President Nicolás Maduro took place under the pretext of combating the Cartel de los Soles, which had recently been designated a terrorist organization.

In June, Pix, the public instant-payment system created and operated by the Central Bank of Brazil, formally came to be listed among the practices considered by the United States to be discriminatory against the interests of U.S. companies. Washington argued that the Brazilian model favored Pix to the detriment of competing private services, including those provided by U.S. companies, and included this allegation among the grounds for its trade investigation against Brazil.

Finally, in July, the Trump administration announced an additional 25% tariff on a range of Brazilian products, to which Lula responded by announcing the activation of the Economic Reciprocity Law, allowing Brazil to adopt countermeasures against the United States.

In parallel, Washington’s puppet governments in the region have joined the campaign of hostilities against Lula and Brazil. Breaking with traditional diplomatic conventions of non-intervention in the electoral disputes of other countries, Argentine President Javier Milei traveled to Brazil to openly support Flávio Bolsonaro’s candidacy.

During the visit, he publicly attacked Lula and his government; subsequently, he further escalated the provocations, calling the Brazilian president an “ex-convict,” a “thief,” and “corrupt.” The successive affronts initially led Brasília to recall its ambassador in Buenos Aires, and later to formally downgrade diplomatic relations with Argentina to the level of chargé d’affaires.

More recently, the reactionary government of Santiago Peña in Paraguay — the only country in South America without formal diplomatic relations with the People’s Republic of China — has also revived long-dormant controversies with Brazil concerning the conflict between the two countries during the War of the Triple Alliance (1864–1870), or Paraguayan War.

Following the same line of provocations, a few days ago Republican congressman from Florida Carlos A. Giménez posted online an AI-generated image depicting Lula under arrest, based on the famous photograph released of Nicolás Maduro shortly after his kidnapping by the Americans, accompanied by the message “what awaits him” and remarks calling Lula a “pig” and a “criminal.”

Javier Milei shared one of Giménez’s offensive messages against Lula, while one of Jair Bolsonaro’s sons, Eduardo Bolsonaro — who stands at the epicenter of the family’s political coordination with the U.S. far right — amplified the image.

As clearly demonstrated by the activation of the Economic Reciprocity Law and the downgrading of relations with Argentina, the Lula government has once again conducted itself with firmness and refused to yield to pressure from the alliance between the Latin American far right, Trump, and U.S. imperialism.

Latin America’s Last Major Bastion: Will It Be Breached?

Along these lines, Lula recently declared that he will grant agrément to Ambassador Daniel Perez, chosen by the United States to represent the country in Brazil, only after the October elections, amid suspicions that his appointment could result in greater interventionism in the Brazilian electoral process.

In an interview with the Não Inviabilize podcast, Lula sent Trump a clear message: “Do not meddle in Brazil’s affairs, and above all, in the elections. And if you do meddle, you will lose.”

Lula’s confidence is not without reason. Polls conducted by Brazil’s leading research institutes show Lula ahead in every first- and second-round scenario. The government’s positive social and economic indicators reinforce confidence in an electoral victory, as does the historical fact that the PT has never lost a presidential election in Brazil while in control of the executive branch of government, which carries considerable weight in electoral outcomes, insofar as its multiple resources and instruments facilitate the political construction of regional alliances.

Since the country’s redemocratization and the restoration of direct presidential elections, the only presidential candidate to lose a bid for reelection was Jair Bolsonaro, in 2022, when he faced precisely Luiz Inácio Lula da Silva, who at the time was in a far more unfavorable political position than he is today.

Naturally, no analysis can disregard the strength and resilience of the Brazilian far right, which has consolidated a situation in which roughly one-third of the national electorate remains loyal to Bolsonarist candidacies, regardless of the credibility of their representatives or fluctuations in the political and economic conjuncture. However, what appears to constitute the greatest variable of uncertainty regarding Brazil’s future does not necessarily arise from calculations concerning the electoral map, but rather from the degree of radicalization that the alliance between Brazilian reactionaries and the broader offensive of U.S. imperialism may assume.

The recent announcement by Secretary of Defense Pete Hegseth that the United States plans to begin ground military operations against drug traffickers in Latin America — involving allies such as the governments of Ecuador, Colombia, and others — only reinforces the context in which the Americans appear to be shaping multiple precedents to justify possible arbitrary interventions in the course of domestic politics throughout the region.

Judging by the disproportionate violence and arbitrariness displayed by the Trump administration’s actions against those it regards as its adversaries, it would not be surprising if the dispute with Brazil — a country that plays a fundamental role in promoting multipolarity and possesses immense strategic depth in international relations — were to take on more tense and less predictable contours.

The first time Lula ran for office, in the 1982 election for governor of the state of São Paulo, he obtained a result that he considered disappointing at the time, finishing in fourth place even though he was then the leader of the country’s major and rapidly growing centers of popular struggle.

According to Lula’s own account, the result led him to reflect and even consider giving up on running for elected office again. In 1985, when he met Fidel Castro in Cuba, he told him about these thoughts. To his surprise, Fidel replied: “Lula, there has never been a metalworker in the history of humanity who received 1.1 million votes,” referring to the 10% of the vote Lula had won in the gubernatorial election, and encouraged him to remain in politics.

Lula and Brazil’s popular forces persisted, electing him president three times (2002, 2006, and 2022), and Dilma Rousseff twice (2010 and 2014).

Under his leadership, the Brazilian left confronted and overturned the fraudulent processes of persecution that led Lula himself and other leaders of the popular camp to prison, defeated Jair Bolsonaro electorally in 2022, and prevented the consummation of the coup d’état orchestrated by the Brazilian far right in January 2023.

This year’s presidential elections are decisive and will play a fundamental role in determining the future course of Latin America. Despite all adversities, there can be no doubt: the persistent Brazilian metalworker who dared to follow Fidel’s advice has all the credentials necessary to lead the Brazilian people in resisting and triumphing over the arbitrariness of the reactionary united front of the Americas.

About the Author

Tiago Nogara is a Brazilian expert based in China, where he serves as an Assistant Professor at Nankai University’s Center for Latin American Studies and the Research Center for the History of the Modern World.

Last month, The Economist published a piece praising the recovery of the Yangtze, China’s “mother river,” once devastated by pollution and overfishing but now showing measurable signs of revival under what the article calls “sweeping protection measures.” The praise arrives with a catch. The same article warns that these measures are “eco-authoritarian,” “intolerant of resistance,” and “deserve scrutiny before being imitated.” It claims the government “does not listen to the people that its environmental policies harm,” nor to “environmentalists,” and concludes that “the state is an unreliable ally.”¹

The pattern is familiar. A Chinese achievement is acknowledged, and the acknowledgement is then folded into a case against the government that produced it. Poverty falls, and the benchmark used to measure it comes under suspicion. Athletes bring home medals, and the training system behind them becomes evidence of a state that treats children as instruments. Roads and power plants reach countries long starved of financing, and the loans behind them become evidence of a debt trap. A river recovers, and the recovery becomes proof of coercive power rather than public benefit.

The costs behind these stories are real. China’s development has produced inequality, environmental disruption, and abrupt changes in the working lives of people who had little say in the timing. An honest account has to hold all of that.

A serious account also has to move past the discovery that a cost exists. Every strategy is a prioritization among tradeoffs. No government gets to choose growth without friction, order without constraint, or speed without disruption, regardless of what it calls itself or how it organizes power. Cost is a universal condition of governing anything at scale, so it cannot be what separates one political system from another. The dividing line runs elsewhere: what the system was trying to achieve, who ends up benefiting, and whether it adjusts when a tradeoff stops making sense.

The sections that follow examine four cases where the “at what cost” narrative appears most often: poverty and growth, elite sport, overseas infrastructure lending, and ecological governance. Each begins with the specific article making the claim, follows the policy through its stated purpose and its documented effects, and asks who bore the burden and what happened next. The final sections ask whether the same standard, applied honestly, survives being turned back on the West.

“Poverty Alleviation, But at What Cost?”

The “but at what cost” critique appears early in reporting on China’s growth model. A 2021 BBC article, “China Poverty: ‘No One Living in Extreme Poverty’,” questioned whether the 2,300-yuan threshold used to announce the end of extreme rural poverty had been set conveniently low, and whether inequality beneath that line was being obscured by the headline claim. The concern is worth taking seriously. Poverty is not reducible to a single income figure, and a government can make progress look larger by defining the target narrowly.

That comparison between China’s threshold and the World Bank’s international poverty lines is often made incorrectly, and the mistake matters. China’s 2,300-yuan standard was expressed in 2010 constant prices, calculated for conditions inside China, and requires conversion through purchasing-power parity before it can be compared with a dollar-denominated line. The World Bank has estimated the Chinese standard as equivalent to roughly $2.30 per person per day in 2017 PPP terms, which places it slightly above the Bank’s then-international extreme-poverty line of $2.15 per day. The Bank’s higher benchmarks, $3.65 for lower-middle-income economies and $6.85 for upper-middle-income economies, ask a different question: whether people can meet the material expectations of a more developed society, not whether the earlier extreme-poverty line was set artificially low.

Justin Lin Yifu, the former World Bank chief economist, raised a related point in a 2021 interview with Guancha.cn. China’s poverty programme did not rely on income alone, he explained. Alongside the income threshold, it required “two no worries and three guarantees”: adequate food and clothing, plus access to compulsory education, basic medical care, safe housing, and safe drinking water. A household crossing the income line without meeting these conditions was not considered to have escaped poverty.

Watch how the threshold moved over time and the point sharpens further. China’s first official rural poverty line, set in 1986, was 206 yuan per person per year. It rose to 865 yuan in 2001, 1,196 yuan in 2009, and 1,274 yuan in 2010, before the government raised it to 2,300 yuan in 2011, an increase of more than 80 percent in that single adjustment. The 2011 revision brought nearly 100 million additional people into the official poverty count. That decision enlarged the government’s own task rather than shrinking it. A government interested mainly in a flattering statistic had every reason to leave the bar where the numbers already looked favourable.

Nor did the 2021 declaration end the discussion. The World Bank’s 2024 Poverty and Equity Brief estimated that about 17 percent of China’s population still lived below its $6.85 upper-middle-income line in 2021. That line is the Bank’s benchmark rather than China’s, and Beijing has never adopted it as a domestic target. It is worth citing because it indicates how much remains, not because either party treats it as the operative standard.

What China adopted after 2021 matters more than the benchmark it declined to adopt. Rather than treating the problem as closed, the government set a five-year transition period running through 2025, holding the major assistance policies broadly in place while the centre of gravity shifted from poverty elimination to rural revitalization, and built a dynamic monitoring and assistance mechanism designed to identify households at risk of falling back and intervene before they did. The thresholds that mechanism runs on sit well above the old 2,300-yuan line and are revised upward annually. Hunan raised its per-capita income trigger from 6,500 yuan in 2021 to 8,700 yuan in 2025, and Guizhou has increased its own by roughly 6 percent a year. Across the five-year period the Ministry of Agriculture and Rural Affairs reported that more than 7 million people had been flagged as at risk and given targeted support. These are official figures and should be read as such. What matters more is the institutional design behind them: the income line at which a rural household counts as in trouble kept moving upward after the victory had already been announced, which is the opposite of what a government managing a statistic would trouble itself to build.

The BBC’s methodological question deserves an answer, and the record supplies one that the article itself does not follow through on. China’s national threshold, properly converted, sat close to the World Bank’s own extreme-poverty line and was reinforced by non-income conditions the Bank’s dollar figures do not capture. What the threshold did afterward is the more telling fact: it kept moving upward, adjustment after adjustment, at points when holding still would have been the easier choice politically.

“Winning Gold, But at What Cost?”

Reuters framed the tradeoff in its headline in 2008: “China’s Sports System Delivers, but at a Cost.” The article recognized the results of China’s whole-country support system, or juguo tizhi, which selects promising athletes early and channels them into intensive, state-run training. But the cost, as Reuters described it, showed up as limited educational opportunity, physical strain, and uncertain prospects once competition ended.

The system’s original purpose was straightforward: concentrate scarce resources so that a country with little history in a given sport could produce competitive results on the world stage. That logic is not exclusive to China. Centralized training programmes appear wherever a private market cannot sustain elite-level coaching and facilities on its own, in sports as different as swimming in Australia and gymnastics in Romania.

The system delivered on that purpose, and the Reuters headline concedes as much before it turns; delivery is the first half of “delivers, but at a cost.” A country with almost no private sports economy, little competitive infrastructure, and no philanthropic base for elite training reached sustained top-tier international results within a few decades, in disciplines where it had previously had no presence at all. Whether that outcome was available by some other route under the conditions of the 1980s and 1990s is the question critics of the system rarely take up, and it is the question that determines whether the costs Reuters catalogues were avoidable or were the price of the only route open at the time. Establishing that a cost was paid does not establish that a cheaper path existed.

What distinguishes one country’s version from another’s is whether the system has stayed fixed at its original design or adjusted once the human costs became harder to ignore. The record over the past decade points toward adjustment. A study of China’s high-performance student-athlete admission, cultivation, and management policies traces a gradual integration of elite athletes into ordinary higher-education institutions, documenting new rules governing academic support, psychological services, and planning for life after competition. Research on China’s national sport policy describes a shift away from a near-total dependence on the government budget, toward a three-part funding structure combining government funding, commercial and sponsorship revenue, and lottery proceeds. That shift changes the incentives facing national teams, since money no longer flows from a single source tied exclusively to competitive results, which opens room, even if it does not guarantee, for athlete welfare to compete with medal counts as a basis for funding decisions. A study of the National Games of China as a governance instrument goes further, arguing that Chinese elite-sport policy should reform its athlete-monitoring system around multidimensional criteria that weigh educational attainment and post-retirement outcomes alongside competitive performance, rather than performance metrics alone.

Adjustment also shows up in where the infrastructure has since been pointed. The National Fitness Plan for 2021–2025 set mass-participation targets alongside the competitive ones, and the reported results describe a system whose output is no longer counted only in medals. The share of the population exercising regularly rose from 37.2 percent in 2020 to 38.52 percent in 2025, per-capita sports-venue space rose from 2.08 square metres in 2019 to 3.11 square metres in 2025 across more than five million venues, and roughly 90 percent of adults now report a sports facility within a fifteen-minute walk or ride. The successor plan for 2026–2030 raises the targets again, to around 40 percent participation and four square metres per person. The participation gain over five years is modest, and these are government figures. The distributional shift is not modest: institutional capacity originally built to manufacture competitive results is now being measured against how many ordinary people can reach a facility near their home. That speaks directly to the question underneath the Reuters framing, who the system is for, and it is the part of the answer the 2008 report could not have anticipated.

The costs Reuters documented in 2008 have not disappeared. Reforms of this kind rarely arrive all at once, and elite sport in China still produces athletes who leave competition early with limited alternatives. What has changed is the presence of an active policy conversation about that outcome, one that did not exist in the same form when Reuters filed its report in 2008.

“BRI Wins Heart, But at What Cost? "

BBC’s coverage of China’s overseas infrastructure spending, from “China Brings Jobs to Ethiopia but at What Cost?” in 2012 to “China’s Roads Win Hearts in South Asia — But at a Cost” and “Is China’s Trillion-Dollar Gamble Paying Off?” in 2023, treats the Belt and Road Initiative as a form of macro-level leverage. The underlying claim is that BRI trades short-term connectivity for long-term financial dependence. In this framing, the cost is not only the repayment burden falling on borrowing governments but the erosion of policy autonomy that accumulating debt is said to bring with it.

The scale is not in dispute and is worth stating plainly before the mechanism is examined. Chinese overseas financing has exceeded $1 trillion, the bulk of it directed at productive public assets. In Africa alone, the Boston University Global Development Policy Center’s loan database records 1,319 commitments worth $180.87 billion between 2000 and 2024. Lending on that scale, concentrated in countries with thin fiscal buffers, creates real exposure, and a critique that begins there begins reasonably.

The composition of borrower debt is harder to reconcile with the framing. The IMF found that China’s share of sub-Saharan Africa’s total external public debt rose from under 2 percent before 2005 to roughly 17 percent, about $134 billion as of 2021, but that this amounted to only around 6 percent of the region’s overall public debt, with domestic commercial borrowing accounting for nearly 61 percent. The Fund stated directly that debt owed to China has not been the main factor behind the rise in the region’s public debt over the past fifteen years. A creditor holding a minority position behind domestic lenders, bondholders, and multilateral institutions is not structurally placed to spring a trap, whatever its intentions. The debt-trap thesis requires not just that China lent heavily but that it lent decisively, and on the numbers it did not.

A debt-trap strategy, if that is what BRI actually is, makes testable predictions about how the lender should behave. Lending should stay aggressively high regardless of emerging risk, since leverage is the point of the exercise. Renegotiation should be rare, since forgiving or restructuring debt surrenders the coercive tool the strategy depends on. Asset seizure should follow default as the mechanism by which the trap closes.

The lending data tells a different story.

Chinese policy-bank lending, primarily through the China Development Bank and the Export-Import Bank of China. From 2016 to 2019, new commitment amounts for overseas sovereign loans by China’s policy banks plummeted from $75 billion to $3.9 billion — a decline of over 90% (data from Boston University Global Development Policy Center). Yet outstanding loan balances did not shrink in tandem: the China Development Bank’s foreign currency loan portfolio stood at $261.7 billion, $251 billion, and $245.6 billion at the end of 2017, 2018, and 2019 respectively; while the Export-Import Bank of China’s Belt and Road loan balance rose from over 1 trillion RMB in April 2019 to over 1.6 trillion RMB by year-end. What this shows is that China proactively slammed the brakes on new commitments, but did not pull existing loans or cut off credit.

A strategy built to trap borrowers gains nothing by shrinking its own leverage, yet that is precisely what happened just as early risk signals were becoming visible. Retreat of that scale reads as ordinary risk management: a lender pulling back once a strategy stops paying off. A strategy whose entire point is extracting leverage over borrowers has no reason to relinquish that leverage voluntarily.

The Center for Global Development’s widely cited 2018 assessment, examining all 68 countries then identified as BRI borrowers, found that 23 faced some degree of debt-distress risk and that only eight faced risk specifically attributable to BRI-related financing. The same report concluded that the initiative was “unlikely to create a systemic debt crisis,” even as it called for better risk management in the countries most exposed. It also attributed much of the vulnerability in the eight highest-risk countries to weak domestic fiscal management and project selection, a different diagnosis than blaming the structure of Chinese lending terms alone.

Case evidence on what happens once a borrower runs into difficulty points the same direction, though it should be read for what it is: individual examples rather than a full accounting. Djibouti, one of the eight countries the Center for Global Development identified as being at particular risk, has faced no asset seizure or transfer of ownership over its China-linked infrastructure. The government retains ownership of the projects built. Reporting on the China-Pakistan Economic Corridor describes renegotiated terms and continued Chinese engagement even as Pakistan approached default and required an IMF bailout in 2023. Chinese creditors did not move to seize the assets financed by CPEC lending. Neither case proves a general pattern on its own, but a 2026 difference-in-differences study published in Applied Economics, comparing BRI participants against a matched control group of non-participants, supplies the broader test. It found that BRI participation reduced sovereign debt risk on average, operating through economic channels, infrastructure and export trade, and political channels, including improved governance and mutual trust between governments. That statistical finding, not the case examples alone, is what cuts against the assumption that BRI systematically pushes partner countries toward unsustainable debt.

The debt-trap narrative implies a comparison that is rarely completed. If BRI’s combination of high lending volume, infrastructure concentration, and after-the-fact renegotiation counts as a flawed way to finance development, the alternative on offer cannot simply be the absence of financing. Western governments and multilateral institutions promoting their own infrastructure initiatives, whether framed as “quality infrastructure” or the “Global Gateway,” face the same underlying choices: whether to attach environmental and social safeguards to their lending, whether to offer transparent restructuring when a borrower runs into trouble, and whether they are willing to finance projects where the commercial return is uncertain but the social return is high. A critique of Chinese lending that skips those questions for Western alternatives has only priced half the ledger.

There is a deeper version of that objection, and it lands on the accounting rather than the journalism. Yan Liang, in a 2026 working paper for the Boston University Global Development Policy Center, argues that China’s own framework inherited the central defect of the IMF–World Bank model it was adapted from. It registers the liability a country takes on and not the asset the borrowing creates, cannot account for the fiscal multipliers generated by transformative public investment, and treats local-currency and foreign-currency debt as the same problem. Her proposed remedies, net-worth measures in place of debt-to-GDP ratios and analytic horizons matched to the lifespan of the asset, are heterodox and contested, and nothing here depends on adopting them. What carries across is the diagnosis. A framework that books the debt and not the port, the grid, or the rail line commits, in spreadsheet form, the same error the “at what cost” headline commits in prose: recording the price and declining to record what was bought. When an identical omission turns up independently in financial methodology and in reporting, the question worth asking is whether counting one side of the ledger is a property of the evidence or a habit of the observer.

“Cleaning the Yangtze River, But at What Cost?”

Return, now, to the Yangtze, where this discussion began and where The Economist’s “eco-authoritarian” label does most of its work. Enforcement along the river has indeed been strong. The label folds two different things into a single word. Cracking down on illegal poaching and unlicensed dredging is one kind of action. Ignoring the people whose livelihoods are disrupted by ecological policy is another. Treating them as equivalent is where the framing goes astray.

The fishing ban itself reveals a clear intent. The Yangtze Ten-Year Fishing Ban, implemented under the Yangtze River Protection Law, began in key conservation areas in 2021 and extended across the main stem and major tributaries by 2022. It targeted a documented seventy-year decline in fish biomass and species richness across one of the world’s most heavily exploited river systems. Researchers writing in Science, drawing on data from 57 monitoring sites, found that fish biomass in surveyed reaches had more than doubled, with a median increase of about 209 percent, while species richness rose by roughly 13 percent. The river remains far from restored; dams, pollution, and microplastics continue to press on the ecosystem. Still, a decline lasting decades has begun to reverse.

The people who lost their income when that intent was pursued deserve equal attention. The ban required decommissioning more than 111,000 fishing vessels and displaced roughly 231,000 fishers across ten provinces and municipalities. Beginning in 2019, the Ministries of Agriculture and Rural Affairs, Finance, and Human Resources and Social Security issued joint plans to guide former fishers into new employment or self-employment and to guarantee basic livelihood support for those hard to re-employ. By late 2025, the Ministry of Agriculture and Rural Affairs reported that all 142,000 fishers able and willing to work had been re-employed, and that 220,000 eligible fishers had entered old-age insurance schemes. These figures come from the same ministries enforcing the ban, published openly rather than buried.

A government organized around the economic privilege of a narrow elite has little reason to build detailed compensation infrastructure for a population with modest political leverage. The fishers described by The Economist sit inside the state’s circle of concern, even where the execution of that concern remains imperfect.

A case study of compensation in Jiangsu Province found sharp differences in one-time payouts across eight riparian cities, tied to local fiscal capacity, and noted that schemes tend to prioritize fishers holding formal permits, leaving unregistered or part-time fishers in a grey zone beyond the eligibility lists. A broader analysis of the “trap or opportunity” question concluded that the fishing-ban compensation policy has raised average incomes for many returning fishers while still lacking a unified national standard. Cash payouts work best as one piece of a larger package, the analysis argued, alongside unemployment benefits, medical insurance, pensions, and education protections, since a one-off transfer on its own leaves too much unaddressed. These gaps identify precisely where the policy needs to improve. A state that had declined to respond to the harm it created would not have built the compensation architecture these studies are busy critiquing.

The same tension appears with the dams along the river, particularly the Three Gorges Project, where the tradeoff runs between ecological protection and basic living standards. Over its first five years of full operation, Three Gorges generated more than 423 billion kilowatt-hours of electricity, saved an amount of coal equivalent to about 128 million tonnes, and avoided roughly 347 million tonnes of carbon dioxide emissions, all while intercepting large volumes of floodwater and strengthening flood safety across the Yangtze River Economic Belt. Dam operators have built artificial flood-peak scheduling into their operating rules specifically to mimic the natural hydrological patterns that four major carp species in the middle Yangtze rely on for spawning, a measure that has measurably increased egg counts and improved recruitment for those species. The fishing ban, the flood-control function, and the ecological-flow management form one policy logic. Dams impose ecological costs in exchange for widely distributed protection and energy, and offsetting measures carry those costs back toward recovery, keeping them from settling permanently as an unpriced externality.

The Economist’s closing warning, that other countries should think twice before imitating China’s ecological practice, becomes more interesting read internationally than domestically. Western countries now pursuing green reindustrialisation, building new industrial capacity while aiming to decarbonize, face a version of the same choice the Yangtze represents. If strict ecological protection paired with basin-wide fishing bans and substantial social protection is judged too heavy-handed in China’s case, the obligation falls on those countries to specify what level of environmental and social protection they intend to attach to their own industrial expansion. A government that rebuilds steel, battery, or semiconductor capacity while leaving local ecosystems to absorb new pollution, or leaving displaced workers to manage the transition alone, has simply chosen a different place for the same damage to land.

For countries still facing the choice China confronted decades ago, whether and how to industrialize at environmental cost, the more useful posture is neither imitation nor a lecture about restraint.

There is no formula transferable wholesale from one country’s basin to another’s. What can travel is the record itself: which conservation measures worked, where compensation fell short, and how institutional design responded once the first version of a policy proved insufficient. That record is available to anyone willing to study both its successes and its failures.

Western Governance, But at What Cost?

An evaluative standard has to survive one basic test before it is worth applying anywhere: it has to operate the same way regardless of which country it is pointed at. If the presence of costly outcomes is enough to strip a political system of legitimacy, that rule cannot switch off at a Western border. Slow and unequal wage growth, underinvestment in infrastructure maintenance, widening inequality, regional deindustrialisation without a coherent replacement plan, and declining intergenerational mobility are documented features of development across many advanced economies.

The Economic Policy Institute has traced four decades of slow and unequal wage growth in the United States, with most of the gains concentrated at the top of the income distribution. Pew Research Center has reached a similar conclusion, finding that the real average American wage today carries roughly the same purchasing power it did forty years ago. Raj Chetty and his colleagues, in the “Fading American Dream” project, found that the share of Americans earning more than their parents fell from about 90 percent for the 1940 birth cohort to roughly 50 percent for those born in 1980. The Pew Charitable Trusts has estimated a deferred-maintenance backlog of about $105 billion for roads and bridges in the United States, built up through accumulated underinvestment rather than a single shock. OECD and IMF research documents rising within-country income inequality across many high-income economies since the 1980s, alongside structural deindustrialisation and the loss of manufacturing employment in regions that were never given a clear replacement industry.

A country does not need a single explanation for its own stagnation to notice that the stagnation exists, and pointing to it does not require treating any cost China has paid as acceptable by comparison. What it requires is turning the same chain of reasoning that Western coverage applies to China back onto the systems producing that coverage. Can those political structures sustain long-horizon investment? Are the gains from it broadly shared? Are harms measured and named rather than quietly absorbed? Does correction follow when the answers disappoint?

There is also a temptation worth naming directly. Development inevitably produces inequality, pollution, and disruption somewhere in the process, and no honest account of any country’s growth can pretend otherwise. Wealthy societies that have already industrialized sometimes ask poorer or still-developing ones to forgo the same path, holding up an unspoiled landscape or a traditional way of life as something to be preserved for its own sake, without weighing what that preservation costs the people living inside it. Insisting that others remain undeveloped while enjoying the benefits of one’s own past industrialization is a form of privilege dressed up as principle, and it deserves the same scrutiny applied to any other double standard in this argument.

Britain’s own history supplies the clearest corrective. Industrial-era London was infamous for smog thick enough to be lethal, and the Thames became so degraded that fish disappeared from its central stretches for long periods, with the river declared “biologically dead” through much of central London by the late 1950s. Recovery took more than two decades of sustained investment in sewage treatment and water-quality regulation just to rehabilitate the estuary, and decades more of continued investment and enforcement before the Thames became the cleaner waterway it is today, now home to more than a hundred species of fish and marine mammals as far upstream as central London.

Britain was not wrong to industrialize. Its later environmental recovery does not erase the decades in which the damage accumulated unaddressed, and the question worth asking is the same one asked of China: were the costs eventually recognized, and did the state build the capacity to correct them.

A criterion that produces verdicts only when pointed at one system, and falls silent when turned toward another, was never a neutral standard. It was a conclusion in search of a method.

The Wrong Axis

The argument running through the cases above rests on a single claim applied to different material each time: cost, on its own, is not evidence of illegitimacy. What actually distinguishes one government’s record from another’s is intent, meaning what a policy was trying to achieve, and correction capacity, meaning whether the system revises course when it gets something wrong.

The “at what cost” narrative is right to notice harm. Its flaw is stopping there, treating the discovery of a cost as a conclusion when it should be a starting point for further questions.

Cost is the wrong axis for judging a development path when it is used alone, not because costs are unimportant, but because every viable path has them. An axis that cannot distinguish between systems worth defending and systems worth abandoning has failed at its one job. Intent and correction capacity perform that discrimination, because they ask what a government was actually trying to achieve and whether it has shown the capacity to learn from getting it wrong, questions with genuinely different answers across genuinely different systems.

China’s record is not finished, and it is not beyond criticism. Compensation for displaced fishers remains uneven. Athlete welfare reforms have not caught up with every sport, and a meaningful share of Belt and Road projects have generated legitimate local complaints about labour conditions and unmet promises. What the record does show is a government that treats these gaps as problems to work on: raising thresholds, building compensation schemes, contracting its own overseas lending and building a risk framework once the exposure became apparent, and revising rules when the first version of a policy fell short.

The same logic answers the “eco-authoritarian” charge with which this article began. A state using its authority to punish poaching, restrict overfishing, and constrain the industries most responsible for a river’s decline is not the same thing as a state indifferent to the people affected by that decision. Where China’s environmental enforcement has been strict, the underlying purpose has been to protect the long-term interests of the people who live along that river, not to satisfy an aesthetic preference held by observers who do not have to live with the consequences of the river’s continued decline. Consider the incentives on their own terms: raising a poverty line, funding pensions for retired fishers, revising how athletes are educated after retirement, and dynamically optimizing BRI loans as soon as risks emerge are four decisions that gain a narrow ruling elite nothing. They make sense only for a government whose legitimacy depends on the material well-being of the population it governs.

Applied consistently, that standard does not flatter China uncritically, and it does not spare the West either. It simply asks that whoever raises the question of cost be willing to answer it about themselves too.

Following the recent passing of China’s former Premier, Zhu Rongji, the principal and decisive executor of China's economic transformation pushed through sweeping structural reforms that laid the bedrock for the country’s 21st-century economic miracle. Yet, a critical chapter of his legacy remains lesser-known to international audiences: how his early work paved the way for today's remarkable Chinese EV boom.

We have translated his pivotal 1987* speech on the Volkswagen Santana, which offers a rare, masterclass look into how Chinese decision-makers approached the localization of foreign joint ventures at a time when domestic manufacturing capacity was remarkably primitive. Zhu and his contemporaries recognized early on that relying indefinitely on finished-vehicle imports or raw CKD (completely knocked-down) assembly was unsustainable—especially under severe foreign-exchange shortages—if China failed to absorb the underlying technology actively. His steadfast policy push to resolutely localize automotive components built the very supply chain infrastructure that led foreign brands to deeply anchor themselves in China, ultimately laying the foundation for Chinese manufacturing to scale up, supply the world, and spark domestic EV innovation.

Source: Excerpted from The Complete Record of Zhu Rongji’s Speeches in Shanghai, published by People’s Publishing House and Shanghai People’s Publishing House.

By Zhu Rongji

(December 24, 1987)

At the request of Comrades Lü Dong[1] and Baohua[2], I have come on behalf of the State Economic Commission to attend this conference on the local production of the “Santana” automobile, and I extend my warmest greetings to all the representatives present today!

This meeting has been jointly convened by the China Automotive Industry Federation and the Shanghai Municipal Government, built upon extensive preparatory work and thorough, meticulous field research. Shanghai Mayor Jiang Zemin, along with Vice Mayors Huang Ju and Li Zhaoji, personally took charge of this initiative, enabling the smooth convening of such a well-prepared event. It is particularly worth noting that the localization of the “Santana” has been carried out under the direct guidance of the leading comrades of the State Council. Especially since the beginning of this year, leadership at the State Council has closely followed its progress on numerous occasions, and all central ministries and commissions have been highly supportive. I am fully confident that, with the backing of the central authorities and all ministries, and with our Shanghai colleagues fully mobilized once again, this undertaking will be a complete success.

I will now address several issues:

I. The significance of localizing the “Santana” sedan

Broadly speaking, the localization of the “Santana” is one of our most important projects in absorbing and assimilating imported technology. Beginning in 1983, in accordance with the arrangements of the State Council, we imported 16,000 items of key technology and equipment at a cost of more than US$10 billion. Of this, the State Economic Commission utilized US$3.7 billion to import 3,900 items, transforming the technological profile of numerous enterprises, and playing a major role in invigorating the domestic market and increasing exports.

Yet, these projects have not yet come into full effect: only 60 percent have gone into operation; next year will be the peak year for commissioning, and it will not be until the following year that they can yield their full benefits. A major shortcoming in this round of technology imports is the failure to sufficiently absorb and localize them. Some enterprises have imported technology and equipment but lack the necessary raw materials and supporting technologies, making it difficult to generate returns. To truly generate returns, we must do a thorough job of absorption and assimilation.

Beginning in 1985, the State Economic Commission shifted its focus toward the absorption and assimilation of imported technology. This August, the Commission convened the National Conference on the Absorption, Assimilation, and Localization of Imported Technology in Dalian. It formulated five preferential policies[3], which were approved by the State Council and circulated via State Council Document No. 99[1987][4]. At the meeting, based on the status of imported technology and its role in the national economy, arrangements were made for the “Three Hundred Production Series.”[5] The first batch of “One Hundred and Fifty Production Series” has already been issued, and the second batch is being actively prepared.

We believe that if these “Three Hundred Production Series” achieve localization within three years, the face of our enterprises will change drastically, and their technological level will truly advance to a new stage. Within these series, a single chain may involve dozens or hundreds of projects. At present, the largest project is color television sets, for which localization must be achieved within three years. China currently imports US$600 million in color TV component kits every year. As these imported-technology projects are commissioned and production scales expand, we can save more than US$600 million in foreign exchange annually.

The localization of sedans is an extremely important undertaking. At present, we must spend several hundred million US dollars every year importing sedans and component knock-down kits; if localization is not accelerated, such imports will inevitably expand. Therefore, the localization of the “Santana” is a critical link within the “Three Hundred Production Series.” Next year, we must implement a policy of stabilizing the national economy: fiscal and credit policies must be tightened, the scale of investment reduced, the investment structure adjusted, and no new projects launched.

Under these circumstances, localization faces certain difficulties. However, the State Council supports our localization efforts and, even while tightening fiscal and credit policies, still permits us to undertake a few new projects. Recently, the State Economic Commission strengthened and expanded the China New Technology Development Corporation, transferring in more than a dozen bureau-level directors and assigning the corporation the principal task of realizing the “Three Hundred Production Series” and the absorption and assimilation of imported technology. All of them have come to this meeting in order, with the support of banking and fiscal departments, to work alongside the Shanghai Municipal Government and the China Automotive Industry Federation to ensure the success of localization.

From the standpoint of the current conditions and development needs of China’s automotive industry, establishing a component production system for China’s passenger car industry based on the localization of the “Santana” is an urgent task. On August 12 of this year, the State Council convened a meeting in Beidaihe and made the decision to develop China’s sedan industry. It established the Coordinating Group for Revitalizing the Automobile Industry, with Comrade Yao Yilin as its head.

China’s automobile industry has vast prospects for development. In trucks, medium-duty vehicles are more than sufficient to meet demand; the historical imbalance of “too few heavy vehicles and too few light vehicles” is also gradually improving. We have imported “Steyr” [6]technology alongside other heavy-vehicle technologies, which, once fully developed, will meet domestic needs; light and mini-trucks are also developing rapidly. What remains in shortest supply are sedans; the sedan sector is currently living off past accumulation.

Automobile imports spiraled out of control in 1984 and 1985. Controls were tightened after the first quarter of 1985, and the State Council revised the approval procedures so that all automobile imports had to be submitted collectively to the State Council for authorization. This June, Comrades Li Peng and Qili[7] requested Comrade Gan Ziyu[8] and me to draft a notice halting the import of sedans. Thus, while imports of sedans were stopped, domestic cars were not yet available—what then could be done?

We can still get by for two years because we imported a large volume of sedans in earlier years, but the pressure on me is mounting. I am in charge of this work, and many departments approach me to demand sedans. They complain that Beijing Jeep is too slow, that Shanghai “Santanas” are of too low a standard and insufficient in quantity, and their demand for imports is very high. Leading comrades of the State Council have realized that we must vigorously develop domestically produced sedans. It is now clear that developing sedans has become a pivotal aspect of revitalizing China’s automobile industry.

The localization of Shanghai’s “Santana” sedan carries significance on two fronts: first, imported technology must be thoroughly absorbed and assimilated; second, developing the sedan industry, and particularly establishing a component production system, has become a matter of urgency. The development of our sedan industry must be grounded in locally manufactured parts. We cannot rely on assembling imported knock-down kits, because we cannot sustain such foreign exchange expenditures. This is not an issue unique to Shanghai; it is a nationwide challenge.

II. Progress in the localization of the “Santana” and the urgency of this work

Shanghai and the China Automotive Industry Federation have done a great deal of work on the localization of the “Santana,” especially this year, and it has not been easy. However, these efforts still fall far short of what is required; we started too late. We must carry out this work ourselves and cannot rely solely on the Germans; they continue to profit from CKD (completely knocked-down) [9]kits and will never feel the same urgency we do.

The localization of the “Santana” has made considerable progress, but it also faces substantial difficulties—far greater than those of Guangzhou “Peugeot,” Beijing “Cherokee,” and Tianjin “Daihatsu.” Despite these hurdles, we must acknowledge that progress has still been too slow. Prior to this year, the local content rate for items such as horns, antennas, and tires was a mere 2.7 percent. Although it has reached 12.6 percent this year, it remains low overall. Beijing Jeep’s local content rate stands at 17.8 percent; its parts have not only passed certification, but

procurement from the United States has already ceased. That is genuine localization. Shanghai’s 12.6 percent local content rate, however, has not yet been fully implemented in vehicle production, and procurement has been halted for only 6 percent of parts; further effort is required.

I feel that our Shanghai colleagues must maintain a sense of crisis. We have no time left—only three years. If the local content rate does not reach 85 percent within three years, the project faces the very real risk of being shut down. This is not mere alarmism; the “Santana” model has inherent vulnerabilities. It is neither high-end nor low-end; its standard is too low for government fleets, yet too high for private consumer vehicles. Its pricing is also uncompetitive. Each imported CKD kit costs US$9,500, and the finished vehicle sells for US$16,900—far too expensive. At present, the “Santana” is sustained entirely through administrative intervention—by halting imports of other sedans; only through this protection does demand exceed supply.

During my recent trip to Detroit with Comrade Chen Zutao[10], I saw firsthand that the “Santana” lacks competitive strength. It cannot match American cars, much less Japanese or South Korean ones. In its current state, the “Santana” cannot withstand the pressure of imports. For Shanghai, the window of opportunity is only three years. Within these three years, our Shanghai colleagues must strive with all their might to achieve full localization of the “Santana,” drive costs down, and eliminate the need for foreign exchange. Only then will it become truly competitive; at that stage, it will be FAW (First Automobile Works) competing with Shanghai.

Therefore, the State Council has now set two firm limits for Shanghai. First, the import of 89,000 vehicle kits was stipulated in the contract. Once those 89,000 units are purchased, no more will be authorized, because we lack the foreign exchange. Second, the number of sedans Shanghai is permitted to produce each year will scale up only in line with its local content rate; CKD assembly cannot be expanded indefinitely. Assembling CKD kits may be profitable right now, but the coutry lacks the foreign exchange to let things proceed this way. Therefore, for our Shanghai colleagues, localization means burning their bridges and fighting with their backs to the wall. With the support of the entire nation, if our Shanghai colleagues work earnestly, they will undoubtedly succeed.

We are not pursuing the localization of the “Santana” merely for the sake of a single vehicle model; rather, we are using the “Santana” as a foundation to make overall strategic arrangements for China’s sedan component production system. This issue must be considered from a national perspective; doing so is both entirely necessary and completely feasible.

During my recent visit to the United States, I walked away with several distinct impressions. As soon as I arrived in New York, several major banks invited me to meet with them. They had compiled and provided me with extensive materials detailing the development of the U.S. passenger car industry and its global cooperation. Why did they do this? Because they anticipate that when China develops its automotive industry and requires financing in the future, we will turn to them. These institutions do not just understand banking; they understand technology, and they employ highly specialized teams who understand industrial economics.

Let me give an example. Volkswagen of the Federal Republic of Germany closed its assembly plant in the United States. I asked the Germans why, but they only noted shifting exchange rates and were not entirely clear on the details themselves. American bankers, however, could explain the compounding reasons in meticulous detail: beyond exchange-rate fluctuations, there were prohibitive production costs, models poorly suited to U.S. consumer needs, and so forth. Their analysis was remarkably clear.

After we arrived in Detroit, we received further data indicating that market competition within the global automotive industry is becoming increasingly fierce. Ford Motor Company informed us that by 1992, there would be a global surplus capacity of 7 million passenger cars. Their survival strategy centers on high quality, wide variety, and low cost. High quality means elevating technological standards; wide variety means accurately identifying market niches and selecting the right vehicle models; and their principal method for achieving low cost is internationalization—moving production facilities abroad.

China possesses many favorable conditions for developing an automotive industry, and we must cooperate with them. Once we establish a robust system for producing sedan components, even if we cannot immediately export complete vehicles, we can export large quantities of parts because our production costs are low. Originally, the Second Automobile Works believed that an export-led approach might not be viable. But after visiting the United States, we saw that the U.S. market is comparatively open; furthermore, if we establish joint ventures with U.S. automakers to export to their domestic market, they will share an equal vested interest in our success.

The technical standards of Shanghai’s “Santana” are by no means low. If we first leverage the localization of the “Santana” to build component production bases, import advanced technologies, and undertake supporting upgrades to bring them up to international standards, then FAW, the Second Automobile Works, and automotive factories across the country will align with our network, and we will unlock the capacity to export.

III. Four Major Principles for Establishing an Auto Parts Production System

To establish such a component production system, I believe there are at least three fundamental requirements:

First, standards and quality must be exceptionally high. We must absolutely never settle for makeshift substitutes. If we are to manufacture sedans, we must produce them to international standards; otherwise, we cannot compete with imported vehicles. China is now an open country. If we were to reproduce the outdated “Shanghai” brand cars today, would anyone buy them? We cannot force consumers through administrative decrees.

Therefore, this system must integrate technology transfers systematically; it must not be oversimplified. I understand that the carburetor plant of the Second Automobile Works has already imported technology from Japan, but in order to supply carburetors to Shanghai Volkswagen, it must still acquire technical software and proprietary data at a cost of several hundred thousand dollars. This suggests that it will be necessary in the future to form a manufacturing consortium to identify gaps in processes and technologies, and either develop them internally or import them. Relying on manual craftsmanship will not do; that does not constitute a modern automotive industry.

Second, production must be highly specialized and conducted on a massive scale. Without large volumes, unit costs cannot come down. If our production costs cannot be brought below import prices, localization loses its economic viability.

Third, we must simultaneously target both domestic and overseas markets. We cannot focus exclusively on the “Santana”; we must factor in FAW and the Second Automobile Works, because the State Council has designated FAW, the Second Automobile Works, and Shanghai Volkswagen as our primary sedan production bases. At the same time, we must look toward exports.

To this end, we have recently placed great emphasis on negotiating component exports with Volkswagen of Germany. A Volkswagen director visited recently, and we discussed this exact matter. We presented a list of components available for export, but the prices he countered with were too low. However, there is one item we deem acceptable: oil filters. They require 5 million units and offered 2.7 Deutsche Marks each—roughly just over one U.S. dollar. This order alone would generate several million dollars. Shanghai has the capability to manufacture them; if we produce them in massive quantities, it will be highly beneficial to the mass production of our component sector. Everyone must view this initiative through the lens of our long-term strategic interests.

The establishment of such a system should adhere to the following principles:

First, make every possible use of the production capacity of our existing enterprises, especially the capacity of our defense industry. This must be executed within existing facilities; insofar as possible, do not establish new manufacturing sites. We must build a “national team” and create a “Zhonghua” brand (China brand). Comrade Jiang Zemin has repeatedly stressed that we should not strive to create a mere “Shanghai” brand, but rather a “Zhonghua” brand (China brand).

This initiative must not be confined to Shanghai alone; we must cast our eyes across the entire nation. I believe the comrades at the China Automotive Industry Federation can coordinate overall arrangements nationwide, working hand in hand with our Shanghai colleagues to properly organize resources and concentrate the strengths of all sides to establish this system both rapidly and economically.

Second, conduct nationwide bidding, implement merit-based site selection, and mandate competition. If you claim you can manufacture a component but your pricing is too high and we lack the funds, we will reopen the project to nationwide bidding and select the optimal site. Therefore, we believe that whatever matters can be resolved at this meeting should be finalized here—including unit costs, capital investment, the scale of state subsidies versus an enterprise’s self-funded investment, the production volumes they can guarantee, whether their quality meets rigorous specifications, and whether their rollout schedule aligns with our timelines. If these conditions are satisfied, formal agreements and contracts should be signed immediately. Once a decision is finalized here, the project will be integrated into the “Production Series” and enjoy the five preferential policies granted by the state. If an agreement cannot be reached, nationwide competitive bidding will commence immediately after the adjournment of this meeting.

Furthermore, let me be clear: a production site designation is not a lifetime appointment. Naturally, once we designate a site, both buyer and seller must honor their reciprocal obligations. It is unacceptable if an enterprise develops a prototype only for the buyer to reject it later. Conversely, contracts cannot span too long a duration, nor can they be made overly rigid. In other words, a mechanism for ongoing competition must always exist. If another competitor requires not a single cent of state funding and can manufacture the product more cheaply than you, you cannot bar me from purchasing from them.

Third, pricing must be reasonable. Everyone must maintain strategic vision and evaluate this issue from a long-term perspective. Pricing remains a paramount issue, yet many still lack a clear grasp of it. Operating with low production volumes and depressed prices admittedly poses genuine difficulties for certain manufacturers. Nevertheless, I firmly believe that prices must be fixed; otherwise, signed agreements will degenerate into mere scraps of paper and risk being entirely overturned when the time comes.

For both sides, Shanghai Volkswagen must convert the landed price of its imported knock-down kits into Renminbi and report it with absolute transparency; it cannot be artificially inflated, otherwise Shanghai Volkswagen’s own manufacturing costs will fail to come down. I am well aware that even at these baseline prices, many manufacturers will find the financial burden difficult to bear, particularly regarding capital investment. Although the state can provide modest subsidies, enterprises must still service loans and pay interest, which will inevitably drive up costs.

I hope all factory directors will exercise strategic foresight and recognize the immense prospects for future development. Establishing this Chinese sedan component production system is a glorious historical mission. Those who successfully integrate into this Production Series and this systemic framework will reap substantial profits in the future. Your overarching business strategy will undergo a profound transformation, and your factories will enter the ranks of world-class enterprises. We must resolutely overcome these temporary hardships; otherwise, pricing agreements cannot be finalized. I demand that the pricing for all locally produced components slated for next year be completely settled at this venue.

Fourth, raise construction funds, share operational risks, and pursue joint development. As I have just noted, if you are truly to manufacture high-level, internationally competitive components, you cannot achieve it without capital injection. I estimate that you cannot succeed relying merely on your current equipment and manufacturing processes. A few defense-industrial factories that have already introduced specific advanced technologies may be equipped to handle portions of it, but a significant majority cannot and will require supplemental investment. To secure these investment funds, we will adopt a fundraising approach; that is, you must self-fund a portion of the capital, and the state will contribute a portion. The state has already resolved to allocate funds to this sector. However, amidst macroeconomic fiscal and credit tightening, the state does not possess unlimited capital and can only provide supplemental subsidies; securing foreign exchange is exceptionally challenging. Shanghai can resolve a portion of its foreign exchange needs internally, but regions outside Shanghai cannot.

I expect that upon returning to your home provinces, comrades will report directly to your respective governing leadership and request that they accord this task absolute priority, utilizing your locally retained foreign exchange for this explicit purpose. Is there foreign exchange available? I believe there is plenty of it. Currently, all localities are rushing to import refrigerator and washing-machine production lines as if caught in a feverish craze; where exactly is that foreign exchange originating from? Do not pursue those redundant projects any longer; if you persist, those products will only pile up unsold in warehouses. I urge everyone to channel their foreign exchange reserves into the automotive industry instead. This represents China’s true industrial backbone of the future; it is a foundational pillar industry. I hope comrades will utilize these collective fundraising methods to share structural risks and achieve development together

Fifth, sign contracts, form an industrial consortium, assume economic accountability, and implement strict reward-and-penalty measures. I hope that all the enterprises attending this meeting will form a consortium dedicated to Chinese sedan component production, looking well beyond the “Santana” alone. This consortium will not alter existing lines of administrative affiliation; rather, it represents a structural reform of enterprise organization. Such an industrial group can be structured relatively loosely, or it can be closely knit. Within this consortium, everyone will share a common stake, which ultimately benefits all parties. Beijing Jeep has already established such a consortium; both the United States and Japan operate in this manner. The consortium should convene frequently, exchange operational experiences, and cooperate closely.

Contracts must contain legally binding provisions: first, explicit quality standards and technical certification criteria; second, transparent pricing structures and fixed monetary values; third, rigorous requirements for component sourcing schedules and volumes, with clear timelines established for trial production, verification, mass supply, and technological upgrades; fourth, clauses guaranteeing investment funds and foreign exchange, with accountability explicitly assigned to the designated units; and fifth, unambiguous reward-and-penalty provisions directly tied to the economic interests of the enterprises.

Only through these mechanisms can we truly reward high performance and penalize deficiency, ensuring each party bears its own liability. Only then can we declare that the localization of the “Santana” has been substantively put into effect. If our contract provisions lack these elements, I do not consider them reliable. Naturally, we cannot expect this single meeting to accomplish all of these tasks. We are merely establishing a baseline requirement: at the very least, the agreements and contracts for localization projects slated for implementation next year must be executed in accordance with these standards.

We propose the following milestones: the local content rate of the “Santana” stands at 12.7 percent this year; next year we must strive to reach 30 percent; and with an additional push, we should achieve 50 percent the following year. I hope we will not delay until 1991; we ought to surpass 85 percent by 1990. We must accelerate our pace and swiftly alter the public perception that the “Santana” is an entirely imported vehicle.

To achieve this objective, two critical issues demand our attention. First, organization, promotion, supervision, and inspection. Who will spearhead this work? The State Planning Commission, the State Economic Commission, the State Machinery Industry Commission, the China Automotive Industry Federation, and the Shanghai Municipal Government should jointly establish a unified task force to supervise the implementation of this blueprint, while coordinating the resolution of logistical bottlenecks and institutional relationships that emerge during operations. The State Economic Commission, in particular, bears direct responsibility for the absorption and assimilation of imported technology.

This is a massive systems engineering project, and we must pay rigorous attention to timeline schedules. I believe this issue is paramount. We cannot allow a situation where everyone disperses after the adjournment of this meeting with no centralized oversight. If we are to pursue this initiative earnestly and steadily, we must audit progress month by month, and promptly resolve and coordinate problems as they arise.

Second, we must foster healthy dynamics between horizontal component sourcing and vertical integration. What constitutes vertical integration? It means that 35 percent of all “Santana” components are to be manufactured in-house by Shanghai Volkswagen itself—such as engines and chassis bodies. The remaining 65 percent are to be produced and supplied by cooperating factories external to Shanghai Volkswagen; this constitutes horizontal sourcing. At present, vertical integration is visibly lagging behind horizontal sourcing. Preliminary calculations indicate that it is already one to two years behind the contractually mandated schedule. General Motors in the United States requires a mere three years to erect a complete manufacturing plant from the ground up, whereas two years have already elapsed here and our vertical integration lines have yet to yield any output—though, naturally, a substantial amount of foundational work has been performed.

Our colleagues at Shanghai Volkswagen must push themselves to do better; if your internal operations fail to advance, overall localization cannot be finalized. Significant time was squandered in the initial phases. The underlying reasons are complex; let us not assign blame to any single party, as everyone shares a degree of responsibility. The other day, I reviewed a report from Comrade Liu Yansheng[11] indicating that the German partners did not fully comprehend Shanghai’s concrete conditions, which hampered progress. We must actively resolve this issue. During this trip, I informed one of their directors: if horizontal sourcing fails to deliver, come to me; but if vertical integration fails to deliver, that responsibility falls on you. Regarding accountability, we must mutually bear the burden and support one another, but the respective liabilities of German Volkswagen and Shanghai Volkswagen must be strictly and clearly defined.

In short, as long as we work together with one heart and carry this matter through to the end, we can successfully complete the localization of the “Santana,” and firmly establish China’s sedan component production system.

Reference:

* This is the main part of the speech delivered by Zhu Rongji at the conference on the localization of the Shanghai Santana sedan, which was jointly organized by the China Automotive Industry Federation and the Shanghai Municipal Government. At the time, Zhu Rongji was serving as Vice Chairman of the State Economic Commission. On December 22, 1987, the Central Committee of the Communist Party of China decided to appoint Zhu Rongji as Deputy Secretary of the Shanghai Municipal Committee and nominate him as the candidate for Mayor of Shanghai.

[1] Lü Dong, then Director of the State Economic Commission.

[2] Bao Hua, i.e., Yuan Baohua, then Vice Chairman of the State Economic Commission.

[3] Five Preferential Policies​ – These refer to the preferential policies adopted for projects designated as key national priorities for the digestion, absorption, and localization of imported technologies: First, exemption or reduction of product tax; Second, permission to collect partial payment in foreign currency for products sold domestically; Third, exemption or reduction of import tariffs and product tax; Fourth, when allocating foreign exchange, loans, funds for scientific and technological development, and materials, various departments and regions shall give priority attention and preferential arrangements to the nationally supported “integrated chain” projects for digestion, absorption and localization; Fifth, enterprises and institutions undertaking such nationally supported integrated chain projects that meet their work targets on schedule with outstanding results shall be commended and rewarded, and may receive a one-time bonus.

[4] Document No. 99 [1987] of the State Council​ – This refers to the Circular of the State Council Approving and Transmitting the Report of the State Economic Commission on Promoting the Digestion, Absorption and Localization of Imported Technologies, issued on November 12, 1987.

[5] “Three Hundred Integrated Chain Projects”​ – This refers to the three hundred integrated chain projects for the digestion, absorption, and localization of imported technologies that were listed as key national priorities.

[6] The “Steyr” Technology​ – This refers to the technology transferred under the heavy-duty truck manufacturing technology licensing contract signed on December 17, 1983 between China National Heavy Duty Truck Industry Corporation and Steyr-Daimler-Puch AG of Austria, covering the introduction of the “Steyr 91” series heavy-duty trucks and related technologies including steering gears and transmissions.

[7] Qili​ – i.e., Hu Qili，then Member of the Standing Committee of the Political Bureau of the CPC Central Committee and Member of the Secretariat of the CPC Central Committee.

[8] Gan Ziyu​ – Then Vice Chairman of the State Planning Commission.

[9] CKD​ – Abbreviation for “Completely Knocked Down,” referring to the importation of complete vehicles in fully disassembled form.

[10] Chen Zutao​ – Then Chairman of the China Automotive Industry Federation.

[11] Liu Yansheng​ – Then Chinese-side Manager of the Production Planning Department of Shanghai Volkswagen Automotive Co., Ltd.

About the Author:

Zhu Rongji (1928–2026) was the former Premier of the People’s Republic of China, serving from 1998 to 2003. Renowned globally as China’s “Iron Premier,” he spearheaded the critical structural overhauls, state-owned enterprise reforms, and market-driven policies that integrated China into the global economy and laid the bedrock for the country’s historic economic miracle.

For nearly eight decades, American grand strategy in the Indo-Pacific has rested on a singular, comforting assumption, namely that the United States can project decisive military power from a network of forward bases running from Japan via the so-called First Island Chain, and eastward to America’s own sovereign soil in Guam. Today, that assumption is dead. It did not die of a lack of political will or indeed, funding. It has been thoroughly dismantled by the cold, unyielding laws of industrial capacity, chemical metallurgy, and raw missile mathematics.

Here’s where a sober assessment leads us. In Part 1 of this essay, I explore the reasons why the United States can no longer defend its regional bases, cannot replenish its weapons systems in a conflict, and is structurally incapable of winning a protracted war in East Asia. As regional allies quietly come to terms with this shift, and as uncomfortable as it is for them, the strategic landscape is fracturing. The U.S. is facing a structural eviction from the Western Pacific, and the hard truth is that nobody has the power — or in truth, the willingness — to stop it. The talk of more arms to the Philippines, Japan or Taipei for that matter is largely theatre.

If the mathematical reality of America’s industrial and military decline dictates its eventual eviction from East Asia, the immediate question shifts from when the United States will leave, to what will fill the void. Part 2 of this essay begins to explore one possible response – an ASEAN-initiated indivisible security architecture curated and sustained by Asian nations, for Asian nations.

Part 1: Why the U.S. is Being Mathematically Pushed Out of Asia

The Mathematics of Attrition

The foundational flaw in Western defense posture is the sheer, asymmetric deficit in relative magazine depth. Since the dramatic escalation in global expenditures in early 2026, the American arsenal has suffered unprecedented depletion. As Jennifer Kavanagh, Director of Military Analysis at Defense Priorities, has meticulously documented across a series of definitive essays for Responsible Statecraft, the United States has sleepwalked into a systemic munitions crisis born of long-term strategic overreach.

Kavanagh notes that the simultaneous demands of arming Ukraine and prosecuting a continuous kinetic campaign against Iran have completely drained the U.S. war chest. Critical defensive interceptors like the Patriot PAC-3 and THAAD have seen their active inventories crater by nearly half. These finite, high-tech assets are being treated as if they exist in a vacuum, but the People’s Liberation Army (PLA) operates on a wartime industrial footing, manufacturing thousands of precision missiles, ballistic systems, and loitering munitions annually. These observations have been reinforced by recent analysis by Mark F. Cancian and Chris H. Park from CSIS, a leading US defence intelligence think tank, who explain some of the reasons why the US is now low on munitions. America’s hollowed out industrial system is, ultimately, recognised as the great limitation factor on any aspirations of regional or even global military hegemony. Without re-industrialisation, the US cannot hope to reestablish historic “deterrence” capabilities, argues Benjamin Jensen in another recent CSIS piece.

A capabilities gap is already evident, and given supply chain conditions, is unlikely to narrow any time soon. Indeed, with Chinese curtailment of upstream rare earth and magnet supplies, for instance, the gap is likely to widen.

In any serious conflict, this volumetric gap ensures a rapid, mathematical collapse of American forward defenses. Recent equilibrium modeling by Anusar Farooqui isolates this dynamic with brutal clarity: the U.S. military’s defensive doctrine mandates firing multiple interceptors to guarantee a single kill. Faced with Chinese precision-mass salvos, Western interceptor magazines would fully deplete within the first few days of combat.

Even under highly optimistic assumptions — such as the deployment of advanced electronic warfare jamming and the construction of hundreds of new Hardened Aircraft Shelters (HAS) — the result is fundamentally unchanged. China’s deep stockpiles allow it to easily absorb initial counter-measures and overwhelm bases with cheap, jam-resistant submunition swarms. The math indicates an equilibrium loss of over 300 U.S. aircraft destroyed on the ground within the first week alone. Conventional deterrence in Asia is not just fraying; it is broken.

And that’s on optimistic assumptions for the U.S. In less optimistic scenarios, the devastation is no less intense; it just happens faster.

The Myth of Dispersal and the Material Choke

In a desperate bid to adapt, the Pentagon has championed “Agile Combat Employment” — the strategy of dispersing aircraft and assets across small, remote Pacific islands and austere civilian runways to deny China a single, concentrated target. This doctrine is a dangerous mirage. It fails to account for both China’s massive missile depth and the physical laws of logistics.

Dispersal does not solve the targeting problem; it merely fragments it. China possesses the payload depth to saturate every secondary and tertiary runway simultaneously using cluster submunitions designed to shred exposed aircraft and unhardened infrastructure. More critically, dispersal trades a tactical target vulnerability for a systemic logistical death spiral.

Modern high-performance aircraft like the F-35 cannot operate on grit and willpower. They require massive, uninterrupted lines of specialized fuel, heavy-lift ordnance machinery, and clean-room maintenance environments. Distributing these forces across a dozen scattered dirt strips strips them of their industrial lifelines, rendering them logistically stranded and functionally useless under fire.

The crisis is even more severe for naval assets. Attack submarines and guided-missile destroyers cannot reload their Vertical Launch System (VLS) tubes at sea. They are bound to a handful of fixed, easily targeted deep-water piers in places like Yokosuka and Guam. If these piers are flattened in the opening 72 hours, the American fleet becomes a single-use weapon system with nowhere in the hemisphere left to re-arm.

Compounding this operational paralysis is the exact structural failure Jennifer Kavanagh diagnoses: the delusion that the Pentagon can solve a physical manufacturing deficit purely through panic-spending. While the Trump administration’s proposed $1.5 trillion defense budget requests a massive 188% increase for high-value munitions, Kavanagh rightly points out that this does not solve the decrepit state of the Western defense industrial base.

The crisis is rendered entirely unresolvable in the near term by China’s stranglehold over Rare Earth Elements (REE), magnets and tungsten. Beijing’s export bans on heavy elements like dysprosium and gallium have choked the sub-tier suppliers that Western defense contractors rely on. While Washington has imposed a strict January 1, 2027, Pentagon deadline to entirely eliminate Chinese-origin rare earths from U.S. weapons, capital cannot magically engineer a solution. The U.S. produced a measly 300 metric tons of rare earth magnets in 2025 against a national demand of 48,000 tons.

The specialized chemical separation facilities, the toxic extraction processes, and the decades of lost metallurgical know-how take years, if not a decade, to build from scratch. As Kavanagh emphasizes, Washington’s persistent refusal to practice strategic restraint has left it in a trap where it must fire finite, irreplaceable, magnet-dependent interceptors to fend off an almost infinite stream of cheap Chinese missiles, while Beijing controls the very ingredients needed to rebuild the American inventory.

The Homeland Threat and Cold War Redux

If Washington planners harboured any lingering delusions that a conflict over Taiwan could be neatly contained to the First Island Chain, Beijing has systematically shattered them. The July 6, 2026 Chinese submarine-launched ballistic missile (SLBM) trial into the open Pacific—following its landmark land-based ICBM test—fully demonstrated a mature, operational sea-based nuclear second-strike capability. Armed with long-range weapons like the JL-3, Chinese nuclear-powered submarines operating in the South China Sea can now directly range the continental United States.

This changes the geop

olitical calculus entirely. The global theater has weaponized past the point of asymmetric regional skirmishes; the American homeland itself is now on the grid. Consequently, Washington is forced to confront a devastating equation: Is any administration truly willing to risk the destruction of an American city in exchange for protecting Taipei? The answer, dictated by the brutal realism of nuclear deterrence, is a resounding no.

This total inversion of power mirrors the deep systemic panics of the mid-20th century, but with a far more permanent conclusion. In the 1950s, the bitter political debate that consumed Washington was “Who lost China?” By the dawn of the 2030s, that historical finger-pointing will look quaint. The defining question of the next decade will be much more expansive and irreversible: “Who lost Asia?”

The Regional Recalibration

This material, mathematical, and strategic reality has not escaped America’s regional partners. Behind the standard diplomatic pleasantries of joint communiqués, leaders across East Asia are executing pragmatic, quiet recalibrations. They look at the depleted U.S. stockpiles, the broken supply chains, the indefensible forward bases, and the very real threat to the U.S. mainland, and they understand that the American security umbrella is hollow.

In Tokyo and Seoul, defense establishments are waking up to the reality that their own territories are completely integrated into the PLA’s or DPRK’s targeting geometry, and that relying entirely on a distant superpower facing an acute industrial deficit is a gamble with their national survival. Even in Manila, where President Ferdinand “Bongbong” Marcos Jr. previously expanded U.S. base access under the Enhanced Defense Cooperation Agreement (EDCA), the calculus is shifting. When asked in an interview how confident he was that the U.S. navy would back the Philippines in a South China Sea territorial dispute, he stumbled and equivocated. The implications are clear; he is, despite the bravura usually on display, full of doubts.

Indeed, given the events in the Persian Gulf, regional leaders across Asia are seeing that these bases are not bastions of power projection, but lightning rods for precision strikes that the U.S. cannot defend, logistically sustain, or strategically justify.

Consequently, these states are quietly diversifying their strategic dependencies. They are seeking economic and security hedges that accept Chinese primacy as a structural permanence without formally saying so, rather than a temporary challenge.

The Inevitable Eviction

When a superpower can no longer protect its forward architecture, cannot secure the raw materials for its precision weaponry, and is systematically out-manufactured by its primary adversary, its presence becomes tenet in name only. The structural forces at play mean the United States can, and will, be systematically pushed out of Asia.

Throwing hundreds of billions of dollars at the problem cannot override the physical timeline required to build heavy chemical industries or out-produce a domestic manufacturing colossus operating on its own home turf. The U.S. has run out of time, run out of materials, and run out of viable operational doctrines. As the industrial, nuclear, and mathematical balance shifts decisively toward Beijing, the Western Pacific is witnessing the quiet, inevitable end of the American century — and there is nothing anyone can, or in truth will, do to stop it.

A new architecture is inevitable. What isn’t set in stone is the shape or parameters of the new regional modus vivendi. In the next part, I explore the possibilities of a regional indivisible security architecture in which ASEAN centrality functions in more ways than just diplomatic window dressing.

Part 2: How ASEAN Fills the Void

For decades, Western strategic thinking has operated under the comfortable illusion that if Washington recedes, a dedicated coalition of regional allies — a “latticework” of minilateral alignments like AUKUS, the Quad, and tightened trilateral pacts — will seamlessly step forward to contain Chinese power.

This is a dangerous miscalculation. The hard truth is that an allied containment front without the foundational backbone of American industrial mass is an economic and military impossibility. As the limits of Western power become undeniable, the strategic focus must inevitably pivot away from exclusive Western-backed clubs and toward the only body capable of mediating a post-American order: the Association of Southeast Asian Nations (ASEAN). Driven by structural necessity, the region is moving toward a historic diplomatic opportunity — the creation of an inclusive, non-aligned Asian security architecture built on the principle of indivisible security.

The Structural Impossibility of Allied Containment

The thesis that regional middle powers like Japan, South Korea, and Australia can band together to contain a contiguous superpower like China ignores basic geography, macroeconomics, and military physics. Militarily, these nations suffer from the exact same structural vulnerabilities as the United States: critical magazine deficits, extreme dependency on fragile sub-tier supply chains, and absolute exposure to the People’s Liberation Army’s (PLA) staggering missile depth. Stripped of the illusions of a permanent American protective umbrella, these states cannot survivably mount a forward defensive posture against an industrial colossus operating on its own home turf.

Economically, the containment strategy requires these nations to actively engineer their own financial ruin. China remains the indispensable, primary trading partner and economic engine for Tokyo, Seoul, and Canberra alike. For these states, attempting to build a fortified military wall against their most vital economic partner is a contradiction that cannot be sustained.

As the realization sinks in that Washington will not risk its own homeland cities to defend forward outposts in Asia, the current enthusiasm for exclusive, antagonistic minilaterals will evaporate. The region’s trajectory will not be defined by a new Cold War style containment bloc, but by an urgent search for a framework that manages Chinese dominance without triggering a catastrophic, unwinnable conflict.

Grasping the Nettle: An ASEAN-Led Architecture

With containment exposed as a dead end, the strategic initiative falls squarely to Southeast Asia. Historically, ASEAN has practiced a policy of hedging and “centrality,” acting as a diplomatic buffer between competing superpowers. However, a total U.S. retreat forces ASEAN to transform from a cautious manager of great power competition into an active architect of a regional settlement. It is time for Southeast Asian capitals to grasp the nettle and lead the discussion around an entirely new, inclusive security framework.

This architecture would represent a modern fusion of the Bandung Conference of 1955 and the Helsinki Accords of 1975, directly aligning with the unfolding diplomatic formats and security concepts pioneered by the Shanghai Cooperation Organisation (SCO). From Bandung, it inherits the foundational principles of anti-imperialism, absolute sovereign equality, strict non-alignment, and the total rejection of external regime-change operations. From Helsinki, it adopts the pragmatic reality of geopolitical co-existence — recognizing existing borders, establishing clear crisis-communication hotlines, and binding diverse political systems to a baseline of mutual restraint.

The core philosophical pillar of this new framework is the concept of indivisible security — the immutable principle that the security of one state cannot be bought at the expense of another. In practical terms, an Asian indivisible security architecture mandates that no nation within the region may join military alliances or exclusive minilateral groupings targeted at another regional member. Security ceases to be a zero-sum, competitive commodity hoarded by exclusive clubs; it becomes an all-inclusive, collective regional utility.

Conditions of Success

For this regional architecture to successfully transition from a diplomatic concept to an operational reality, the initiative must remain genuinely ASEAN-led. Any new architecture will fail if it is perceived as China-driven, directly or indirectly. Regional states will only invest political capital if a framework they themselves are actively and centrally involved in the design, and one in which they publicly own. Non-ASEAN powers may find it useful to signal acceptance of ASEAN centrality, but the process itself cannot be scripted from outside. The legitimacy of the enterprise rests on Southeast Asian agency.

That said, China is the region’s largest power; economically and militarily. Its engagement is a necessary condition of the initiative’s success, but must be handled deftly. Beijing acutely understands the psychology of its smaller neighbours; a grand settlement branded as “Chinese-made” would immediately trigger defensive nationalism in regional capitals.

By ensuring ASEAN leads the initiative, and can therefore take total public credit for the “Bandung+Helsinki” model, Beijing — and others in the region — provides Southeast Asian leaders with the necessary diplomatic space and cover to weather the impending geopolitical storm. Washington’s immediate counter-offensive will be fierce, deploying immense diplomatic, intelligence and financial pressure through its remaining regional proxies — particularly within the intelligence wings of the Thai military, traditional pro-Western factions in Manila, and Australia’s diplomatic corps. Hardliners in Japan will also doubtless be unleashed. The U.S. will warn of total vassalage to Beijing, threatening targeted sanctions and capital flight to preserve its foothold.

To neutralize this pressure, China’s own contribution to the emergence of an indivisible regional architecture relies on the unyielding logic of the physical security deficit. Beijing can gently but firmly remind regional elites that American security guarantees are now an industrial impossibility. If a nation chooses to host Western military assets, it is accepting certain, indefensible destruction on behalf of a superpower that cannot even secure its own rare earth and magnet pipelines. China’s role is not to dictate, but to quietly guarantee that if ASEAN steps out of the American orbit, Beijing will match their diplomatic courage with absolute strategic and economic protection.

The Ultimate Lever: Multi-Polar De-Risking

The most potent tool in China’s arsenal to solidify this architecture, in any case, is not military coercion, but its unique capacity to insulate ASEAN from the vulnerabilities of the Western-dominated financial system and dependence on energy sources that the region itself cannot control. The true genius of an ASEAN-brokered, China-backed settlement lies in its ability to offer absolute economic de-risking from global macroeconomic shocks.

Southeast Asia remains acutely vulnerable to energy disruptions in the Middle East and various maritime chokes like the Malacca Strait. China, through its deep integration with Russia and Central Asian producers via the SCO, can offer ASEAN guaranteed, overland energy lifelines. By routing discounted crude and natural gas through continental pipelines, China can effectively immunize the region against Western-induced oil shocks. Accelerated electrification courtesy of Chinese capacity will also go a long way toward mitigating the risks of future oil shocks

Furthermore, if the U.S. attempts to punish independent ASEAN states by weaponizing the U.S. dollar or enforcing SWIFT banking bans, China’s digital Renminbi (e-CNY) clearing mechanisms and cross-border payment networks stand ready to act as a financial firewall. Beijing can provide an instant, sanctions-proof parallel ecosystem. By leveraging its resource wealth to guarantee both regional energy security and raw industrial access, China transforms the ASEAN debate from an abstract ideological choice about “democracy vs. autocracy” into a cold, transactional calculation of national survival.

The Inexorable Diplomatic Gravity

Once this ASEAN-led framework based on indivisible security begins to solidify, it will likely unleash a diplomatic-political dynamic that regional middle powers like Japan, South Korea, and Australia will find functionally impossible to resist.

For Tokyo and Seoul, the choice will quickly narrow to a stark binary: maintain a hollow, highly dangerous allegiance to a distant, spent superpower, or join an inclusive, pan-Asian security framework that guarantees their sovereign survival and preserves their vital trade relationships. Stripped of the option to hide behind American military mass, the internal political pressure within Japan and South Korea to properly normalize relations with Beijing through an ASEAN-brokered mechanism will become overwhelming.

Even Australia, traditionally the most steadfast Western anchor in the Southern Hemisphere, will face an existential recalculation. Isolated geographically in an indisputably Asian ocean, Canberra cannot afford to become a lonely, highly exposed Western outpost in a completely integrated, non-aligned hemisphere. As its primary economic markets and its immediate geographic neighbors join the new architecture, Australia will face an inexorable gravitational pull to abandon its historic Anglo-American dependencies and integrate into the regional reality.

The Final Settlement: A Viable Equilibrium

The end of the American century in Asia, the end of US hegemonic primacy in the region, does not mean the region must slide into a chaotic dark age of unchecked conflict. The structural eviction of the United States simply clears the path for a geopolitical correction that has been decades in the making.

By scaling up the principles of Bandung and the consensus-driven habits of ASEAN, drawing on the experiences and lessons of the SCO, an ASEAN-curated architecture offers the region a sober, realistic exit ramp from the catastrophic trap of great power war. It replaces a fragile, foreign-backed hegemony with a stable, indigenously managed equilibrium. Ultimately, the transition to an inclusive, indivisible security framework is not just a viable alternative to Pax Americana — it is perhaps the only mathematically and geopolitically survivable future left for the Asia-Pacific.

There was an Asia before European and American colonialism. And there can be a viable Asia after the curtains are closed on this half millennium of colonial asymmetry. What Asian security looks and operates like, in what is touted as the Asian century, is something the people of the region can directly shape and drive.

About the Author

Warwick Powell is an Adjunct Professor at Queensland University of Technology and a Guancha Columnist.

For decades, Western observers dismissed China’s technology sector as lacking “0-to-1” original DNA. Yet today, China leads globally in green energy, AI applications, and digital infrastructure.

In this exclusive conversation with Guancha.cn’s China Econ-Pulse, Professor Zhang Jun, Dean of Fudan University’s School of Economics, presents a groundbreaking framework: China’s true advantage lies in its Dayitong—a 2,000-year legacy of structural unification that turns a 1.4-billion-person market into an unprecedented engine for “reverse innovation.”

Below is an edited excerpt from the conversation.

Why a “Unified State” Matters for Tech Breakthroughs

Guancha.cn: Among the many explanations for China’s economic and technological rise, why do you zero in on the concept of the "Unified State" (Dayitong)?

Zhang Jun: The term Dayitong (a vast, unified state) captures two crucial elements. First, scale—a vast territory and a massive population. Second, unification—a central government with clear authority and high state capacity. Both elements are vital to understanding modern technology, especially in the digital and AI eras.

In the digital age, the sheer pace of China’s technological technological breakthroughs has shattered longstanding assumptions about its capacity to innovate. For a long time, Western intellectuals believed that China lacked a tradition of “0-to-1” radical innovation, assuming that a unified state structure would restrict the “marketplace of ideas” and hamper novelty. Yet today, intense imitation and original innovation occur simultaneously across China’s tech landscape.

To understand why, we must look at a core characteristic of the digital era: network effects. Whether direct or two-sided, network effects thrive uniquely under a unified state model.

To begin with, sheer scale generates colossal volumes of data and diverse, real-world application scenarios—the very lifeblood of modern tech deployment.

Furthermore, unlike India, which remains structurally fragmented despite a similar population of 1.4 billion, China has maintained a 2,000-year legacy of standardization. Written script, weights and measures, the official language, legal frameworks, and regulatory policies are all unified nationwide.

This structural unity is decisive for technology. Look at the mobile internet landscape: despite India having roughly the same population as China, its active internet user base and monetization lag significantly behind. Why? Because market barriers and regional divides prevent India’s 1.4 billion people from operating as a single, cohesive market. China’s 1.4 billion, by contrast, form a single, frictionless market.

Whether in remote farmland or isolated border posts, live-streaming hubs thrive across China thanks to the nationwide reach of unified mobile internet infrastructure.

Today, no matter which rural corner of China you visit, people use the same language, access the same networks, operate on identical mobile platforms, communicate seamlessly, and participate in the same e-commerce ecosystem. There are zero structural friction points.

When immense scale converges with deep unification, it gives rise to a radically different paradigm of innovation—one that defines China’s modern technological trajectory.

Beyond Conventional Theories: Why Standard Economic Models Fail to Explain China’s Tech Boom

Guancha.cn: Why do existing frameworks—such as the “late-mover advantage,” the “whole-of-nation system,” or the “demographic dividend”—fall short of explaining China’s systematic technological breakthroughs in recent years?

Zhang Jun: Theories like the “late-mover advantage” or the “whole-of-nation system” (Juguo Tizhi) only capture fragments of a broader institutional reality. While a whole-of-nation model allows a unified state to top-down strategically allocate resources, that is only part of the story.

Consider China’s power sector. Why has China built power infrastructure so far ahead of demand? Today, China’s installed power generation capacity exceeds 5 billion kilowatts—surpassing the combined capacity of the United States, Europe, and Japan. This was only possible because a unified state can maintain long-range strategic vision, reallocating resources nationally to front-load investment in critical sectors.

Take the “West-to-East Power Transmission” megaproject. Power generation is heavily concentrated in China’s western and southwestern regions, where hydro, wind, and solar potential are abundant. In a unified state, different regions play to their comparative advantages—some excel in hydro, others in vast solar arrays—while the central authority manages nationwide dispatch.

This structure allows China to bypass the gridlock common in Western democracies, turning electricity into a “lead sector.” Once energy infrastructure is built ahead of the curve, it generates massive positive spillovers for downstream industries like digital technology and AI.

In contrast, AI development in many Western nations is currently bottlenecked by power grid constraints. The EU recognizes this issue and seeks cross-border coordination, but implementing a unified strategy requires buy-in from 27 sovereign member states—each subject to local parliamentary votes and public referendums. The transaction costs of coordination are immense, severely slowing strategic execution.

In China, if you travel through Gansu, Ningxia, or Xinjiang, you see endless seas of solar panels and massive wind farms built far ahead of current demand. In Guizhou, abundant hydropower has turned the province into a massive data center hub. Reliable, cheap power yields abundant computing power, giving China’s AI sector a decisive strategic edge.

Framing this purely through the lens of a “late-mover advantage” or a “whole-of-nation system” misses the bigger picture. A late-mover advantage merely offers potential catch-up space; many developing nations possess it, yet few capitalize on it. Turning potential into reality requires a single, cohesive strategic actor—a nation capable of building consensus, formulating forward-looking policies, coordinating across regions and sectors, and maintaining long-term policy continuity. This demands strong state capacity, an inherent feature of a unified state.

In most Western countries, key strategic assets are privately owned, making national coordination extraordinarily difficult. A recent article pointed out a stark contrast: the U.S. can easily build world-class stadiums for the World Cup, yet struggles immensely to construct high-speed rail. Why? It comes down to state capacity and fragmented property rights. Spanning multiple states and municipalities requires navigating complex, conflicting private property claims—at exorbitant financial and political cost.

In my upcoming book on the Economics of Scale, I explore how economics as a discipline has undervalued the macro impact of scale.

China’s tech rise highlights a vital truth: the diffusion and commercial deployment of knowledge are often more critical than its initial creation. Western intellectual tradition heavily emphasizes “0-to-1” breakthroughs. But from a development economics perspective, new knowledge remains useless unless an economy possesses the scale to absorb, test, and deploy it broadly.

This is where scale becomes transformative. In a megamarket, the rapid diffusion and commercialization of technology trigger immense positive network externalities. This, in turn, creates powerful market incentives for further primary innovation. Scale reveals that the economic value of knowledge isn’t dictated by the initial “0 to 1,” but by the leap from “1 to N.”

Western Linear Innovation vs. China’s Reverse Innovation Paradigm

Guancha.cn: Unlike the Western “linear innovation model” (Basic Research → Applied Research → Product Development → Commercialization), you propose China’s unique paradigm: “1 → N → N+1” (Reverse Innovation), driven by the world’s largest unified market. How does this vast market force original technological breakthroughs from the bottom up?

Zhang Jun: Critics often allege that China lacks original concepts and simply copies Western technology. And historically, there is truth to where it began: early Chinese e-commerce platforms like Taobao undeniably borrowed their foundational architecture from American predecessors like eBay or Amazon.

However, over time, China’s e-commerce trajectory diverged completely from the West. Why? Because the sheer scale of the domestic market forced Chinese platforms to constantly re-engineer—and ultimately revolutionize—their underlying tech stacks.

Take Alibaba’s Double 11 (Singles’ Day) shopping festival. At its peak, transaction volume reached nearly 583,000 orders per second. Standard Western database architectures, such as those built by Oracle, simply could not handle such staggering concurrency. To survive, Alibaba was forced to build an entirely new, home-grown distributed database technology.

This innovation didn’t start in a lab; it was compelled by market stress. The initial step was copying and deploying technology at scale—moving from 1 to N, where N represents an unprecedented volume of end-users.

Once you reach that massive “N,” original technical architectures break down under novel operational challenges. Solving these real-world bottlenecks forces original breakthroughs—moving the technology from N to N+1. This is application-driven reverse innovation.

Today, Chinese e-commerce models have evolved into forms rarely seen in the West—from Pinduoduo, the Chinese sibling of Temu, to live-stream commerce reaching every rural village.

This brings us back to the core thesis of the unified state: China achieves "1 → N → N+1" because it commands a friction-free end-user base of unprecedented scale, backed by world-class, state-led infrastructure: uninterrupted power supply, ubiquitous 5G coverage, efficient logistics, and seamless mobile payments

“Universal Base Supply”: The Real Structural Advantage

Guancha.cn: Speaking of proactive infrastructure investment, has China’s digital boom rendered the traditional debate over "state-owned vs. private"obsolete?

Zhang Jun: State-owned enterprise (SOE) capital plays an irreplaceable foundational role here. State capital typically operates with lower required rates of return on infrastructure—a feature long criticized by traditional economists, but one that has proven to be a masterstroke for tech catch-up.

Across China’s digital ecosystem, foundational transaction costs are astonishingly low: mobile payment fees, logistics rates, and electricity prices are among the cheapest in the world. Private capital would either demand far higher margins or refuse to build out universal coverage in unprofitable rural areas.

Because Chinese infrastructure is state-led and subject to price caps, it provides what I term a “Universal Base Supply” (Puhui Supply). Low utility and infrastructure costs create massive positive externalities: cheap services attract more users, expanding the digital ecosystem.

As Nobel laureate Jean Tirole demonstrated, digital markets function as two-sided platforms where merchants and consumers generate cross-network externalities. More users attract more merchants, and more merchants offer better services, creating a self-reinforcing feedback loop. In China, low-cost universal infrastructure turbocharged this dynamic from day one.

A Consumer-Sovereign Market: User-Driven Innovation and “Neijuan”

Guancha.cn: Western critics often attribute the global popularity of Chinese tech products strictly to low labor costs or state subsidies. How does the concept of “Universal Base Supply” reframe this issue?

Zhang Jun: Subsidies exist everywhere; what matters is where and how they are applied.

In China, state participation in infrastructure doesn’t act as a market-distorting subsidy, but as a generator of positive network externalities. Where direct subsidies do exist—such as in the Electric Vehicle (EV) sector—they have largely been targeted at consumers rather than propping up inefficient producers.

Consumer-side subsidies expand the total addressable market. A larger user base accelerates adoption, which in turn drives rapid, competitive iteration among manufacturers. Far from stifling competition, this approach has spawned one of the most fiercely competitive EV markets on the planet, with new models and technological upgrades launching continuously.

Industry players often complain about intense internal competition—what in China is called Neijuan (hyper-competition). But Neijuan in China’s tech sector is simply the engine of rapid technological iteration. Because innovation in China is consumer-driven, companies are locked in a relentless race to deliver superior value to the end-user before their rivals do.

In this sense, Neijuan serves as a powerful mechanism for continuous innovation. It forces firms to constantly reinvent themselves to survive in a market defined by absolute consumer sovereignty.

About the Author:

Zhang Jun is Dean of the School of Economics, Director of the China Center for Economic Studies, Fudan University

Through four decades of ebbs and flows, the fierce competition in China’s sportswear market has given rise to a distinct industry landscape: “One Ning, Many Jins”—the Li-Ning brand standing alongside numerous local enterprises from Jinjiang.

Among them, Li-Ning, characterized by a strong idealistic undertone, leveraged its status as a national athletic champion to break out early, forging a unique brand path. Meanwhile, a host of local Jinjiang entrepreneurs rooted themselves in their hometowns, relying on their grassroots origins and wolf-like drive to battle it out in lower-tier markets. Today, both have become formidable rivals to global giants like Nike and Adidas.

These two underlying tones and differing origins perfectly outline the parallel growth trajectories of domestic sportswear brands. A past intertwined with the struggle for survival is fully chronicled in The Shoe Gang: Forty Years of Chinese Sportswear Brands by Huang Ziyi(黄子懿), chief writer for Sanlian Lifeweek（三联生活周刊）.

This article is adapted from an interview between Guancha.cn and the author. Let us step into the factory streets and alleys to uncover the vivid stories behind the industry, understand the desperate struggles and choices of entrepreneurs, deconstruct the commercial traits shaped by regional culture, and trace how domestic sportswear brands broke through from contract manufacturing to establishing independent brands.

Discover Jinjiang— China’s Shoe Capital

The first time I visited Chendai Town in Jinjiang, the visual impact was striking. I had flown directly into Quanzhou Jinjiang Airport and didn’t expect it to be so close to the bustling downtown. Stepping out of the airport, you are immediately in Jinjiang city proper, followed closely by Chendai Town. The urban interface switches instantly—there are no neatly organized industrial parks common in the Yangtze or Pearl River Deltas. Instead, it is a densely packed cluster of self-built small buildings, with almost every household making shoes inside. Downstairs are shops selling general merchandise, snacks, or even shoe materials; upstairs are bustling workshops operating in full swing.

On the other hand, it also felt somewhat chaotic. A while ago, a shoe factory in Jinjiang caught fire—a typical Chendai Town factory where shoe materials like non-woven fabrics, rubber, and leather were piled high in the workshop, posing massive safety hazards. Walking past residential houses locally, you can frequently smell rubber or leather. Machines run non-stop into the early hours of the morning, and migrant workers crowd the streets. The smoke and fire of everyday life interweaves with a heavy industrial atmosphere; overall, it is an incredibly lively place.

It isn’t like some of the “Top 100 Counties” I’ve visited, such as Kunshan, which feature pristine, modernized new towns and industrial parks. Jinjiang has more raw vitality. Chendai Town retains a complete, grassroots, original form, creating an extreme contrast.

In the early days, all it took to break into the industry chain was an ordinary house and a few sewing machines. This bottom-up economic vitality is something that many of the more standardized top-100 counties simply do not have.

In the late 1980s, after scholars like Fei Xiaotong visited Fujian, they proposed the “Jinjiang Model,” which was officially listed as one of China’s four major economic models by the Chinese Academy of Social Sciences in the mid-1990s. By then, other models had already found their footing: Sunan (Southern Jiangsu) relied on township enterprises and collective economies; Wenzhou relied on individual merchants distributing small commodities nationwide; and the Pearl River Delta relied on foreign, Hong Kong, and Taiwanese capital for processing.

Jinjiang is different. It is neither government-led nor reliant on individual entrepreneurs traveling far and wide. Instead, it is rooted in the clan-based kinship ties of a hometown of overseas Chinese, where neighbors, relatives, and fellow clan members pool funds to set up factories together, ultimately forming a county-level manufacturing cluster.” In a way, it was somewhat like a hybrid of the Wenzhou and Pearl River Delta models.

Pooling money from clan relatives allowed the industry to take deep roots locally. By the 1990s, the cluster was already mature: all materials needed for shoemaking could be sourced in a one-stop fashion locally within an hour. Different villages and factories specialized in specific shoe components, creating a tightly interlocked upstream and downstream supply chain.

Using “grassroots” or “rustic” to describe southern Fujian businessmen is indeed accurate; a more colorful term would be “wild.” For a long time, the local land was barren. The pressure to survive and fight for resources like water and land forced locals to develop a daring, pioneering spirit. With no government subsidies and no massive foreign orders initially, they could only rely on their own grit and clan mutual aid.

“Wild” does not equate to barbaric. At the foundational level, there were rules dictated by clan beliefs and civil consensus. Alongside their risk-taking nature, they heavily valued hometown loyalty. For instance, after founders like the boss of Anta made their fortunes, they mostly gave back to their fellow townsfolk through charity, which is quite impressive.

Jinjiang’s industry is highly developed, yet its core remains very traditional—this is the dual nature of southern Fujian’s industrial clusters. In an era of high population and scarce resources, clan conflicts were essentially battles for the right to survive. What seemed chaotic was actually a collective consciousness united by the clan, imposing a positive influence on those inside it. Following the Reform and Opening Up, the clan solidarity once used to fend off external conflicts morphed seamlessly into the foundation of trust needed for joint business ventures. Fellow clan members and relatives pooled money and borrowed funds to start factories, and children apprenticed at each other’s workshops.

The Reform and Opening Up provided the catalyst, transforming a raw instinct for collective survival into an innate talent for industrial development.

The “fight” in the famous local proverb, “Fight to Win,” has always been a double-edged sword. Its positive side is an endurance for hardship and an uncanny ability to seize opportunities; its negative side is pure speculation—even a gambler’s approach to business. Jinjiang brands once sparked a massive branding frenzy, where many founders went heavily into debt to gamble on massive advertising campaigns, celebrity endorsements, and aggressive retail expansion.

While “fighting” still holds meaning today, its definition has completely shifted. The market has entered an era of refinement, becoming increasingly segmented and specialized. In the past, when the market was raw and unpolished, a gambler’s streak paid off—if you dared to risk it all, you could capture market share and cash in. Today, faced with fractured markets and hyper-diverse consumer tastes, relying blindly on a gambler’s mentality will rapidly destroy competitiveness. Instead, enterprises must now wage an all-out battle to pivot toward R&D, deeply cultivate every link of the supply chain, and expand globally. They are shifting away from a high-stakes chase after fleeting, shallow dividends, and moving toward cultivating long-term industrial value.

Throughout this transformation, the drive to “fight” remains the critical engine. Why does Anta’s leadership still relentlessly push to scale the enterprise and seize pivotal moments to elevate the brand today? Because that relentless fighting spirit endures—they want their brands, and their families, to command lasting respect. However, the early days of “pack-hunting” to blindly grab market share have now largely evolved. The focus has shifted toward building sophisticated, modern corporate systems and driving multi-brand synergy, leaving the unbridled, raw competition of the past far behind.

Li-Ning: Olympic Glory Alone Is Not Enough

Li-Ning’s starting point indeed benefited from an unreplicable tailwind of the era, or more accurately, a unique historical endowment. As an Olympic champion with built-in star power, backed by the capital of beverage giant Jianlibao, the “Li-Ning” brand carried a powerful narrative of national identity and pride from its very inception. These were rare assets gifted entirely by the times.

Li Ning himself possessed a deeply idealistic streak; when founding the brand, he set a grand vision to champion Chinese enterprise on the global stage against international giants, refusing to let profit be his sole objective.

Yet, it would be a mistake to credit his success entirely to luck or era-defining dividends. Every turn on his entrepreneurial path demanded immense personal grit. When he first retired from athletics, he had no intention of entering the business world. But once he committed to building a company, he went all in.

He traveled alone to Sanshui, Guangdong, to learn the ropes of manufacturing from scratch. He made high-stakes calls at critical junctures—from the historic Asian Games torch marketing campaign to navigating product defects—and personally stepped onto the front lines to stabilize the company during its inventory crisis. Beneath his idealism lies sharp commercial acumen: a willingness to pour immense mental energy into every strategic decision and shoulder the crushing weight of the outcomes.

A prime example occurred around 2012. As the inventory crisis erupted and company funds were stretched to the brink, Li Ning personally doubled down, securing a high-profile sponsorship of the CBA league and signing NBA superstar Dwyane Wade. These massive moves were the direct result of a founder stepping up to take calculated risks and making bold, definitive bets.

Today, Li-Ning’s basketball footwear is exceptionally premium; international critics and global sneaker communities frequently note that their court-feel and professional performance are squarely on par with Nike. This success tracks directly back to Li Ning’s personal grit and high-stakes decision-making decades ago—proving his brand’s trajectory was never just a matter of historical luck.

In its earliest days, however, Li-Ning owned zero factories, relying entirely on contract manufacturing.

From an industrial strategy perspective, sportswear brands generally split down two paths: heavy-asset and light-asset. The light-asset model—championed by Nike and Adidas—eschews factory ownership entirely. These giants source contract manufacturing in regions with favorable demographic advantages, allowing them to pour their core energy into product R&D and brand marketing.

Founded by runner Phil Knight and his coach, Nike focused squarely on innovation, outsourcing its actual production to emerging hubs like Taiwan. This blueprint yielded immense margins for Nike and nurtured Taiwan’s athletic footwear industry, which later anchored itself across the Taiwan Strait in southern Fujian.

Conversely, Jinjiang brands like Anta and Xtep forged the heavy-asset path: manufacturing first, brand-building second. The edge of this model lies in a remarkably robust manufacturing base, a captive supply chain, and superior risk resilience. By keeping production in-house, Jinjiang brands dictate their own cost structures and profit margins. Even when retailing at lower price points than Nike or Adidas, their net profit margins occasionally outpace the global giants, simply because they capture the entire manufacturing surplus for themselves.

At the time, Li-Ning’s ambition was to build a world-class Chinese national brand. Benchmarking against Nike and Adidas, they chose to focus their core efforts on product, brand narrative, and marketing, choosing to skip the factory floor. They operated under the assumption that with China’s vast domestic factory network and workforce, production could easily be outsourced.

But when the inventory crisis hit, Li-Ning realized this total reliance on outsourcing was a fatal vulnerability. Consequently, after 2019, they broke with past strategy and began building their own manufacturing facilities in Li Ning’s home province of Guangxi, shifting from a pure light-asset model to a hybrid approach. Of course, the scale and output of Li-Ning’s in-house factories still pale in comparison to the massive Jinjiang industrial cluster.

Yet Guangxi’s geography offers a strategic play: its proximity to Vietnam—which has built its own formidable footwear cluster—opens new avenues for cross-border supply chain synergy. Adidas and Nike began migrating their production lines overseas years ago. Today, Vietnam stands as the world’s largest producer of Nike footwear, with Indonesia ranking second, and China slipping to third.

How Did Unknown Shoe Entrepreneurs Build a World-Class Industry?

Compared to Li-Ning’s patrician origin, the Southern Fujian business bloc defined itself through pure grit and relentless hustle.

Jinjiang’s founders lacked any athletic halo; they were entirely grassroots entrepreneurs driven initially by a singular motive: escaping poverty. In their startup phase, every corporate objective was strictly market-driven and profit-oriented. These founders practically lived on the factory floors to master shoemaking, spent endless days pounding the pavement to secure offline channels, and manually negotiated with distributors. Every cent of profit was clawed back through a hyper-pragmatic focus on refining production lines and sales networks.

This pragmatism meant that only after surviving and conquering poverty did Jinjiang’s factories begin, one by one, to cultivate independent brands.

Yet, Li-Ning and Jinjiang do not exist in a binary opposition. Li-Ning held fast to its core idealism of premium manufacturing and high-end brand equity. Meanwhile, Jinjiang’s entrepreneurs—having completed the transition from family workshops to modernized corporations—likewise unlocked a grander vision: to build national champions and operate world-class sporting conglomerates. But in terms of initial endowments and underlying logic, “One Ning” and “Many Jins” marched down two entirely different paths.

The rise of Jinjiang was not a linear success story; it was a trial by fire across three systemic industry crises.

1. The Quality and Credibility Crash (Mid-1980s)

In its infancy, Jinjiang was notorious for producing “seven-day shoes” or “cross-the-street shoes”—substandard footwear whose soles would separate or unglue after minimal wear. Compounded by a concurrent local counterfeit medicine scandal, the entire region was branded a hub for knockoffs. This existential crisis forced a brutal realization: survival required discarding fakery in favor of uncompromising quality.

Anta’s Predecessor (1988): Founded by Ding Hemu, the company was named Qiuzhi (”Seeking Quality”). To ensure structural integrity, workers were mandated to manually strike the glued sole and upper exactly thirty times.

Xtep’s Predecessor (Sanxing): Became Jinjiang’s “export king” by doubling the standard industry pressing time from six seconds to twelve seconds, using premium adhesives to guarantee durability.This crisis served as Jinjiang’s first great awakening regarding structural integrity and corporate honor.

2. The Asian Financial Crisis and the Brand Awakening (1997)

When the 1997 financial meltdown devastated domestic foreign-trade original equipment manufacturers (OEMs), Jinjiang realized that relying solely on contract manufacturing left them highly vulnerable to global economic cycles.

Even before the crash, OEM margins were collapsing—Xtep’s founder Ding Shuibo noted that processing profits plummeted from over ten RMB per pair to a mere one or two RMB.

The tipping point came during a German trade exhibition. Local government officials and factory owners discovered a shocking reality: while unbranded Jinjiang shoes sold wholesale for a few dollars, the exact same shoes, stamped with a global logo, retailed for $99.

Deeply moved, Jinjiang launched its landmark “Building the City through Brands” strategy in 1998. Backed by government subsidies and policy directives, a massive brand-building movement swept the region. Merchants realized they needed to own their IP to control their destiny, capture premium value, and weather macro-economic storms.

3. The Great Post-Olympic Inventory Avalanche (2011–2014)

Prior to 2008, the Chinese sports sector rode a massive wave of optimism. Brands universally assumed the Beijing Olympics would trigger an infinite, permanent surge in domestic sportswear consumption. Consequently, every player—including global giants Nike and Adidas—expanded aggressively.

This reckless expansion manifested in two ways: maximizing production capacity and launching hyper-aggressive retail footprints. Domestic players like Anta, Li-Ning, Xidelong, and Peak all launched “10,000-store expansion plans” while rushing to list on stock exchanges in Hong Kong, Singapore, or Germany to fund capital expenditures.

But the market saturated rapidly, and consumer appetite fell far short of projections. By 2010, the inventory crisis fully erupted. The blind expansion was so severe that Jinjiang founders grimly noted: even if every factory stopped operating immediately, existing warehouse inventory was enough to clothe the entire Chinese population for three to four years.

The 2011 crisis permanently shattered the crude, volume-driven growth model. It taught the industry that building a sports brand is a sophisticated, long-term ecosystem. Success required pivoting toward deep R&D, upgrading retail storefront experiences, mastering supply chain mechanics, and deploying data-driven consumer analytics.

Brands abandoned the generic “one-size-fits-all” approach and deeply segmented the market, engineering specialized products tailored strictly to individual disciplines—whether badminton, basketball, or marathon running.

Anta’s Masterstroke: Post-crisis, Anta took over FILA China, using hyper-refined retail operations and sharp trend forecasting to turn it into the fastest-growing premium sportswear brand in the country.

Li-Ning’s Resurgence: Realizing that old-school distribution was dead, Li-Ning birthed the “China Li-Ning” product line, pioneering the Guochao (国潮National Trend) track to capture the cultural pride of younger consumers.

Ultimately, these three systemic crises drove a progressive, evolutionary upgrade for Chinese sportswear: first, you must build a product that doesn’t break; second, you must give that product an independent brand; and finally, you must sustain that brand through sophisticated, long-term strategic execution.

Putian Shoes: The Long Road from Copycats to Quality

Putian and Jinjiang represent two starkly divergent outcomes of the exact same phenomenon. Both regions initially capitalized on the massive wave of OEM dividends triggered by globalized supply chains.

Jinjiang, scarred early on by its mid-1980s quality crises, the notorious counterfeit medicine scandal, and the sting of the Asian Financial Crisis, engaged in deep corporate soul-searching. Its founders recognized the intrinsic limitations of pure contract manufacturing, prompting a structural shift toward quality control and independent brand equity.

Putian, conversely, became a victim of its own success in the pure OEM space. When Nike migrated its contract manufacturing from Jinjiang to Putian, the local footwear industry experienced an unprecedented boom. Nike established an extensive network of contract facilities in Putian—surpassing its presence in Jinjiang—three of which remain operational to this day.

Having tasted these lucrative dividends, Putian developed a deep path dependency that completely severed its trajectory from Jinjiang. Putian doubled down on long-term, high-volume contract manufacturing for global giants, relying heavily on overseas orders. As a result, the region developed zero expertise in domestic brand operations or distribution networks. Even putting the issue of counterfeits aside, attempting to engineer a legitimate, homegrown brand from scratch today is a monumental challenge.

Building a brand in the current landscape is vastly more unforgiving than it was decades ago. In the industry’s golden era, a founder could simply bankroll a celebrity endorsement, blast television commercials, and rely on eager distributors to aggressively scale retail footprints. Today, while niche professional tracks still offer pockets of opportunity, the barrier to entry regarding product innovation is incredibly high. Launching a high-performance athletic shoe without decades of R&D accumulation or a nuanced understanding of sports science is virtually impossible.

Furthermore, buying brand equity demands colossal financial runway; locked into the razor-thin margins of contract manufacturing, Putian’s localized capital and resources pale in comparison to Jinjiang’s. The region also lacks Jinjiang’s deeply entrenched ecosystem of brand creation and extensive experience in the domestic market. For Putian, breaking into the premium tier is a steep, uphill battle compared to Jinjiang’s trajectory, though carving out a niche in hyper-segmented categories may still hold a glimmer of hope.

The Putian municipal government has recently diagnosed this structural vulnerability and stepped in directly, officially registering a collective trademark simply titled “Putian Shoes.” While the historical public perception of Putian footwear was tethered to counterfeits and substandard quality, public sentiment is shifting, with growing praise for the region’s undeniable manufacturing solidity.

Local authorities are actively attempting to pivot and rebrand this tarnished reputation under the “Putian Shoes” collective banner—with the strategic goal not necessarily aimed at capturing the luxury high-end, but rather cementing a baseline consumer perception of reliable, “solid quality.”

Winners and Losers: What Matters More?

Through forty years of the shoe capital’s turbulent ups and downs, history has crowned its winners—and inevitably left behind its casualties.

Vanished brands like Deerway were once market leaders, ranking among the top-tier enterprises in Jinjiang. Backed by early local land subsidies, they built a sprawling industrial park of considerable scale. Yet, after the founder passed away, his two brothers failed to turn the tide. Today, Deerway has completely vacated the premises, leasing the industrial park out to various small and medium-sized footwear and textile workshops.

Jinlaike suffered a similar fate. Even now, many Chinese consumers fondly recall the sheer durability of its running shoes. However, amidst the post-Olympic inventory crisis, the brand committed a series of strategic blunders. Today, Jinlaike has sunk into obscurity, reverting to a low-profile processing plant.

Xidelong vanished entirely from the market, its downfall culminating in the founder being sent to prison.

It is a deeply poignant landscape. Walking down the streets of Chendai Town, the physical architecture of these legacy brands—including Anta’s original factories and worker dormitories—remains intact. The colossal Deerway industrial park sits directly adjacent to the massive Qiaodan (China) complex. The logos of these fallen brands were once household names nationwide, yet their realities today stand in stark, melancholy contrast to the neighboring giants.

Chronicling the history of Jinjiang’s shoe industry is not about writing revisionist history for the victors. The founders of vanished empires like Deerway, Jinlaike, and Xidelong were just as relentlessly hardworking in their early days as any other Jinjiang boss. They lived on the factory floors day and night, obsessively refining their craftsmanship, going to sleep at two or three in the morning, and waking up mere hours later to rush out production orders.

They survived the exact same crucible; they fought with the same ferocity and endured the same hardships. But as the market matured into brand management, some lacked long-term strategic vision and omnichannel planning capabilities, blindly defaulting to raw labor while ignoring top-level governance. Many founders pushed the ethos of “fighting” to an unhealthy extreme. In their desperate bid to win, they resorted to high-stakes speculation, a gambler’s recklessness, and eventually, illicit activities. The founder of Xidelong, for instance, was ultimately sentenced to six years in prison for bank fraud.

A founder’s underlying perception of the market and the industry dictates the direction of their efforts, ultimately altering their destiny. A fierce fighting spirit is merely the baseline, entry-level prerequisite. True endurance requires deep strategic acuity to elevate a brand from a mere workshop into an institution—neither element can be missing.

Today, the domestic market is completely saturated and hyper-commoditized. Industry intelligence is entirely transparent; every competitor understands the exact cost margins of a sneaker and the core technologies involved. Relying solely on raw hustle and an endurance for hardship no longer yields a competitive advantage.

The very definition of “fighting” has fundamentally evolved. It is no longer measured by sleepless nights on the production line or frantically running between wholesale markets across the country. Today, the battle is waged scientifically and rationally. While a calculated appetite for risk remains necessary, the core battlefield has shifted to deep R&D pipelines, hyper-refined retail channel operations, and global supply footprints. The current era tests an enterprise’s strategic clarity, institutional focus, and capital runway. Execution remains vital, but it must be guided by sophisticated commercial insight and long-term vision to withstand the test of time.

Along with the shifting market, there has also been a generational transition among Jinjiang’s business owners.

The older generation of shoe merchants all came from humble, grassroots beginnings, enduring deep poverty and severe hardships before launching their enterprises. For them, entrepreneurship was an all-out battle for survival. Yet, they possessed an audacious, ironclad resolve—never hesitating to take high-stakes gambles to alter their fates, moving forward with incredibly bold, aggressive strides.

The new generation stands in stark contrast. As they grew up, their fathers had already transformed their families’ socioeconomic fortunes. Many of these next-generation entrepreneurs received top-tier higher educations, with a significant number studying abroad at prestigious global universities.

Take Anta and Xtep as prime examples. The sons of Anta’s co-founders are now at the helm of the group’s premium, newly acquired global brands, such as Kolon Sport and Descente.Meanwhile, Ding Jiamin, the second daughter of Xtep founder Ding Shuibo, frequently shares her executive routine on social media. In a recent interview with a digital content creator, she revealed that she cut her teeth in the e-commerce department—focusing on sectors native to younger demographics—and now oversees Saucony, the high-end running shoe brand under Xtep’s umbrella.

This new generation of the “Shoe Gang” is deeply fluent in premium brand operations and China’s digital e-commerce ecosystem. Compared to their predecessors, while they may lack some of the raw, unbridled audacity required for reckless expansion, they place a premium on data-driven management and are dedicated to steering sustainable, long-term brand growth. In these high-end, modern arenas, these next-generation leaders wield significant strategic advantages over the old guard.

Shift Low-End Operations, Retain Core Strengths

Industrial relocation is an issue I monitor closely, but my field visits revealed that, at least locally in Jinjiang, this offshoring trend is not as severe as external headlines suggest.

Because shoemaking remains inherently labor-intensive, wage inflation makes supply chain migration an objective inevitability. However, the industrial offshoring here is clearly stratified. The Jinjiang government demonstrated remarkable foresight: they mastered the art of retention, transferring out only low-margin assembly lines while anchoring high-value core capabilities firmly at home.

Chendai Town alone hosts approximately 7,000 shoemaking-related enterprises, forming an impenetrable industrial ecosystem. Within this cluster, surprisingly few factories actually engage in manual final assembly; instead, an overwhelming majority specialize in the advanced engineering of shoe materials and components.

Manufacturing footwear is notoriously complex. While an article of clothing may only require one or two types of fabric, a sneaker demands an array of materials. The upper requires specific textiles, the sole demands advanced polymers, and the product integrates components from specialized laces to molded logos. Because a single pair of shoes synthesizes a vast bill of materials, it is less of a generic labor industry and more of a material-science hub that relies on precision coordination.

Anticipating this structural shift as early as 2012, the Jinjiang government resolved to fortify its industrial cluster into a mature, irreplaceable ecosystem. Local authorities deployed an 8 billion RMB investment to construct the Jinjiang International Shoe and Textile City—a sprawling, state-of-the-art hub that now consolidates thousands of specialized material suppliers under one roof.

This represents the pinnacle of the “front storefront, back factory” architecture. Jinjiang established this localized marketplace, backed by a sprawling network of processing plants across the county. In this hyper-concentrated market, brands can source virtually every required raw material in a seamless, one-stop fashion. Consequently, even when domestic shoe factories relocate a portion of their assembly capacity to Southeast Asia, they remain shackled to Jinjiang, forced to return home to procure their core raw materials.

Today, innovation in athletic footwear is primarily a “battle of materials.” Midsole compounds directly dictate cushioning and energy return, while engineered uppers determine weight and breathability. Crucially, the R&D and design of these materials remain strictly local.

By laying this groundwork early, Jinjiang successfully retained the crown jewels of its supply chain.

Nike’s Apprentices Have Earned a Seat at the Table as Challengers

Compared to the early golden era, today’s marketplace is far more cutthroat. These Jinjiang brands enjoyed unique historical tailwinds during their entrepreneurial infancy.

At the dawn of the Reform and Opening Up in the early 1980s, domestic consumer demand for leather and athletic shoes skyrocketed. Families pooled capital through grassroots cooperatives to launch domestic sales, steadily clawing their way out of poverty. By the 1990s, as global supply chains migrated, they cut their teeth as contract manufacturers for global sports giants, transforming informal workshops into modernized industrial powerhouses.

Post-2000, refusing to settle for meager OEM margins, the Jinjiang “Shoe Gang” scrambled to forge independent brands. This phase perfectly synchronized with the peak of China’s national sports enthusiasm and its accession to the WTO, placing their brand-building era on the fast track of China’s historic economic boom.

Looking back at interviews with Jinjiang founders from that era, corporate revenues were essentially doubling year-over-year without exaggeration. Peak founder Xu Jingnan offered a striking metaphor: at the time, running a business was like riding an upward-moving elevator—even if you stood completely still, your performance ascended every year.

Over the decades, as the macroeconomic landscape matured, consumer tastes became hyper-fragmented and increasingly sophisticated. Beyond incumbent titans like Nike and Adidas, premium niche players like On Running, HOKA, and Lululemon penetrated the Chinese market, aggressively capturing market share. Today, growth rates for established domestic champions like Anta and Li-Ning have begun to plateau, deceleration being particularly stark compared to their early boom years.

This hyper-competitive market has forced a definitive pivot from raw, grassroots volume expansion to deep, long-term industry cultivation: doubling down on technical R&D, optimizing supply chain economics, and absorbing the operational playbooks of global conglomerates.

While the current arena is undeniably harsher than the past, Chinese brands are adapting with remarkable resilience.Today, the product innovation and technical execution of Anta and Li-Ning are fully on par with Adidas and Nike across multiple disciplines; a marginal gap persists only in legacy brand equity.

These domestic champions were all once chasers—humble apprentices to global icons like Nike. Today, they have evolved into formidable challengers. They may not have achieved complete market parity just yet, but they have unequivocally earned their seat at the table.

About the Author:

Huang Ziyi (黄子懿) is the chief writer for Sanlian Lifeweek (三联生活周刊) and the author of the book The Shoe Gang: Forty Years of Chinese Sportswear Brands.

On 17 July 2026, Chinese President Xi Jinping delivered a keynote address at the World AI Conference (WAIC) in Shanghai, articulating a vision for global AI governance centered on openness, inclusivity, human control, and shared prosperity.

His speech emphasized a people-centered approach to AI, rejecting technological monopolies and digital divides that could replicate historical injustices. Xi announced concrete measures: 5,000 AI training opportunities for developing countries over five years, international AI application cooperation centers with organizations including ASEAN, the African Union, BRICS, the Shanghai Cooperation Organisation, and others, and the rollout of China’s AI-powered meteorological warning system (MAZU) to 30 countries. He also highlighted the establishment of the World Artificial Intelligence Cooperation Organization (WAICO) in Shanghai.

This moment marks a pivotal contrast in the global AI landscape. It pits a Chinese-led model of collaborative, open-source empowerment — positioning China as what I have previously described as a “great enabling power” aligned with the Global South — against an American approach that prioritizes proprietary control, national security exceptionalism, and the pursuit of AGI as a western civilizational project.

The stakes are high, revolving around moving from a US-dominated order of technological rents, cross-border expropriation, and hegemony toward a multipolar digital sovereignty that echoes the Westphalian principles of state autonomy and non-interference, adapted to the information age.

Drawing on my previous analyses, this essay examines the structural, economic, philosophical, and geopolitical dimensions of this shift. It argues that the US tech stack — characterized by high costs, security risks, low sovereignty, and entropic pressures — is facing systemic limits, while China’s open-source ethos, hardware-software co-optimization, energy advantages, and capacity-building initiatives offer a viable alternative.

The Global South faces a clear choice: empowerment through accessible, sovereign AI or lock-in to a costly, extractive model that exacerbates inequalities. It’s also a “choice” citizens of the Global North need to confront, before it’s too late for their own societies and economies.

Techno-Colonialism: The US Model of Hegemony and Rents

The American AI paradigm embodies what Cedric Durand and Yanis Varoufakis describe as “techno-feudalism” extended globally; I call this techno-colonialism. In this model, a handful of firms (OpenAI, Google, NVIDIA, etc.) capture economic rents through proprietary systems, data monopolies, and control over critical infrastructure. This mirrors historical colonialism: extraction of value (data, compute, and talent) from peripheries to cores, with technological dependency enforcing political alignment.

JD Vance’s 2025 remarks in Europe underscored this: an “American AI order, or nothing else.” This aligns with figures associated with the “dark enlightenment,” including Peter Thiel, who frame AGI as a quasi-theological quest — a “God made by Humans.” The pursuit prioritizes frontier scaling and speculative breakthroughs over grounded, deployable applications.

And yet, this gives rise to the “paradox of AI with American characteristics”: massive capital inflows into hyperscale data centers and models yield limited measurable ROI (MIT surveys suggest 95% of businesses see zero return), while driving entropy through energy consumption, infrastructure strain, and speculative bubbles.

AI is “embodied electricity.” US data centre demand is surging, but the grid faces severe constraints. Secretary of Energy Chris Wright’s call for 100 GW of new firm capacity in five years is a “mirage,” given permitting delays (7–10+ years for transmission), transformer shortages (lead times of 2–5 years, with China dominating supply), skilled labor gaps, and regulatory hurdles.

I have previously detailed how these create Dutch Disease effects: AI competes for electricity, water, and equipment, inflating costs and hollowing out other industries. Wholesale prices have risen sharply; lower-income households and communities bear the brunt.

China’s advantages compound this asymmetry. Industrial electricity in key regions costs ~$0.04/kWh vs. ~$0.12/kWh in the US. Combined with hardware-software co-optimization (e.g., Huawei’s Ascend and CANN stack, open-sourced elements), China achieves lower cost-per-token and faster deployment. Analogue and neuromorphic chips further enable industrial-scale edge AI at fractions of the TCO.

The US stack relies on closed ecosystems (NVIDIA CUDA dominance), creating vendor lock-in. This high-cost, high-risk model exposes users to supply chain vulnerabilities, backdoors, and extraterritorial controls (e.g., sanctions, data access via US firms). For Global South nations, adopting this means ceding sovereignty over data, algorithms, and critical infrastructure — in other words, digital neo-colonialism.

Philosophically, the AGI quest reflects a hubristic drive for transcendence, detached from human-centered governance. Xi’s speech counters this: AI must remain “under human control,” with risks managed through laws, monitoring, and multilateralism, opposing the over-extension of national security pretexts.

The Dark Enlightenment Philosophy and Its Risks in the American AI Project

A deeper ideological current underpins the American AI order, as I have previously argued; namely, the influence of “Dark Enlightenment” thought among segments of the techno-elite. Associated with figures like Curtis Yarvin (Mencius Moldbug), and resonating in networks linked to Peter Thiel, JD Vance, and entities such as Palantir, this philosophy rejects egalitarian democracy in favor of hierarchical, accelerationist, and often anti-egalitarian visions of governance. Technology — particularly AGI — is framed not merely as a tool for prosperity but as an instrument for civilizational dominance, elite sovereignty, and a reconfiguration of power away from public accountability toward concentrated corporate-techno authority.

In this worldview, AI represents a mechanism to “win” existential contests, where a select vanguard directs societal outcomes, surveillance enhances state/corporate power, and democratic constraints are seen as obstacles to progress. Palantir’s emphasis on AI for defense, intelligence, and “winning” aligns with these currents, as do broader discourses skeptical of mass politics in favor of sovereign, CEO-like governance structures.

I have previously highlighted how this manifests in coordinated influence campaigns — super PACs tied to OpenAI, Palantir, and Andreessen Horowitz funding influencers to promote “American AI” supremacy while stoking fears of Chinese data risks and job losses. Such efforts sustain the narrative of an existential race, justifying subsidies, lax regulation, and procurement while deflecting from domestic bottlenecks.

Risks of This Philosophical Turn include:

1. Centralized Power and Accountability Erosion: Dark Enlightenment-adjacent visions prioritize elite direction over distributed sovereignty. This risks entrenching techno-oligarchic control, where AI systems serve narrow interests rather than broad human empowerment. In contrast to Xi’s insistence on AI remaining “under human control” and governed through multilateral consensus, this approach invites unaccountable decision-making by algorithms shaped by a narrow ideological cadre. The weaponization of data and platforms (echoing the US “Underground Empire” of fiber optics, SWIFT, and surveillance as documented by Newman and Farrell) extends this domestically and internationally, raising profound risks to civil liberties and pluralism.

2. Accelerationism and Existential Hazards: The pursuit of AGI as a near-theological imperative — “a God made by Humans” — carries unexamined risks of loss-of-control scenarios. While Xi’s speech stresses risk-awareness, early-warning systems, and opposition to overstretching national security pretexts that could justify unilateralism, Dark Enlightenment accelerationism downplays safeguards in favor of rapid dominance. I have also noted the thermodynamic and systemic entropy this generates: high-burn-rate models with questionable ROI, energy profligacy, and speculative bubbles that prioritize frontier hype over viable, deployable intelligence.

3. Social and Global Fragmentation: By framing competition in zero-sum, civilizational terms, this ideology exacerbates divides. Influence operations amplify “Team USA” patriotism while ignoring how US export controls have backfired — accelerating China’s self-reliant stack (e.g., NVIDIA’s reported zero market share in China’s AI accelerators, alongside DeepSeek and Qwen advances).

For the Global South, it offers a stark binary: subordinate to an exclusionary order or embrace more distributed alternatives. Equity concerns compound this; US data center siting has reportedly shifted burdens toward marginalized communities, echoing broader distributional failures.

4. Economic and Systemic Instability: High valuations (e.g., OpenAI’s pursuit of $850B+ amid massive projected losses) rest on monopoly narratives vulnerable to cheaper, open-weight Chinese models achieving practical parity at 5–10% of the cost. A correction could ripple through markets propped up by AI hype, affecting pensions and broader confidence. We can contrast this “hare” sprint — reliant on scarce premium hardware and energy — with China’s “tortoise” emphasis on efficiency, co-optimization, and accessibility.

China’s Alternative: Open-Source, People-Centered, and Sovereign AI

Xi’s address framed AI as a “new engine of world economic growth” and accelerator for shared prosperity. Key principles: openness and win-win innovation; security and controllability; inclusiveness and civilizational mutual learning; solidarity in global governance. China promotes open-source to democratize access, contrasting US proprietary barriers.

Beyond rhetoric, announcements include training programs, regional cooperation centers, and MAZU deployment. WAICO institutionalizes this. China positions itself “with” and “of” the Global South, bridging digital divides rather than widening them.

I have previously argued that China methodically builds systemic advantages: energy abundance, full-stack ecosystems (chips to applications), and rapid commercialization over pure scale. It is these systemic “whole stack” advantages that make it possible for American AI’s techno-colonial ambitions to be challenged.

Huawei’s τ (Tau) Scaling Law exemplifies the shift — optimizing for compute/energy/time rather than transistor shrinkage alone. This yields better power-performance-area (PPA) metrics, aligning with thermodynamic realities. This links to thermoeconomics: viable information maximizes negentropy (order and utility) relative to energetic costs.

China’s stack produces more viable information; US efforts risk unviable noise and entropy. Low-cost Chinese models (e.g., DeepSeek, Alibaba) are gaining traction globally, including in India and even the US, due to cost advantages amid transformer shortages and energy constraints. Yicai Global and SCMP reports highlight China’s pivot to full-system ecosystems and commercial deployment.

This can be understood as the reassertion of nation-state sovereignty in digital realms: data localization, open-source interoperability, collective truths over fragmented “truth tribes,” distributed ledgers for trust, and data ecologies as public goods. Huawei’s HarmonyOS and ecosystem contributions (e.g., Linux kernel, RISC-V) enable this multipolar architecture, countering US “Underground Empire” surveillance and weaponization (SWIFT precedents extended to tech). I have called this Digital Westphalia. Far from being isolationist, this speaks of a future of sovereign interoperability, which prevents hegemony while allowing collaboration on common standards via multilateral forums like the UN.

China’s approach to AI should not be misunderstood as a narrowly technocratic or state-driven response to geopolitical pressures. Rather, it is a response that is deeply rooted in enduring philosophical traditions, particularly Daoism (Taoism), which emphasizes harmony with the natural order (Dao), effortless action (wu wei), adaptability, simplicity, and the dynamic interplay of opposites (yin-yang).

This cultural-philosophical grounding contrasts sharply with Western framings often dominated by dualistic tensions — mind versus body, human versus machine, control versus chaos — and a Promethean quest for transcendence through AGI.

In Daoist thought, as articulated in the Dao De Jing and Zhuangzi, the Dao is an immanent, flowing principle underlying the universe. Wisdom lies not in imposing rigid order or conquering nature but in aligning with its patterns — observing, adapting, and allowing emergent processes to unfold. Applied to AI, this manifests as a preference for systems that integrate seamlessly with human society, physical infrastructure, and ecological realities rather than seeking to supplant or dominate them. Xi’s repeated calls for “people-centered” AI, “human control,” and AI that “empowers humanity writ large” echo this: technology as a harmonious extension of human endeavor, not a rival intelligence aspiring to godhood.

China’s shift “from size to speed” (e.g., Huawei’s τ Scaling Law), prioritizing compute/energy/time efficiency and full-stack co-optimization over raw scale points to a pragmatic emphasis that incorporates harmony and grounded deployment at the very heart of AI. This reflects Daoist pragmatism — wu wei as strategic non-forcing: working with material constraints (energy abundance, mature nodes, analogue chips) rather than against them through heroic over-engineering. Chinese models like DeepSeek and Qwen achieve practical parity or superiority in cost-effectiveness and deployability, enabling rapid commercialization and industrial integration (“AI+” initiative). This is “grounded AI”: embedded in the physical world, supporting intelligent manufacturing, agriculture, and public services without the entropic excesses of hyperscale Western data centers.

Daoist harmony (he) further informs the emphasis on inclusivity and civilizational mutual learning in Xi’s speech. AI should not erode cultural diversity but enrich the “garden of civilizations.” This stands in opposition to Western tendencies toward universalist imposition or apocalyptic dualisms (e.g., singularity fears or accelerationist hierarchies). Where some Dark Enlightenment influences in US circles envision AI as a tool for elite-directed civilizational overhaul or existential dominance, the Daoist-inflected Chinese path seeks balance: humans and machines in mutual reinforcement, yin (contemplative, ethical governance) and yang (innovative deployment) in dynamic equilibrium.

By way of contrast, Western AI discourse often inherits Judeo-Christian and Enlightenment legacies — creation ex nihilo, mastery over nature, and linear progress toward transcendence. The AGI pursuit embodies a Faustian bargain: humanity playing God, risking hubris and loss of control. Philosophical critiques (e.g., Hubert Dreyfus’ famous arguments about embodiment as the sine qua non of human intelligence in the world) expose the limits of disembodied computation, yet the cultural momentum persists.

Daoism, by contrast, views intelligence as emergent from relational flows, not isolated symbolic manipulation. AI becomes a companion in the ecosystem — adaptable, decentralized, and attuned to context — rather than an autonomous overlord.

This philosophical divergence yields tangible advantages. China’s stack produces what I call more viable information when put into thermoeconomic terms: lower energetic costs relative to systemic negentropy (order, utility and coordination). Open-source dissemination aligns with Daoist simplicity and sharing, democratizing access for the Global South and countering techno-feudal rents. It enables sovereignty-compatible development — nations adapting AI to local Dao — rather than lock-in to proprietary, high-cost ecosystems.

Critics may view state guidance as antithetical to Daoist spontaneity, yet in practice, China’s “effective market + well-functioning government” model creates conditions for emergent innovation while steering toward harmonious outcomes (e.g., safety, inclusivity and ecological integration being key design components). Xi’s vision of AI as a “symphony of international cooperation” rather than solo performance resonates with Daoist orchestration of collective flows.

Xi’s vision counters the Dark Enlightenment risks by advocating inclusiveness, civilizational mutual learning, and AI as a “common asset” of humanity. It rejects monopolies and promotes capacity-building that respects diversity rather than imposing a singular ideological or technological hegemony. This can be framed as a broader contest of visions for humanity’s future, and not be reduced to a crude nation-state rivalry. The contrast being drawn is between concentrated elite visions and sovereignty-compatible, distributed development. Digital Westphalia — open-source interoperability, data sovereignty, and public-good ecologies — offers a stabilizing alternative that mitigates the dark underbelly of unaccountable accelerationism.

This philosophical divergence amplifies material contrasts. Where Dark Enlightenment thinking fuels exclusionary races, China’s grounded, people-centered approach — evident in practical announcements at WAIC — prioritizes shared tools for human flourishing. The Global South, and indeed ordinary citizens in the US facing rising energy costs and inequality, stand to gain from the latter path. Ignoring these ideological risks risks not only technological lock-in but a deeper erosion of pluralistic, accountable futures.

Daoist roots provide China with a resilient philosophical operating system for AI: pragmatic, harmonious and human-grounded. This complements material strengths (energy, co-optimization and open architectures) and positions China’s alternative as not only competitive but civilizational — offering the Global South tools for endogenous modernization rather than imported transcendence or dependency.This grounded path merits study in the West, where philosophical overreach risks compounding thermodynamic and social entropy. The choice is between flowing with reality or forcing a singular, fragile vision upon it.

Global South Choice: Empowerment vs. Lock-In

For developing nations, the calculus is stark. US models promise cutting-edge capability but deliver dependency, high costs, and vulnerability to sanctions or policy shifts (e.g., NSF restrictions on Chinese collaborations are a recent case in point). Chinese offerings provide accessible tools for local adaptation: cheaper inference/training, edge computing for agriculture/industry, and governance frameworks respecting cultural diversity.

Xi’s emphasis on “AI for all” and avoiding “new historical injustice” directly addresses colonial legacies. Chinese advantages in analogue chips, energy, and co-optimization enable broad industrial transformation — thousands of nodes per factory at low TCO — versus constrained US deployments.

In the US and the West, AI runs the risk of exacerbating ever-widening inequalities. Data centers strain grids, raising costs for ordinary households while benefits accrue to tech elites. Global South adoption of the US stack risks similar hollowing-out without sovereignty gains. China’s model supports “intelligent manufacturing” and modernization suited to local contexts.

Toward a Just Digital Order

Xi advocates shaping AI values with “humanity’s common values” while preserving civilizational diversity. This contrasts with Western AGI pursuits tinged with exceptionalism and transcendence fantasies. This pursuit is as dangerous as it is philosophically flawed and entropically costly. A grounded, human-in-the-loop approach — prioritizing safety, ethics, and applicability — better serves humanity writ large.

“Techno-feudalism” globalizes into techno-colonialism via rents and expropriation. Digital Westphalia restores balance: states as primary actors, technology as enabler rather than dominator.

Xi’s Shanghai speech and initiatives signal China’s commitment to a multipolar AI future. By contrasting open, sovereign, people-centered development with proprietary lock-in, it offers the Global South agency. The transition from techno-colonialism to Digital Westphalia is underway. It promises reduced rents, enhanced sovereignty, distributed empowerment and broader prosperity — if nations and communities in them seize the opportunity. For ordinary people in the US and the West more broadly, escaping high-cost, entropic AI dynamics also holds appeal. Humanity’s collective wisdom, as Xi noted, should guide AI toward shared flourishing, and not be the seeds of division.

Before us are critical choices. Rosa Luxemburg once pitched the question of the times as one between socialism or barbarism; for her, the barbarism of the 1920s was the rising tide of Fascism. A century on, we again confront the risks and threats of our own contemporary throw-back of barbarism; techno-colonialism or a future of Digital Westphalia in which collaborative enablement gets the better of hegemonic dependence. The latter aligns with an equitable, sustainable digital order; the former risks repeating history’s injustices in technological garb.

About the Author

Warwick Powell is an adjunct professor at the Queensland University of Technology, and a Guancha columnist.

Foreign Affairs recently published an essay by Shoumitro Chatterjee and Arvind Subramanian arguing that China has “pulled up the ladder” behind it. Their claim, put plainly, is that China rose through export-led industrialization and now occupies so much of the lower end of manufacturing that poorer countries can no longer use the same path. From that premise comes a policy recommendation: pressure China to vacate more of that space so late-developing economies can move in. This argument depends on a story about history as much as on a story about trade. It assumes that the world economy once offered a broadly open and reasonably fair route to industrialization, that the West facilitated, and from which China now departs. Without that assumption the argument immediately crumbles. The real issue is not whether China has betrayed a generous developmental order. The issue that matters is who built that order, which countries were permitted to rise within it, which countries were confined to subordinate roles, and whose interests the system was designed to serve.

In light of those questions, our essay makes three claims. First, the postwar development order never functioned as an open ladder available to all. It operated as a hierarchy created by Western powers, and access to industrial upgrading was extended selectively, usually where geopolitical advantage was needed. Second, many countries in Africa and Latin America were not blocked from industrialization by China’s later success. They were constrained much earlier by debt regimes, structural adjustment, restricted policy space, and a global division of labor that kept them in commodity and low-value positions. Third, Chinese engagement in the Global South has produced contradictions, but it cannot be understood through the crude formula that China simply steals opportunity from the poor. In all cases, Chinese capital has built infrastructure, manufacturing capacity, and local linkages that Western engagement either neglected or actively discouraged.

A methodological point belongs up front, because the original argument leans heavily on trade-in-value-added estimates. Those measures can be useful, but only if they are applied consistently. If one follows value-added through the chain, the obvious question is not just how much low-skill export value China retains. The deeper question is who captures design rents, technology rents, branding power, logistics margins, financing, and downstream control. Western lead firms still dominate those segments across much of the global economy. A framework that highlights China’s share of assembly or lower-end export value while passing lightly over Western control of the most profitable functions produces a distorted picture from the beginning. The distortion grows sharper once one remembers that these datasets lag real shifts on the ground. Supply chains have already been moving. Yet a moving target is being used to support a fixed moral claim.

A Hierarchy, Not a Ladder

The postwar order did not offer all developing countries a common route upward. What it did do was organize economic advancement through layers of power. The United States built a regional and global system in which selected East Asian economies could industrialize, but they did so inside a structure whose strategic direction, financial leverage, technological ownership, and consumer-market power remained concentrated in the advanced capitalist core. That distinction matters because factories could relocate, assembly could move, yet the activities that generated the highest returns remained elsewhere. Patents, finance, software, standards, high-end components, global branding, and final market access stayed concentrated in the United States, Western Europe, and, in some sectors, Japan. The World Bank’s own study of the East Asian Miracle recognized that foreign investors retained control over proprietary technologies and shaped the terms under which recipient economies could gain access to them. Even where production shifted geographically, command over the chain did not shift in the same way. This selective industrialization was not politically innocent. The countries most clearly allowed to rise under the U.S.-led order were not chosen by accident. Japan, South Korea, Taiwan, Hong Kong, and Singapore occupied frontline positions in the Cold War. Their economic success strengthened a strategic bloc in which they were developed as industrial allies inside a global security architecture. Even China’s later integration into the world economy followed political reasoning. Washington did not facilitate China’s entry into the global trading system out of abstract generosity. Many Western policymakers believed integration would transform China from within, soften its political system, and eventually fold it securely into a U.S.-centered order. That judgment now appears, in retrospect, to have been naive, but the strategic calculus behind it was never benign.

From this perspective, Asia’s contrast with Africa and Latin America is striking. Those regions were rarely treated as sites for parallel industrial ascent. Much more often, they were drawn into a center-periphery structure where their role was to export minerals, agricultural commodities, and lower-value goods while importing technology, capital goods, and high-value manufactured products. Coffee, copper, cobalt, soy, oil, iron ore, lithium, and even quinoa could travel outward from the periphery, but pricing power, processing depth, branding, finance, and technological command sat in the West. An iPhone assembled in China still delivered its richest margins to firms controlling design, software, intellectual property, and global distribution. A Bolivian or African commodity producer could increase output without gaining equivalent leverage over the terms of trade. That is how the hierarchy was designed to work. Value created at the bottom moves upward even when production spreads outward. Once we name this structure clearly, a question should intuitively follow. Were countries outside the favoured East Asian tier given similar room to build the institutions, industrial capacity, and policy autonomy necessary for independent upgrading? In Africa and much of Latin America, they were not.

How the Periphery Was Kept in Place

To understand the current debate about China, one has to start earlier than China’s manufacturing rise. Why did so many African economies not industrialize under Western tutelage if the system was as open and facilitative as some now imply? Why did Latin America’s industrialization repeatedly stall, reverse, or get trapped short of transformation? The answer lies not in a sudden shortage of effort, but in the international conditions under which those regions were forced to operate.

From the 1980s onward, structural adjustment programs attached to IMF and World Bank lending sharply narrowed the policy space available to indebted states across Africa and Latin America. Governments facing crisis had to cut spending, remove trade barriers, privatize state firms, liberalize capital accounts, reduce industrial subsidies, and dismantle state-directed credit systems. These measures were not negotiated from a position of equality. They were imposed in moments of financial distress, when debtor states had little leverage and acute financing needs. What made this especially destructive was the historical double standard beneath it. Every successful industrializer had used some combination of tariffs, public banking, industrial subsidies, capital management, or state guidance. Britain had done so in earlier forms. The United States had done so. Germany, Japan, South Korea, and Taiwan had all relied on statist policy tools. Yet once many African and Latin American countries needed similar instruments, the Western-controlled international financial system recast those tools as illegitimate distortions of “proper” economics.

The damage was not abstract. Fiscal contraction weakened education and health systems. Public investment stalled. Infrastructure deteriorated or failed to expand at the pace industrialization required. Domestic firms lost protection before they gained competitiveness. Long-term financing dried up. All of these combined with forced capital account liberalization exposed fragile economies to sudden reversals that disrupted industrial planning and amplified vulnerability. This history matters because it identifies the real source of vulnerability in many poorer economies. A country with unstable electricity, thin credit markets, poor transport links, weak technical training, and limited state capacity will struggle against any efficient external competitor, Chinese or otherwise. When that country then loses firms or jobs under import pressure, the surface effect is visible but the underlying cause gets misread or misdirected. China did not create those structural weaknesses. It entered a field already shaped by decades of constrained development. By no means should China be held responsible for the structural deficits borne of Western exploitation decades earlier.

Chinese Competition and the Problem of Causality

That does not mean Chinese imports have had no effects. In labor-intensive sectors in South Africa and elsewhere, Chinese import penetration has certainly reduced manufacturing output and employment. Firm-level research across sub-Saharan Africa also shows that exposure to Chinese imports can undermine growth where domestic producers are fragile. Those findings are real and they should be taken seriously. Still, the jump from “Chinese competition can hurt vulnerable firms” to “China has closed the path of development for poorer countries” remains analytically weak. It assumes a fixed world in which one country’s manufacturing gain must necessarily erase another’s possibility. That is simply a much stronger claim than the evidence supports. Part of the problem lies in the category itself. “Low-skill manufacturing” sounds simple, but the underlying production chains are not simple at all. What appears labor-intensive at the final assembly stage often depends on upstream segments that require machinery, reliable energy, industrial chemicals, logistics systems, standardized inputs, technical management, and quality control. Those functions do not disappear just because commentators label the final product low-skill. When China remains dominant in upstream segments, that does not automatically mean it has robbed poorer countries of their natural industrial role. In almost all cases, Chinese intermediate goods, global logistics networks, and industrial inputs are what allow factories elsewhere to operate in the first place. That is why domestic absorptive capacity matters so much. Research on African firms repeatedly shows that infrastructure quality, managerial capacity, institutional effectiveness, and human capital shape whether competition becomes destructive or developmental. Stronger firms can use cheaper imported inputs to raise productivity. Weaker ones collapse under the same pressure. Economically speaking, the right conclusion is not that Chinese competition is harmless, nor that it mechanically blocks late industrialization. The right conclusion is that competition lands on unequal ground. Where the underlying industrial base has been weakened by earlier international constraints, Chinese imports expose that weakness.

The Manufacturing Window Is Still Open

Another problem in the “pulled up the ladder” thesis lies in its treatment of manufacturing space as if it were closed and static. It is neither. Supply chains have been reorganizing in response to tariffs, geopolitical risk, labor costs, and strategic diversification. China’s direct share of U.S. imports has fallen markedly from earlier highs. Vietnam, Mexico, and other developing economies, in response, have captured part of that reallocation, demonstrating that the global manufacturing space has remained responsive to dynamic macro trends.

Bangladesh and Vietnam illustrate the point from different angles. Bangladesh has retained a major place in global garments while China remained dominant in manufacturing more broadly. Meanwhile, Vietnam has expanded electronics exports dramatically without waiting for China to withdraw from the field. These cases do not prove that the path is easy or universally available, but they do show that Chinese strength does not by itself seal off the route.

Where countries fail to capture shifting production, the explanation usually lies in domestic and structural constraints that the “China blocked us” story flattens into a single cause. Nigeria’s industrial weakness has been shaped heavily by infrastructure failure, especially in electricity. Zambia’s manufacturing diversification has stalled amid debt distress and regulatory instability, constraints that long predate any meaningful competition from Chinese imports. Beyond such country-specific cases sits a broader structural change: automation has reduced the labor absorption capacity of manufacturing across the world. Many developing economies now face premature deindustrialization, peaking earlier and at lower income levels than earlier industrializers did. That would remain true even in a world where China were less competitive.

What Chinese Engagement Builds

The Foreign Affairs “China floods markets and crowds out industry” narrative also obscures something more concrete. Chinese firms and financiers have built a great deal across the Global South. They have financed ports, roads, railways, energy projects, industrial parks, logistics corridors, and manufacturing sites-exactly the things the Global South were denied by years of Western structural intervention. In many countries, Chinese investment has created jobs, transferred skills, expanded subcontracting, and connected local production to a global supply network in which goods from the African plains and the Latin American rainforests can reach the world. That record does not justify romanticism. Chinese projects can be opaque. Debt burdens can become politically fraught. Labor disputes do occur and environmental standards vary. Yet none of that changes the larger comparative point. In many Global South settings, Chinese capital has transformed sectors tied to production and logistics. Western engagement, by contrast, has more often concentrated on pure extraction, finance, services, and reshaping the governance conditions of receiving countries to ease political leverage.

Manufacturing offers clear examples. Research on Chinese industrial investment across seven African countries-including Kenya, Tanzania, Zambia, and Nigeria-documented job creation, factory-level training, quality-standard transfer, and local supplier linkages at scale. Across those cases, over 85 percent of workers employed by Chinese manufacturing firms were local, and Chinese firms were more likely to provide labor training than their domestic counterparts. In Tanzania specifically, Chinese investment in plastics recycling generated local entrepreneurship by transferring equipment to former employees at reduced cost, seeding an entire sector of local business. In the Tanzanian manufacturing corridor around Mkuranga and Kibaha, Chinese-financed industrial parks and energy projects have attracted further domestic and foreign investment by making reliable electricity and logistics available where they previously were not. Broader survey evidence from Ghana found Chinese firms in some manufacturing sectors sourcing more heavily from local suppliers than comparable non-Chinese firms. None of that means Chinese investment automatically delivers deep industrial transformation. It does mean the blanket image of Chinese capital as a purely predatory force is inaccurate.

The contrast is even sharper in extractive sectors, where the history of Western involvement is especially revealing. For decades, external actors treated African and Latin American resource economies as zones of concessionary access. While minerals and commodities exited, processing did not. Infrastructure, where it existed, frequently served the corridor from mine to port rather than the broader national economy. In contrast, Chinese firms have often escaped the purely extractive logic. Chinese projects have tied extraction to ancillary infrastructure, local processing ambitions, and cooperation with domestic firms in ways older concession models did not. In turn, the Chinese model creates more embedded capacity than the older pattern of enclave extraction and provides the invested state with a much more sustainable network of actors and capabilities to build towards industrialization.

The key point, then, is comparative. China should not be measured against an imaginary ideal of benevolent development partnership. It should be measured against the actual historical record of Western commercial and financial engagement. Once that comparison is made, a pattern appears. Western involvement has more often preserved dependency through conditional lending, commodity access, and control over high-value functions. Chinese involvement, while hardly free of power asymmetries, has more often built infrastructure and production sites that expand the possibility of local industrial capacity.

Let the Countries Themselves Define the Problem

One of the least defensible assumptions in the Foreign Affairs argument is also the most revealing. The authors assume that analysts writing from Washington can identify the developmental interests of the Global South more clearly than the states and societies living through these choices themselves. That is an extraordinary claim, especially because it receives so little defence.

African governments and publics have not spoken with one voice, nor should anyone expect them to. They criticize Chinese lending, labor practices, contract opacity, and debt terms where those problems exist. They also criticize Western conditionality, paternalism, and the insistence that African states choose sides inside someone else’s strategic rivalry. Survey data, meanwhile, show substantial support for engagement with China, often higher than support for Western powers. Policy research from African cases also shows that many governments want diversified partnerships rather than externally dictated alignments. They prefer room to bargain, compare, and choose. That stance should not be dismissed as naivety. It reflects a sober understanding of development sovereignty. Governments in the Global South do not need external actors to tell them that all partnerships carry risks. They already know that. What many of them reject is the claim that one set of outside powers retains the authority to define what counts as legitimate development strategy while another set is condemned in advance for diverging from that script.

The Real Question

The deepest weakness in the “China pulled up the ladder” thesis is not empirical but conceptual. It takes China’s refusal to behave according to Western developmental expectations and turns that refusal into proof of harm. In doing so, it skips over the prior history of selection, hierarchy, and exclusion that structured the global economy long before China became a manufacturing giant. A more honest starting point would ask different questions. Who built the system in which high-value functions remained concentrated in the core? Who denied many poorer states the policy tools that successful industrializers had used? Who benefited from keeping Africa and Latin America tied to commodity dependence and financial vulnerability? Who now claims the right to define which forms of industrial policy are acceptable and which are distortions?

Once those questions are asked, the moral geometry of the debate changes. China is not a naive actor. It pursues advantage, protects its own industrial position, and always competes to win. But neither is it the author of the underlying structure within which many developing countries struggle to develop. Much of the Global South confronts Chinese competition from a position weakened by an earlier order that was never designed for its full industrial ascent. That is why the central issue is not whether China has pulled up a ladder that once stood open to all. The central issue is whether the countries long confined to the lower rungs of the world economy will gain the power to define development on their own terms, rebuild domestic capacity, and negotiate external relationships without being forced back into roles written for them by others. Only that question reaches the root of the problem.

About the author:

Liu Heng is an commentator of global politics and economics.

The NATO summit is taking place in Türkiye from July 7 to 8. How exactly did Türkiye become a member of NATO? What is its historical entanglement with China from that era? Today, amid incessant clamor for NATO to adopt a hardline stance against China—and even machinations to forge an “Asia-Pacific NATO”—what profound implications does this history hold for relevant nations?

Not a “Waiting Room”, But a “Workshop”

The story begins with a rejection. When NATO was established in April 1949, Türkiye was excluded. For Ankara—which since 1945 had viewed Soviet pressure, specifically its demands regarding the Straits and territorial claims over Kars and Ardahan, as an absolute existential threat—this rejection inflicted a profound strategic trauma.

The fourteen months between this rejection and the outbreak of the Korean War are typically characterized as a “waiting room”. Archival documents, however, present an entirely different picture: this period was not a waiting room, but rather a workshop.

During these fourteen months, Turkish diplomacy meticulously constructed four institutional mechanisms: In August 1949, it officially recognized the South Korean authorities, formulating them as the “only lawful government in the Korean Peninsula with Seoul as its capital”; in October 1949, it secured membership in the United Nations Commission on Korea; it campaigned for a non-permanent seat on the UN Security Council; and it maintained systematic alignment with the U.S. bloc during UN General Assembly votes.

The target of this architecture was not Korea. No one in Ankara foresaw a war there. The true objective was to construct an institutional position that would allow any strategic opportunity emerging in the future to be swiftly exploited. I have termed this behavioral pattern “defensive opportunism”: a state, operating under the perception of an existential threat, leverages a pre-constructed institutional position to transform an unforeseen crisis into strategic capital.

A Decision Reached Within a Single Day

When the war broke out on June 25, 1950, this architecture was immediately activated. Without any treaty obligations or public demand, Ankara decided on July 22—after less than a single day of deliberation—to dispatch a 4,500-strong combat brigade to Korea.

The true intention behind this decision was laid completely bare six days later: in a press statement on July 28, Selim Sarper, the Permanent Representative of Türkiye to the United Nations, publicly demanded inclusion in the Atlantic Pact. Records of Sarper’s meeting with UN Secretary-General Trygve Lie prove that the expectation of a reciprocal reward was unequivocally voiced. The membership that had been rejected fifteen months earlier was now placed back on the table, paid for with blood spilled on the Korean battlefield.

This investment paid off. Archives reveal that the structural decision to integrate Türkiye into the Atlantic security system was actually conveyed to Ankara as early as November 1, 1950. The formal invitation was issued in 1951, and Türkiye became a full member in February 1952.

Strikingly, as Turkish diplomacy made this calculated move, it was fully aware of China’s stance. A telegram dated July 2, 1950, from the Turkish representative office in Hong Kong relayed Beijing’s views to Ankara verbatim: China based its historic rights over the Taiwan region on the Cairo and Potsdam Declarations, and characterized the deployment of the Seventh Fleet to the Taiwan Strait as an act of imperialism.

Meanwhile, a July 12 telegram from the embassy in Moscow reported that a potential compromise solution might entail the admission of China into the United Nations and the restoration of the Taiwan region to China.

Ankara saw this panorama clearly. Yet it chose to align itself with the camp standing in direct opposition to these demands.

The China Pillar in the Cost

In this historical ledger, a pillar long overlooked by historical narratives is China. The primary adversary of the Turkish Brigade on the Korean battlefield was precisely the Chinese People’s Volunteer Army (PVA): at the battles of Wawon and Kunu-ri in November and December 1950, and at Kumyangjang-ni in January 1951.

The battlefield reports communicated by the United States to Ankara became the “combat capital” in Türkiye’s diplomatic sphere and were put to tangible use. The credit required to unlock the door to NATO was accumulated precisely through successive battles fought against the PVA.

The picture on the diplomatic front was even clearer. When the United Kingdom recognized the People’s Republic of China (PRC) in January 1950, Türkiye stood firmly with Washington in maintaining a stance of non-recognition. Selim Sarper’s lengthy report on January 25, 1951, concluded that the rift within the Atlantic bloc originated exactly from this issue of recognition, dividing the member states within the United Nations into four camps. In an atmosphere where even the UK and its dominions were searching for mitigating rhetoric such as “assisting aggression”, Türkiye remained firmly anchored to the most hardline U.S. trajectory.

On the very last day of December 1950, the so-called “Chinese Ambassador” received by Turkish Foreign Minister Mehmet Fuat Köprülü in Ankara was not Beijing’s representative but Lee Ti-tsun, the representative of the Taiwan authorities. Meeting records reveal that the two sides jointly analyzed the war potential of the Chinese People’s Volunteer Army and the Soviet supply lines.

In February 1951, Türkiye ranked among the most active supporters of the UN General Assembly resolution declaring China an “aggressor”. In May 1951, during the drafting process of the resolution on a strategic embargo against China, Türkiye chaired the relevant committee; after the resolution was passed on May 18, Türkiye was once again among the first nations to submit an implementation report.

Contrasted against the abstentions cast by Sweden and seven nations of the Arab-Asian bloc, this eagerness from Ankara can be clearly read in the archival correspondence as a calculated imperative to be sure to stand with the majority.

The result: Türkiye did not recognize the People’s Republic of China until 1971, leaving the relationship between the two Eurasian major powers frozen for two full decades. The bill for NATO membership included not only Moscow but also Beijing.

Another Legacy of the Same Era

Another consequence of the same Cold War alignment must also be entered into the record. During the very years that Türkiye was anchoring itself to the Atlantic bloc, a group of political exiles from Xinjiang who had left China after the founding of the People’s Republic of China in 1949 turned toward Türkiye: former Xinjiang officials Isa Yusuf Alptekin and Mehmet Emin Buğra settled in Türkiye. In 1952, the Ankara government issued a decree to receive thousands of Xinjiang migrants arriving via Kashmir.

In the decades that followed, Istanbul gradually became one of the main operational hubs for Uyghur separatist organizations aimed at fracturing China’s territorial integrity.

This was no coincidence: a diplomatic axis that declared China an “aggressor” while simultaneously sheltering separatist exile forces fleeing China—these are two sides of the same coin within the logic of the bloc.

One of the most sensitive issues in China-Türkiye relations today can be traced back to those three years when NATO membership was “bought”.

A Reminder from the Summit

As Türkiye hosts the NATO summit today, this foundational history of its membership serves as a reminder of two things. First, Türkiye was not admitted to the alliance as the recipient of a “security gift”. It purchased its membership through a deliberate strategic investment—paid for with the blood of its soldiers in a distant war.

Second, and even more critical for today, the implicit cost of this investment was paid in Asia. A middle power, succumbing to the logic of the bloc, accepted a twenty-year freeze in its relations with an Asian major power—China—with which it had no direct conflict of historical interests, and accepted the hosting of exile forces on its own soil that encroached upon China’s internal affairs.

Seventy-five years later, as the world is once again dragged into the vortex of bloc politics, this historical lesson is worth remembering within the summit venue: the explicit cost of an alliance is the membership fee, while its implicit cost lies in the relationships discarded behind the closed doors. The trust that China and Türkiye are working hard to rebuild today is the very trust that was lost in those years.

About the Author:

Serdar Yurtcicek, a Turkish scholar and Associate Research Professor at the Shanghai Academy of Global Governance and Area Studies (SAGGAS) under Shanghai International Studies University (SISU).

On the eve of Independence Day, Guancha.cn spoke with Yu Yaoxiang, a Chinese student currently studying in the United States. As a young observer who has long followed American social issues, he shared his firsthand impressions and reflections on this deep ideological divide.

Guancha.cn: This year’s U.S. Independence Day drew global attention because it marked the 250th anniversary of the country’s founding. Within the United States, the “America 250” commission was established as early as 2016. After taking office, Donald Trump naturally launched his own “Freedom 250” initiative, hosting large expos, UFC fights, and even renovating the Lincoln Memorial Reflecting Pool. These two parallel celebratory systems operate simultaneously but refuse to acknowledge each other.

This is a fascinating phenomenon that gives us a new vantage point on the American political ecology: today’s America seems to split almost everything into two opposing camps.Having lived in the U.S. for years, when did you first start feeling this antagonism? Why has it evolved into its current form?

Yu Yaoxiang: I went to the U.S. in 2015. Coincidentally, Trump announced his presidential campaign the very next year. So for me, the experience of polarization began exactly at that moment.

Interestingly, American academics also treat Trump’s candidacy as a landmark in the country’s fracture. After his victory, they widely invoked “populism” as the main frame—a concept with a clear left-liberal undertone that, from an authoritative standpoint, branded the social consensus Trump represented as deviant or heretical. For the right wing, this became proof that the ruling establishment and the mainstream media under its control were hostile to them.

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From that point on, a conflict between two worldviews and political ideologies took center stage, each focused on establishing its own legitimacy. It ceased to be a mere difference of political opinion and became two conflicting ontological visions inhabiting the same land. To borrow from Hegel, it is a “life-and-death struggle for recognition.” Today, both sides barely acknowledge each other’s citizenship or extend the basic moral respect modern individuals owe one another.

You described the situation as “tit-for-tat,” but in reality the truth is almost the opposite. Mutual negation and revulsion between the American left and right have reached the point where they are “too lazy to even go tit-for-tat.” That is the truly dangerous scenario—both sides see the other as hopelessly irredeemable, unworthy of engagement, incapable of consensus, and not even worth arguing with.

As a result, both sides have isolated themselves completely. In the public sphere, what remains is either indifference or conflict—and this conflict is not even aimed at defeating the opponent, but at venting emotions and degrading the other. This kind of public opinion environment is not unique to the U.S.; it is a universal feature of the internet and new-media era. But because American public discourse is tightly intertwined with national politics and civic values, the phenomenon manifests with far greater intensity.

Polarization in American society has moved beyond a clash among social groups in a particular era. It has become a fundamental issue about the trajectory of the nation and even of American civilization itself—if we consider it an emerging civilization. The standard academic explanation traces the left–right conflict to wealth inequality generated by 21st‑century globalization and to class tensions triggered by the decline of domestic labor. Political movements led by the American left and the Democratic Party—multiculturalism, progressive egalitarianism, and various human-rights narratives—provoked a backlash from conservative groups. The convergence and eruption of these forces produced the current situation. Yet this remains a relatively narrow explanation, confined to a 21st‑century lens.

More fundamentally, America’s left–right divide reflects a broader problem of historical positioning faced by the West as a whole, with the U.S. as the leading representative of Western civilizational development. After ushering in a global era through technological revolutions, maritime trade, and colonialism, Western civilization as hegemon now oscillates between two identities: an older identity rooted in specific ethnic, racial, religious, and cultural values, and a newer identity that claims to champion universal human values. In the early global era, the West could rely on political, economic, and military superiority to suppress friction between these identities and continue to pose as the exemplar of human civilization.

The United States is the child of this dual identity, the most up-to-date model of Western civilization. On one hand, it exports “universal values” to the world, along with commodities that seem to transcend cultural differences: fast food, Coca‑Cola, sports, pop culture, and individualistic hero narratives. On the other hand, it constantly highlights the Western cultural roots of these exports and asserts the dominance of Western worldviews and philosophy.

However, there is a structural conflict between a restrictive national identity and its antithetical global identity, and this conflict remains unresolved despite constant eruptions. Issues of post‑colonialism, racial discrimination, and ethnic tension inside the United States are direct manifestations of this dual Western identity. Put more bluntly: the United States has constructed a universal national narrative for itself. To sustain that narrative, it can no longer remain a purely white‑centric nation dominated by white ideology. Based on differing fantasies about these two narratives—or civilizational trajectories—the American left and right have plunged into an existential zero‑sum game.

But I want to stress that both sides’ worldviews are anachronistic fantasies. They are utopian visions generated by self‑defense mechanisms when prevailing values come under attack. The underlying interest conflicts driving them, however, are very real. At root, the conflict stems from the development of capitalism, which drives globalization and, in Marx’s words, “destroys all old forms of human life.” Capitalism requires a parallel, dehumanized social order stripped of intrinsic values to serve as its vessel. The United States is now enduring the shockwaves of this remolding by capital. Unable to clearly perceive this reality, the country has thrown itself into a paranoid embrace on the left and a paranoid resistance on the right.

The left misreads this dehumanizing nullification of social values as universal egalitarianism for all humanity. This is why many “political correctness” movements, although nominally left‑wing, have enjoyed strong backing from American capital. The right, lacking a national or civilizational value system that can adapt to the new era, can only retreat into historical religion and traditional values to construct a narrative of resistance—which is why they look so bigoted and obsolete.

Under this domestic left–right schism, the honeymoon between Western civilizational dominance and the globalization unleashed by capitalism is ending. Western civilization, which relied on capitalist development to build itself up, is becoming the first civilizational victim to be strangled by capitalism itself.

Guancha.cn: Multiple polls（Gallup + Reuters/Ipsos）show that on the eve of Independence Day, American national pride fell to its lowest point in 25 years—only 33% of respondents said they felt “extremely proud”; about 80% believe the signers of the Declaration of Independence would be disappointed in today’s America; and 40% do not even believe the United States will survive another 250 years. One African‑American activist bluntly said, “I look at this country almost in mourning.” Having spent this year in the U.S., how did you perceive the Independence Day atmosphere? What were the sentiments among your classmates, colleagues, and friends? Did attitudes differ across party lines and ethnic groups?

Yu Yaoxiang: The people I interact with, including friends on social media, are mostly young adults. Our social class and educational backgrounds are fairly similar, so I can only speak for that demographic.

It is quite clear that attention to and participation in Independence Day directly correlates with political orientation. My Christian friends on social media, for instance, visibly cared more about the holiday and posted more often. A couple even traveled early to Washington, D.C. to attend concerts and go clubbing. These families generally place more emphasis on traditional values and view the Trump administration more favorably.

At the same time, because we are in California and occupy a relatively affluent socio‑cultural stratum—one that the left largely dominates—I can feel that many of their political views are suppressed. On issues sensitive to Christians, such as gender diversity and sexual orientation, they rarely express their opinions on social media. They tend to compensate for this political absence by leaning into more neutral patriotic themes.

By contrast, most of my social circle consists of young left‑leaning individuals. I completed both my undergraduate and master’s degrees in deep‑blue regions at universities that are progressive strongholds, so I interact more frequently with them. Backed by political correctness, their critiques of Trump and current U.S. policies are much more explicit, and their voices dominate the discourse.

Most of them are completely apathetic toward the 250th anniversary. Their indifference directly reflects their attitude toward the country itself. For young leftists, because American history is saturated with colonialism, systemic racism, and the oppression and control of other peoples and regions, it is simply not a history they can feel proud of.

At the same time, the Trump administration’s agenda clashes entirely with its core values. In their view, the United States no longer represents the “universal values” it claims to uphold. Patriotism has become an outdated concept, fundamentally misaligned with their political identity. Within left‑wing circles, openly expressing patriotism is almost a faux pas—an act of nonconformity that contradicts their ideology. Trump’s sensationalization of the holiday disgusts them even more.

So if you look at their social media feeds, it is as if Independence Day does not exist. You may even see posts using the holiday and American history as a pretext to attack Trump. Naturally, this “unpatriotic” behavior has become one of the main targets of right‑wing criticism.

Guancha.cn: On June 30, the U.S. Office of Government Ethics released Trump’s annual financial disclosure, showing that his total income in 2025 was at least $2.2 billion. This set a record for wealth accumulation by a sitting president in modern U.S. history. Trump attributed his gains to the surging stock market, while the White House stressed that he had placed his businesses in a trust managed by his children and claimed that “there is no conflict of interest whatsoever.” What’s your take on this issue?

Yu Yaoxiang: Trump’s rise began as an eruption of pent‑up right‑wing frustration and as a “freak outcome” fueled by the public appetite for spectacle in 2016, but it has since solidified into a template for a new political model. Amid the current wave of scandals and domestic and international tensions, his public support has taken a hit. But this does not mean the right is weakening or that the Democratic “blue camp” is resurging.

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The reason no one seems able to constrain him is that the public sentiment he represents consists of people who question the very legitimacy of the American system and its political structure. They love his posture of bypassing the decayed, bloated, and left‑leaning separation‑of‑powers system to expand executive authority and push through reforms. Even moderate, pan‑right swing voters whose personal enthusiasm for Trump has faded have not abandoned their core goal: suppressing the wave of left‑wing ideology and preserving traditional white social values.

Trump’s brazenness is therefore not just personal abuse of power. Behind him stands a populace exhausted by the prevailing political climate and by the narrative of political correctness. More importantly, behind him stands an emerging cohort of politicians eager to inherit his mantle, using him to accumulate capital and climb the political ladder. That cohort is his real political base.

Emerging right‑wing politicians such as J.D. Vance use Trump’s “unconventionality” to expand their own influence. They reap the dividends and let Trump bear the risks and blame. They too challenge the existing political system. Put bluntly, they want to adopt the “Trump model”: leveraging populist support and intra‑party inheritance—especially Trump’s personal brand—to bypass the traditional promotion ladder. This is exactly the kind of populist route that mainstream academics and the blue establishment criticized in 2016.

But before Trump, wasn’t the left‑ward shift of the American political climate over the past 10–15 years—and the wave of identity‑politics movements that followed—also a kind of populist politics? We might call it a “more civilized populism.” What Trump and the far right are doing is giving them a taste of their own medicine, but in a more ruthless form. The lack of constraints on Trump also reflects public disgust with the Democratic Party. Today, moderate swing voters often express an attitude that might be summarized as: “We would rather have Caesar than the Senate.”

Finally, among Trump’s supporters, we now see emerging factions of capital, including cryptocurrency finance and cutting‑edge tech capital such as artificial intelligence. Observers in China often stress the tensions between tech firms and Trump’s foreign policy. That tension exists, but it is more important to note that under Trump—and in the foreseeable future—these capital forces are becoming even more deeply intertwined with the U.S. government because of the comprehensive U.S.–China confrontation over productive forces. In AI, semiconductors, robotics and beyond, cooperation between U.S. firms and the government has reached unprecedented levels. Conflicts between these firms and Trump are, in essence, transactional business disputes. But business is not capital’s ultimate aim; capital always pursues control over core productive forces and the means of production. On that front, these enterprises are highly aligned with U.S. national interests. That alignment deserves serious attention.

Guancha.cn: We’ve read a lot about the sense of frustration among Americans over the perceived decline of U.S. global influence. Where do you think it stems from? How do the people around you see their current conditions and the country’s future?

Yu Yaoxiang: The young people around me look very similar to young people elsewhere in the world—they feel bewildered and indifferent about their own prospects and about the future of this era. They share a sense of helplessness and resignation as they face rapidly shifting technological paradigms, economic stagnation, and accumulating social contradictions.

For American youth, their greatest frustration probably still stems from the decay of national image and values. Most Americans feel this viscerally. Whatever criteria they use, they share an awareness that the image of a powerful, upward‑striving America has disappeared. Many also realize that this decline is the combined result of an internal spiritual fracture and of the inevitable backlash that comes with global hegemony. They differ in how they judge this morally, but the basic perception is there.

One incident left a deep impression on me. I was working part‑time at Starbucks in college. At the time, the Israeli‑Palestinian conflict had just flared up, and anti‑Israel sentiment in the U.S. was rising. Naturally, we started talking about politics. As an “outsider” and a Chinese national, I was quite cautious at first. My coworkers—also college students—took the initiative and condemned the U.S. military interventions in the Middle East since the turn of the century. Coming from a political‑science background, I knew the events they referenced, but following the Chinese habit of not directly exposing others’ faults, I avoided blunt criticism of U.S. foreign policy.

I said, “It’s true that there is a ruling class in the U.S. that only cares about its own interests, and that recent national strategies have been driven by those people. Essentially, they aren’t serving the country’s interests, but their own.” My coworker didn’t argue. He replied, “We grew up with all sorts of illusions about our country, only to realize now that we are a bad country.”

He said it quietly, almost as an aside, but the disappointment and helplessness behind it were intense. You have to understand: for Americans, who grow up with an innate sense of national pride, admitting that their country is “bad” requires immense resolve. Hearing him say that shocked me, but I felt deep empathy.

Two centuries ago, Chinese people also woke up from a large illusion and realized: “We are actually a backward country.” The situations differ in nature, but the helplessness that individuals feel when they confront their own conscience about the failures of their nation is the same. An old Chinese is saying: “A tree cannot survive without its roots; a river cannot flow without its source.” Civilizational identity forms the root legitimacy of humanity’s largest political organizations. If America loses its spirit and national character and fails to find a new anchor in this era, I fear it will drift toward disintegration in the clash of its own ideas—first ideologically, then materially.

Guancha.cn: Readers in China naturally compare China and the U.S on major topics. As someone living in the U.S., do you often encounter questions that compare the two nations? How do teachers and friends around you view U.S.–China competition? And what are your own thoughts on such comparisons?

Yu Yaoxiang: Because my research focuses on Western philosophy and modern political thought, the academic environments I move in treat explicit U.S.–China comparisons as somewhat taboo. Most people I interact with acknowledge China’s strength and its international status after its rise. Many also show deep interest in Chinese civilization, modern Chinese governance, and Eastern philosophy. But if you ask them directly how they see the future of the U.S.–China confrontation, most adopt a cautious, wait‑and‑see attitude. Personally, I find the topic important and would like to share some reflections.

In reality, competition between nations or civilizations, and the question of whether to compete, rarely depend on relations in any single period. This is especially true for China and the U.S. The two are civilizations with stark yet parallel contrasts. We often contrast China, with its 5,000 years of history, to the U.S., a modern nation only 250 years old. But this overlooks that the U.S.—in politics, economics, military affairs, social culture, and knowledge systems—is a product of Western civilization as a whole, serving as its contemporary culmination. Behind it lies the long shadow of a historic civilization and centuries of philosophical accumulation; Europe, by comparison, looks increasingly waning in influence and cultural vitality. Meanwhile, New China, as a new state that fundamentally broke with the feudal structures of the past 5,000 years in its political logic and governance model, also embodies modern features similar to those of the United States.

Historically, the problems the U.S. faces today are trajectory issues in civilizational self‑construction: how a civilization reconciles, assimilates, and renews itself in relation to its own history and to realities generated by its own development. Over China’s long history, we have faced similar moments more than once. The Shang and Zhou eras, the Spring and Autumn and Warring States periods, and the Qin and Han dynasties were all major epochs whose contradictions shaped the civilization’s core ideas, forms of existence, and developmental logic. Today, China, as an ancient civilization entering the modern world, faces a similar task: to reconcile, assimilate, and renew itself alongside its centuries and millennia of history. This is precisely the meaning of “civilizational rejuvenation.”

In terms of national power and global influence, the rise of China and the relative decline of the U.S. are facts, and this trajectory will likely continue. China is bound to enter an era in which it returns to a position of global leadership. However, conflicts between nations should not obscure what Chinese and Western civilizations jointly face: the first truly global era in human history. When we confront humanity as a whole, or adopt a “planetary” perspective beyond regions and continents, both China and the West find themselves in uncharted territory.

Both China and the U.S. have offered initial answers to this new reality—China’s “Community of Shared Future for Mankind” and the Western theory of “universal values.” But I think we must first ask how nations and states, which have traditionally existed as concrete civilizations, can adapt to this globalized mode of existence, rather than rushing to construct a single global human society. The globalization we face today is largely built and driven by capitalist modernization. The modernity it represents, though born in the West, is fundamentally alien to any civilization; it exerts the same alienating and nihilistic effects on all. I alluded to this at the beginning when discussing the deep causes of America’s domestic contradictions.

So when they face globalization driven by capitalist modernity, China and the U.S. stand on the same plane and in essentially the same position. We cannot ignore the universality of capitalist alienation simply because the U.S. and the West succeeded historically, or because China has succeeded in catching up today. This is not a secondary issue beneath the civilizational clash between China and the U.S., but a universal challenge for all civilizations. At the level of philosophy, gaining the initiative in the next era may depend on who first recognizes this reality clearly and responds actively. In that regard, the U.S. still lags behind China.

Guancha.cn: An NBC poll shows that 78% of respondents believe the “American Dream” is harder to achieve than it was for previous generations. Another poll conducted by AP-NORC shows that about two‑thirds of respondents believe the very concept of the American Dream is no longer valid. As a Chinese student at a top U.S. university—in many ways the very embodiment of the “work hard and you will succeed” believer—how do you view the results of these polls? And how have practical factors such as visas, immigration status, race, and economic pressure shaped your own experience?

Yu Yaoxiang: To be honest, I rarely think about the “American Dream.” My reason for going abroad and studying politics and philosophy is quite simple: first, personal interest; second, the hope of understanding Western thought so I can better grasp the origins and nature of our current era and explore humanity’s future trajectory. If I could contribute even a little to that question, my dream will have been realized.

I’m fully aware that I am fortunate to be able to choose such a path. Secular standards of success are not unique to the United States; they represent a universal dream. Whether the U.S. still has a relative advantage in realizing that dream is unclear to me. If it does, that advantage is shrinking.

We should probably care more about the essence of “success” itself—whether it is a material standard, a social judgment, or a certain way of being. In this era of economic slowdown and increasingly polarized resources, we face a shared absence of an ideal form of life, a lack of passion and intrinsic meaning. The collapse of the American Dream is partly due to intensifying class conflict in the U.S., and partly due to deep confusion among young people about what life is for. Perhaps that very collapse is an opportunity for younger generations to reimagine their ways of living and their aspirations.

As for pressure linked to race and identity, I’ve grown used to it. Since I came to the U.S. a decade ago, especially in the social sciences, discrimination and hostility have been common. I think every international student goes through a psychological journey: from powerlessness, to resistance, to disdain, and finally to indifference. At some point you realize that arguing with such people is pointless, because they embody ideas already in the dustbin of history, waiting to be thrown out. Their original sin is not prejudice but ignorance. Educating them is neither our duty nor a prerequisite for our own success.

I often feel that I have more pressing questions to answer—questions that transcend race, culture, region, and politics. Humanity now faces a reckoning brought on by its own development. We are living at the tipping point of this convergence. Perhaps this way of thinking reflects the influence of Western philosophies of history, and explaining it in full would be complex. But I believe that once we start to face these problems with real seriousness, the prejudices and limits of the old era will gradually melt away as we work through them.

I suppose that, too, is a kind of dream.

On June 19, a two-day European Council summit concluded in Brussels, Belgium. European Council President António Costa stated afterward that the bloc must tackle “unsustainable global economic imbalances” and work toward “economic relations based on rules and reciprocity.” While the official communiqué did not name any specific country, many foreign media outlets reported that the core of the summit dinner’s two-hour strategic discussion was China, with debate focused on how the EU should respond and whether it should further expand its toolbox of trade policy instruments targeting Beijing.

Just weeks earlier, on May 29, ahead of a European Commission meeting, France, Italy, Spain, the Netherlands, and Lithuania jointly submitted a strongly worded policy paper. The document called for more aggressive trade defense measures against so‑called “unfair trade practices,” including fast‑tracking tariff hikes, raising thresholds for anti‑circumvention investigations, and establishing a “resilience tool” to limit dependence on specific supply sources. French President Emmanuel Macron additionally proposed creating a “European Section 301” mechanism modeled on the United States, which would allow the EU to directly impose tariffs on countries engaging in “unreasonable, unjust, or discriminatory practices.” On June 3, all 27 EU member states then voted to impose additional countervailing duties of up to 35.3 percent on Chinese electric vehicles, with plans already taking shape to extend such measures to multiple sectors.

The EU’s attempt to frame a trade war with China under the banner of “overcapacity” raises several fundamental questions. Is the logic behind this trade offensive sound? If a trade war does break out, what kinds of economic costs will Europe itself bear? And what would be a more appropriate way for the EU to manage its economic and trade relationship with China?

The flawed logic behind the EU’s trade offensive

The EU’s case for escalating trade confrontation with China rests on three core propositions.

First, at the level of observable facts, EU officials claim that China’s export volume is excessively large and that this “overcapacity” shows up as a growing trade deficit for Europe. Second, at the causal level, they attribute China’s export surge not to market dynamics, but to supposed “distortions” such as government subsidies and industrial policies. Third, at the impact level, they argue that the export of China’s “surplus capacity” damages European industry, destroys jobs, and drives the relocation of industrial supply chains.

Taken together, these propositions appear to form a coherent causal narrative that links phenomena, causes, and consequences. In reality, however, the argument suffers from multiple factual misreadings and structural flaws.

1) The myth of Chinese “overcapacity”

The allegation of Chinese “overcapacity” relies almost entirely on a single metric: the EU’s overall merchandise trade deficit with China. According to data from the European Commission’s Directorate‑General for Trade, in 2025 the EU exported goods worth 199.5 billion euros to China, while imports from China reached 559.5 billion euros, producing a goods trade deficit of 359.9 billion euros—a 2.7 percent increase compared with the previous year. EU officials frequently cite this figure as key evidence of a looming “China Shock 2.0.”

Yet the size of a merchandise trade deficit by itself does not justify trade protectionism. The basic logic of international trade is grounded in comparative advantage. Countries participate in global production based on their factor endowments and industrial structures, allowing resources to flow into their most efficient uses and raising aggregate output. Differences between export and import volumes simply reflect this pattern of optimized resource allocation rather than providing proof of “unfair” behavior.

In manufacturing, China has built a complete industrial chain, large‑scale production capacity, and steadily improving technological capabilities. The EU, by contrast, retains comparative advantages in sectors such as high‑end services, precision machinery, and creative design. The divergence in their trade structure therefore reflects differing industrial profiles, not structural unfairness. In 2025, manufactured goods accounted for 97.3 percent of the EU’s imports from China, with machinery and vehicles comprising 54.4 percent, other manufactured products 33 percent, and chemicals 9.8 percent. Manufactured goods also made up 86.2 percent of the EU’s exports to China. This pattern shows that EU–China trade is dominated by industrial manufactures and features significant intra‑industry trade in machinery and vehicles, underscoring deep supply‑chain integration.

Focusing only on the merchandise deficit also hides important structural realities. At the member‑state level, China actually runs persistent trade deficits with countries such as Germany, Finland, and Ireland. Reducing a complex and heterogeneous web of bilateral trade relations to a simplistic “China versus EU” binary erases these differences in member‑state positions and interests. At the same time, the EU’s narrative largely omits services trade. In 2025, the EU enjoyed a 21.3 billion euro surplus in services trade with China, making China its fourth‑largest services trade partner after the United States, the United Kingdom, and Switzerland. Once you incorporate services trade into a broader macroeconomic assessment, the overall degree of EU–China trade imbalance looks much smaller than the headline goods deficit suggests.

2) Is Chinese export growth really driven by “policy distortions”?

For years, the EU has attributed the rise of Chinese exports to Europe to government subsidies and allegedly distortive industrial policies, an argument that features prominently in its anti‑subsidy investigation into Chinese electric vehicles. Yet China’s sustained and expanding export volume ultimately reflects the interaction of several forces, in which both cyclical and structural factors play critical roles.

One crucial factor is the development of endogenous competitive advantages within Chinese industry. After decades of industrialization, China has built a comprehensive manufacturing ecosystem that runs from raw materials all the way to finished products. The completeness of this industrial chain creates economies of scale and strong synergies, enabling Chinese firms to develop competitive strengths in cost control, delivery speed, and quality consistency that are difficult for others to replicate.

Chinese firms have also increased their investment in research and development year after year. By 2025, China’s R&D intensity—R&D expenditure as a share of GDP—had risen to 2.8 percent, surpassing the average level of OECD economies for the first time. In the 2024 fiscal year, 525 Chinese firms appeared in the list of the world’s top 2,000 corporate R&D spenders, placing China second globally in terms of the number of firms on the list. In the EV sector specifically, Chinese companies have accumulated significant technical expertise in power batteries, electric drive systems, and vehicle integration. Leading firms such as CATL and BYD rank at the forefront of the global market in both battery energy density and cost control and have achieved self‑reliance in several key components.

China’s huge domestic market provides fertile ground for rapid technology iteration. Diverse application scenarios allow new technologies to be tested and refined quickly, accelerating progress along the learning curve. In this environment, government support for the EV sector has shifted toward more market‑oriented tools, such as building charging infrastructure and offering R&D tax incentives, rather than relying on blunt production subsidies.

A second factor is the “backfire effect” of EU restrictions on Chinese direct investment. Standard trade and investment theory holds that when a host country blocks foreign investment, firms that might otherwise produce locally instead serve that market via exports. When a country allows foreign capital in, firms can use greenfield investment or cross‑border mergers and acquisitions to build local production and distribution networks, replacing cross‑border exports with local supply. Chinese firms could have used direct investment in Europe to build factories, create local jobs, and facilitate technology spillovers while avoiding tariffs and the costs and risks of long‑distance shipping.

Since 2019, however, under the banner of “de‑risking,” the EU has systematically tightened restrictions on Chinese investment. The EU Foreign Direct Investment Screening Regulation, together with a patchwork of national‑level review mechanisms, has raised approval thresholds, lengthened review cycles, and increased political interference. As a result, Chinese direct investment flows into the EU have declined sharply. Total FDI dropped to 10.1 billion euros in 2023 and fell to just 1.1 billion euros in the third quarter of 2025, the lowest level in eight quarters. During the same period, EU demand for Chinese imports surged. Imports from China rose to 559 billion dollars in 2021 and increased further to 658.6 billion dollars in 2022, a year‑on‑year rise of 17.8 percent. The EU’s trade deficit with China climbed from 221.2 billion dollars in 2019 to 418.8 billion dollars in 2022, far exceeding its 2010 level of 225.3 billion dollars and remaining elevated.

By tightening the investment channel, the EU effectively pushed Chinese firms back toward exports as their main way to serve the European market. That shift appears as an expanding export volume and a widening bilateral trade imbalance. At the same time, efforts to shorten and “onshore” European supply chains have not restored local production capacity fast enough, leaving domestic supply gaps that are still being filled by imports from China.

A third factor is Europe’s failure to use the opportunities created by the U.S.–China trade war. When the United States launched its tariff offensive against China in 2018—imposing steep duties on Chinese goods and initiating a wave of trade investigations—it disrupted the global distribution of trade flows. A substantial volume of Chinese exports that would have gone to the U.S. had to seek alternative markets. Between 2018 and 2024, the share of China’s exports destined for the United States fell from 19.3 percent to 14.7 percent, dropping China to third place among America’s trading partners. China’s export share to Europe, however, remained roughly steady at around 16 percent, showing no evidence of large‑scale diversion driven specifically by U.S. tariffs.

Europe could have taken advantage of the drop in Chinese imports from the U.S. to expand its own exports to China and narrow its trade deficit, but it did not. The share of EU exports going to China peaked at 11.0 percent in 2019 and then declined for six consecutive years, falling to 7.4 percent in 2025. In value terms, EU exports to China slipped from 260.7 billion dollars in 2021 to 220.2 billion dollars in 2025. Europe thus missed a major opportunity to expand its sales into the Chinese market and offset its merchandise deficit.

3) Is European industry really facing a “China Shock 2.0”?

The claim that rising Chinese exports are delivering a “shock” to Europe’s economy rests on a highly selective reading of the data. This narrative not only draws a simplistic line from trade expansion to job losses, but also largely ignores the benefits that Chinese exports deliver to European consumers and downstream industries.

On the employment side, declines in industrial jobs must be understood in a broader macroeconomic context. As the Draghi Report emphasized, the EU is grappling with an “existential challenge” rooted in domestic structural weaknesses: fragmented markets within the single market, underinvestment in innovation, and structurally high energy costs, compounded by rising geopolitical risks. The Ukraine crisis triggered a surge in energy prices, while Europe’s lagging digital transformation and rigid labor markets have further squeezed its manufacturing base.

Protectionist tariffs also tend to backfire in an interconnected global economy. In theory, higher tariffs can reduce imports via substitution, boost domestic output, and create jobs. In practice, when tariffs target intermediate goods, they raise input costs for domestic producers, narrow profit margins, and weaken international competitiveness. Under such pressure, firms often cut labor costs instead of expanding hiring. Tariffs also invite retaliation from trading partners, squeezing external demand for domestic exports and dealing a second blow to manufacturing employment. Attributing job losses primarily to import competition therefore diverts attention from Europe’s own structural problems and distorts the way industrial reallocation works under globalization.

On the consumer and price side, Chinese exports have a clear effect on European price levels that policymakers often understate. Existing research shows that in 2023 alone, the influx of low‑priced Chinese goods reduced Eurozone headline inflation by around 0.4 percentage points through two channels: the competition effect on existing varieties and the variety effect from new products. The European Central Bank has similarly estimated that if U.S.–China trade tensions push more Chinese exports toward the Eurozone, the resulting increase in supply would lower Eurozone import prices by 1.6 percent in 2026. That decline in import prices would gradually pass through to consumers, reducing non‑energy industrial goods inflation by 0.5 percentage points and the overall consumer price index by about 0.15 percentage points. These disinflationary effects, which support price stability and household purchasing power, are real economic benefits that European debates often overlook.

The asymmetric economic toll of a trade war on the EU

If the EU were to launch a trade war against China, Beijing would almost certainly respond with countermeasures to protect its interests. Such escalation would further undermine Europe’s already fragile industrial competitiveness, disrupt the supply chains on which its green transition and digital transformation rely, and ultimately trap the EU in a spiral of shrinking exports, rising costs, and declining welfare. In this scenario, Europe would likely bear heavier economic losses than China.

Macroeconomic simulations by the Structural Trade Analysis System at the Chinese Academy of Social Sciences model a range of scenarios in which the EU raises tariffs on Chinese goods and China responds with proportional retaliatory measures. Under all scenarios, both sides suffer welfare losses, but the damage is consistently greater for Europe. If tariffs extend to all goods and increase in steps from 10 percent to 30 percent, the adverse impact on the EU grows non‑linearly and becomes clearly asymmetric.

When tariffs reach 30 percent, the model suggests that the EU’s GDP would fall by 0.294 percent, a deeper contraction than in China, which indicates that each additional tariff increase imposes a higher marginal cost on Europe. At every tariff level, the aggregate price index for EU member states rises—from 0.124 percent under a 10 percent tariff to 0.225 percent under a 30 percent tariff—showing that most tariff costs pass through to consumers via higher import prices. China’s overall price index, by contrast, remains negative across these scenarios, which points to greater resilience and flexibility in its export structure. While the EU might see a technical improvement in its terms of trade, it would pay for this by reducing its trade volume. In effect, Europe would be sacrificing market scale in exchange for a minor shift in relative prices and would end up with a net loss in real welfare.

The automotive sector highlights how severe this asymmetry could be at the industry level. In scenarios where both sides impose automotive tariffs of 30, 35, and 40 percent, the EU’s overall merchandise export growth rate falls by 0.759, 0.933, and 1.054 percentage points, respectively. These drops are roughly 1.8 to 1.9 times larger than the corresponding declines in China’s export growth rate, which exposes the structural vulnerability of Europe’s export‑oriented manufacturing. As one of the world’s core suppliers of high‑end vehicles, Europe’s auto industry depends heavily on the Chinese market. When tariffs restrict access to that market, the elasticity of foreign demand magnifies the hit to European producers. China would experience a sharper decline in import growth, which mainly affects domestic consumer surplus and input costs. For Europe, however, the export shock directly threatens manufacturing jobs, disrupts upstream and downstream segments of the industrial chain, and erodes the foundation of its trade surplus. As a result, the welfare losses at the sector level would be even more severe than headline macroeconomic figures suggest.

Taken together, both the macro‑level impact of across‑the‑board tariffs and the sector‑specific shock to the automotive industry show that a bilateral tariff war would harm the EU more than China. On the growth side, punitive tariffs would dampen external demand for exports and push up import costs, further weakening Europe’s already sluggish recovery. On the inflation side, rising import prices would pass down the supply chain and raise living costs for European households. Faced with weaker growth and stronger inflation, the European Central Bank would encounter a sharp policy dilemma between supporting activity and keeping prices under control. Under these dual pressures, Europe’s output and welfare losses would likely be larger and more persistent than the trade contraction shock facing China.

Back to Competitiveness, Pragmatically

The EU’s current predicament does not fundamentally arise from allegedly “unfair” shocks delivered by external competitors. It stems instead from a deeper strategic misalignment within Europe. In an era of intensifying global industrial competition and heightened geopolitical risk, Europe still tends to act as though it were a traditional great power at the center of the system, without fully acknowledging the relative decline in its political and economic weight. This reluctance to adjust its self‑perception has hindered effective responses to internal structural crises and increased Europe’s strategic passivity—not only in its relationship with China, but also in its dealings with Russia and the United States.

To regain economic autonomy and industrial resilience, Europe needs to shift from scapegoating to structural reform and from defensive unilateralism to pragmatic cooperation.

First, enhancing its own industrial competitiveness must become Europe’s top priority. As the Draghi Report argues, Europe’s primary problem is a domestic crisis of competitiveness rather than external pressure. On the cost side, the EU has long suffered from high labor and energy costs that erode manufacturing margins and deter new investment. The structural surge in energy prices following the Ukraine crisis has amplified these weaknesses. On the innovation side, the EU lags behind both the United States and China in R&D spending in critical fields such as digitalization, artificial intelligence, and clean technologies. Market fragmentation within the EU prevents firms from realizing economies of scale and quickly turning innovation into market leadership. Addressing these bottlenecks requires deeper market integration, streamlined regulations, lower transaction costs, energy system reform, and more flexible labor markets—not new tariff barriers.

Second, Europe should pursue pragmatic economic dialogue and broader cooperation with China. At the institutional level, China and the EU already maintain a multi‑layered framework of high‑level economic dialogues and technology cooperation platforms. Policymakers on both sides should use these channels more fully to conduct technical, reciprocal consultations on capacity, subsidies, and market access, and should rely on rules‑based mechanisms rather than political signaling alone to manage disputes and build trust. With regard to investment, Europe needs a more mature and balanced view of Chinese FDI. The current mix of rhetorical openness and practical restriction—welcoming Chinese capital for green transition and infrastructure projects on paper while erecting new barriers under “de‑risking” tools such as the Net‑Zero Industry Act—undermines policy credibility and deprives Europe of much‑needed investment and technological partnerships. On the practical side, China and the EU could jointly design investment frameworks that speak directly to Europe’s concerns over innovation gaps and supply‑chain resilience, including joint ventures and technology‑sharing arrangements in batteries, renewable energy, and electric vehicles.

Third, Europe should recommit to the multilateral trading system and avoid setting precedents that may boomerang back on its own interests. For years, the EU has portrayed itself as a central pillar of multilateralism. Its increasing reliance on anti‑subsidy investigations, carbon border adjustment mechanisms, and unilateral trade restrictions risks eroding the WTO‑centered global trading order that Europe itself helped construct. This inward turn conflicts with the EU’s stated international commitments and injects new instability into global markets. Over time, such measures will not only expose European exports and foreign investment inflows to greater uncertainty, but also increase the vulnerability of its own supply chains.

Only by choosing rules over power politics, institutional openness over investment blockades, and multilateral cooperation over unilateral confrontation can Europe preserve its distinct role in the global economy while maintaining a workable balance between economic security and trade‑driven prosperity.

Reference：

1. https://www.euractiv.com/news/france-and-allies-call-for-eu-trade-defence-tool-to-fend-off-china/

2. Di Sano, M, G Pongetti, T Schuler and S G Toh (2023): “Spillovers to the euro area from recent negative inflation in China”, ECB Economic Bulletin, issue 7, November

3.https://www.ecb.europa.eu/press/blog/date/2025/html/ecb.blog20250730~833a22650e.en.html

About the Authors:

· Su Qingyi: Director and Senior Research Fellow, International Trade Research Department, Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS).

· Jiang Yang: Graduate Student, School of Global and Regional Studies, University of Chinese Academy of Social Sciences (UCASS).

For the past several years, a convenient but intellectually lazy narrative has gripped the corridors of power in Brussels, Paris and Berlin. The story goes like this: Europe’s proud automotive and industrial sectors are under siege from an existential “China Shock,” a tsunami of heavily subsidised, state-backed Chinese electric vehicles and clean-tech infrastructure threatening to bankrupt Western companies. The prescribed cure is a defensive wall of countervailing duties, regulatory red tape and aggressive protectionism designed to safeguard European manufacturing.

This narrative is not just erroneous. Worse still, it is a dangerous misdiagnosis. Europe is not suffering from an external trade shock; it is reeling from a self-inflicted economic sickness. What Brussels labels unfair Chinese competition is actually the predictable endgame of de-industrialisation by financial design. For four decades, European financial capital systematically sacrificed its own industrial base on the altar of short-term shareholder returns, stock buybacks, and dividend payouts. Now that native Chinese private firms have out-innovated and out-scaled Western legacy brands, European elites are running to the state for protection.

Protectionism will not save Europe; it will transform the continent into an industrial museum. Conversely, the prevailing counter-argument — that Europe should “force” Chinese companies into mandatory joint ventures and coercive technology transfer — is a delusion of grandeur. Given the catastrophic costs of a trade war, Brussels lacks the leverage to dictate terms. Europe cannot coerce Chinese capital; it must aggressively lure it. The path to a competitive future lies in revitalising the dormant Comprehensive Agreement on Investment (CAI) and transforming Europe into the world’s most attractive destination for the recycling of Chinese trade surpluses into fixed capital formation.

The Two Eras: From Student to Master

To understand why Europe’s leverage has evaporated, one must trace the 41-year history of Western automotive and manufacturing engagement with China. The saga began in October 1984, when Volkswagen signed its historic joint-venture contract to form Shanghai Volkswagen. At the time, global industry was deeply sceptical. China was poor, lacked infrastructure, and possessed no private car market.

For the first thirty years of this relationship, the dynamic was strictly colonial. Under China’s mandatory 50/50 joint-venture rules, European legacy brands extracted billions in profits from the booming Chinese domestic market. Western executives operated under the comfortable assumption that they would permanently monopolise high-margin intellectual property — design, engineering, and brand prestige — while China would remain the low-cost assembly line. This arrangement was widely celebrated in Western capitals as a win-win globalisation story. Western governments rarely complained about Chinese state subsidies during this era because their own multinational corporations were the primary beneficiaries.

However, around 2015, the structural reality fundamentally inverted. Realising they could never surpass Europe in the engineering of complex internal combustion engines (ICE), Chinese planners launched the Made in China 2025 blueprint, shifting their entire industrial apparatus toward New Energy Vehicles (NEVs) — the battery electrics, plug-in hybrids, and clean energy supply chains that define modern transport.

This marked the transition from a foreign-dominated export model to a native-led domestic juggernaut. Prior to 2015, Foreign Invested Enterprises (FIEs) — international corporations operating joint ventures or wholly owned subsidiaries in China — accounted for nearly 60% of all Chinese manufacturing export value. By 2026, that dynamic has completely reversed. Today, Chinese Privately Owned Enterprises (POEs) generate roughly 65% of China’s export value, while the foreign share has collapsed to just 22%.

The shift is most starkly visible in Europe’s plug-in hybrid (PHEV) market. Native Chinese brands like BYD, Chery, and SAIC now dominate the influx of vehicles landing on European docks, strategically navigating the tariff landscape to capture over a third of European PHEV sales. The Chinese “students” have fully absorbed Western manufacturing know-how, paired it with a global monopoly on battery chemistry, and are exporting advanced vehicles back to the very European home markets that taught them how to build cars in the first place.

Euro industry decline: Financialisation, not Chinese subsidies

The West’s sudden moral outrage over Chinese state subsidies conveniently obscures the real culprit behind Europe’s industrial decline: the financialisation of European industrial capital. While Chinese firms were relentlessly reinvesting every cent of cash flow — bolstered by state-directed bank credit — into vertical integration, lithium mines, and automated manufacturing lines, European industrial giants were being hollowed out by financial rentiers demanding short-term yield.

To trace the deeper pathology of this decline, one must revisit the foundational microeconomic critique laid out by Karel Williams and his co-authors in their seminal work, Cars: Analysis of History and Prospects (1994). Examining the post-war decline of British and European motor vehicle manufacturing against the meteoric rise of Japanese mass production, Williams et al. demonstrated that industrial competitiveness is won or lost on three structural fronts: process design, market volume, and market fitness.

When updating the Williams thesis for the post-2010 era, the parallels between Europe’s historical failures against Japan and its current collapse before China are striking.

Firstly, we can contrast flawed process design in Europe with the trajectory towards vertical integration in the Chinese sector. Williams et al. identified a chronic failure in Western shop-floor logistics and product designs, which prevented factories from achieving high capacity utilisation and flexible, lean workflows.

In the post-2010 era, European legacy OEMs doubled down on this exact vulnerability by outsourcing their most critical components to a fragile network of global suppliers to boost short-term Return on Capital Employed (ROCE). Chinese POEs did the exact opposite. While European executives spent the last decade orchestrating multi-billion-euro stock buybacks, companies like BYD pioneered radical vertical integration.

By engineering vehicles specifically designed for high-capacity automated process flows and manufacturing their own batteries, power electronics and microchips in-house, Chinese firms bypassed the costly component markups and structural inefficiencies that clog European assembly lines.

Williams et al. argue that Western manufacturers historically mismanaged process design by separating product design from the physical constraints of shop-floor logistics. This created systemic capacity underutilisation and high structural breakeven points. When applied to the post-2010 European layout, this structural failure was exacerbated by extreme tier-1 outsourcing. European legacy Original Equipment Manufacturers (OEMs) fragmented their supply chains to optimize short-term Return on Capital Employed (ROCE).

By contrast, modern Chinese Privately Owned Enterprises (POEs), like BYD, resolved this historical “process design” bottleneck through total vertical integration and in-house component fabrication.

Secondly, consider the realities of diminished domestic markets in Europe via Post-2008 austerity. The Williams thesis stresses that high-capacity manufacturing requires robust, expanding domestic volumes to absorb fixed overheads. Following the 2008 financial crisis, Europe abandoned its industrial base by imposing tight fiscal policy and severe, prolonged austerity.

While Beijing was deploying aggressive macroeconomic stimulus and state-directed credit to build a massive domestic market for electric vehicles, European wages stagnated, public infrastructure decayed, and domestic consumer demand was crushed. European automakers were left dependent on luxury exports to China to fund their bloated corporate structures, completely neglecting the health of their home market.

Williams et al emphasise that automated, high-fixed-cost manufacturing environments require robust, consistently expanding domestic market volumes to spread overhead costs. Without this baseline demand, factories cannot maintain high capacity utilisation rates, leading to rapid margin collapse. The post-2008 European macroeconomic architecture — defined by tight fiscal policy, wage stagnation and structural austerity — directly violated this microeconomic imperative.

While China deployed state-directed bank credit to aggressively build a domestic mass market for New Energy Vehicles (NEVs), European policymakers suppressed local purchasing power. This policy forced domestic OEMs to rely on high-margin luxury exports to external markets (primarily China) while starving the foundational domestic market needed to sustain mass production.

Thirdly, it is impossible to miss increasing European ineptitude when it comes to market fitness and brand trust. The final pillar of the Williams critique is market fitness — the discipline of building the right cars at the right price for ordinary consumers. Post-2010 European automotive capital entirely lost this discipline. Trapped in a premium-margin bias enforced by financial rentiers, European brands abandoned affordable mass-market segments to focus on heavy, overpriced, high-margin SUVs. This structural detachment from the average consumer was compounded by a catastrophic failure of corporate ethics.

The 2015 Volkswagen “Dieselgate” emissions-cheating scandal did not merely tarnish the reputation of a single German national champion; it destroyed the entire technological narrative of European engineering supremacy. Decades of built-up brand equity vanished overnight, leaving the European auto sector morally and technologically bankrupt just as native Chinese private brands entered the global stage with affordable, highly advanced mass-market options.

Williams et al., define “market fitness” as the strict manufacturing discipline required to deliver the right car at the right price to ordinary consumers. They argue that Western automakers frequently fall victim to a “premium bias,” chasing elite, low-volume margins while abandoning the mass-market segments that sustain true industrial ecosystems. Post-2010 European automotive capital perfectly demonstrated this flaw.

Trapped by the short-term yield demands of financialised rentiers, European brands abandoned affordable hatchbacks and small sedans in favor of heavy, overpriced SUVs. This failure of market fitness left a massive product vacuum.

Native Chinese brands like Chery and BYD quickly filled this gap by entering the European market with affordable, technologically advanced mass-market options.

Put simply, post-2008 European austerity crushed mass market demand, which when coupled with rentier margin bias, led to an emphasis on over-priced luxury SUVs. Brand trust and technological leadership narratives were destroyed via scandals like the VW Dieselgate incident.

To ground the microeconomic analysis of the Williams thesis — and demonstrate how process design, scale, and macroeconomic policy shape factory efficiency — the data table below tracks automotive manufacturing capacity utilisation figures across Europe and China since 2015. In the automotive industry, 75% to 80% utilisation is considered the structural break-even point. Running below this threshold means fixed overheads (depreciation of machinery, factory footprints, tooling costs) cannot be efficiently allocated, causing margins to collapse.

To ground the microeconomic analysis of the Williams thesis, this data matrix contrasts automotive manufacturing capacity utilisation figures across Europe and China. In automotive manufacturing, 75% to 80% utilisation represents the absolute structural break-even point required to efficiently spread fixed capital costs (machinery depreciation, tooling, and plant overheads).

Table 1: Aggregate Automotive Capacity Utilisation Rates (2015–2026)

(Historical synthesised data compiled from CAAM, Eurostat, ACEA, Gasgoo Research, and industry monitoring group reports).

Table 2: Absolute Volumetric Trajectory (Nominal Capacity vs. Actual Output)

(Historical synthesised data compiled from CAAM, Eurostat, ACEA, Gasgoo Research, and industry monitoring group reports).

A decade ago, European legacy plants ran hot via strong premium exports. China expands domestic ICE plants to meet booming middle-class demand. By 2017, we began to see the emergence of diverging strategies. Europe hits its cyclical production peak while China experiences an explosive surge of new EV entrants, temporarily diluting national utilisation averages. As we neared the end of the decade, Europe faced stagnant domestic demand due to post-2008 austerity dynamics and structural premium bias. Meanwhile, China implements aggressive consolidation to weed out zombie auto plants. By 2021, a European supply chain crisis begins to become apparent. European outsourcing strategies backfire during semiconductor shortages, idling assembly lines. At the same time, Chinese vertically integrated POEs (like BYD) maintain output by securing in-house microchips. As the world emerged from the pandemic in 2023 a structural split manifests. European production fails to recover to pre-pandemic levels due to uncompetitive energy costs, while China’s native NEV players achieve hyper-scale, offsetting legacy foreign joint-venture declines. An inversion consolidates by 2025 as Europe slides into structural crisis, recording multiple factory closures. China, on the other hand, stabilises automotive utilisation through massive export volumes and the decommissioning of obsolete ICE capacity. By mid-2026, a new reality settles in. More than 45% of European automotive capacity sits idle. Chinese native private champions operate their automated EV assembly lines near optimal capacity, while foreign joint ventures in China bear the brunt of local underutilisation.

As Williams et al. posited, when a factory’s layout and supply chains prevent it from maintaining high capacity utilisation, it cannot spread its fixed capital costs. By dropping below 55% utilisation by 2025/2026, European factories are actively losing money on every vehicle produced. European OEMs attempted to resolve this by focusing on higher-margin, premium SUVs, which further shrank their addressable mass market and trapped them in a low-volume, high-cost death spiral.

While Western politicians point to China’s aggregate capacity numbers to allege “dumping,” a look at the internal microeconomics reveals a dual-track system:

● The Legacy Shards: The idle capacity in China belongs to outdated, foreign-legacy joint ventures (like VW-SAIC or state-owned ICE operations) that failed to adapt to electrification and are running at an unsustainable 40% to 50% utilisation.

● The Private Champions: The native private firms driving the export boom (BYD, Chery, CATL) are running automated, vertically integrated factories well above the 80% threshold. They do not require state survival lifelines; their process design naturally yields extreme cost advantages that allow them to absorb tariffs easily.

The catastrophic collapse in European utilisation from 85% down to 53% over the decade is the mathematical manifestation of the energy and rentier crisis. High electricity costs, which are discussed below, prevent European component suppliers from staying solvent, forcing plant closures and idling assembly lines. Europe is not being out-subsidised; it is being structurally out-built by an industrial system running at optimal operational scale.

The data reveals a structural divergence that supports the Williams thesis while dismantling the Western “overcapacity” narrative. By dropping to 53.5% utilisation in 2026, Europe’s automotive industrial capital has entered an un-survivable cost penalty. Because European legacy OEMs fragmented their process designs across a complex, outsourced tier-1 and tier-2 supplier base, they cannot dynamically adjust to fluctuating demand.

Conversely, China’s data reveals a dual-track industrial system. The aggregate Chinese utilisation rate (~73%) is artificially dragged down by the collapse of foreign legacy joint ventures (e.g., SAIC-VW, Changan-Ford), which are running at an obsolete 35.5% utilisation rate due to consumer flight from internal combustion engines.

Meanwhile, native Chinese private champions (BYD, Chery) run their automated, vertically integrated New Energy Vehicle (NEV) lines near optimal capacity (87% in 2026). They do not require state-directed artificial lifelines; their superior process design — characterised by in-house battery cell development, unified software-defined architectures, and flexible shop-floor automation — allows them to continuously absorb fixed overheads and easily neutralize foreign tariff barriers.

Electricity: The Definitive Industrial Killer

To understand why Europe’s industrial base is collapsing under this weight, one must look at the math of the power grid. Industrial electricity costs in Europe have settled at a structural premium that is three to four times higher than baseline costs in China or the United States. In modern macroeconomic discourse, energy costs are often treated as a peripheral variable — a line-item expense that can be mitigated with efficiency gains. This is a profound misunderstanding of the physics of manufacturing. High electricity costs are the definitive, un-survivable killer of industrial competitiveness because they act as a compounding tax that hits every single node of the value chain.

Consider the compounding math of a modern electric vehicle or industrial machine tool. The process does not begin on an automated assembly line; it begins in the ultra-high-temperature arc furnaces required to smelt steel and forge structural aluminium. It moves to chemical processing facilities where raw polymers are cracked for interior plastics. It travels to the cleanrooms of semiconductor fabrication plants, which operate massive, uninterrupted heating, ventilation, and air conditioning (HVAC) architectures to keep air pure down to the micron.

The most extreme bottleneck, however, is battery cell manufacturing. The production of lithium-ion or LFP cells requires intensive electro-chemical processing. Slurry mixing, continuous roll-to-roll electrode coating, and, crucially, the prolonged “formation” process — where cells are repeatedly charged and discharged over days to stabilize their chemistry — consume astronomical volumes of steady-state, baseline electricity.

When a European manufacturer pays €150 per megawatt-hour while a Chinese competitor pays €45, that cost differential is not paid once. It is paid by the miner, the refiner, the smelter, the component supplier and the final assembler. By the time these sub-assemblies arrive at a European vehicle plant, the cost inflation has cascaded exponentially. Every segment of the supporting ecosystem is hollowed out because no domestic tier-1 or tier-2 supplier can absorb a 300% energy penalty and remain solvent.

How Europe Became a Geopolitical Hostage?

The ultimate tragedy is that Europe was on the cusp of insulating itself from this exact vulnerability. In December 2020, after seven years of grueling negotiations, the EU and China concluded the Comprehensive Agreement on Investment (CAI) in principle. The CAI was a masterpiece of pragmatic European strategic autonomy. It promised unprecedented market access for European companies in China, eliminated forced joint ventures in key sectors, and established a legal, stable pipeline to recycle China’s mounting trade surpluses directly back into European fixed capital formation. It was an economic framework designed to allow Europe to anchor Chinese capital on terms that it could accept.

Yet, precisely as the agreement moved toward the European Parliament for final approval, a coordinated geopolitical hijack was launched. A sudden, highly moralistic “human rights” agenda was aggressively injected into the technocratic discourse. Seemingly overnight, the economic and industrial merits of the deal were sidelined by Brussels elites who prioritised abstract, performative geopolitics over concrete industrial survival. This ideological capture left Western Europe uniquely vulnerable to the strategic shockwaves of 2022. Exploiting Western Europe’s historical, deeply ingrained Russophobia proved remarkably easy for Washington. By manipulating these ancient existential anxieties, the United States successfully guided Europe into a policy of total economic severing from Russia. The immediate casualty was not Moscow, but the foundational pillar of German industrial power: cheap, abundant, piped natural gas.

By blowing up its energy relationship with the East and freezing its investment framework with China, European industry was effectively taken hostage by Washington’s geopolitical architecture. Europe willingly traded cheap, stable Russian pipeline gas for American Liquefied Natural Gas (LNG) — which arrives on European shores at a massive infrastructure premium — while simultaneously aligning with a U.S. trade war against Beijing that directly cuts Europe off from the low-cost solar, wind, and battery components needed to offset its energy crisis. European industry is now trapped in a vice: forced to buy overpriced American energy on one side, while being pushed to construct an unviable, high-cost protectionist wall against Chinese innovation on the other.

The Outliers: How Hungary, Spain, and Turkey are Rewriting the Rules

The failure of Brussels’ coercive, confrontational approach is thrown into sharp relief by the actions of pragmatists on Europe’s geographic margins. Because Europe cannot force Chinese capital, the regions that are thriving are those that have mastered the art of the industrial lure.

Hungary’s Gravitational Pull

Under the explicitly realist leadership of Budapest, Hungary has turned itself into the premier European launchpad for Chinese capital recycling. BYD’s decision to construct its first major European passenger vehicle factory in Szeged was not the result of EU mandates; it was the natural outcome of an irresistible environment. Budapest offered streamlined regulatory permitting, direct state co-investment infrastructure, and a guarantee of stable, non-ideological political relations. By luring BYD, Hungary did not just secure assembly jobs; it locked in a multi-billion-euro injection of fixed capital that will compel Chinese tier-1 battery and component suppliers to build out a localized ecosystem inside the EU’s tariff customs border, directly benefiting the local economy.

Spain and the Economics of Reuse

In Catalonia, the approach was structural recycling. When Nissan abandoned its historic manufacturing plant in Barcelona, it left behind a hollowed-out labor pool and a vacant industrial asset. Rather than succumbing to de-industrialisation, Spanish planners paired with Chery Automobile. By forming a joint venture with local firm Ebro EV Motors, Chery is refurbishing the old Nissan plant to manufacture its Omoda and Jaecoo lineages. Spain didn’t use tariffs to keep Chery out; it used a pre-existing, underutilised industrial asset as a lure. The result is the resurrection of an automotive ecosystem, the re-employment of highly skilled unionized labor, and the organic absorption of Chinese high-speed production protocols into the Mediterranean basin.

The Turkish Dilemma and the Limits of Coercion

The most instructive case study, however, is the contrasting dynamic between CATL and BYD in Turkiye — a nation that sits inside the EU Customs Union but operates outside Brussels’ political jurisdiction. Contemporary Amperex Technology Co. Limited (CATL) successfully advanced partnerships in Turkiye because Ankara focused on industrial integration, offering a battery supply bridge to both European and Middle Eastern markets.

Conversely, BYD recently balked and slowed its highly anticipated Turkish factory initiatives. Why? Because Ankara attempted to pivot toward a more coercive posture, imposing sudden, aggressive 40% additional tariffs on all Chinese vehicle imports in an attempt to force localised investment. BYD’s sudden hesitation sent a shockwave through regional trade ministries. It proved definitively that Chinese private giants are no longer desperate suitors. If a state attempts to use the stick of market denial rather than the carrot of structural alignment, Chinese capital will simply walk away. Turkiye’s friction is a live-preview of what Brussels will face if it continues down a path of hostile coercion.

Europe’s Reindustrialization: What’s Missing?

The only viable path to a European industrial renaissance is to swap a defensive tariff wall for an irresistible gravitational pull. Europe must stop viewing Chinese capital as a threat to be managed and start treating it as the primary funding engine for its own re-industrialisation.

To achieve this, Brussels must immediately revitalise the dormant Comprehensive Agreement on Investment (CAI). The CAI must be repurposed not as a stick to beat Beijing, but as a golden carrot. The CAI provides the ideal legal, predictable, and institutional framework to offer Chinese private enterprises what they crave most as they expand globally: regulatory stability, rule of law, and frictionless access to 450 million high-income consumers.

Instead of threatening Chinese giants, Europe must build an ecosystem that makes locating deep, integrated manufacturing hubs within the European Union an economic no-brainer. We are already seeing the early, organic stages of this allure in Hungary and Spain. These companies are not moving to Europe because they are forced; they are moving because forward-thinking states have offered them the right infrastructure, localized incentives, and strategic positioning.

By deep-linking a revived CAI to European industrial policy, Brussels can co-create an environment where it naturally makes financial sense for Chinese firms to build full-scale supply chains, rather than mere “screwdriver” assembly plants. By offering premier logistical hubs, streamlined permitting for clean energy connections, and co-investment funds, Europe can organically attract the world’s most efficient Tier-1 component suppliers directly to European soil. This will lower logistical costs and allow struggling European legacy brands to plug into advanced supply chains on their home turf.

Furthermore, Europe must aggressively welcome Chinese clean-energy technology to repair its broken energy ecosystem. Utilizing low-cost, high-efficiency Chinese solar components, wind turbines, and grid-scale LFP storage systems is the fastest way to lower Europe’s structurally uncompetitive input costs. Cheap, abundant green electrons are the lifeblood of modern automated manufacturing.

But it cannot be a simple reversion back to the CAI status quo ante, as if things haven’t evolved since. To transform Europe into an attractive destination for Chinese capital recycling, a revived CAI must include robust mechanisms to protect localised joint ventures from United States secondary sanctions. Washington increasingly deploys export controls (via the Foreign Direct Product Rule) and financial sanctions to disrupt Chinese high-tech ecosystems globally. This dynamic threatens any European industrial renaissance that relies on Chinese partnership.

To decouple EU industrial regulation from Washington’s geopolitical framework, the text-amended CAI would need to incorporate at least three specific legal structures:

Firstly, corporate ring-fencing and autonomous intellectual property licensing will be needed. To protect European-based manufacturing hubs, the CAI must mandate that Chinese private entities transfer ownership of localised production facilities to EU-domiciled subsidiaries. Intellectual property (IP) for battery management systems, software-defined vehicle architectures, and automated manufacturing protocols should be granted through autonomous, irrevocable, non-exclusive licenses to these European subsidiaries. By ensuring the production IP is legally anchored within an EU entity, the vehicles and components produced are classified as 100% European origin under international trade law. This structure insulates the factory from U.S. Bureau of Industry and Security (BIS) entity list designations, as long as the localised production lines do not rely on U.S.-origin software or equipment.

Second, non-dollar clearing mechanisms and interbank workarounds are needed. The primary mechanism of U.S. secondary sanctions is the denial of access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network and the clearing of transactions via the Federal Reserve Bank (Fedwire). To bypass this vulnerability, the CAI should establish a dedicated Sovereign Euro Clearing Mechanism managed directly by the European Investment Bank (EIB) or regional central banks. All trade surplus recycling, capital expenditures, and tier-1 supplier invoice settlements between European subsidiaries and Chinese parent firms would clear exclusively in Euros or Renminbi (RMB) via direct clearing arrangements with the People’s Bank of China (PBOC). By completely avoiding the U.S. dollar and clearing transactions outside the territorial jurisdiction of the United States banking system, these transactions remain legally insulated from U.S. financial blockades.

Thirdly, local component sourcing guarantees are needed to ensure strategic autonomy. To prevent the application of the U.S. Foreign Direct Product Rule — which claims extraterritorial jurisdiction over items containing even miniscule percentages of U.S. technological input — the CAI must establish strict guidelines for sourcing local components. European-based Chinese factories must be designed to integrate with European and non-U.S. machinery suppliers (utilising domestic European automation engineering, precision machining, and specialized tools). By systematically replacing U.S. manufacturing software and toolsets with local alternatives, the entire production chain becomes independent of Washington’s regulatory oversight. This legal insulation ensures that even if Washington penalises a Chinese parent firm, the European factory can continue operating, safeguarding local jobs, fixed capital formation and regional industrial supply chains.

Europe stands at an industrial crossroads. It can continue down the path of defensive protectionism and delusional coercion, allowing rentier capital to preserve its declining margins for a few more quarters while the continent sinks into industrial irrelevance. Or, it can look past its misplaced pride, revive and update the CAI, and master the art of the industrial lure. By recycling Chinese trade surpluses into European factories, machines and energy grids, Europe can rebuild the very supporting ecosystems that decades of financialisation destroyed. The choice is clear. Brussels can craft a policy regime that can entice Chinese capital to rebuild Europe, or watch the global economic future be built entirely without it.（End)

About the Author:

Warwick Powell is an Adjunct Professor at The University of Queensland and a Guancha columnist

Is democracy the only road to national development and human well-being, or is it simply one governance model among many? How did nations achieve historic economic leaps and lasting social stability without copying Western-style systems? As the simplistic “democracy vs. autocracy” binary fails to explain our complex world, is it time to re-examine the political models we so easily dismiss?

The answers may lie in the unique perspective of Professor Zhang Weiwei, Director of the China Institute at Fudan University. In his early career, Zhang served as an English translator for top Chinese leaders, including Deng Xiaoping and Li Peng. Decades of research in international relations and comparative politics have taken him across the globe. Through relentless dialogue with mainstream Western narratives, he developed a systematic framework for understanding the “China Model.” Zhang argues that China’s rise proves a nation can achieve massive modernization and uplift its citizens by rooting itself in its own civilization, continuous self-correction, and pragmatic governance—without ever needing a foreign political template.

Professor Zhang recently joined Endgame, a video podcast hosted by Gita Wirjawan, Chairman of Ancora Group and Indonesia’s former Minister of Trade, to discuss these pressing global issues through the lens of his personal journey.

The Reform Era: How Beijing Rewrote the China Narrative

Gita Wirjawan: I have heard so much about you, and I have had the honor of speaking with other Chinese scholars. I am very curious about your views on a variety of subjects. But first, I would like to ask about how you grew up in Shanghai and how you made the decision to go to Geneva and then explore the world.

Zhang Weiwei: I experienced the Cultural Revolution. At that time, Chairman Mao felt that Chinese youth were losing their revolutionary zeal. So he decided to abolish the college entrance exam, which had been practiced for many years and is deeply rooted in the long Confucian tradition of examinations. After high school, I was sent to a factory. That was Chairman Mao’s instruction: young people should first go to the countryside, to factories, or to the army to be tempered, to sharpen their minds and courage, and to become more revolutionary.

I worked in a jade carving factory in Shanghai as an apprentice for exactly three years. Then, all of a sudden, Deng Xiaoping returned to power. He announced the restoration of the college entrance examinations. I applied to Fudan University and was enrolled in the foreign languages department, majoring in English and American literature. That is how I began my college education and later became a senior interpreter in China.

I took the exam in 1977, a cohort that later became known as the “Class of ’77” (and essentially the Class of ’78 as well, since there had been no college entrance exams during the ten years of the Cultural Revolution). When the exams were restored, the competition was fierce. Depending on the province, the enrollment rate was roughly 1% to 5%. We were the lucky ones admitted to universities to receive a formal college education.

Ultimately, these two classes (’77 and ’78) played a pivotal role in China’s transformation. Many of their members are among China’s top leadership today. For me, although I was working as a jade carving apprentice—a very tough but also artistic job—my real passion was foreign languages. I began learning English, French, and Japanese through radio programs. I found that many of my schoolmates from the Classes of ’77 and ’78 were also self-taught students who had worked very hard on their own, as no one expected the exams to return. This unique generation was tempered in the countryside, in factories, and in the military.

Later, I went to Geneva to work for the United Nations as a simultaneous interpreter. While doing so, my hobby was pursuing academic studies, specifically political science and international relations, with a focus on the rise of China. Having worked for China’s top leadership for five years, I wanted to summarize what China had done—to distill both the successful and unsuccessful experiences. Ultimately, this led to the study of the “China model,” which I was among the earliest scholars to discuss in the 1980s and 1990s.

While studying at the Graduate Institute of International Studies in Geneva, I also traveled extensively. I had a dream of traveling to 100 countries. By 2006, I had completed this ambitious goal, visiting 106 countries. This aligns with a well-known Chinese saying: “Read 10,000 books and travel 10,000 miles.” The idea is to combine book knowledge with practical experience, giving you a genuine overall grasp of societal trends and forces on every continent.

Gita Wirjawan: Amazing. Tell us a little bit about your experiences with His Excellency, the late Li Peng, and the late Deng Xiaoping. That must have been something else. We are talking about two giant personalities who helped shape—or reshape—the narrative of China, making it so consequential to humanity across the world.

Zhang Weiwei: Deng Xiaoping was, of course, an extraordinary leader—a statesman, not just a politician. What impressed me most was his vision for the future of China and the world. When I began working for him, he was already in his eighties, but he spoke confidently about China in the next 20, 30, 40, and even 50 years.

At that time, he was discussing the idea of quadrupling China’s economy from its 1980 level by the year 2000. He stated that by the middle of the next century, China should become a fully developed country. I remember he spoke with Li Peng and said, “If our economy is to quadruple, what will be the required power supply? You have to work on this: if the economy grows by such a percentage, how much must our power capacity increase?” As a result of this long-term vision and execution, China today is one of the safest countries in terms of energy and power supply, despite the crises in the Middle East.

Furthermore, Deng’s slogan—which was also Chairman Mao’s—was “seeking truth from facts.” You do not govern from dogmas, whether they come from the East or the West. Guided by this philosophical framework, he pursued reform and the open-door policy.

There is a famous saying from Confucianism: “Water can carry the boat, but it can also overturn the boat.” The boat represents power and top leadership, while the water represents the people. A top leader must feel the pulse of society, understand the people, and guide them toward their objective of a better life. That is exactly what Deng Xiaoping did in 1978.

Later, as a scholar, I studied his theoretical arguments and concluded that at three critical moments in Chinese history, Deng Xiaoping made three strategic decisions that changed China forever.

The first was in 1978, when he decided to open up China and carry out economic reforms. There were other choices at the time, but he chose to embrace something entirely new. In 1978, he visited Thailand, Malaysia, Singapore, and Japan. He found that they were more developed. He had visited Singapore back in 1920 on his way to France, and at that time, it was a very poor village. Seeing it again in 1978, he was deeply impressed. He said we should learn from Singapore, but added, “We should try to see whether we can do better.” This is the vision of Chinese leadership: recognizing that we are behind, learning from others, and eventually striving to do better.

I shared this story with Kishore Mahbubani, my great friend from Singapore, and he said, “That’s the reason why the West is afraid of China. When you are from an age-old civilization that used to be at the top of the world, it is so natural to ask, ‘Can we do better?’”

Gita Wirjawan: I have a few follow-up questions. If we go back to the five-year plans set up in the early 1950s, Chairman Mao designed plans for China to catch up with the United States. But what you witnessed in 1978 was the audacity and conviction with which Deng was adamant about opening up China. Looking back, are you surprised by how quickly China has grown?

Zhang Weiwei: Indeed. From today’s perspective, I divide modern China into two periods: the period under Mao and the period since Deng Xiaoping.

The first three decades under Mao laid an important foundation for China’s economic takeoff. Whatever mistakes were made, China established a very solid base. The literacy campaign was highly successful, a basic public health system was created, women’s liberation was completed, and land reform was carried out. I have visited India five times, and I saw that India’s problem is that it never had a social revolution to lay this kind of foundation. For a developing country, without land reform, peasants cannot become economically better off. Without women’s liberation, the wisdom of half the population cannot be brought into play.

In the First Five-Year Plan, China tried hard to learn from the Soviet Union. Soviet experts said China’s economic foundation was too weak and that the plan was too ambitious. But Mao insisted we had to be ambitious and establish every branch of industry, with a priority on heavy industry. This was understandable because China was fighting the United States in the Korean War. They learned the hard lesson that without heavy industry and enough steel, you are humiliated on the battlefield.

Yet China was still very poor when Deng Xiaoping came to power. The World Bank sent a team to study China’s GDP—a metric China had not previously used. The conclusion was stark: China’s per capita GDP was lower than that of most African countries and definitely lower than most ASEAN countries. The question arose whether China should make this public. Deng said, “Of course, make it public. If you are not handsome, just admit you are not handsome. Don’t worry.” He faced reality squarely, while maintaining confidence that China could catch up.

From that starting point in 1978, China achieved what I call “leapfrog development.” We completed four industrial revolutions in one.

China missed the first industrial revolution (coal-based, light industry) and the second (power-based, heavy industry), which were led by Europe and the United States. However, beginning in 1978, China completed the first industrial revolution in one decade, becoming the largest textile producer and exporter. Ten years later, China’s power generation surpassed that of the United States, fully demonstrating the development of both heavy and light industries.

For the third industrial revolution—the internet revolution—China not only caught up but became a leader. Today, the top 20 internet and telecommunication companies are either Chinese or American. In the fourth industrial revolution (AI, big data, quantum technologies), China is definitely at the frontier and perhaps slightly ahead of the United States. An Australian Strategic Policy Institute report noted that, out of 64 critical technologies, China leads the United States in 57.

So yes, even for the Chinese, it is deeply impressive to see how China traversed, in a few decades, what took European countries two to three hundred years to complete.

Gita Wirjawan: It is an amazing story. What do you think were some of the structural risks that Chairman Deng calculated but believed he could manage? For example, opening up a nation and sending over 9 million people across the world to study—mostly STEM in Europe, the US, and Japan—to help catapult China’s industrialization. What risks did they foresee in 1978?

Zhang Weiwei: Opening China to the outside world, especially to the West, was indeed a risky strategy. In the late 1970s, when Deng decided we should send students to the West to learn science and technology, there was a real concern that a “brain drain” would occur. But Deng said something with incredible courage and long-term vision: “Don’t worry. If even one out of ten returns to China, our policy of sending students abroad will be a success.”

I was once in Washington, D.C., with Li Peng when he was Vice Premier. We had dinner with George H. W. Bush, who was then Vice President. Bush had previously served as the director of the US liaison office in Beijing, and he asked Deng Xiaoping how many students China would allow to go abroad. Deng replied, “No limit.” Because of the Cultural Revolution, there was a sharp shortage of trained experts, scientists, and technicians, and Deng was in a hurry to catch up.

In the long term, this “brain drain” became a “brain gain.” As you mentioned, now about 85% to 90% of students return home. Many more would like to return, though there are practical challenges for older generations regarding issues such as medical insurance. But on the whole, the trend of returning to China is firmly established.

Gita Wirjawan: What made him decide to send disproportionately more students to study STEM? It turned out to be a stroke of genius for industrializing China, and this is something Southeast Asia is currently lacking.

Zhang Weiwei: I describe China as a “civilizational state”—an amalgam of an age-old civilization and modernity. Historically, Confucius advocated “education for all, irrespective of class.” This tradition has existed for 2,500 years. Since 1949, Chairman Mao, Deng Xiaoping, and all top Chinese leaders have given priority to STEM education.

From the early 1950s, the national slogan was “Advance in science and technology.”As a result, even today, China is perhaps the only country in the world where most high school students strongly prefer to study STEM. When Deng realized that the Cultural Revolution had disrupted this education, he knew we had to make up for those losses by sending students abroad.

It was a combination of China’s historical reverence for education and the modern prioritization of science and technology. China has a long history. Over 2,500 years ago, Confucius advocated for “education for all without discrimination,” asserting that learning belongs to everyone regardless of wealth or status. Since 1949, a new tradition has emerged as education heavily pivoted toward STEM fields.

Gita Wirjawan: One vivid cultural element of China is the desire to work hard. I compare the entrepreneurialism in Silicon Valley—which sits at the intersection of academic excellence and entrepreneurship—to Shenzhen. In Shenzhen, you find entrepreneurs who have migrated from other cities. If they worked eight hours a day in Wuhan, they move to Shenzhen and desire to work 12 to 14 hours a day to make things cheaper, better, and faster. How do you get a nation to attain that sort of mentality?

Zhang Weiwei: You are describing our internal competition, which is fierce, but the Chinese are used to it. The primary test of this competition is the college entrance exam. It is fair to all; regardless of your family background, your score determines which university you enter. With China’s reform and opening up, going to university became just one channel. There are many other open pathways to success.

Many entrepreneurs who were not highly educated have become very successful businesspeople. They are full of entrepreneurial spirit, which has much to do with Chinese cultural tradition. In the Chinese language, every word or idiom related to working—working hard, working diligently, working day and night—is positive. Chinese people are undeniably among the most industrious in the world.

I strongly dislike Western propaganda that claims Chinese people lack innovative capacity and rely purely on rote memory. Seeking truth from facts: this is a civilization that was ahead of Europe for thousands of years. Up to the early 19th century, China was the largest economy in the world and contributed thousands of inventions. Western media coverage of China, the Islamic world, and Russia is heavily stereotyped. But we do not care. Eventually, they will realize that China is a vast country with limitless capacity for innovation.

Beyond 'Democracy vs. Autocracy': The Shift to Good vs. Bad Governance

Gita Wirjawan: I can speak of the EV space, which has nearly 100 brands in China. That is true democratization of a market, and it means fierce bloodshed among competitors. This intense competitive landscape allows for greater technological innovation.

Putting this in the context of China and Southeast Asia: over the last 30 years, China’s economic growth has been roughly 10 times, whereas Southeast Asia’s has been about 2.7 times. This is underpinned by infrastructure, education (China placing more universities in the global top 20), governance (recruiting based on meritocracy rather than patronage), and sheer competitiveness. How can people around the world better understand how to pick up speed and catch up with what China has done?

Zhang Weiwei: The Chinese model of modernization is unique in several ways. Politically, it operates under what I call a “holistic interest party.” From a civilizational perspective, China was unified in 221 BC, and for most of its history, it has been ruled by a unified entity; otherwise, the country would disintegrate. This unified ruling entity was backed by a system of meritocracy, starting with the keju (civil service exam) system, invented during the Sui Dynasty over 1,500 years ago.

If the Western system is called “election,” the Chinese system is “selection plus election.” Selection always comes first, based on performance at different levels of governance. If you look at the top echelon of Chinese leadership—the Standing Committee of the Political Bureau—most members have worked as the “number one” leader (Party Secretary or Governor) of multiple provinces, governing more than 100 million people before reaching their current positions. President Xi Jinping, for instance, governed Fujian, Zhejiang, and Shanghai. By the time he became top leader, he had governed populations and economies larger than many major countries.

Economically, China has a mixed economy, officially described as a “socialist market economy.” State planning and market forces are combined organically. Take digital infrastructure: the state sector is responsible for ensuring that 4G and 5G reach every remote village, regardless of cost. That is the mission of socialism. Then private companies make the best use of this first-rate infrastructure.

In President Xi Jinping’s economic thinking, sometimes supply creates demand. With first-rate digital infrastructure, high-speed trains, and highways, a dynamic new economy emerges. The EV sector is also a product of this mixed economy. The state planned for EVs 20 years ago through five-year plans. Private companies joined in, resulting in fierce domestic competition. In the end, the most successful firms became internationally competitive.

Because of our super-large market, we can test every technological path—lithium batteries, hydrogen energy, and so on—select the best ones, and then channel resources to support them.

Socially, we encourage positive interaction between the state and society, rather than pitting society against the state.

Gita Wirjawan: Would you argue that the harmony between the state and society reflects the accountability of the leadership to the people? This seems to help democratize public goods, whereas in some democracies, accountability is geared more toward certain class structures, resulting in deficient distribution of public goods.

Zhang Weiwei: Yes. In terms of theoretical construction, I have argued for years that the Western political science paradigm of “democracy versus autocracy” is outdated and entirely wrong. It is used to encourage color revolutions and regime changes. I advocate shifting to a new paradigm: “good governance versus bad governance.”

When debating my Western counterparts, they say, “As a Chinese, you dare not discuss democracy.” I tell them, no, we are discussing real democracy. In Chinese cultural tradition, we divide everything into Dao (overall objectives or purpose) and Shu (specific procedures). In the Western paradigm, democracy is defined entirely by Shu—based on Joseph Schumpeter’s 1942 formula of electing leaders by votes. To us, this is merely procedural democracy.

We must first establish the Dao. What is the objective of democracy? It is good governance. The state must deliver; leaders must deliver and meet the demands of the people.

In the early 1980s, Deng Xiaoping laid out three criteria to judge whether a political system is good:

1. Can it ensure political stability?

2. Does it keep improving people’s living standards and maintain unity?

3. Does it keep productivity moving ahead?

This is an approach that starts with the Dao—the foundational vision and ultimate objectives—and then shapes formal democracy by blending it with China’s unique traditions and institutional frameworks. Take the Premier’s Government Work Report delivered every March during the National “Two Sessions.” Almost every single sentence directly impacts the livelihoods of millions. The content is hyper-concrete: it lays bare exactly what was promised last year and precisely what was delivered this year. Contrast this with a U.S. State of the Union address, which often reads like a campaign stump speech. The sheer pragmatism of China’s report underscores a profound difference in the quality of decision-making.

The Five-Year Plan system is another prime example of this highly mature governance architecture. It is an all-encompassing matrix: master blueprints for socio-economic development, spatial planning for agricultural and conservation zones, and hyper-targeted strategies for frontier sectors like AI and electric vehicles. These plans cascade from the central government down through provincial, municipal, and county levels. Crucially, they are forged through tens of thousands of consultations—within the Party, across political coalitions, among think tanks, and right down to public debates on the internet. Any everyday citizen, like myself living in Shanghai, can easily look up the local plan to see exactly where a new metro line will open or a new park will be built over the next five years. Supply creates its own demand, economic activity naturally aligns, and this collective foresight becomes an ordinary part of daily life in China.

Ultimately, democracy must be judged by the tangible results it delivers to the people. That is the core metric. Throughout his entire life, Deng Xiaoping loathed nothing more than empty talk that fails the nation.

Gita Wirjawan: Do you think China’s current system has developed enough “inertia”—meaning it is now quite resistant to sliding in the wrong direction in the future? Whether viewed through the lens of its underlying “Dao” (philosophical principles) or the way it distributes public goods, is it unlikely to regress? That’s my first follow-up question.

My second follow-up is this: considering our friends in democratic countries, how do you think they can move from procedural democracy toward a different form of democracy that more effectively distributes public goods?

Zhang Weiwei: On your first question—whether there is sufficient “inertia.” Yes, there is, and that’s normal. Some people always perform better and work harder, while others are less successful. The key lies in a distinctive feature of the Chinese economy: intense internal competition between counties.

China has a five-tier government structure—central, provincial, municipal, county, and township. Local governments at every level compete with one another. Take the provincial level: Shanghai, Jiangsu, and Zhejiang are all in the Yangtze River Delta. Together, their GDP (at official exchange rates) already exceeds that of Japan or Germany, yet they continue to compete fiercely with each other. You could call it healthy competition, but the pressure is very real.

The county is the most basic administrative unit. In many respects, it functions like a “mini-state.” A county party secretary or county magistrate has to oversee political, economic, social, foreign trade, and even military-related affairs. There’s an old Chinese saying: “Prime ministers must emerge from the prefectures and counties.” That principle still holds true today. Every official who has served as Premier of the State Council has had extensive experience working at the grassroots level.Every year, governments at all levels rank counties and make the results public. Officials who engage in lazy governance, inaction, or poor performance face enormous pressure and may even be removed from office. So they have no choice but to improve.

Of course, the 80/20 rule is universal—20% of people, enterprises, or entities create 80% of the results. That’s a natural law. But because of this competitive mechanism, the entire country has become extraordinarily competitive.

The Genetic Flaws of Western Political Systems

Gita Wirjawan: So, on the second question: how can Western procedural democracy shift toward a less procedural form of democracy that places greater emphasis on the effective delivery of public goods?

Zhang Weiwei: For those countries that have already adopted the Western political model—multi-party competition and universal suffrage—it is their own choice. The problem is that the Western system was never designed with “development” as a core objective. Its implicit assumption is that once a country installs Western-style political institutions, it will automatically become developed and its economy will flourish.Reality has proven the opposite.

Many countries have fallen into chaos, stagnation, and endless problems. Politicians exploit populism, governance deteriorates, and development stalls. That is why I propose a new paradigm: good governance versus bad governance. Western systems can produce good governance, but non-Western systems can too—China is a clear example. Conversely, bad governance can appear under both Western and non-Western systems. I could easily list a hundred such cases. This is why we must move beyond the Western political model.

I often discuss this with friends from developing countries. Chinese philosophy teaches us that when facing a multitude of problems and contradictions, we must identify and grasp the principal contradiction.

You mentioned that ASEAN countries face challenges in education, competitiveness, infrastructure, and more. But it is often very difficult—and sometimes counterproductive—to tackle everything at once. You need to seize the key issue first, get the whole situation moving in the right direction, and then address the rest.

Deng Xiaoping believed that without long-term stability, China’s modernization would be unimaginable. The biggest flaw of the Western political model is that it struggles to formulate and execute long-term plans. Either there is no plan at all, or when a new party comes to power, it discards the previous one’s plans.

So I often ask: for countries that have adopted the Western model, is it possible for them to forge a long-term national vision through thorough cross-party discussion and genuine consensus? Ideally, this vision could be enshrined in the constitution and taught in school and university textbooks—something like “national rejuvenation” or another overarching goal. Whichever party is in power would then continue advancing along this shared path. Without such continuity, progress is extremely difficult.

Deng Xiaoping once said that a vast country like China needs a century of stability; otherwise, it has no chance. What China pursues, therefore, is stability, unity, and the continuous improvement of the people’s living standards.

Gita Wirjawan: Do you think the political cyclicality and inability to think long-term in the West are fundamental reasons why universal suffrage has not worked the way they intended? Did they fail because universalism cannot be applied the way a single nation wants to globalize it?

Zhang Weiwei: First, I do not think there is such a thing as Western “universalism.” True universalism should be based on the core message of the Chinese experience: every country must find its own path to success in light of its own national conditions. Forcing a Western model onto developing countries is sometimes suicidal.

This reminds me of my debate with Professor Francis Fukuyama exactly 15 years ago, in June 2011. At the time, the Arab Spring was unfolding. He saw it as a manifestation of the “End of History,” arguing that even Arab peoples wanted to embrace Western-style democracy. He told me China must undergo political reform or experience its own Arab Spring.I said, “No chance.”

I told him that, based on my knowledge of the region, the Arab Spring would soon become an Arab Winter. In Chinese wisdom, a system must be adapted to local “soil and water” (cultural, political, and economic conditions). A Western prescription for Egypt, Syria, or Yemen would naturally end in disaster.

I also told him face-to-face: “Make sure the United States carries out its own political reform. It is more urgent than China’s. My concern is that without substantial political reform, you may elect a leader worse than George W. Bush.”

The Western political model has genetic flaws. It relies on the assumption of a “rational voter,” but with money politics, social media, and AI, rational thinking is marginalized and populism prevails. Furthermore, the West treats rights as absolute, whereas Chinese philosophy insists that rights and responsibilities must go hand in hand.

I warned him that the Western model would end in extreme, low-minded populism before it destroys the West itself. Later, Professor Jeffrey Sachs told me I had won that debate.

Gita Wirjawan: Why do you think the United States never developed a geostrategic plan that anticipated its own relative decline? It seems they never even tried. It’s obvious that America is declining in both economic power and geopolitical influence. One would intuitively expect smart strategists to have foreseen this two or three decades ago, especially against the backdrop of China’s and other countries’ rise.

Zhang Weiwei: Chinese philosophy emphasizes seeking truth from facts. When China was lagging behind the West and the United States, we made a conscious effort to learn everything positive and useful from them. That’s why we sent millions of students abroad—not just to study science and engineering, but also other disciplines. I myself studied political science and international relations in Geneva. All these experiences have been valuable.

The problem, however, lies in the way Western political systems are structured. As I said earlier, elections are essentially about performance and showmanship rather than actual governance. It’s not leadership; it’s theater.

This is a fundamental flaw of the Western political system—what I call a genetic defect. As for whether they can overcome this inherited illness, I remain skeptical.

Even George Kennan, one of the chief architects of the Cold War, once said that for America to defeat the Soviet Union, it must first ensure it is doing very well at home. Do you remember the famous 1959 Kitchen Debate between Nixon and Khrushchev? At that time, the United States clearly won in terms of improving people’s living standards. The Soviet Union ultimately collapsed largely because it lost economic competitiveness.

From Deng Xiaoping’s perspective, this was the key lesson. That’s why he insisted China must focus on the people’s livelihood and become a successful economic model. Today, China’s average life expectancy has surpassed that of the United States, and per capita daily intake of protein and vegetables has also exceeded America’s. This represents a fundamental shift.

Gita Wirjawan: Looking at history, the United States has only existed for about 250 years, yet it seems to possess an inherent capacity for self-reinvention. Some people believe America will eventually rise again at some point. Do you think this view is accurate?

Zhang Weiwei: Many people say so, but I tend to be more cautious. All empires have their cycles, and from a historical perspective, 250 years is roughly the maximum lifespan of most empires.

Look at America’s long-standing, unresolved problems. As early as Sun Yat-sen’s Xinhai Revolution in China, the United States was already talking about universal healthcare—yet more than a century later, it still hasn’t achieved it. On gun control, countless people emphasize its importance, but nothing gets done. The political system has become one that is incapable of solving its own problems.

I advocate for a balance between political power, social power, and capital power that favors the vast majority of the people. The Chinese model achieves this. The American model, by contrast, favors a tiny minority and empowers capital. Lobbying groups have become institutionalized and deeply entrenched, and there seems to be no effective way to truly constrain or check them.

China-ASEAN: A Promising Model for a Future Multipolar World Order

Gita Wirjawan: Yes, especially when we look not just at income inequality but at wealth inequality—where 1% of the population controls a disproportionately huge share of the economy. That’s really unhealthy.

I’d like to go back to what you mentioned earlier about China’s vision of globalization. Intuitively, it seems China wants a pluralistic form of globalization—one that advances cooperation while respecting the cultures of its partners. Looking at trade data from recent years, China’s exports to the United States have fallen from 23% to around 12-13% of its total exports.

To me, this reflects a deliberate strategic shift toward greater focus on the Global South. I myself come from the Global South, which accounts for 84% of the world’s population—about 7 billion people. China is investing in these 7 billion, and these 7 billion are also investing in China’s 1.4 billion.How do you see pluralism effectively ensuring that this cooperation enables the Global South to move upward—not only in global value chains but also in the global geopolitical order—while expanding their existing strategic autonomy?

Zhang Weiwei: First, on globalization: we’re seeing a clear trend of de-globalization in the West, both in Europe and the United States. But in my view, the U.S. and the West benefited enormously from globalization. The real problem lies in unfair domestic distribution—the big corporations captured most of the profits without sharing them with ordinary people.

China, overall, has been a major beneficiary of globalization. Even though companies like Microsoft and Apple took 80-90% of the profits while Chinese workers received less than 10%, that 10% still dramatically improved the lives of those workers. So most Chinese people still embrace globalization. But if the United States chooses to reject it, there’s little we can do.

China launched the Belt and Road Initiative about 13 or 14 years ago. Today it has become the world’s largest platform for shared development, with Southeast Asia and ASEAN as a key region. I’m very pleased about this, because Southeast Asia has enormous infrastructure needs that have been neglected for a long time—whether in Western political systems or in institutions like the United Nations.

The BRI has already invested over $2 trillion and involves more than 150 countries. That’s a very positive sign. Though you’re being modest about ASEAN, I can say that China-ASEAN cooperation has been far more successful than U.S.-EU cooperation.

There are three main pillars in China-ASEAN relations: First, development—both sides put improving people’s livelihoods at the top of the agenda. Second, security—China supports ASEAN as a driver of change, for example on issues like nuclear-free zones. Third, cultural and civilizational dialogue. We talk about ASEAN wisdom, Chinese wisdom, and Asian wisdom—strategic patience, two steps forward and one step back, resolving disputes through negotiation.

In contrast, look at what the U.S. and EU practice: excluding Russia, suppressing Germany, keeping America embedded in Europe. This NATO philosophy applied across Europe has not served European interests and has led to “lose-lose, multi-lose” outcomes.In Asia, particularly with China and ASEAN together representing 2 billion people, we have achieved “win-win, multi-win” results. I hope this trend continues. I even believe this could serve as an excellent model for a new multipolar world order.

The world is changing at a fascinating speed. We are moving from unipolarity to multipolarity. The BRICS countries now have 11 members, accounting for 40% of global GDP—surpassing the G7’s 30%. At the same time, we are shifting from a single civilization to multiple civilizations. More and more countries are describing themselves as “civilization-states.”

I think Indonesia could eventually claim this title too. With its thousand-year history, Islamic, Chinese, and Western civilizations coexist harmoniously within it. That’s very important. Ultimately, I believe ASEAN also needs a higher “Dao”—to build a “civilization-type community.” Only with such a “Dao” can it more easily solve “Shu” issues—procedural and specific practical problems.

Gita Wirjawan: Let me return to the Global South, of which Southeast Asia is a part (though Singapore and Brunei are developed economies and exceptions). There’s a political-economy argument here: for Global South members, cooperation remains limited if they cannot obtain technology transfer from China. But if technology transfer occurs, they can move up value chains and in the global geopolitical order, making cooperation virtually limitless. I think this provides a compelling rationale for deeper, sustained China-Global South cooperation. Is this a logical extension of your thinking?

Zhang Weiwei: China’s guiding principle for the Belt and Road is “extensive consultation, joint contribution, and shared benefits.” Joint contribution and shared benefits naturally include sharing technological knowledge, but it must be mutually beneficial and win-win. Most Chinese companies working on BRI projects today are private enterprises. For projects to succeed, they need commercial incentives; they can’t be driven solely by state-owned firms.

I remember in 1978 or 1979 in Shanghai, China wanted to import elevator technology from Switzerland’s Schindler. The Swiss company said it would transfer the technology but required a fair and reasonable price. China agreed, and they shipped over a large volume of German-language documents.

The fact that we were able to receive and translate those documents shows how important the foundation laid in the first thirty years under Mao was. We had trained enough German-speaking translators and enough engineers who, even if their language wasn’t perfect, could understand the blueprints and designs. So local cultivation of technological capability is crucial.I think many things have to be done step by step.

When Deng Xiaoping met Western visitors, he would say: if you transfer technology to China, you will ultimately benefit too, because you will create a larger market and more consumers. This is win-win. We should view issues this way. You can discuss each side’s considerations with Chinese companies and find common ground.China has trained a great many talents. I visit Africa once or twice a year. During the Sino-Soviet honeymoon in the 1950s, the Soviet Union helped train about 20,000 Chinese engineers and scientists, who played a vital role in China’s development.

China has now trained even more for Africa—probably 40,000 to 50,000 engineers and scientists—and the process continues. How best to utilize these talents trained in China is also very important. Human capital development is a key component of the Belt and Road framework.

Gita Wirjawan: Exactly right. Let me add one point: in most Southeast Asian countries, 80-90% of household heads have not received university education. Their only hope is real investment in good teachers. When parents themselves are not highly educated, choosing good teachers becomes critical.I’ve spent time teaching in classrooms myself and know how important scalable education is.

I firmly believe that investing in teachers—investing in excellent teachers—is exactly what Deng Xiaoping, Lee Kuan Yew, and other great leaders did. This is where Southeast Asia needs to strengthen significantly (Singapore being the exception, as it has consistently invested in quality teachers since the early 1960s).

Zhang Weiwei: Perhaps China and the United States could engage in far broader cooperation in education and various training programs. Another important aspect of education is vocational training. For example, when we helped Laos build its railway, Shanghai’s railway vocational technical school trained many local technicians. They learned very well, and after the project was completed, many operational roles were taken over by Laotian engineers and workers. This shows the real impact of technology training embedded in Chinese projects—it’s very effective.

Gita Wirjawan: I also believe Southeast Asia must step up its investment in education, because the economic disparities within the region are huge—there are countries with per capita income of $91,000 and others with less than $2,000. I think this is largely due to vast differences in education levels, and this gap needs to be addressed. Perhaps this is an area where China can play a helpful role—whether in vocational education, higher education, or overall educational assistance. China has done an outstanding job of making education a priority.

Zhang Weiwei: Yes, I think the space for educational cooperation is enormous. As university professors, we should encourage it. We are also sending young scholars to ASEAN countries as visiting researchers to learn about Asian culture and ASEAN nations. We hope more Chinese people will understand Southeast Asia. Overall, Chinese impressions of Southeast Asia are very positive.I recall what former Chinese Premier Zhu Rongji said at the signing ceremony of the China-ASEAN Free Trade Agreement: “If, ten years later, our ASEAN friends find any part of the agreement unfair to ASEAN, we can renegotiate it.”

Gita Wirjawan: I remember that.

Zhang Weiwei: This is the Chinese civilization—broad-minded and generous. We are willing to help others, and we have accepted help from others. It has always been mutual, whether direct or indirect. Even with a country like the Philippines, which many Chinese feel is causing trouble, we take a longer-term view.

If it were the United States, it would have destroyed the Philippine navy long ago. But the Chinese have so far only used water cannons. Behind this is a long-term perspective: Philippine policy fluctuates, but the Filipino people are our friends. Of course, we also have our bottom lines.I believe that as civilization-states, China and the U.S. have profound cultural differences. For Americans, it’s either friend or enemy.

For Chinese, if not a friend today, it is a potential friend. This longer-term perspective is an important guarantee for maintaining peace in international relations.

Chinese Philosophy: You Are Either a Friend, or a Future Friend

Gita Wirjawan: I strongly believe Southeast Asia needs to invest heavily in education and great teachers, as China has done. My second-to-last question is about India. They opted out of the RCEP. How do you see China, ASEAN, and India collaborating better?

Zhang Weiwei: Broadly speaking, I share your assessment that a future matrix of cooperation between China, ASEAN, and India is entirely possible. However, the elephant in the room is the China-India bilateral relationship—specifically, how these two towering civilizations can find a sustainable modus vivendi. Based on my observations, the primary bottlenecks reside on the Indian side.

China harbors no structural hurdles. Our leadership consists of long-term strategists. While the border dispute remains our primary friction point, Beijing has consistently maintained that we can shelve these territorial disagreements to foster broader bilateral ties—or even shelve sovereignty disputes altogether in favor of joint development. As Deng Xiaoping famously noted, future generations may prove wiser than us and find the ultimate solution. China has consistently maintained this strategic flexibility, seeking pragmatic pathways for two ancient civilizations to navigate their differences.

India, however, faces two deep-seated domestic hurdles. First, the Indian military establishment remains haunted by the memory of the 1962 border conflict. Second, the Indian media ecosystem is hyper-hostile toward China. Given the military’s unique institutional leverage and the media’s massive sway over public opinion, bridging this gap will take time—unless a rare leader emerges who possesses both the vision and the political courage to break the deadlock. This is the geopolitical reality we must confront, and we hope Indonesia and other regional partners can help engage New Delhi productively.

From Beijing’s vantage point, the door is wide open. China has successfully settled border disputes with almost all its neighbors. Only India and Bhutan remain—and the dispute with Bhutan could realistically be resolved within 24 hours if New Delhi ceased its interference.

Furthermore, India must realize it has recently made a major strategic miscalculation. During the Gaza war, while Israel’s actions faced global condemnation, New Delhi chose to embrace Tel Aviv and forge a strategic partnership, hoping to curry favor with Donald Trump’s administration. The move backfired: it alienated the Arab world, and Trump remains largely transactional regarding India.

Success for a China-ASEAN-India cooperative triad will not come easily, and it hinges on India cultivating visionary statesmen to drive the initiative forward. But as far as China is concerned, the willingness is entirely there.

Gita Wirjawan: My last question: regarding the recent summit between President Xi and the US President, are we already in a Thucydides Trap? If so, can we get out of it peacefully?

Zhang Weiwei: The Thucydides Trap is based entirely on Western history and a zero-sum philosophy. Chinese philosophy emphasizes win-win outcomes. Unlike American culture, which views others as “friend or foe,” Chinese culture views others as “friends or potential friends.” It is a long-term game.

However, China also understands realpolitik. We state openly that we hope the United States will not provoke China over Taiwan. Taiwan is the red line of red lines. Even during the Cold War, when China was a hundred times weaker, we engaged in direct military confrontation with the US in the Korean and Vietnam Wars when our red lines were crossed. I think the current US leadership has gotten the message.

Eventually, the United States will have to come to terms with the reality of China’s rise. It is similar to the psychological model for a terminal patient going through the stages of grief: denial, anger, bargaining, and acceptance. They denied that China could rise; they became angry that a communist country was rising; now they are in the bargaining stage. In the end, they will accept it, and that acceptance is coming faster than many people expected.

Gita Wirjawan: I am with you on that one. This has been fascinating. Thank you so much, Weiwei, for your time and the discussion.

Zhang Weiwei: Could I add one more point? At the beginning, I mentioned that Deng Xiaoping made three strategic decisions, but I only explained the first one (the 1978 opening up).

To give you the complete picture of Deng’s contribution: his second major decision was in 1989, during a massive political crisis. He had the courage to stop a color revolution forcefully. Otherwise, China would have fractured just like the Soviet Union.

His third decision was in 1992, during his Southern Tour. Following the collapse of the Soviet Union, there was a huge domestic dispute over whether China should close its doors. Deng was in a hurry. He said the crisis was an opportunity, and he settled the debate over the “market economy.” He declared that the market is an ideologically neutral tool that can work for capitalism but can also work for socialism. This sparked an even larger scale of reform and opening up. Those three decisions at critical moments changed China forever. That is the China we see today.

Gita Wirjawan: I am sure he is quite pleased with how China has turned out. Thank you so much.

Zhang Weiwei: Thank you very much, Gita. Good luck! (End)

About the Author:

Zhang Weiwei is the Director of the China Institute at Fudan University. In his early career, he served as an English translator for top Chinese leaders, including Deng Xiaoping and Li Peng.

Gita Wirjawan is the host of the video podcast Endgame, as well as the Chairman of Ancora Group and Indonesia’s former Minister of Trade.

In a recent speech, then Fed Chair Jerome Powell raised alarm about the US federal government’s debt trajectory. He argued that the current federal debt—exceeding $39 trillion, or 125% of US GDP—is growing faster than the economy itself, a condition he characterized as unsustainable. His concern is widely shared. Speaking on Bloomberg’s Odd Lots podcast, former first deputy managing director of the IMF, Gita Gopinath contended that rising federal debt could trigger a credit crunch: as the debt load erodes investor confidence, bond vigilantes demand higher yields, driving up interest rates, tightening liquidity, and slowing growth. So while the United States cannot run out of dollars to service dollar-denominated debt, unlike emerging economies carrying foreign-currency obligations, the orthodox view holds that ballooning federal liabilities sow the seeds of long-term stagnation.

The Federal Debt Delusion: Three Reasons Why the Panic is Misplaced

However, the concern over federal debt is largely misplaced, for three reasons.

First, the saturation thesis holds that as federal debt rises, investors will eventually balk at absorbing more treasuries. Evidence of de-dollarization lends this view some surface plausibility: the ECB reports that gold climbed to 25% of total official reserves while US treasuries fell to 22% in the final quarter of 2025, and the dollar’s share of official foreign exchange reserves has drifted down to roughly 57%, from 64% a decade ago. Yet on closer inspection, the retreat in foreign official treasury holdings reflects geopolitical realities rather than a crisis of confidence. Russia’s exclusion from dollar assets and China’s deliberate diversification account for most of the shift; these decisions are driven by strategic calculation, not solvency fears.

Moreover, the aggregate picture is more reassuring than the official-holdings figures suggest. While foreign official treasury holdings declined from a peak of $4.22 trillion to $3.77 trillion between mid-2021 and end-2025, foreign private holdings surged over the same period from $3.30 trillion to $3.79 trillion, a 15% rise that more than offset the official retreat (Figure 1). Private investors have been actively accumulating treasuries for their safety and relatively attractive yields; hedge funds exploit the spread between spot and futures prices; and stablecoin issuers hold treasuries as backing for their crypto currencies. By end-2025, private investors held 57.7% of all foreign-owned US treasuries, with official holders accounting for the remaining 42.3%, a reversal of the historical norm. While the shift from buy-and-hold central banks toward buy-and-sell private investors may introduce greater yield volatility, there is little evidence that any coordinated foreign dumping of treasuries has driven yields sharply higher.

Figure 1: Foreign holdings of treasuries: official and private, $ million

Skeptics contend that a rising supply of treasuries will eventually outpace demand and push yields higher. The data tell a different story. Despite the persistent expansion of federal debt, treasury yields have risen and fallen largely in lockstep with the federal funds rate, not with debt levels. Public debt climbed sharply from mid-2008, yet yields fell as the Fed cut rates at year-end 2007. Debt surged again in early 2020, but 10-year yields declined alongside the Fed’s emergency rate cuts. Conversely, as the debt-to-GDP ratio began retreating from mid-2020, yields began rising, driven by tightening monetary policy, not fiscal expansion (see Figure 2). The empirical record consistently points to monetary policy, not debt accumulation, as the primary driver of treasury yields.

Figure 2: US Public Debt to GDP Ratio (%), 10 Year Treasuries Market Yield (%) and Effective Fed Funds Rate (%)

One may still argue, deficit spending and hence accumulation of public debt drive up inflation and force the Fed to tighten monetary policies. However, as Figure 3 illustrates, the size and trajectory of public debt is not reliably correlated with inflation. When the public debt-to-GDP ratio fell from the early 1970s through the early 1980s, inflation spiked; when it rose sharply after the Global Financial Crisis and remained elevated through the 2010s, inflation was subdued. After the COVID-19 pandemic, the debt ratio stayed high while inflation eventually fell steadily. Public debt, in other words, is neither a reliable indicator of excess demand nor an inflation-generating machine in its own right.

Figure 3: Public Debt and Inflation

The third objection is that swelling interest payments will crowd out other federal spending and drag on growth. High interest payment has negative redistribution impacts. High interest income flowing to the private sector adds to aggregate demand and can be inflationary, particularly given that the wealthiest 10% of households account for roughly half of total US consumption. Rising yields enrich asset-holders while the broader population struggles with cost-of-living pressures, deepening the K-shaped recovery and fueling the political polarization that makes coherent fiscal policy ever harder to achieve.

Yet the relationship between debt levels and fiscal crowding-out is weaker than commonly assumed. As seen in Figure 4 below, despite rising size of the public debt, interest payment does not always rise as a percentage share of the total federal outlays. While the share rose from around 6% in early 2021 to close to 16% in 2026, it is still lower than the record high of over 20% in the 1990s, before it fell consistently since the later 1990s. In other words, rising debt does not automatically translate into compounding fiscal strain.

Figure 4: Interest Payment as a Percentage Share of Federal Outlays

Taken together, this evidence suggests that while a politically motivated default remains conceivable due to partisan brinkmanship over the debt ceiling; an involuntary default driven by economic rationale is effectively ruled out.

The Quiet Rise of the AI Funding Bubble

The catalyst of the next financial crisis will not be found in the public debt domain. A more credible candidate lies elsewhere: in the opaque, overleveraged, and increasingly circular financing ecosystem that has grown around artificial intelligence. Four features of AI financing are particularly worrying.

First, it reproduces the too-big-to-fail dynamics of the 2009 Global Financial Crisis (GFC). AI investment has become the primary engine of US economic growth and equity market performance, yet it is increasingly dependent on external financing rather than organic earnings. The leverage involved, and the growing complexity of the financial structures underlying it, expose the banking sector to cascading risks capable of pulling down broad segments of the financial system.

Second, circular financing, in which vendors invest in their customers, who then spend those funds procuring services from their investors, has become pervasive. This arrangement inflates apparent revenues, masks the true scale of transactions, and creates chains of mutual dependency through which distress at any single node can propagate rapidly.

Third, AI investment is crowding out other productive uses of capital and generating resource bottlenecks—in energy, water, skilled labor, and industrial equipment—that exert their own inflationary pressures, even as productivity gains from AI itself remain largely unrealized in the near term. Fourth, regulatory complacency is amplifying all of these risks, leaving the system exposed at precisely the moment it is most vulnerable.

J.P. Morgan Chase analysts project $5 trillion of spending on AI infrastructure between now and 2030. Four tech companies—Amazon, Alphabet, Meta and Microsoft— plan to lavish about $630 billion on data centers and AI chips in 2026 alone, based on a Morgan Stanley estimate. This is more than four times the 2023 spending and accounts for around 2.5% of the US GDP.

Further, including top 11 providers of cloud computing and infrastructure, the total capex (capital expenditure) could reach $811 billion (Figure 3). AI-related investment has become the single, most important pillar of the US economy, accounting for 39% of real GDP growth in the first nine months of 2025 (see Table 1 below).

Figure 3: Big Tech AI Spending, $ million

Table 1: Contribution to Real GDP Growth by Investment Types

A natural question is whether AI investment can be sustained at this pace. According to JP Morgan’s projection, achieving a 10% return on current AI investments could require $650 billion in annual revenue, or $35 from every iPhone user monthly. There are certainly reasons for optimism - 55% of American adults now use GenAI each week, an adoption rate that took the internet 16 years to achieve; and business survey data from the Census Bureau show that about 18 percent of firms have adopted AI as of year-end 2025. However, there are also reasons for skepticism.

First, even top AI companies struggle to make positive returns currently. OpenAI and Anthropic have annualized revenues of about $25 billion and $19 billion, respectively. OpenAI expects negative cash flows until 2030 and Anthropic by 2029. And even the projection could turn out over optimistic. A landmark study by the MIT in late 2025 reveals that 95% of organizations investing in generative AI have not seen any measurable financial return. The mismatch between productivity boost and financial return on the one hand and rising token cost of using AI on the other could further disincentivize the adoption of costly AI models.

In addition, open-source models increasingly challenge the proprietary AI models. The Chinese DeepSeek V4 is a highly competitive model across various capability benchmarks with the US leading AI models and yet offer a fraction of API pricing of the US major models. E.g. DeepSeek V4’s input cost is $.27 per 1 million token and output $1.1 per 1 million token, compared to GPT-5.4’s $15 and $60 and Claude Opus 4.6’s $15 and $75, respectively. Open-source models through any aggregator (OpenRouter, Venice, Basesten, Together) provide much cheaper alternative and still protect privacy. These alternatives could further undercut the prospect of generating positive cash flows for AI companies and their investors and suppliers. Finally, capital investment in IT hardware and software sees declining return. Price returns on IT hardware (Electronic Equipment & Components, Communications Equipment, Semiconductors & Semi Equipment ) quickly fell from 65% growth to 31%, from 2023 to 2025 while IT software (IT Services, Software, Interactive Media & Services, Broadline Retail) fell even more sharply from 61.5% to 19% during the same time period.

When earnings and equity investment are inadequate to support capex, tech companies resort to corporate bonds, junk bonds, structured finance, private credit, off balance-sheet special purpose vehicles, and various other creative accounting and financial engineering. Morgan Stanley estimates $2.9 trillion global capex on data centers during 2025-8 using various financing schemes (Table 2).

Table 2: An Estimated $2.9 Trillion Global Capex on Data Center (2025-2028)

But the seemingly large cash flows enjoyed by hyperscalers could be misleading with the prevalence of circular equity financing. Tech giants, including the “Magnificent Seven”—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—are entangled through investments in each other and rival AI companies, and are enmeshed in financial engineering. AI chip makers, cloud service providers, and AI companies engage in complicated schemes of equity, debt, loan guarantees, leasing, joint ventures, and other arrangements between vendor-customer pairs.

A simple example can be found among Nvidia, Microsoft and Anthropic where Nvidia committed to invest up to $10 billion in Anthropic and Microsoft will invest up to $5 billion, and meanwhile, as a part of the deal, Anthropic announced it plans to spend $30 billion on compute to scale its Claude AI model on Microsoft’s Azure cloud platform, which is powered by Nvidia. The prevalence of circular financing is epitomized in Table 3 below.

Table 3: Circular Financing: Selective Deals by the Numbers

Circular financing constitutes “an interlocking liability structure, a tangled web or an entanglement, a blob, an ouroboros, a rat’s nest, and even a plate of spaghetti.” These colorful codenames reveal two major problems.

First, when vendors invest in their customers and those customers in turn spend the funds on buying chips or leasing computing services from their investors, revenues are inflated with what is effectively self-financed demand, and lure other investors and competitors into a market that it built upon inflated revenues.

Second, failure of any one node of the complex financing chain could unravel the entire structure. Despite industry leaders’ enthusiasm and cheering on a “virtuous, positive cycle,” analysts have warned that circular deals resemble the dot.com era where startups bought each other’s services to “inflate perceived growth.” These circular deals should also remind us of the too-connected-to-fail problem, what wreaked havoc the financial system during the GFC could return with a vengeance.

Aside from the circular equity financing, tech companies pile on massive debt to finance their investment in data centers and energy supplies. Tech companies issued $108.7 billion in bonds in the last quarter of 2025, largest total for any quarter and the trend continues, with $15.5 billion in bonds issued in the first two weeks of 2026 alone.

Morgan Stanley expects hyperscalers to borrow $400 billion this year, up from $165 billion in 2025. Alphabet’s long-term debt jumped from $14-$15 billion a year during 2021-4 to $49 billion last year. It even issued a 100-year bond, first sale since Motorola sold this type of bond in 1997. Meta’s long-term debt ballooned from 0 in 2021 to $29 billion and further to $59 billion in 2024 and 2025, respectively.

Further, Meta partnered with Blue Owl capital to set up a debt financed SPV, which borrowed $27 billion to build Louisiana data center. Meta is not alone. Limited public information indicates that SPVs account for at least $120 billion of debt that is off the books. Finally, tech companies resort to private credit, securitize debt into credit default swaps and asset-back securities to mask risks and avert regulations. The sheer scale of debt financing and the opacity and complex structure of debt pose significant systemic risks to the financial system.

Third, the investment in AI infrastructure, e.g. data centers, has created resources drain and inflicted inflationary pressure on the US economy. In the name of competing with China, hyper scalers pour money over AI investment. But according to one estimate, largest US companies on track for US$700 billion in AI capital expenditures in 2026, versus about US$105 billion in China. The US now hosts 5,427 data centers, more than 10 times any other country, and it consumes more energy than any other country. Data centers is estimated to consume a total of 57 gigawatts electricity between 2025 and 2028 -equivalent to more than five New York Cities.

However, securing connections to public grid is both costly and time-consuming in major hubs; moving to rural areas to overcome the bottleneck creates new problems of skilled labor and data shortages. As a result, about one-third of US data centers currently under construction rely on on-site power generation, according to McKinsey. But again, this workaround creates its own bottleneck: new suitable gas turbines are effectively sold out until 2029.

The surging demand for electricity drives up its prices. While industrial users of electricity are paying lower prices, on average, than two years ago. But between 2020 and 2024, residential electricity prices in the U.S. increased by 25%. Water usages are also surging. Water use associated with data center cooling operations is expected to increase by 870% , from 385 million gallons a year to more than 3.7 billion gallons; further, annual water use associated with data center electricity consumption is expected to increase by 400%, from an estimated 2.9 billion gallons to over 14.5 billion gallons. Such resource drains not only raise cost of living but inflict significant climate damages. The inflationary pressure could also push monetary policy markers to resort to their obstinate playbook of raising interest rates, which further compounds financial fragility.

More bottlenecks come from the industrial supply chain where production of substations, transformers, cooling systems and the like simply does not keep up with the needs for data center constructions. It is reported that nearly 60% of data center projects were delayed by more than three months last year. “Roughly 88% of projects face setbacks simply laying concrete foundations, while 78% are delayed during the installation of cooling systems and fire alarms, according to data center project forecasting firm nPlan.” The delay and obstruction in data center buildup means that revenue streams are stalled while debt obligations compound. As Kwok points out, “If a company spends $10 billion on advanced AI chips but cannot secure the transformers to power them, those semiconductors become ⁠stranded capital, depreciating ​rapidly without generating a cent of revenue.”

Dismantling the Guardrails: How the Trump Administration Unchecked AI Risks

Finally, far from addressing these risks, the Trump administration has actively dismantled the regulatory guardrails that might contain them.

President Trump issued an executive order in July 2025 that encourages federal agencies to “provide financial support…, which could include loans and loan guarantees, grants, tax incentives, and offtake agreements” to AI companies. It also provides preferential access to federally owned land and offers substantial regulatory relief.

In December 2025, Trump signed another executive order to restrict the ability of states to regulate AI, mandating the Department of Justice to sue states that have “onerous” AI laws on the books. Local governments also have every incentives to deregulate AI, as currently 38 states offer dedicated tax incentives for data centers, ranging from tax exemptions for equipment and electricity, to property tax abatements. At least 10 states forgo more than $100 million annually on data center tax incentives, with Texas and Virginia each foregoing as much as one billion dollars annually. It is thus unlikely for the states to take up the task of regulating AI finance.

Further in May 2026, President Trump signed yet again another executive order to integrate digital assets and fintech companies into the country’s traditional financial system. The order requires federal regulators to conduct a full review of regulations within 90 days that may prevent fintech and crypto companies from obtaining bank licenses, deposit insurance, and partnerships with traditional financial institutions. Following the review, specific measures to simplify regulation must be proposed within 180 days.

Further, the order requires the Fed, within 120 days, to assess the possibility of granting non-bank companies, including crypto firms, direct access to master accounts and payment services. Many crypto companies are heavily involved in the AI business, e.g. a number of the Neo-Cloud companies, such as CoreWeave, HIVE and Hut 9, are either pivoting from crypto mining to renting out GPUs and hosting AI labs or running two lines of businesses parallelly. Deregulating and conflating crypto and AI financing further magnifies the financial risks, and integrating crypto financing into the banking system allows the risks to metastasize at the systemic level.

Tick, Boom: Why the Rising AI Bubble Will Crash Before the Debt Clock

The conventional alarm over US public debt, however sincerely held by Powell and others, rests on convictions that do not withstand scrutiny. Foreign demand for treasuries remains robust even as the composition of holders shifts from central banks toward private investors. Treasury yields track the federal funds rate far more closely than debt levels. Public debt is not reliably correlated with inflation, and interest payments as a share of federal outlays does not always rise in tandem with growing public debt. An involuntary default driven by market dynamics is not a plausible scenario; the more proximate danger—a politically engineered debt-ceiling crisis—is a self-inflicted wound, not an economic inevitability.

The true systemic risk lies elsewhere. AI financing has quietly assembled many of the ingredients that preceded the 2008 GFC: concentrated leverage, opaque and circularly structured financial relationships, off-balance-sheet exposures, and a regulatory environment being deliberately loosened at the very moment risks are rising. The “Magnificent Seven” and their ecosystem of chip makers, cloud providers, and AI start-ups are bound together in webs of mutual investment, debt guarantees, and vendor-customer entanglements that would make the unwinding of any one major node a systemically dangerous event. The deregulatory impulse extending to crypto, coupled with its growing integration with AI infrastructure financing, adds another channel through which instability can propagate into the traditional banking system.

This does not mean an AI-driven financial crisis is inevitable. The technology could yet deliver productivity gains that justify the investment, and some degree of circular financing is a feature of every innovation boom. But the combination of concentrated leverage, inflated revenues, resource bottlenecks, slender profit margins at leading AI firms, and retreating regulatory oversight represents a configuration of risks that policymakers cannot afford to ignore. The misplacement of analytical attention - fixating on the debt clock while the AI bubble quietly inflates, may prove to be the most consequential policy error of this decade.

About the Athour:

Liang Yan is Peter C and Bonnie S Kremer Chair Professor of Economics at Willamette University.

The US approach emphasizes control, export restrictions, and the weaponization of technological chokepoints. The Chinese response prioritizes openness, rapid iteration, sovereign customization, and material foundations for resilience.

Last week, the US government directed Anthropic to suspend access to its flagship Fable 5 and Mythos 5 models for all foreign nationals, including those inside the United States and even Anthropic’s own foreign employees. The company, citing the practical impossibility of enforcing nationality-based restrictions without global disruption, disabled the models entirely for all users. In its public statement, Anthropic expressed dismay, describing the action as triggered by a narrow, non-universal jailbreak demonstration involving code vulnerability identification—capabilities already present in other models. The company argued that the directive lacked transparency, technical grounding, and proportionality, disrupting hundreds of millions of users and highlighting internal tensions even with a firm closely aligned with US interests.

Almost simultaneously, China’s Zhipu AI (operating internationally as Z.ai) announced GLM-5.2, its latest flagship model featuring a usable 1-million-token context window, advanced coding, and long-horizon agentic capabilities. The company plans to release the model weights under the permissive MIT License, making it fully open-source and available for global adaptation.

These twin events are not mere coincidences but paradigmatic illustrations of diverging philosophies in AI development. The US approach emphasizes control, export restrictions, and the weaponization of technological chokepoints. The Chinese response prioritizes openness, rapid iteration, sovereign customization, and material foundations for resilience. Together, they illuminate the unfolding reality of what I have called Digital Westphalia—a global digital order centered on nation-state sovereignty, open protocols, interoperable standards, and resilient technical underpinnings rather than extraterritorial dominance or corporate enclosure.

The US Directive: Weaponizing Interdependence

The Commerce Department’s export control directive arrived at Anthropic on June 12, 2026, at 5:21 p.m. ET. It mandated suspending access to Fable 5 and Mythos 5 for any foreign national, citing national security concerns over potential jailbreaks that could aid cybersecurity tasks. Anthropic had collaborated extensively with the US government on red-teaming, implemented strong safeguards, and maintained a defense-in-depth strategy. Yet the order led to a full global disablement, as granular nationality verification proved infeasible.

This episode fits a broader pattern documented in Henry Farrell and Abraham Newman’s book Underground Empire. Post-9/11, the US transformed global networks—fiber-optic cables, SWIFT payments, data centers—into instruments of surveillance and coercion. Much of the world’s internet traffic still routes through US-controlled infrastructure, enabling sanctions, data access, and leverage against adversaries and allies alike. AI models represent the next layer: frontier capabilities treated as strategic assets to be hoarded, not diffused.

By restricting advanced models primarily to US persons or trusted allies, Washington seeks to preserve technological supremacy while slowing diffusion. However, the Anthropic case reveals frictions. Even a closely aligned company protested the opacity and collateral damage. The action risks alienating global talent, customers, and partners, potentially accelerating the very fragmentation it aims to prevent. It echoes semiconductor export controls, Huawei sanctions, and efforts to maintain dominance in critical domains—treating AI as a chokepoint in a zero-sum contest.

Z.ai’s Response: Openness as Sovereign Strategy

In contrast, Z.ai’s GLM-5.2 announcement embodies a different logic. Building on prior GLM iterations, the model excels in coding, agentic engineering, and long-context reasoning, with a practical 1M-token window suited for complex multi-file codebases, extended agentic workflows, and real-world software engineering tasks far beyond traditional benchmarks. By committing to MIT-licensed open weights, Z.ai democratizes access, enabling worldwide fine-tuning, localization, and innovation.

This aligns with China’s broader strategy: accelerating domestic capabilities while fostering global interoperability through open source. Open-sourcing counters enclosure, dilutes monopolies, and empowers sovereign adaptation. Developers in any nation can customize for local languages, regulations, data regimes, and use cases—building resilient ecosystems less vulnerable to foreign sanctions or platform rents. It shifts from “techno-feudalism,” where a few extract value from global usage, toward distributed value creation.

Z.ai’s announcement of GLM-5.2 is not an isolated event but the latest milestone in a sustained Chinese trajectory toward open-source frontier AI. Since DeepSeek’s groundbreaking releases — particularly the R1 reasoning model and subsequent V3/V4 series — Chinese laboratories have consistently prioritized open weights under permissive licenses. This approach has transformed the global developer landscape.

DeepSeek’s models, often built with remarkable efficiency (e.g., R1 achieving o1-level reasoning at a fraction of the cost), rapidly became some of the most downloaded on platforms like Hugging Face. Chinese-origin models now dominate downloads and popularity metrics among developers worldwide, including in the US and other Western markets. New releases from labs like Zhipu (Z.ai), DeepSeek, and others frequently top weekly charts for downloads and engagement, reflecting rapid iteration cycles that outpace many closed-source counterparts in accessibility and adaptability.

This proliferation exerts mounting financial and competitive pressure on US proprietary models. When full-stack considerations — including lower inference costs, energy efficiency, sovereign customization, and avoidance of vendor lock-in — are factored in, open-source Chinese alternatives often prove as capable or more cost-effective for practical applications. Developers and enterprises can fine-tune, deploy locally or on edge, and integrate without recurring API fees or geopolitical risks.

The question of viable business models for closed-source frontier AI becomes acute. Traditional moats around proprietary models — predicated on performance exclusivity, data advantages, and massive capital investment — erode as open weights close capability gaps and enable community-driven improvements. Without sustained technical superiority or regulatory barriers, the economic rents central to valuations at firms like OpenAI, Anthropic, and Anthropic’s peers become difficult to defend. AI has been the standout driver of US economic expansion in 2025–2026, with AI-related capex contributing significantly to GDP growth. Some analyses suggest that without this investment surge, US GDP growth could have dipped below 0.5% annually in recent periods.

This dependency makes the stakes potentially existential. Proprietary models, facing open-source competition that undermines their pricing power and adoption, increasingly rely on regulatory protection and export controls to preserve advantages. The Anthropic restrictions — triggered in part by the rising popularity of capable open alternatives among global (including Western) developers — exemplify this dynamic: a turn toward state intervention to safeguard rents that market and technological forces alone can no longer secure.

In this context, Z.ai’s GLM-5.2 stands out with its usable 1-million-token context window, advanced coding, and long-horizon agentic capabilities. By committing to an MIT-licensed open release, Z.ai continues the pattern: democratizing access, inviting global fine-tuning and localization, and fostering ecosystems resilient to chokepoints. This strategy aligns with China’s broader playbook — accelerating domestic capabilities while promoting interoperability and sovereign adaptation. It counters “techno-feudalism,” where value accrues primarily to a handful of closed platforms, and instead builds distributed innovation capacity.

Open-sourcing is pragmatic geopolitics and economics. In a world of export controls and supply-chain vulnerabilities, diffusion empowers nations to build tailored AI systems — for local languages, regulations, industries, and data governance — without dependency. It accelerates the realization of Digital Westphalia by providing the software foundations that pair with material advantages in energy and edge compute.

The contrast with the US approach could not be sharper. While American labs pursue ever-larger capital-intensive scaling protected by policy, Chinese labs demonstrate that efficiency, openness, and iteration speed can deliver frontier-level tools at lower cost and broader reach. This trajectory not only pressures proprietary business models but also underscores the viability of sovereign, open ecosystems in the emerging multipolar order.

Digital Westphalia: Conceptual Foundations and Five Core Features

The concept of Digital Westphalia, analogizes the 1648 Peace of Westphalia—which ended religious wars by establishing territorial sovereignty—to the digital realm. It envisions nation-states reclaiming primacy over data, standards, and infrastructure while preserving cross-border interoperability through open protocols. This is not isolationism but a pluralistic order suited to a multipolar world lacking universal trust.

I have previously outlined five core features of Digital Westphalia:

1. Digital Sovereignty: Nations govern their own data flows, ecosystems, and policies. Unregulated global platforms yield to national boundaries, protecting against extraterritorial surveillance or coercion. The Anthropic restrictions exemplify resistance to this—attempting to enforce US rules globally—while Z.ai’s open model supports sovereign customization.

2. Open Source and Interoperability: Reliance on open platforms (e.g., contributions akin to Linux or RISC-V) for rapid scaling, adaptation, and reduced dependency. This limits corporate gatekeepers and enables parallel, sovereign stacks. GLM-5.2’s MIT release directly advances this, allowing nations to integrate frontier capabilities without subordination.

3. Collective Truths and Social Cohesion: Sovereign information ecologies foster shared narratives within nations, countering fragmented “truth tribes” amplified by unaccountable global platforms. By enabling localized AI systems, open models help maintain societal coherence amid information abundance.

4. Distributed Ledgers and Zero-Trust Mechanisms: Technologies for secure coordination in low-trust environments, reducing reliance on central authorities vulnerable to weaponization.

5. Data Ecologies as Public Goods: Systems oriented toward public interest, national governance, and interoperability rather than pure extraction. This underpins resilient, abundant digital futures.

The Anthropic ban illustrates pushback against Digital Westphalia—clinging to centralized control. Z.ai’s move exemplifies its realization: models as adaptable foundations for national AI sovereignty.

The US directive to Anthropic—mandating nationality-based access controls on Fable 5 and Mythos 5—exemplifies resistance to digital sovereignty. By treating advanced AI models as subject to US export controls, akin to munitions or advanced semiconductors, Washington seeks to project its regulatory reach globally, even into allied nations and domestic operations. This mirrors the Underground Empire dynamics documented by Farrell and Newman: leveraging control over infrastructure (data centers, cables, cloud providers) to enforce extraterritorial rules.

Broader US AI policy reinforces this through frameworks like the AI Diffusion Framework (2025), which layers controls on chips and model weights, positioning US cloud giants (AWS, Azure, Google Cloud) as gatekeepers for “trusted” diffusion to Tier 1 partners. While framed as managing risks, it creates dependency: partners gain access but remain tethered to US oversight, subject to sudden policy shifts. The Anthropic episode—disrupting even close allies reliant on the models for cybersecurity—underscores the fragility and unreliability of this approach. Nations pursuing true sovereignty are incentivized to develop parallel stacks, accelerating fragmentation that US policy ostensibly aims to prevent.

US strategy leans heavily on proprietary moats and closed ecosystems, protected by IP regimes, massive capex, and regulatory barriers. This clashes with open-source diffusion, as seen in Z.ai and the wider Chinese trajectory (DeepSeek et al.). By undermining open weights through controls, the US risks slowing global innovation while Chinese labs enable sovereign customization. RISC-V and similar efforts highlight how open architectures erode proprietary advantages, allowing nations to build independent yet interoperable systems. The US approach, by contrast, fosters vendor lock-in and chokepoint leverage.

Centralized control over frontier models amplifies risks of narrative dominance or selective access, exacerbating fragmentation rather than supporting national cohesion. Sovereign AI systems, enabled by open models, allow countries to align intelligence tools with domestic contexts, languages, and values—bolstering rather than undermining collective truths. This dovetails far more readily with China’s broader emphasis on the ideas of civilisational plurality as exemplified by the Global Civilisation Initiative, and recently by the joint statement issued by China and Russia after the latter’s President Putin’s visit.

Reliance on US-controlled clouds and models introduces single points of failure and trust vulnerabilities, contrary to zero-trust principles. Export controls and ad-hoc interventions (e.g., the opaque Anthropic directive) erode confidence in shared infrastructure, pushing states toward distributed, sovereign alternatives.

US AI’s rent-seeking model—high API pricing, data extraction, and dependency—prioritizes corporate and strategic rents over public goods. The economic pressures from open-source competition expose this: proprietary models require regulatory protection to sustain valuations when technical moats erode. This enclosure logic subordinates global public benefit to US primacy, clashing with public-good-oriented ecologies.

In sum, the US AI architecture—built on compute dominance, cloud centralization, export controls, and policy interventions—represents a rear-guard defense of techno-hegemony. It weaponizes interdependence but risks backlash, talent flight, and the very diffusion it seeks to contain. Digital Westphalia, advanced by open models like GLM-5.2 and material advantages elsewhere, offers a more resilient alternative: sovereign foundations paired with interoperability. The Anthropic case and broader dynamics illustrate not just a policy dispute, but a paradigmatic contest over the future digital order.

Material Underpinnings: Energy, Edge Computing, and Thermodynamic Realism

Open models are necessary but insufficient. Digital Westphalia requires robust material foundations—energy abundance, efficient compute, and thermodynamic advantages—that enable autonomous scaling. Here, China’s advantages are pronounced.

AI training and inference are profoundly energy-intensive. Data centers already consume vast power, with projections rising sharply. China leads in electricity generation—over twice the US output—with massive investments in renewables, hydro, nuclear, and coal capacity. Policies like “East Data, West Computing” relocate compute to energy-rich western regions with natural cooling, lowering costs and emissions. Industrial electricity prices are significantly cheaper, creating a structural edge for sustained scaling despite hardware constraints.

This energy-compute flywheel—abundant clean power enabling more compute, which optimizes grids and industry—positions China advantageously. Open models amplify it: lower barriers allow broader deployment across diverse energy contexts.

Edge computing extends sovereignty to the device level. Advances in scalable 2D semiconductors (e.g., MoS₂ via oxy-MOCVD), graphene heterostructures, and triboelectric nanogenerators (TENGs) enable low-power, ambient-energy-harvesting systems. These support localized inference with superior energy return on energy invested (EROEI), minimizing grid dependency and foreign supply risks. “AI-in-a-box” nodes or IoT meshes can operate independently, processing sensitive data on-site.

I’ve proposed the idea of a “power combo” of 2D materials, graphene, and TENGs that addresses silicon’s EROEI plateau. Information processing is entropic; these technologies lower production and operational energy costs, generating more ordered information (negentropy) per unit exergy. Nations mastering this stack expand surplus for innovation, resilience, and public goods. Full-stack integration—renewables, materials science, open models—creates compounding advantages for sovereign AI systems tailored to agriculture, healthcare, manufacturing, and governance.

The Anthropic restrictions, reliant on chokepoints in a globalized stack, contrast with this distributed, materially grounded approach. Digital Westphalia aligns political sovereignty with energetic and informational realities, favoring adaptability over enclosure.

Global Implications: A Clarifying Choice

The emerging choice is stark. One path weaponizes interdependence, risking backlash, talent flight, innovation slowdowns, and parallel ecosystems—as the Anthropic disruption illustrates. The other diffuses capabilities through openness and builds resilience via sovereignty and material investment.

For the Global South and middle powers, Digital Westphalia offers a pathway to technological autonomy. Open models like GLM-5.2 can be localized for specific needs; edge technologies enable off-grid or low-infrastructure deployment; sovereign data regimes safeguard interests. Open protocols ensure connectivity without hegemony, fostering a plural order.

Challenges persist: alignment, safety, misuse prevention, and international coordination on norms. However, attempts at perfect enclosure via restrictions may prove illusory and counterproductive in a multipolar world. Diffusion and adaptation, grounded in material realities, may yield greater long-term security and prosperity.

The Anthropic ban and Z.ai release crystallize these dynamics. US actions signal a commitment to gatekeeping; Chinese initiatives demonstrate an alternative rooted in openness, sovereignty, and thermodynamic foundations. Digital Westphalia is accelerating—not as abstract theory, but as lived technical and political practice.

This shift realigns governance with the substrate of the information age. Nations investing in open, sovereign, energy-efficient stacks will thrive as intelligence compounds locally, surplus expands, and global interoperability serves mutual benefit rather than dominance. The paradigmatic issues extend beyond two companies to the architecture of the information age: enclosure versus interoperable pluralism, extraction versus abundance, and control versus resilience.

Policymakers worldwide should engage these realities proactively. Prioritizing digital sovereignty, open-source collaboration, material investments in energy and edge compute, and interoperable standards will better position societies for the unfolding Digital Westphalia. The momentum toward autonomous sovereign AI systems—powered by open models and thermodynamic efficiencies—suggests a more distributed, resilient order is gaining ground.

About the Author

Warwick Powell is Adjunct Professor at Queensland University of Technology

The Global Cinematic Decolonization Index (CDI) measures the degree of independence in film markets worldwide. It combines two dimensions: the share of domestic films among top-ranked releases in each local market and their share of total box office revenue. In the latest report, India, China, and Egypt occupy the top three positions.

The CDI reveals Hollywood’s accelerating retreat, as well as the growing vitality of film markets often overlooked by Chinese audiences, such as those in India, the Arab world, and Southeast Asia. It also provides insights relevant to the “winter” currently facing China’s film industry. To mark the report’s release, Xinchao Guanyu interviewed Decoloniverse for an in-depth discussion of the report’s findings and ongoing changes in global cinema.

The conversation also touched on the challenges facing China’s domestic film industry, the surprise May hit Dear You—a small‑budget dialect drama—and the ways in which mainstream audience tastes in China are evolving.

Xinchao Guanyu: This year, Decoloniverse continued its collaboration with the China Institute at Fudan University to release the 2025 Global Cinematic Decolonization Index Report. Looking back at the reports from previous years, what is the most prominent feature of the global film market in terms of decolonization in 2025? The past year has been exceptionally turbulent for the international landscape. In such a volatile world, what is the special significance of decolonization in cinema?

Decoloniverse: The most notable feature of cinematic decolonization in 2025 is the further decline of American cultural influence. According to our tracking data, the share of American films in the top box-office rankings across countries fell from 82% in 2023 to 77% in 2024, then to 66.1% in 2025. This suggests that Hollywood’s dominance is no longer eroding slowly but has entered a phase of structural acceleration.

In a turbulent year like 2025—marked by intensified geopolitical conflict, uneven global economic recovery, and ongoing wars—decolonization in cinema carries both symbolic and practical significance. It shows that cultural autonomy does not depend on high levels of economic or military development and is not a privilege reserved for major powers such as China. At the same time, when moviegoers begin choosing local stories and emotions over foreign formulas, this cultural confidence becomes an internal stabilizing force amid external uncertainty.

Russia and Egypt illustrate this dynamic from two different angles:

– After the outbreak of the Russia-Ukraine war in 2022 and the subsequent Western sanctions, Russian cinemas would have had very little to show if they had not screened domestic films. Previously pro-Western, pro-American audiences were forced to watch more local productions. Under external pressure, film-market decolonization became a necessity rather than a voluntary choice. Now that audiences have adapted to domestic films and these productions have generated box office returns, even a full lifting of U.S. and European sanctions would not erase the market share of Russian films. A virtuous financial cycle has formed, and some local IPs have gained broad public acceptance.

– Egypt has faced pronounced political and economic strain in recent years. The Russia-Ukraine war has disrupted its grain imports, and the Israel-Palestine conflict has threatened its national security, leaving its overall situation fragile. Even so, its long-standing status as the largest film-producing country in the Arab region has not been fundamentally shaken. Egyptian filmmakers continue to create films and provide spiritual support for domestic audiences. Their works are not only box office hits at home but also influence other countries in the region, such as Saudi Arabia. This reflects the resilience of Egypt’s accumulated cultural influence.

Xinchao Guanyu: In this year’s report, we see a clear series of declining figures—82%, 77%, and then 66%—for the market share of American films in the top-ranking tiers. How were these figures calculated, and what changes in global cinema do they point to?

Decoloniverse: These figures come from our analysis of the annual top-ten box office films in 39 key countries and regions worldwide, including the G20, OECD members, and representative markets such as the United States itself. Out of 390 films appearing in these top-ten lists, American films accounted for 272 entries, or 66.3%. The most frequently appearing titles were Zootopia 2 (30 markets) and Avatar: Fire and Ash (29 markets).

One detail is worth highlighting: the intellectual property behind A Minecraft Movie (which appeared in 22 markets) originates with the Swedish game company Mojang AB, which also invested in the film. Sweden is listed prominently among the production countries on TMDb, so we classified it as a Swedish film in our data. Because the CDI measures domestic box office performance, the presence of this film in other countries’ top-ten rankings does not affect their CDI values. Even if we counted it as an American production, the overall trend of declining U.S. market share would remain unchanged.

This decline reflects three broad shifts:

First, Hollywood’s golden formula is losing its effectiveness. Marvel-style superheroes, endlessly rebooted IP sequels, and star-driven blockbusters are encountering aesthetic fatigue in more and more markets. Even in the United States, only one original film, Sinners, made the top ten box office in 2025; the rest were IP derivatives, revealing a level of creative exhaustion that can no longer be concealed.

Second, localized narratives are rising. Audiences in India, China, Indonesia, Vietnam, and Egypt are increasingly willing to pay for domestic stories. Successful works do not simply imitate Hollywood. They are rooted in their own history, mythology, social realities, and emotional structures, which allows them to resonate more deeply with local audiences.

Third, American cultural hegemony is in relative decline. Hollywood’s status as the single centre of the global cultural landscape is giving way to multiple centres. The image of a fallen whale nourishing an entire ecosystem captures the scale of the transformation now reshaping cinema.

Although Nezha 2 did not enter the top-ten box office in any country outside China in the 39 markets we track, films from other countries are already breaking into foreign top tens. Japan’s Demon Slayer has done so in multiple markets, Egyptian films have succeeded in Saudi Arabia, and Indian films have reached the top ten in the United Arab Emirates. Over time, we expect more cross-border success for non-Hollywood films. This points toward an ideal pattern of global cultural exchange: diverse cultures flourishing on the basis of equality and interconnection.

Xinchao Guanyu: India has once again secured the top spot in the Cinematic Decolonization Index. As a former British colony with widespread English proficiency, and a country deeply influenced by the West in technology, the military, and the economy, why is its film consumption so distinct? Do these driving forces offer lessons for other developing countries?

Decoloniverse: India’s high degree of cinematic decolonization may seem at odds with its strong dependence on the West in other fields, but there is a clear logic behind it. Although English is widely spoken and Western influence is significant, India’s domestic film industry—especially Bollywood and the various regional-language industries—has several unique strengths.

First, India has a deep tradition of indigenous storytelling. Its long history of epics, myths, and folklore, such as The Mahabharata and The Ramayana, has been successfully adapted into popular cinematic language. Song and dance, family ethics, and religious feeling retain a strong and distinctive appeal for Indian audiences.

Second, India has a vast, domestic-demand-driven market. Its large population and extensive cinema network allow local films to generate substantial returns simply by serving domestic audiences, reducing the pressure to cater to Western tastes.

Third, the long period of colonial rule has fostered a strong collective consciousness around cultural autonomy since independence. Ideas such as “Greater India” (Akhand Bharat) are visible, and Indian internet users show a strong desire for cultural export and assertiveness on international platforms. In cinema, this appears in the way Indian audiences may watch Hollywood but assign much greater value to familiar narrative styles.

Fourth, Indian cinema in 2025 showed another notable trend: many non-Bollywood southern regional-language films entered the national top-ten box office rankings. These include Kannada, Tamil, Telugu, and Malayalam films, which traditionally had limited reach beyond their own regions, especially in the north. Their success—often with Hindi subtitles—suggests that India is integrating cultural resources more effectively and moving toward a more unified national cultural market.

India’s experience shows that cultural decolonization is not the same as isolation or rejection of foreign influence. It means maintaining subjectivity within openness. The core question is whether creators can accurately capture their own country’s cultural ethos and address the deeper emotional needs of local audiences, rather than copying Hollywood’s industrial model. Indonesian horror films, Vietnamese historical war films, and Egyptian comedies all point in this direction.

Xinchao Guanyu: The report included Egypt for the first time this year, and its CDI performance is striking: domestic films occupy seven of the annual top-ten box office spots. The Arab film market as a whole is also becoming more prominent. Saudi Arabia, for example, only lifted its cinema ban in 2018, yet its 2025 CDI has already matched South Korea’s. Is this related to factors beyond the film market, such as war and geopolitics? How should we understand the rapid growth of the Middle Eastern market?

Decoloniverse: Even when American films dominated global screens, the Arab region had distinctive viewing preferences. Audiences there tend to favor fantasy, action, crime, and racing films, while disliking European and American romance films—which often clash with local religious norms—and counterterrorism blockbusters built on stereotypes of Arabs as terrorists. Local genre films, especially comedies, meet needs that Hollywood cannot satisfy.

Comparing Egypt, Saudi Arabia, and the United Arab Emirates helps us see how factors outside the film market shape decolonization.

Since the Nasser era, Egypt has seen itself as the spiritual leader of the Arab world. Although it is now far less affluent than oil producers—with per capita GDP of around 3,500 USD, compared with 35,000 USD in Saudi Arabia and 45,000 USD in the UAE—and is no longer a major military or diplomatic power, it remains the most populous Arab country and a central producer of Arab cinema. It has maintained strong domestic production capabilities. The fact that domestic films held seven of the top ten box office slots in 2025 is closely tied to its long-standing industrial base and the maturity of genres such as comedy. Egypt is not a wealthy state, but it is a cultural power with deep historical roots, and cinema is a core part of that influence.

Saudi Arabia banned cinemas in 1983 and only lifted the ban in 2018. Within a few years, its CDI rose from 0 to 30.18, matching South Korea. The main driver is the reform agenda associated with Mohammed bin Salman. Vision 2030 designates culture and entertainment as key pillars of economic diversification, and looser film policy has attracted capital. Investment has flowed into domestic content, cinema construction, and talent development. The gradual U.S. withdrawal from the Middle East is another important factor, pushing countries such as Saudi Arabia to pay more attention to national image and cultural industries. Salman’s policies provided political will, and capital translated that into rapid growth.

The UAE presents a sharp contrast. Since the first Global Cinematic Decolonization Index report in 2022, its CDI has stayed at 0, and its box office charts have featured neither domestic films nor other Arab works. Besides Hollywood titles, Indian films often appear in the UAE top ten—three in 2023 and four in 2025—likely because of the large Indian migrant workforce. On issues such as the Israel-Palestine conflict and Iran, the UAE’s position is close to that of the United States and Israel, while Saudi Arabia seeks more autonomy. This divergence may partly explain why the two countries assign different levels of importance to their domestic cultural sectors.

These three cases show that film decolonization does not require long historical accumulation. Policy direction and capital investment can activate domestic creativity in a relatively short time. The key question is whether a country has the will to develop its cultural industry independently and tell its own stories.

Xinchao Guanyu: This year’s report also makes a striking claim: American cinema itself needs to decolonize. How should we understand this? What would a decolonized American film look like, and are there signs of this happening now?

Decoloniverse: The idea that American cinema needs decolonization may sound counterintuitive. Yet anyone who has studied, worked, or lived in the United States can feel the gap between the America depicted on screen and the America of everyday life. Hollywood’s agendas often diverge from the public’s concerns, and the “solutions” it proposes to social contradictions frequently seem impractical or even alienating.

Here, colonization does not mean that the United States is colonized by others. It means that Hollywood is trapped in a rigid, self-reproducing form of internal intellectual colonization that elevates capital above all else. What it presents is not social reality, but a curated image of America—and of “universal values”—that the colonizers want domestic and global audiences to accept. In this sense, the United States is colonizing itself through film.

Today, Hollywood is dominated by sequels, superheroes, reboots, and remakes, while creative departments operate under tight commercial constraints. In handling crime, it relies on superheroes (as in The Batman series); in handling racism, it often uses diversity in casting to paper over weak universalist assumptions (as in Black Panther, Captain America 4, and The Little Mermaid). Because of a lack of innovation, its stories are drifting further from the real United States, where social tensions keep surfacing. It can no longer convincingly construct even an idealized virtual world. Audiences are leaving, and the market is shrinking: U.S. box office revenue has remained around 9 billion USD for three years in a row, roughly 80% of the pre-pandemic 11 billion USD.

In this sense, American cinema needs self-decolonization: breaking the monopoly of large capital over creativity and distribution, opening space for original, authentic, and diverse storytelling that reflects real American life, and allowing cinema to recover its artistic core rather than serving primarily as a propaganda tool. It should make room for grassroots voices, regional perspectives, and experimental forms, instead of continuing to promote a single model of American heroism to the world.

The logic of “America colonizing America” is visible beyond culture, in the economy and everyday life. The discussion of the “lethal threshold” that went viral in China a few months ago highlighted how little attention American elites pay to the poor and how limited the social welfare system is. This contrasts with China’s targeted poverty-alleviation programs and social safety nets. U.S. police and security forces also frequently suppress protests with violence and, in some cases, kill people in public. In this respect, the way American rulers treat their own citizens is often not much better than how a colonial power treats its subjects.

Hollywood, as a vehicle for propaganda and ideological export, therefore not only helps the United States project power abroad; it also shapes and constrains Americans themselves. If audiences watch superhero films and conclude that U.S. technology is unmatched, that superheroes can solve all problems, or that the America on screen is real or ideal, they are adopting a colonized mindset. The tendency of some voters to treat Donald Trump as a quasi-religious saviour or superhero-like figure is clearly influenced by this broader culture.

There are signs of resistance. Independent films and small- to mid-budget works such as Sinners have achieved unexpected success, and streaming platforms have created space for non-traditional themes. Overall, however, Hollywood’s self-decolonization has barely begun. Cultural decolonization is not a task reserved for non-Western countries; Western cultural systems also need to confront their own monopolies and rigidities.

Xinchao Guanyu: 2025 was a complex year for the Chinese film market. On one hand, Nezha 2 earned more than 15 billion RMB during the Spring Festival season. On the other hand, mid- and lower-tier films faced a deep winter, with confusion over both themes and box office performance. How should we understand this imbalance? Why is the call to import more foreign films so controversial when total box office revenue is shrinking?

Decoloniverse: In 2025, the Chinese film market showed a pattern of a soaring peak at the top and a collapse in the middle. At the peak, Nezha 2 ranked fourth in global film history and earned more than 22 billion RMB domestically, an unprecedented return for a single film. At the same time, many low- and mid-budget films performed poorly, and industry practitioners widely felt the chill.

On the demand side, audiences’ rejection of low-quality films is a predictable outcome of rising expectations and the rapid growth of alternative entertainment. Chinese audiences now have access to abundant content through short videos, mini-dramas, games, and live streaming. When a film fails to meet their expectations, they simply walk away. Top-tier productions capture most of the spending by offering content that clearly exceeds this threshold, while mediocre films are displaced by newer forms of entertainment. This is not the crowding-out effect of blockbusters; it reflects the weak competitiveness of the films themselves.

On the supply side, the earlier phase of false prosperity—built on a large volume of low-quality productions—has ended. The positive side is that Chinese filmmaking has moved beyond the widespread rough workmanship of a decade ago. The negative side is a sharp drop in production volume. 2022 was the trough for project filings and shooting activity. Although there was some recovery in 2024 and 2025, the number of projects that actually began filming remained low. Registering a project without starting production is still common, and fewer films were released in theatres than in 2024. Market supply is therefore weaker than in previous years, and this shortage is likely to persist for some time.

The main reason for the decline in new productions is that producers have not yet found a sustainable investment model. The old strategy of relying on famous directors and heavily marketed “traffic stars” no longer works. Films by well-known directors such as Feng Xiaogang, Guan Hu, Peter Chan, and Jiang Wen no longer guarantee audience interest. Predictions based on big data and traffic indicators are unreliable because fan enthusiasm is heavily inflated. At the same time, sky-high fees for traffic stars lead to unstable returns and a persistent mismatch between costs and revenues.

Another structural feature is the long production cycle. After a particular genre becomes a hit, attempts to chase the trend and rush similar films into theatres often fail because the trend has already cooled by the time they are released. A clear example is the box office performance of YOLO (3.417 billion RMB) and Her Story (712 million RMB) in 2024, which led investors to believe that “feminist” themes were the new hot trend. As a result, many films marketed under the banner of feminism flooded the 2025 slate, yet none replicated 2024’s success: We Girls grossed 230 million RMB, She’s Got No Name 375 million RMB, Girls on Wire 17 million RMB, and After Typhoon only 4.76 million RMB. By 2025 and 2026, topics that were “hot” in 2024 were not only no longer trending but could even become box office poison.

Stakeholders in the film market include not only creators and producers but also theatre chains and distributors. From the latter’s perspective, importing more foreign films appears to protect their immediate interests. However, there are at least three reasons why this may not work in practice.

First, foreign films—especially American ones—are themselves facing declining quality and difficulty meeting audience expectations. Formulaic Hollywood productions have already induced aesthetic fatigue in the Chinese market. Films that were major hits in the United States, such as Superman, Lilo & Stitch, and the U.S.–Sweden co-production A Minecraft Movie, all had mediocre box office results in China. In 2025, only two imported films entered China’s annual top ten. Since 2022, China has consistently imported major Hollywood blockbusters, yet it has become unmistakable that many American hits cannot compete with domestic productions in the Chinese market. Because blockbusters carry high licensing costs, imports must weigh these costs against realistic box office prospects.

Second, beyond Hollywood, there are excellent films from other countries that might be worth importing, but the risks are high. Historically, the highest-grossing non-Hollywood import is the 2017 Indian film Dangal (1.299 billion RMB). In recent years, the strongest non-Hollywood performers have mainly been Japanese anime films such as Suzume (807 million RMB) and The Boy and the Heron (791 million RMB). As with American films, however, success in the home market does not guarantee acceptance by Chinese audiences. Selecting non-Hollywood imports is harder to control and often riskier. For example, the Brazilian film I’m Still Here earned 11 million USD at home in 2024 but only 1.52 million RMB in China in 2025.

Third, importing more films does not solve the core problem of domestic creation. The market downturn stems from an insufficient supply of high-quality domestic content, not from a shortage of foreign titles. Simply increasing imports—especially if they are mediocre films that also fall below audience thresholds—will have limited impact on overall box office and will not address the long-term difficulties faced by theatres and distributors. The long-term goal of the Chinese film market should be to build an autonomous, diverse, and high-quality domestic industrial system, not to return to a Hollywood-dominated model. Works such as Nezha 2, Detective Chinatown 1900, and Nanjing Photo Studio show that audiences are willing to pay for genuinely compelling Chinese stories. They do not care whether a film features famous directors, traffic stars, or massive IPs; content is decisive.

Xinchao Guanyu: In light of the 2025 report, how should we interpret the recent success of the low-budget Chaoshan film Dear You (《给阿嬷的情书》A Love Letter to Grandma), which bucked the market trend to become a phenomenon?

Decoloniverse: As a low-budget, dialect-based film with strong regional characteristics, Dear You success in a downbeat 2025 market strongly supports a core judgment repeatedly emphasized in our report: audiences are hungry for sincere works grounded in local emotion.

As Talks at the Yanan Forum on Literature and Art puts it:

“Literature and art workers are unfamiliar with the subjects they describe and the audiences who receive their works, or are even completely estranged from them. Our literature and art workers are not familiar with workers, peasants, soldiers, or their cadres. What do we mean by not understanding? It means not understanding the language. That is to say, they lack sufficient knowledge of the rich and vivid language of the masses. Because many literature and art workers are divorced from the masses and lead empty lives, they are naturally unfamiliar with the people’s language. Therefore, their works not only appear dull in language but also frequently contain coined, nondescript phrases that stand in opposition to the language of the people.”

Dear You uses the rich and vivid language of ordinary people to depict their lives, and in doing so, it resonates widely with moviegoers. By contrast, some other works rely on out-of-touch traffic stars or chase online trends and catchphrases. The characters they present bear little resemblance to real people, fail to evoke emotional resonance, and are abandoned by audiences.

From today’s perspective, the film’s success can be understood along several dimensions.

First, the authenticity and irreplaceability of its emotions. Centred on the Chaoshan dialect, regional culture, and intergenerational bonds, it articulates one of the most central values in contemporary Chinese society: being a person who values affection and righteousness. Mainstream commercial films often shy away from this theme or treat it superficially, sometimes leaving “righteousness” to villains and gangsters. In contrast, Dear You reveals the profound through the everyday and uses the deeds of ordinary people to narrate core Chinese cultural values—something Hollywood’s formulaic, fast-food-style narrative assembly lines cannot supply.

Second, an aesthetic shift toward seeing the world on an equal footing. Younger Chinese audiences, having grown up during the country’s rise, no longer look up to Western culture in the same way and do not enjoy empty, unconvincing grand narratives. They are more willing to pay for stories around them that reflect their own life experiences and evoke genuine resonance. Dear You is a product of this equal-footing perspective.

Third, the amplifier effect of word-of-mouth. In today’s social media environment, a high-quality, low-budget work can break out of its niche and reach broader audiences through organic recommendation. This shows that the market does not lack viewers; it lacks moving works that cross the quality threshold.

The success of Dear You confirms that massive investment, huge IPs, and mega-stars are not the only paths to success. Films rooted in authentic local life that address audiences’ emotions sincerely can also achieve box office returns far beyond their production costs.

Xinchao Guanyu: Over the past six months, AI-generated film and television has become a focus of public debate. In this year’s framework, will you include the impact of AI on the film market? Some say AI will be a revolution that hands a gun to every creator. Will rapid AI development accelerate decolonization in the global film market?

Decoloniverse: AI has already had an indirect impact on the film industry. The rapid evolution of AI-generated content—from text to image, from short clips to complete narratives—is altering the thresholds, forms, and power structures of content creation. In applied technical fields such as post-production and rendering, AI is already in use. But will audiences accept paid, big-screen films whose characters, scripts, and performances are all generated by AI? Our view is that while audiences show a fair level of acceptance for free AI short videos, micro-films, and mini-dramas—and some AI-created works, such as the Qingming-themed micro-film Paper Phone and the AI short Zombie Scavenger, have drawn wide attention—acceptance of AI-produced theatrical films will take longer. In 2026 and 2027, if any theatrical films use AI production as a key marketing hook, we will closely observe how that actually affects box office performance.

As for whether AI will accelerate decolonization in the global film market, our preliminary judgment is this: AI can both accelerate decolonization and reinforce new dependencies, depending on who uses it and how. As a technology, AI is neutral; its users and managers are not.

On the optimistic side, AI significantly lowers the technical threshold for content production. Visual effects, editing, and dubbing that once required major Hollywood budgets can now be achieved by small teams or even individual creators using AI tools. This is equivalent to handing a gun to every creator, enabling local producers in the Global South to make high-quality indigenous content at lower cost and potentially accelerating cultural decolonization.

On the pessimistic side, if AI tools, training datasets, and algorithmic standards remain monopolized by Western tech giants, AI could become an instrument of a new cultural colonization. The narrative templates, aesthetic preferences, and value frameworks it outputs may still be American, only wrapped in more efficient technology. A critical issue is that outside China, AI use in most countries relies almost entirely on American large models, with very few users turning to models from China or other countries. This makes it likely that AI is not a value-neutral tool in practice, and that creators in non-Western countries may accept a new layer of dependency while enjoying its convenience.

Our position is therefore: AI can act as an accelerator for decolonization, but only if countries develop autonomous and controllable AI content ecosystems. This includes building local language models, local visual datasets, and local narrative logics. This is itself a separate topic—AI and decolonization. If a wave of AI cinema emerges, our report will follow it closely.

About the Author

The Decoloniverse (底壳宇宙, meaning ‘decolonize the universe’) is a community and research institution.

From May 13 to 15, 2026, U.S. President Donald Trump paid a state visit to China. A few days later, Russian President Vladimir Putin also visited China from May 19 to 20. The two visits were very close in time, and it is easy to regard them only as two state-level visits on the diplomatic calendar.

But if they are understood only in terms of diplomatic protocol, a more crucial point will be missed: Trump and Putin have another layer of identity. They are heads of state, but they are also symbolic figures of contemporary national civilizationalism. Their successive arrivals in Beijing indicate that a new layer is emerging in the global ideological landscape.

The two heads of state are also spokesmen for a transnational ideological current

Trump and Putin, of course, represent the United States and Russia, respectively. But if they are seen only as representatives of two states, another level is missed. Both men represent an ideological current that spreads across nations and regions. We will refer to it here as “national-civilizationalism.” The concept basically states that the state is not an abstract institutional machine but a community made up of history, religion, ethnicity, language, shared memory, and ways of life; the primary task of politics is not to remake all countries according to the same institutional template but to protect one’s own civilization, sovereignty, borders, and social cohesion. This set of ideas differs markedly from the liberal internationalism that long occupied the mainstream after the Cold War.

Liberal internationalism places great faith in open borders, individual rights, universal institutions, and the diffusion of values; national-civilizationalism places greater emphasis on the nation-state, cultural boundaries, traditional values, and civilizational self-preservation. Neither is merely a political idea within a single country. Each is an ideological system capable of spreading across borders, forming transnational alliances, and borrowing strength from counterparts abroad. For decades, mainstream Western elites often regarded liberal internationalism as a path with almost no alternative; now, national-civilizationalism is challenging that certainty.

Trump and Putin are not exactly the same. The United States and Russia have different histories, different systems, and different interests, and the two men differ greatly in personality and policy. But they clearly resonate with each other in opposing globalism, opposing interference in internal affairs, opposing the excessive expansion of identity politics, and opposing the weakening of nation-state sovereignty. Both the United States and Russia are dissatisfied with the current global political, economic, and cultural order, and both oppose universalism, interventionism, political correctness, multiculturalism, and the excessive expansion of identity politics. This resonance does not mean that their national interests are aligned, but it is enough to create a kind of mutual understanding in spirit. This convergence is not simply “America becoming pro-Russian” or “Russia becoming pro-American.” It is more a form of mutual spiritual confirmation. Each side believes that what threatens the soul of a nation is not only external enemies but also internal elites, transnational capital, cultural deconstruction, and the weakening of traditional communities. It is in this sense that Trump’s and Putin’s successive visits to China are significant.

Ideology and the History of Western International Relations

Many people tend to understand ideology as something internal to a single country. In fact, any ideology with real vitality is naturally transnational. Socialism once had its own international organizations, party networks, and cross-border mobilization. Western center-left and center-right parties have long had their own international alliances, foundations, think tanks, and media networks. The spread of national-civilizationalism today follows the same pattern.

The American international-relations scholar John Owen has long studied how ideas shape international relations in The Clash of Ideas in World Politics. He explains many wars, institutional changes, and great-power interventions in Europe and the world over the past five hundred years in the context of transnational ideological networks. Owen argues that states do not merely compete for territory and resources; they also often struggle over which institutions, which order, and which way of life are more legitimate. Transnational ideological networks connect political forces inside different countries, giving domestic political struggles within one country international significance. This perspective is well suited to understanding today’s ideological rupture within the West.

Owen also reminds us that so-called transnational ideological conflict is not an empty concept. In sixteenth- and seventeenth-century Europe, there were conflicts between Catholicism and Protestantism; from the late eighteenth century through the nineteenth century, there were conflicts among legalism, revolutionism, monarchy, and republicanism; in the twentieth century, there were conflicts among liberalism, fascism, and socialism. Related research has also calculated that since the sixteenth century, it has not been uncommon for states to use force to promote changes in other countries’ internal systems, and such actions have often been most concentrated when transnational ideological tensions and international security pressures rose simultaneously.

This is very instructive for understanding the present. After the Cold War ended, many people thought major ideological conflict had passed and that the world was left only with globalization, technological competition, and national interests. But the past decade and more has shown that ideas have not left the stage; they have merely returned in another form. The conflict within the West today between liberalism and national-civilizationalism can be seen as another appearance of a historical pattern of transnational ideological struggle. The difference is that this time the conflict first takes place within the West, rather than simply between the West and the non-West.

This is also why, when discussing international relations today, we cannot look only at the balance of power among states; we must also look at affinities and distances among ideas. Countries may have conflicts of interest while being close in ideas. The United States and Russia are a typical example. From the perspective of national interest, U.S.-Russian contradictions are deep, but from the perspective of national civilizationalism, the attitude toward Putin-style Russia among a considerable portion of the U.S. Republican Party is already different from the anti-Russian instinct of the Cold War period. The thawing of U.S.-Russian relations in recent years is not only related to strategic calculation; it is also related to value resonance between Trumpism and Putinism.

Therefore, today’s world has at least two layers of alignments. One is the practical alignment among states around resources, security, markets, and geostrategic location. The other is the ideological alignment among liberalism, national-civilizationalism, and socialism. These two layers sometimes reinforce each other and sometimes cancel each other out. Looking only at national interests narrows the problem; looking only at ideology empties it out. Great-power relations today unfold precisely at the intersection of these two lines.

Today one can no longer refer to “the West” and “America” as one

After the Cold War ended, the West was once a relatively clear concept. It generally referred to the countries of the liberal camp. This West had a shared institutional language, a shared value narrative, a shared alliance system, and a shared globalization agenda. The reason Fukuyama’s “end of history” thesis was once popular was precisely that many Western elites believed the free market and parliamentary democracy had won final victory and that other civilizations would eventually move closer to this model.

But today it is no longer accurate to speak of the West as ideologically cohesive. The West has at least split into two parts: one still believes in liberal internationalism and supports EU integration and open society; the other increasingly emphasizes the nation-state, borders, traditional values, religious identity, and civilizational self-preservation. Even when speaking of the United States, one must specify which America. Trump can roughly represent only half of America, while the Democratic Party and Biden can roughly represent the other half. The United States is no longer a harmonic ideological community, but two political communities competing with each other over the right to define the nation.

This means that the way China has interacted with the United States over the past several decades is no longer fully applicable today. In the past, China mainly adopted an “elite-centered” approach toward engagement with the United States, dealing more with mainstream political forces in Washington and various elite groups. Against the background of liberal internationalism’s dominance over the West, this approach had its rationality and did indeed promote mutual understanding between the two peoples. But today the power structure, public-opinion structure, and identity structure of American society are all changing. If China continues to use the traditional mode of engagement, it will not only find it difficult to reach the other half of American society; it may very likely produce the opposite effect.

The same is true of Europe. Alternative for Germany, France’s National Rally, Reform UK, and other more radical right-wing forces all reflect this change to varying degrees. Alternative for Germany has already reached a high level of support in the eastern state of Saxony-Anhalt and may compete for the governorship for the first time; Jordan Bardella, the political heir of France’s National Rally, is regarded by many polls as an important contender in the 2027 presidential election; and Reform UK achieved a striking performance in the 2026 local elections. In the next year or two, national-civilizationalist forces in some European countries are very likely to continue rising, and it cannot be ruled out that traditional mainstream parties in some countries may lose power or be forced to redistribute political space with emerging right-wing forces.

Musk has played a highly visible role in this process. He is not only a businessman; he is also promoting national civilizationalism around the world. It is very clear that he has heavily funded European nationalist parties and used social-media platforms to attack Europe’s establishment parties. In January 2025, Musk appeared by video at an Alternative for Germany campaign event and called the party Germany’s greatest hope. This support connects American technology capital, platform traffic, money, and European national-civilizationalist politics.

After Trump returned to the White House, he also accelerated his intervention in European politics. The 2025 edition of the U.S. National Security Strategy sharply criticized Europe, saying Europe faced the risk of civilizational erasure and encouraging the United States to support nationalist forces within Europe. European Council President Costa warned the United States not to interfere in Europe’s internal affairs, while German Chancellor Merz said Europe must reduce its dependence on the United States. Between the United States and Europe, the issue is no longer merely policy differences among allies; an ideological divergence has already emerged over Europe’s future path.

Of course, the expansion of national-civilizationalism has not been smooth sailing. Although Italy’s Meloni comes from the right-wing camp, on most security and European issues she still does not dare depart from the EU’s main line. Hungary is even more symbolic. Orban was once seen by many American Republicans as an ideal model, and large numbers of American national-civilizationalists went to Hungary to investigate and try to learn from its experience in media, education, immigration, and family policy. But in April 2026, despite U.S. Vice President Vance appearing on site to support him, Orban still lost the election.

This shows that Western national-civilizationalism is in an upward phase, but it is not destined to win. It has a real social base but also obvious political shortcomings; it can mobilize dissatisfaction but may not be able to govern stably; it can oppose the old order but may not be able to propose a completely new order. For this reason, today’s West looks more like a large space in internal struggle than a community moving in one consistent direction. In dealing with this West, China likewise cannot continue using the old single-channel approach.

Why Russia became the main base of “national-civilizationalism”

In this round of intellectual change, Russia occupies a special position. Around 2012, Russia began to construct its own national-civilizationalist narrative more systematically. It no longer simply imitated Western liberalism but extracted political language from Eastern Orthodoxy, state sovereignty, traditional values, and opposition to a unipolar world order. Russia draws distinct values from its own cultural tradition, history, and religion and then gives them a universal meaning beyond Russia itself. When the original values of other countries lead to social crisis, this Russian set of values may become attractive to some groups in the West.

This attraction is not because the European and American right really wants to become Russian. It is because they see many problems in their own societies. Globalization and immigration have changed social structures; identity politics has deepened fractures within communities; traditional religion and family have been marginalized; universities, media, and judicial systems are considered to have become increasingly detached from ordinary people’s lives. What Russia provides is not an institutional template that can be copied directly but a psychological alternative answer. A state need not take liberalism as its only direction, and a civilization need not use mainstream American values as its only measure.

This Russian mindset is not simply national image propaganda but cultural and value-based attraction or soft power. Russia attempts to gain appeal through non-liberal values, and it has indeed provided an external reference point that has led some American right-wingers to believe that liberalism is not the only possibility and that the nation-state and traditional civilization can once again become sources of political legitimacy. It is precisely for this reason that some American Republicans have developed a complex favorable feeling toward Russia. From the perspective of national interest, the United States and Russia have long-standing contradictions; from the perspective of spiritual temperament, however, the two increasingly use similar language. Both Trumpism and Putinism believe that political correctness, multiculturalism, and universalism are harming traditional states, traditional religion, and traditional identities. Both believe that liberalism, in the process of globalization, secularization, and universalization, has threatened the foundations of their respective countries’ survival, and therefore they respond respectively through isolationism, traditional culture, and the reconstruction of national identity.

Therefore, at the spiritual level, part of the U.S. Republican Party is increasingly able to understand Putin. This phenomenon is interesting and important. It shows that in today’s great-power relations, national interest and ideological closeness do not always coincide. The United States and Russia still have geopolitical contradictions, but the value distance between them has indeed become quite small. China and Russia have strategic cooperation, but the connection between China and Russia is in fact far less close than the affinity between Russia and the U.S. Republican Party. Relations between the Chinese and Russian governments are close, but the spiritual bonds between the two countries’ intellectual elites and peoples are still not sufficiently firm. China and the United States have real competition, but the degree of civilizational hostility toward China among different American political forces is also sharply different.

How the concept of “civilization” moved from the margins to the center of American politics

In the American political and academic mainstream, civilization has long not been a core concept. The United States is more accustomed to using systems and ideology to divide friends and enemies: the free world versus the unfree world, democracy versus autocracy, market economy versus planned economy, and so on. In the early twentieth century, Spengler, Toynbee, and others discussed the decline of Western civilization, but these views were long not taken very seriously in mainstream American academia. After the Cold War, Huntington’s “clash of civilizations” thesis caused a sensation for a time, but it was also widely criticized. Mainstream American elites were more willing to believe the Fukuyama-style optimistic picture: that liberal democracy would ultimately become humanity’s common institutional destination.

Even after the terrorist attacks of September 11, 2001, mainstream American politics was unwilling to define them as a war between civilizations. The George W. Bush administration emphasized that America was not opposed to Islamic civilization but to terrorism. This formulation reflected the basic belief of American liberal internationalism: that different civilizations certainly have differences, but that these differences can ultimately be reconciled through liberal democracy and market order. America was not a particular civilization but an institutional container capable of absorbing different civilizations into itself.

Trump changed this. During the 2016 campaign, he did not yet have a mature theory of civilization, but he captured the unease in the minds of many American voters: Is America still like the America of the past? Is America’s traditional way of life disappearing? Are immigration, identity politics, university culture, and globalist elites changing America’s foundations? These questions were later repackaged as civilizational security. They were not cold theoretical issues, but the feelings of many ordinary Americans about changes in daily life.

The 2025 edition of the National Security Strategy turned this way of thinking into a formal document. English-language media reported that the strategy sharply criticized Europe, saying that immigration, low fertility, and EU policies could lead to Europe’s civilizational erasure, and encouraged the United States to support nationalist forces within Europe. Time magazine argued that the strategy placed the Western Hemisphere, European politics, and nationalist movements in a prominent position while no longer emphasizing the traditional narrative of democracy versus authoritarianism with regard to China. This change is larger than many people imagine. It is not simply a matter of changing a few words; it shifts the root of America’s security problem from external ideological enemies to internal civilizational vitality.

In the past, the American liberal establishment believed that external enemies were countries that rejected liberal democratic institutions. Trump’s national-civilizationalism, by contrast, holds that America’s real mortal danger lies at home: a decline in American civilizational vitality jointly caused by permissive immigration, political correctness, identity politics, and elite dereliction. The new strategy gives civilizational security a prominent position and holds that the existential challenges America faces come more from America’s own civilizational vitality, demographic structure, and elite policies than from external ideological enemies.

As a result, Trump’s attitude toward China has also changed. China remains a competitor, but he no longer sees it as the source of America’s civilizational decline. In his logic, America’s civilizational crisis is mainly caused internally by America itself. This is the key to understanding changes in China-U.S. relations during Trump’s second term. Trump has become increasingly clear about this, and therefore his attitude toward China has begun to shift from ideological hostility toward negotiation over real interests.

The major transformation in Trump’s attitude toward China

Trump’s attitude toward China has not been immutable. Broadly speaking, it can be divided into four stages.

The first stage was from 2018 to mid-2019. Trump mainly viewed China as an economic and geopolitical competitor. After the trade war broke out, some people within his team at one point tried to explain China-U.S. competition as a civilizational confrontation. In April 2019, Kiron Skinner, then director of policy planning at the U.S. Department of State, publicly said that U.S.-China competition was different from the intra-Western family struggle of the Cold War period and that it was the first time the United States had faced a great-power competitor that was not white. This statement quickly sparked controversy and was also played down by the Trump administration. It shows that civilizational-conflict discourse did appear briefly, but it did not become the core of the first-term official Chinese policy line.

The second stage was from mid-2019 to 2020. After the civilizational-conflict thesis suffered setbacks, the Trump administration turned to ideological packaging, trying to use ideological narratives to build a bipartisan hardline consensus on China. Some of his subordinates even declared that “if the free world does not change China, China will change them,” marking the peak of the first term’s ideological offensive against China. Yet this line did not truly resolve the Trump camp’s confusion: Is China really the source of America’s civilizational decline? Changes in America’s domestic identity politics, racial divisions, university culture, judicial system, and media ecology were obviously not caused by China. Attributing all of America’s internal problems to China is hard to use to persuade voters over the long term.

The third stage was from 2021 to 2024. After Biden took office, Trump lost power and became deeply entangled in election disputes, judicial investigations, and intra-party struggles. His principal enemy was no longer China, but the domestic American deep state, Democratic politicians, some disloyal Republicans, the judiciary, and intelligence agencies. At rallies, he repeatedly said that America’s real danger was the enemy within, even more dangerous than external opponents. Compared with 2016 and 2020, Trump in 2024 rarely used vicious anti-China language. Apart from promising high tariffs and industrial reshoring, he spoke more about purging corrupt Washington politics, dealing with illegal immigration, and reorganizing universities and the judicial system.

The fourth stage began after he returned to office in 2025. The strategic documents and policy practice of Trump’s second term further distinguished internal enemies from external competitors. Trump is more concerned with results that are quantifiable, publicizable, and tradable. For him, China-U.S. relations are not a project of value transformation but a negotiation over power and interests. The biggest change in Trump’s second-term thinking on China is not that the United States has given up on competition, but that the narrative of competition has changed. China remains an economic, technological, and geopolitical competitor, but it is no longer the main reason for America’s civilizational crisis. This change is very important.

Trump’s visit to China this time should thus be seen as a diplomatic presentation of the above transformation. He did not come to China to preach American values, nor did he treat China as an object awaiting transformation. Instead, he spoke with China on equal terms about interests, order, and exchangeable conditions. His praise for the Chinese people, Chinese history, and Chinese civilization contains an element of diplomatic courtesy, but it also reflects the real reaction of a national-civilizationalist looking at another ancient civilization. In the past, American liberals often looked down on China with a sense of institutional superiority, while national-civilizationalists, at least in many cases, more readily acknowledge a country’s historical roots and civilizational distinctiveness.

Why have some national-civilizationalists begun to look at China “on equal terms”

In the past, mainstream American politics often viewed China from a condescending position. Many American elites believed that the American way of life was the endpoint of China’s modernization and that China would count as truly progressing only by continuously moving closer to the United States. Today, this sense of superiority has weakened among some Americans. National-civilizationalists are more likely to acknowledge that China is a great power with its own history, civilization, and governing logic, and not an object waiting for America to transform it. Trump is a national civilizationalist. He tries to mobilize the American people through American civilization, and when he sees China’s long history and strong civilizational continuity, he also develops a certain respect and admiration.

This also reminds China that we likewise cannot view America in a simplistic way. American civilization itself also has its distinctive creative power. When America’s national-civilizationalists begin to view Chinese civilization more equally, China should also view American civilization more calmly and accurately. Looking at America with a little humility and curiosity, as Trump looks at China, may instead help China better understand today’s America.

National-civilizationalism does not require all countries to accept the same system. Rather, it recognizes that different countries have different histories, traditions, and forms of political organization. In The Virtue of Nationalism, the American thinker Yoram Hazony emphasizes the importance of nation-state self-government and argues that different countries preserving their own traditions and institutions creates diverse practices that can be compared and learned from. This way of thinking differs from the one-size-fits-all template of liberal internationalism and more readily accepts differences among civilizations.

The change in the Russian national-civilizationalist thinker Dugin is very illustrative. In his early Foundations of Geopolitics, Dugin once held a highly wary and even hostile attitude toward China and advocated weakening China. In recent years, however, he has turned to highly praising China’s independence and sense of sovereignty. Dugin believes that China has not fallen into the Western-dominated world framework but has become an important force opposing Atlanticism. Similarly, Alternative for Germany held a skeptical attitude toward China when it was founded, but in recent years there has been an obvious turn.

A similar split has appeared inside the American MAGA camp. Tucker Carlson-like figures repeatedly remind the American right not to be led by the Washington establishment into blind anti-China sentiment. They believe that China has things worthy of American observation and even learning in areas such as national identity, long-term planning, opposition to identity politics, and social integration. Carlson can be regarded as a rational conservative; he advocates U.S.-China dialogue to reduce misunderstanding, rather than pure confrontation.

Even more interesting are people such as acting Deputy Secretary of State Darren Beattie. Although he belongs to the American white right-wing circle, he is not hostile to Chinese civilization and even believes the United States can learn from some of China’s practices in ethnic policy and national governance. This view is not an isolated case among deputy and assistant officials in Trump’s second-term cabinet. It shows that Trump’s team is willing to absorb some voices that are more moderate toward China and even carry a certain tendency to learn from China.

Of course, this cannot be taken to mean that the American right has fundamentally changed its attitude toward China. There are still people inside MAGA who are most hostile to China, most exclusionary toward Chinese students, and most supportive of economic decoupling. The xenophobic populist voices represented by Laura Ingraham, Laura Loomer, and others remain strong; the Bannon-style civilizational-conflict faction has not disappeared. China hawks in both parties in the U.S. Congress will also continue to exert pressure. The point is that a considerable number of national-civilizationalists have already distanced themselves from the first-term new Cold War line, and this transformation is still continuing. China must neither overestimate this change nor underestimate the strategic space it contains.

The world is not a simple triangular relationship but a triangular relationship among “three kinds of thought.”

In discussing the international landscape today, people often speak of the China-U.S.-Russia triangle, the China-U.S.-Europe triangle, or multilateral China-U.S.-Russia-Europe relations. These are certainly important. But if one looks only at state relations, it is easy to overlook another triangle: liberalism, national-civilizationalism, and socialism.

Liberalism still controls large amounts of resources in international organizations, universities, media, foundations, and institutions. It emphasizes individual rights, open society, market globalization, institutional universality, and transnational governance. National-civilizationalism is rising in the United States, Russia, Europe, and parts of Latin America, emphasizing the nation-state, borders, traditional communities, civilizational self-preservation, and national identity. Socialism, for its part, emphasizes state capacity, long-term planning, patriotic spirit, and social integration.

The three kinds of thought are each embedded within countries around the world. For example, among the elite strata of Russia and China, liberalism in fact still has discursive space. America’s mainstream values have not completely left liberalism either, but as demographic balances among states, congressional districting, and changes in Republican grassroots organizations evolve, the political weight of national civilizationalism will continue to rise. For some time to come, in Europe and Latin America, liberalism, national-civilizationalism, and socialism will continue to engage in complex and tug-of-war-like struggles.

These three kinds of thought are not in a simple friend-enemy relationship. Liberalism and socialism may intersect in multilateralism, global openness, and opposition to extreme xenophobia; national-civilizationalism and socialism may intersect in opposition to unipolar hegemony and opposition to the forced export of institutions; liberalism and national-civilizationalism both still exist within the framework of Western electoral systems, although this consensus is now shaking. The complexity of international relations today lies here: national interest is one line, ideological affinity is another, and the two lines can often cross and become entangled.

Trump’s and Putin’s successive visits to China exactly reflect this structure. From the perspective of national interest, China and the United States compete, China and Russia cooperate, and the United States and Russia also have contradictions. From the ideological-structural perspective, Trump and Putin both belong to the national-civilizationalist current, but they each have different kinds of real relations with China. China is not a national-civilizational country but a socialist country. China upholds civilizational diversity, national sovereignty, autonomy in development paths, and multilateral cooperation, giving it a distinctive position within the ideological structure.

This also explains why the impact of Trump’s second term on globalization has two sides. On the one hand, he continually shocks the existing international order and accelerates deglobalization and supply-chain fragmentation. On the other hand, he also further exposes the rifts between the United States and Europe, between the United States and its traditional allies, and between liberalism and national-civilizationalism within the United States, making it impossible for the Western world to continue presenting a united front against China.

Without Trump, Western anti-globalization would very likely have been reorganized into an East-West confrontation, eventually forming a more orderly U.S.-Europe-Japan alliance to contain China. Trump’s appearance changed this trajectory. He pressures not only China but also Europe; he criticizes not only China but also the EU; he challenges not only multilateral trade but also NATO and America’s traditional alliance system. This means that China faces not a monolithic West, but a West marked by intense internal debate and deepening line divisions.

This change will also affect Latin America. If Trump’s visit to China brings a phased improvement in China-U.S. relations, it will not only improve China-U.S. relations themselves; it will also have a demonstration effect for some Latin American countries that have close relations with Trump and at the same time need the Chinese market and investment. Argentina is a typical example. Recently, the Milei government has been further improving relations with China, viewing cooperation with China as a pragmatic choice that can coexist with a pro-American position.

China faces both opportunity and a test

From China’s perspective, the changes in Trump’s second term bring both opportunities and challenges. The opportunity lies in the possibility that China-U.S. relations may enter a relatively stable stage of coexistence. Trump does not fully accept the fixed narrative about China held by the strategic circles of both parties. He is more concerned with real interests, orders, tariffs, industrial reshoring, borders, and internal American rectification. As long as he believes America’s civilizational crisis comes mainly from within and not from China, tensions between China and the United States arising from value differences will decrease. This does not mean the United States will stop suppressing China; rather, the way it suppresses China will become more pragmatic.

The challenge for China is that the United States will not give up economic, technological, and security pressure on China. Trump may no longer be enthusiastic about transforming China, but he will still make forceful demands on tariffs, chips, investment, security review, fentanyl, and supply-chain issues. In the future, China will need to handle three relationships at the same time: maintaining controllable stability with a Trump-style America; maintaining pragmatic cooperation with Europe’s liberal mainstream; and continuing strategic mutual trust with Russia. None of these relationships can be absolutized.

More importantly, China must not interpret Western division as meaning that Western decline has already become irreversible. Internal struggle in the West may weaken its short-term coordination capacity, but it may also force it to reorganize into a new political form. If the United States succeeds through Trump-style reforms in reducing fiscal pressure, rebuilding industry, tightening immigration, and increasing internal cohesion, then the United States will bring more risks and pressure to China. The same is true of Europe. The rise of national-civilizationalist forces in some countries will not automatically benefit China; they may show greater respect for civilizational diversity, but they may also emphasize industrial boundaries, immigration security, and national priority.

Therefore, China needs more flexible diplomatic wisdom. On the one hand, it must firmly uphold multilateralism, open cooperation, and mutual learning among civilizations and avoid being dragged into a simple camp confrontation. On the other hand, it must accurately distinguish among different Wests: the West of liberal internationalism, the West of national-civilizationalism, the West oriented toward pragmatic economic interests, the West still willing to cooperate with China, and the West hostile to China. Different counterparts cannot be addressed with the same language and the same strategy.

In relations with the United States, China should seize the relatively stable window during the Trump period to promote the restoration of economic and trade relations, people-to-people exchanges, and educational, law-enforcement, and local cooperation. More importantly, the mode of engagement with the United States must be adjusted. Over the past several decades, we have been more accustomed to seeking common ground while reserving differences with America’s liberal elites, which was necessary at the time. But today major changes have already taken place inside the United States. An “elitist” mode of engagement is no longer sufficient to understand America and may also cause the other half of America to form new suspicions toward China. In the future, China needs a more pluralized effort to seek common ground while reserving differences among different political forces inside the United States: discussing institutional differences and open cooperation with liberals and discussing civilizational respect, border awareness, and national development with national-civilizationalists. Some scholars at Republican think tanks hope to use Confucian thought to justify their arguments, yet China has not effectively used Confucian cultural resources as an important carrier of civilizational communication between the two countries.

This pluralization applies not only to the United States but also to the entire West. In the past, China dealt more with the liberal mainstream of the West and emphasized finding common interests amid differences. Now that new political forces have emerged inside the West, China must also learn to seek common ground while reserving differences with different Wests. With liberals, the focus can be multilateral cooperation, open markets, and people-to-people exchange; with national-civilizationalists, the focus can be mutual respect among civilizations, sovereign equality, and opposition to the forced export of systems; with pragmatic economic forces, the focus can be industrial cooperation and market opportunities. Doing this is not opportunism. It is an acknowledgment of reality: America and the West are no longer the single West of the past.

In relations with Europe, China should continue to preserve space for China-Europe economic and trade, climate, technology, and cultural cooperation while also paying attention to the rise of European national-civilizationalist parties. In the next year or two, the political structures of Germany, France, Britain, and some Central and Eastern European countries may continue to change. China must neither equate Europe’s liberal mainstream with all of Europe nor simply regard the rise of Europe’s right wing as a natural benefit. On the premise of respecting Europe’s political choices, China should maintain the ability to communicate with different political forces.

The real change is that the world’s ideological map is being redrawn.

When Trump and Putin successively came to Beijing, what truly deserved attention was not the protocol level of the two visits but the change in the world’s ideological map reflected by them.

Over the past several decades, the world’s principal contradiction was often understood as the relationship between liberal capitalism and socialism. After the Cold War ended, liberalism gained the upper hand for a time, and it seemed that the world had only one path to modernization left. But today, the world has moved from competition between two main ideologies to interaction among three major systems of thought: liberalism, national-civilizationalism, and socialism. Among the three, there is competition and also overlap; there is conflict, and there may also be partial cooperation.

Liberalism will not easily exit. It still has strong institutional resources, cultural capital, and a foundation in international organizations. National-civilizationalism will not be a flash in the pan either. It is rooted in real class anxiety, immigration anxiety, identity anxiety, and civilizational anxiety within Western society. Nor is socialism an ideological label in the old sense; in the process of Chinese modernization, it is taking on a new form marked by state capacity, long-term planning, and civilizational continuity.

This is the historical depth of today’s international politics. It is not simply China-U.S. confrontation, not simply East-West confrontation, and still less a unified West against the non-West. It is a complex situation in which national interests, civilizational narratives, institutional ideas, class structures, and social psychology are all moving at the same time.

Trump and Putin are not accidental figures. When Putin first came to power, he explicitly declared himself a liberal, while Trump in his early years once joined the Democratic Party. Their intellectual transformations occurred because liberal internationalism accumulated too many internal contradictions over the past several decades. Globalization benefited some people while leaving many others behind; open society expanded rights while also atomizing community; universal values provided a common moral language while also making many nation-states feel oppressed. National-civilizationalism arose against this background.

China does not need simply to embrace this current, nor should it simply reject it. The more appropriate attitude is to observe calmly, respond by category, and hold the bottom line. Trump’s and Putin’s successive visits to China have shown China a new international political reality. Some people once thought to belong naturally to the Western camp are re-understanding China, and some new political forces are redefining the world in terms of civilization, nation, and tradition.

China also needs to change the way it understands and engages with the world. When liberalism dominated the West in the past, elite engagement, think-tank exchanges, university cooperation, and media communication could basically cover mainstream society in the United States and Europe. Today this approach remains important, but it is no longer enough. New publics, parties, media, and intellectual groups have emerged inside the United States and Europe. They do not necessarily like China, but they may be willing to understand China in a relatively equal way. If China interacts only with the old liberal networks, it may miss the new political reality and may unintentionally place itself on one side of America’s and Europe’s internal struggles.

As the influence of elite politics in Western countries generally declines, China’s future external engagement should shift from an “elite-centered” paradigm to a pluralist paradigm. China should continue to communicate with liberal elites, but it should also maintain appropriate contact with national civilizationalists, local political forces, industry, youth groups, media platforms, religious organizations, and community organizations. We do not need to cater to any side, but we need to understand what each cares about. Only in this way can China maintain the initiative in a divided West rather than be led by any one Western narrative.

Conclusion

Trump’s and Putin’s successive arrivals in Beijing were not only two state visits but also a new world ideological map unfolding before us. Today’s great-power relations include calculations of national interest as well as the pull of transnational ideological currents. These are two levels of issues, but they are closely connected. Liberalism, national-civilizationalism, and socialism are being rearranged and recombined.

For China, this means that pressure remains, but space has also increased. China must look both at the real interests among states and at the mutual attraction and repulsion among ideas. It must be alert to new forms of pressure from the United States and the West, while also making good use of division and reorganization within the West. Only by understanding these two lines at the same time can we understand why the world is changing and face those changes with greater composure.

About the author

Meng Weizhan is an associate professor at Fudan University’s Institute for Advanced Study in Social Sciences and a columnist for Guancha.cn.