This is the first installment in the series. (hope I can have enough authorizations) The article is written by Jing Jun, a professor at the Institute for Advanced Studies in Humanities and Social Sciences at Sun Yat-sen University, and Tang Yongyan of the Institute for International and Area Studies at Tsinghua University.

The article’s argument is that sovereign states cannot currently achieve complete autonomy across every layer of AI—from chips, computing power, training data, and large models to talent and even regulatory rules. Even China and the United States cannot achieve complete independence and remain reliant on others. Full autonomy is therefore not a realistic policy goal for most countries. Yet the reality is that the high concentration of AI technology and infrastructure could further entrench unequal technological dependencies in the Global South. For most countries, a more realistic option is to embrace “layered sovereignty” by developing the capacity to make independent choices about critical dependencies and govern them effectively. For countries in the Global South, the key to achieving AI sovereignty is to prevent dependence on any single partner from turning into domination.

The paper was first published on . Thanks for their kind authorization I can put the English version of the article here.

Comprehensive AI Sovereignty: An Illusion

Jing Jun and Tang Yongyan

Introduction

By 2025, a total of 172 countries worldwide had enacted data security laws, also known as “data and privacy protection laws.”[1] As countries pay increasing attention to data security, regulatory measures intended to protect sensitive data have gradually evolved into demands for AI sovereignty. At the same time, AI research, development, and deployment are moving along increasingly divergent paths, with three major models emerging.

The first is the American model. Owing to the United States’ first-mover advantage in artificial intelligence, most countries depend on large language models, silicon-based computing chips, and cloud services developed in the United States. American technology giants have also aggressively promoted regionally tailored strategies, deepening this dependence in the name of regulatory flexibility.[2]

The second is the European model. EU countries likewise depend on American models, chips, and cloud services, but have increasingly turned to regulation to address the problems and potential risks arising from this dependence.[3]

The third is the Chinese model. In light of the Chinese government’s AI Capacity-Building Action Plan for Good and for All and China’s infrastructure-building capabilities, a growing number of developing countries are aligning their AI governance frameworks with China’s, engaging in consultation and cooperation on key issues such as risk management, cybersecurity, and standards for data flows. Technology sharing is another important component of this cooperation. Jointly building computing infrastructure, developing open-source platforms, and sharing tools such as anti-fraud applications all help countries strengthen their capacity to deploy AI technologies.[4]

What is AI sovereignty? First and foremost, it is an extension of the concepts of data sovereignty, digital sovereignty, and cyber sovereignty. This conceptual extension is evident in publication trends in international scholarship, and the same is true in China. Searches of the China National Knowledge Infrastructure database using the keywords “data sovereignty,” “digital sovereignty,” “cyber sovereignty,” and “artificial intelligence sovereignty” or “sovereign artificial intelligence” offer a partial picture of the distribution of Chinese scholarship in this field (see Table 1).

Judging by the number of publications, “AI sovereignty” remains a relatively new concept in the politics of technology. One major challenge in discussing it is the absence of an agreed definition: its meanings vary considerably across contexts. At the national level, the term generally refers, in broad terms, to a government’s aspiration to exercise national sovereignty in the field of AI. This generality and ambiguity have both disadvantages and advantages. They may entangle stakeholders in serious conflicts, but they may also give stakeholders room to discuss AI sovereignty with greater flexibility.

At its core, the demand for AI sovereignty is a demand to resist techno-political hegemony. Increasingly concerned about their heavy dependence on American digital technologies, many countries are seeking to develop independent AI industries and ecosystems. They hope to build homegrown AI models and thereby strengthen their resilience against potential risks.[5]

For example, with the introduction of the AI Continent Action Plan and the AI Act, the European Union has filled gaps in its regulatory sovereignty over AI technologies and applications, yet it still lacks technological sovereignty in AI. Conceptually, AI regulatory sovereignty refers to the independent, exclusive authority of a sovereign state, free from external interference, to legislate, enforce laws, adjudicate, and establish rules governing AI research, development, deployment, use, operation, and cross-border activities within its jurisdiction, in accordance with its own laws, values, public interests, and security needs. Its core concerns are autonomy in governance and authority over rule-setting.

AI technological sovereignty, by contrast, refers to a sovereign state’s supreme authority and capacity to independently control and develop core AI technologies, infrastructure, data, models, talent, and industrial ecosystems without external coercion. Its core concerns are technological autonomy, security, and control.

To address the lack of technological sovereignty in AI, France’s Mistral AI and Germany’s SAP have jointly launched a sovereign AI model, seeking to protect EU member states’ data through the principles and practice of AI sovereignty.[6] The United Kingdom has established an AI sovereignty research institution to promote investment in domestic AI companies and make the country more attractive to foreign AI firms.[7] India’s use of datasets in local languages to train large language models represents a pursuit of cultural diversity in generative AI.[8] The Gulf states, meanwhile, have spent heavily on large quantities of American AI chips, treating AI sovereignty as a matter of national security.[9] Chile has invested substantially in independently developed open-source models, seeking both autonomy in AI technology and the preservation of Latin American cultural independence through generative models.[10] Brazil likewise invokes AI sovereignty in regulating AI technologies and strengthening their oversight.[11] Australia, Canada, and Thailand are also discussing how AI sovereignty can safeguard national sovereignty and cultural representation.[12]

The Debate over “Layered Sovereignty”

If these forms of sovereignty are ranked by importance, technological sovereignty comes first and regulatory sovereignty second. Without technological sovereignty in practice, subsequent regulation—or discussion of any critical issue—will take place from a position of dependence. Yet AI sovereignty is by no means a static, unitary concept. It is better understood as a set of capability relationships layered within a technology stack. Chips, computing capacity, data, models, applications, supporting industries, technical standards, ethical rules, and regulatory mechanisms each have distinct structures of interdependence and allow different degrees of control.

“Comprehensive sovereignty” is more akin to a technological imaginary in the strong sense: it assumes that an actor can achieve domestic provision, autonomous operation, and effective governance at every critical layer of an AI system. It seeks a self-contained chain extending from foundational infrastructure to higher-level institutional arrangements, and may therefore be described as “full-stack autonomy” or “autonomy at every layer.”

Unlike comprehensive sovereignty, “layered sovereignty” does not take complete autonomy as its goal. It recognizes the layered structure of AI technology. Data, computing capacity, models, applications, talent, rules, and governance capabilities each constitute a layer. Countries possess uneven capabilities across these layers, and their dependencies are not concentrated in the same places.[13] The essence of layered sovereignty is therefore to identify critical dependencies, retain alternatives, and command the levers of governance. Where external dependence cannot be eliminated entirely, AI sovereignty ceases to mean a self-contained value chain. Instead, it entails identifying, controlling, and restructuring dependencies layer by layer.

In short, comprehensive AI sovereignty seeks independence across the entire chain; layered AI sovereignty emphasizes strategic choices at different layers. The former resembles an enclosed tower, striving for completeness. The latter is more like adjustable scaffolding, allowing cooperation, repair, and reconstruction.

Comprehensive AI sovereignty remains an illusion, even for the United States. It requires at least the following six conditions.

First, a complete domestic hardware production chain and infrastructure, including the capacity to produce chips across the full stack and factories for manufacturing advanced semiconductor equipment. The United States still depends on Taiwan, China, to manufacture the AI chips it needs, outsources large amounts of data annotation overseas, and must establish AI computing facilities and data centers abroad because of insufficient domestic electricity supplies. It therefore does not currently possess a complete ecosystem of AI sovereignty.

Second, domestically developed AI models. This requires training AI models on domestic data and infrastructure to achieve autonomy in model research and development. China’s development of large language models draws on American experience. The Transformer paradigm, foundational architectures, principles of data training, alignment procedures, and underlying algorithmic logic of mainstream Chinese models originated in the United States. China also continues to lack advanced, large-format AI chips. It therefore does not currently possess a complete sovereign AI ecosystem either.

Third, cloud technologies and computing capacity. Most countries currently rely on Amazon, Microsoft, and Google cloud services for related activities. This arrangement runs counter to the principle of data localization and creates numerous problems involving data security, network latency, and compliance.

Fourth, dedicated AI data centers. The United States has the largest number of conventional data centers, followed by Europe and then China. In terms of dedicated AI data centers, however, the United States and China are now almost evenly matched, with other countries trailing far behind.

Fifth, ethical principles. Ethical considerations form the foundation for regulating AI research, development, and deployment. The American government has consistently pursued a strategy of devolving ethical responsibility to companies, placing a high premium on innovation, deliberately downplaying regulation, and putting excessive faith in the market. The European Union, by contrast, has adopted stringent regulatory measures and made an exclusionary conception of European values central to its AI ethics. China’s approach to AI ethics regulation rests on the integrated pursuit of economic development, social stability, and national security. Many countries in the Global South, however, have yet to formulate clear, systematic AI ethical principles that reflect both their cultural and ethical traditions and their national circumstances. How to incorporate national sovereignty into ethical regulatory frameworks therefore remains unresolved.

Sixth, talent development. The United States, China, the United Kingdom, the core EU member states, and India are major centers of AI talent and knowledge production. Most other developing countries face substantial shortages of AI talent, compounded by brain drain, and have little choice but to depend on external chains of knowledge production.

Since no country can fully command every critical component of the AI technology stack at once, AI sovereignty must be discussed from the perspective of layered sovereignty.

The first component of AI sovereignty is the output of knowledge production and the size of the scientific and technological talent pool, reflected above all in publications, patents, frontier models, and the number of people using those models. Globally, Chinese scholars lead in the total number of AI papers, citations, and granted patents. The United States has an advantage in highly cited papers, while its technology industry produces the world’s largest number of frontier models and serves the largest global user base.

Frontier models here refer specifically to large language models with substantial industry influence, stronger performance, and a representative, leading role in the field. In 2025, 89 frontier models were released worldwide: 50 from the United States, 31 from China, five from South Korea, and one each from Canada, France, and the United Kingdom.[14] At present, only China and the United States enjoy an overwhelming advantage in their capacity to develop frontier models independently.

The second component of AI sovereignty is computing capacity and infrastructure. The infrastructure supporting computing capacity includes silicon-based chip accelerators, graphics processing units, computing clusters, dedicated AI data centers, and cloud providers’ supercomputing platforms. Where this infrastructure and computing capacity are located, who owns them, and whose jurisdiction they fall under determine the degree of autonomy in AI sovereignty.

According to publicly available data, by 2025 only 32 countries worldwide had deployed AI computing systems. These systems can be understood as regional hubs of AI computing data centers. The United States had 26 such hubs, China 24, and Germany seven; no other country had more than five.[15] Apart from China, countries that have established AI computing data centers rely primarily on silicon-based chips supplied by the American company NVIDIA. China is expected to achieve a domestic chip supply rate of 70 percent in 2026.

The third component of AI sovereignty is the regulatory model and its guiding principles. The three principal forces driving advances in large language models and AI tool models today are the United States, China, and the European Union. As noted above, the American federal government takes a market-led approach to regulation, the Chinese government a state-led approach, and the European Parliament, as an EU legislative institution, a human-rights-led approach.[16]

The American model is characterized by technological optimism and the pursuit of innovation. It maintains an uncompromising faith in the market, advocates a limited role for government, and regards subnational legislation that impedes AI research and development as unconstitutional.

The Chinese model follows a state-led approach. It seeks to maximize the country’s nationwide technological strengths while maintaining social stability and social equity, and upholds the position that AI should benefit all countries, particularly those in the Global South.

The EU model bases regulation on fundamental human rights and adheres to the principle of fair market competition. It imposes stringent controls on high-risk uses affecting human health, personal safety, and citizens’ fundamental rights. Specifically, these restrictions encompass the use of AI in critical infrastructure, the collection and use of biometric data, assessments of reoffending risk, election campaigning, credit scoring, résumé screening, student admissions, and determinations of eligibility for welfare benefits.

The three regulatory models represented by the United States, China, and the European Union exert varying degrees of influence across different countries. The American model faces resistance from the European Union and many developing countries. The EU model provides a reference point for AI ethical principles in most Western countries. The Chinese model is gaining ground in the Global South. Yet a stark reality remains: the world’s internet information flows primarily through platforms controlled by American technology companies. This presents a formidable obstacle to developing countries’ aspirations and efforts to build sovereign AI models and systems.

The fourth component of AI sovereignty is well-developed internet infrastructure and a high rate of internet penetration. In 2025, AI adoption exceeded one-quarter of the population in 30 countries, most of which also had high internet penetration rates. Judged solely by its AI adoption rate in 2025, China’s performance was remarkable. Its rate of 42.8 percent, although below those of the United Arab Emirates (59.4 percent), Singapore (58.6 percent), and Norway (45.3 percent), was clearly above those of France (40.9 percent), the United Kingdom (36.4 percent), and the Netherlands (36.3 percent), and far above those of Germany (26.5 percent) and the technologically powerful United States (26.3 percent).

It must nevertheless be emphasized that, although domestic AI adoption in the United States was far lower than in China and ranked behind 22 other countries, American technology giants remained dominant in the circulation, collection, storage, mining, and use of information across the global internet and social media. Two billion users worldwide send 100 billion messages each day through Meta’s WhatsApp.[17] More than 70 percent of active social media users worldwide use Meta platforms to post, comment, and converse.[18] Google holds more than 80 percent of the global search engine market, and internet users worldwide conduct more than five billion Google searches daily.[19]

American technology companies not only exert overwhelming influence over internet and social media users worldwide—with exceptions in a small number of countries, most notably China—but also continually export, through their products and services, the market-oriented values and rules embodied in the American regulatory stance. For political reasons, the United States tends to export AI chips to selected allies, while the European Union chooses its partners according to human-rights-oriented values. Despite the emergence of cooperation on an equal footing among a number of developing countries, international AI cooperation remains constrained by bloc formation and fragmentation under the influence of geopolitics and great-power rivalry.

The importance of these four components depends on specific contexts and changing circumstances; it cannot be determined simply by assigning them fixed rankings or weights. Together, they are shaping four forms of AI sovereignty: independent, cooperative, dependent, and externally administered.

These four forms depend to a considerable extent on infrastructure development, chip research and manufacturing, the development of leading models, the diffusion of applications, the orientation of government policy, data protection rules, and the degree of autonomy in technological innovation and the formulation of laws and policies.

Independent AI sovereignty requires full national sovereignty. The state must exercise effective control over domestic data flows, possess adequate domestic infrastructure, have a legal and policy framework supported by comprehensive institutional mechanisms, maintain a reasonably robust domestic innovation ecosystem, and be able to independently establish technical standards and principles for international cooperation. Relatively speaking, the United States, China, and EU member states belong to this category.

Cooperative AI sovereignty is characterized primarily by reciprocal interdependence and technological partnerships. Through bilateral or multilateral cooperation, countries strengthen their autonomy in regulation, infrastructure development, and technological innovation. Singapore, South Korea, the wealthy Gulf states of the Middle East, and South Africa are relatively clear examples of this form.

Dependent AI sovereignty is characterized by a governance orientation shaped by external forces, limited control over data, underdeveloped regulatory systems, reliance on external actors to build infrastructure, weak technological innovation capabilities, heavy dependence on imported technologies, and unequal partnerships. Many low-income countries are at this stage.

Externally administered AI sovereignty is typified by extremely impoverished countries and regions that depend heavily on foreign assistance projects for regulatory rules, infrastructure development, and the use of technology.

The arrival of new AI technologies is widening the digital divide between the Global North and the Global South. In 2025, global AI adoption reached 16.3 percent, compared with 24.7 percent in the Global North and 14.1 percent in the Global South. Of the 30 countries where AI adoption exceeded one-quarter of the population, only five were in the Global South. Within just a few years, the gap in AI adoption between developed and developing countries has widened: among ASEAN countries, Singapore’s adoption rate was 12.74 times that of Cambodia.

Technological precedence does not necessarily translate into the widest use of a technology, as the difference in AI adoption between China and the United States illustrates. It must nevertheless be pointed out that the present American government and major American technology companies are attempting to turn AI technologies and digital platforms into new historical and geographical centers of global power.

As early as the colonial era, large corporations served as the advance guard of European powers, both driving imperial expansion and profiting from it. These companies generally operated with the support of their governments, trading in new territories under royal charters and, in some cases, even possessing the power to wage war. In the British Empire alone, the British East India Company controlled India’s economic and political lifelines and played a crucial role in the Opium Wars between Britain and China. The Royal African Company established trading posts along the West African coast and became a major force in the slave trade. The British North Borneo Company controlled extensive tracts of land and traded in timber, rubber, and tobacco, serving as a mainstay of British expansion into Southeast Asia.

The colonial powers of the past controlled tangible centers of global historical and geographical power, competing in succession for land, gold, spices, furs, minerals, oil, sugar, coffee, opium, and other forms of material wealth and resources. Today, new forces of digital colonialism are competing for electronic information flows on the internet.

According to the United Nations Conference on Trade and Development’s Digital Economy Report 2019, Google already held 70 percent of the global search engine market at that time, Facebook 60 percent of the global social media market, and Amazon 40 percent of the global online retail market.[20] The profits these three companies generated in North America and worldwide depended to a considerable extent on market monopolies.

In recent years, the American government has repeatedly expressed its intention to use antitrust law to break up Google, Facebook, Amazon, Microsoft, and Apple, yet no such action has materialized. One central reason is that these technology giants have displaced the financial conglomerates of the past as leading forces in American lobbying. These companies are also important instruments through which the United States maintains its global dominance in the digital economy.

Through proprietary software, corporate cloud servers, and centralized internet services, large technology companies can track users worldwide around the clock. Search engines, maps, advertising, location services, email, and AI recommendation systems become points of data entry, channeling social, cultural, political, economic, biometric, environmental, health, and consumer data from around the world into corporate clouds under their control. Many countries in the Global South are unable to develop domestic information technology industries capable of competing with American companies, or to protect their populations from the domination and exploitation of American digital colonialism.[21]

Conclusion

China’s international standing is closely bound up with the Global South. So, too, are the greatest opportunities and strategic depth for the international expansion of Chinese AI technologies. In its AI Capacity-Building Action Plan for Good and for All, the Chinese government declares that China will actively assist countries, particularly those in the Global South, in developing AI technologies and services, helping the Global South gain genuine access to artificial intelligence.[22]

China’s proposed action plan comprises the following ten points:

1. China is willing to work with all countries on North–South, South–South, and triangular cooperation in AI to jointly implement the outcomes of the United Nations Summit of the Future. It will actively cooperate with countries, particularly developing countries, on AI infrastructure and the establishment of joint laboratories.

2. China is willing to cooperate on AI model research and development and on AI-enabled development, particularly the application of AI to poverty reduction, healthcare, agriculture, education, and industrial manufacturing. It seeks to deepen international AI cooperation and unlock the benefits of AI as a new quality productive force.

3. China is willing to work with countries, particularly developing countries, to explore AI’s potential to advance green development, respond to climate change, and protect biodiversity, contributing to global climate governance and sustainable development.

4. China is willing to establish an international cooperation platform for AI capacity-building. Chinese AI industries and industry alliances are willing to engage in exchanges of various kinds with countries, particularly developing countries, share best practices, responsibly build open-source and open AI communities together, and foster a cooperative ecosystem spanning multiple levels and forms of activity.

5. The Chinese government will organize short- and medium-term AI capacity-building education and training programs for developing countries, share AI educational resources, and undertake joint educational programs, visits, and exchanges, helping developing countries cultivate high-level talent in AI science, technology, and applications.

6. The Chinese government is willing to strengthen cooperation with developing countries on human resource assistance. By the end of 2025, it will hold ten additional AI training and seminar programs primarily for developing countries.

7. China is willing to work with countries, particularly developing countries, to improve public AI literacy. By combining online and offline approaches, it will disseminate accessible and specialized AI knowledge across multiple dimensions, levels, and media, striving to improve people’s AI literacy and skills, with particular attention to safeguarding and strengthening the digital rights and interests of women and children.

8. China is willing to work with countries, particularly developing countries, to build AI language corpora, take active steps to eliminate racial, algorithmic, and cultural discrimination, and preserve and promote linguistic and civilizational diversity.

9. China is willing to work with countries, particularly developing countries, to develop and improve data infrastructure and jointly promote the equitable and inclusive use of data worldwide.

10. China’s AI capacity-building action plan seeks to actively help countries in the Global South benefit equally from AI development. It aims to advance AI-enabled poverty reduction, healthcare, agriculture, education, and industrial manufacturing; help developing countries cultivate high-level AI scientific and technological talent; promote the equitable and inclusive use of data; and bridge the global digital divide.

The layered approach to AI development embodied in these ten commitments to cooperation is unmistakable, and it already has a practical foundation. AI infrastructure and application projects supported by Chinese companies through South–South technological cooperation primarily encompass open-source models, medical imaging, digital government, and smart cities. Cooperation in some areas has already entered practical use.

The first example is earthquake monitoring. The Institute of Geophysics and the Development Research Center of the China Earthquake Administration, together with Nepal’s Department of Mines and Geology, jointly undertook the construction of the National Earthquake Data Center in Kathmandu. Ten seismic observation stations were installed in northern Nepal to monitor and provide warnings for earthquakes of magnitude three and above.

The second is satellite launches. China’s Ministry of Commerce signed an agreement with Egypt’s National Authority for Remote Sensing and Space Sciences to establish a satellite assembly, integration, and testing center. Chinese technicians were responsible for installing and commissioning all new equipment supplied to Egypt and assisted the Egyptian authority in launching a satellite.

The third is high-performance computing. The Chinese government provided an interest-free loan for Zimbabwe’s High-Performance Computing Center project. Through collaboration between technicians from both countries, a supercomputer was installed at the University of Zimbabwe for use in agriculture, mining, genetic technologies, and weather forecasting simulations.

The fourth is national data center construction. Bangladesh’s National Data Center, built with assistance from ZTE, received international Tier IV certification, attaining the highest level of data center performance, with annual downtime not exceeding 30 minutes.

The fifth is education. Xidian University worked with Equatorial Guinea to jointly establish the Oyala Institute of Information Technology and Cybersecurity. It is especially important to emphasize the value of AI education for low- and middle-income countries in the Global South. Without education as a foundation, the prospects for AI development in the Global South will be substantially diminished.

Across the world today, the power of artificial intelligence is opening new possibilities for development. Yet most countries in the Global South face three interlocking predicaments: first, inadequate infrastructure, insufficient funding, and a scarcity of talent; second, a lack of voice in the formulation of governance rules; and third, insufficient preparation on ethical principles and the absence of established frameworks. Breaking this interconnected impasse requires a firm commitment to ensuring that AI benefits the peoples of all countries and to resisting exclusionary practices in the politics of technology.

At present, almost no country has secured sovereignty across every layer of AI. All must determine which links in their industrial and application chains are most critical. In the foreseeable future, China and the United States may be the only countries with a prospect of achieving AI sovereignty at every level of both chains.

It must be emphasized here that South–South cooperation in AI necessarily involves questions of national sovereignty. Layered sovereignty represents both a realistic choice and a strategic approach: South–South cooperation requires carefully designed strategies differentiated by sector, stage of development, national circumstances, culture, and political system, together with sustained efforts in talent development, infrastructure, appropriate regulation, and cultural sensitivity.

Notes

* This article presents interim findings from the National Social Science Fund of China’s Key Project, “Research on the Construction of a Southern School of Social Theory” (22ASH001).

[1] Graham Greenleaf, “172 Countries with Data Privacy Laws—Year by Year 1973–2025,” Privacy Laws & Business: International Report, No. 195, June 2025, pp. 16–17.

[2] Filippo Gualtiero Blancato and Madeline Carr, “The Trust Deficit: EU Bargaining for Access and Control over Cloud Infrastructures,” Journal of European Public Policy, Vol. 33, No. 3, 2026, pp. 936–967.

[3] Daniel Mügge, “EU AI Sovereignty: For Whom, to What End, and to Whose Benefit?” Journal of European Public Policy, Vol. 31, No. 8, 2024, pp. 2200–2225.

[4] Cai Jiajun, “The Foundations, Characteristics, and Recommendations for Improving International Cooperation on Artificial Intelligence between China and Other Global South Countries,” World Science and Technology Research and Development, No. 4, 2025. [In Chinese.]

[5] Wang Tianchan, “‘Sovereign AI’ Strategies of Middle Powers: A Comparative Analysis of the Netherlands, Singapore, and South Korea,” Global Review, No. 1, 2026. [In Chinese.]

[6] SAP News Center, “SAP and Mistral AI: A New Alliance for European Sovereignty,” SAP, November 18, 2025.

[7] Department for Science, Innovation and Technology, “AI Firms Pioneering Drug Discovery, Cheaper Supercomputing and More Get First Backing through UK’s Sovereign AI,” GOV.UK, April 16, 2026.

[8] Sarvam AI, “Sarvam to Build India’s Sovereign Large Language Model,” Sarvam AI, April 26, 2025.

[9] U.S. Department of Commerce, “Statement on UAE and Saudi Chip Exports,” November 19, 2025.

[10] Associated Press, “Chile Launches Open-source AI Model Designed for Latin America,” AP News, 2026.

[11] “Bill No. 2338 of 2023,” OECD.AI, April 27, 2026.

[12] Australian Government Department of Industry, Science and Resources, “Capture the Opportunities: National AI Plan,” 2025; Innovation, Science and Economic Development Canada, “Canadian Sovereign AI Compute Strategy,” April 15, 2026; National Science and Technology Development Agency, “Thailand Launches ‘ThaiLLM’: A Sovereign AI Foundation Model for Thai Organizations,” April 1, 2026.

[13] J. N. Pava, C. Meinhardt, E. Cryst, and J. A. Landay, “AI Sovereignty’s Definitional Dilemma,” Stanford Institute for Human-Centered Artificial Intelligence, February 17, 2026.

[14] Stanford HAI, AI Index Report 2025, 2025.

[15] Oxford University researchers, cited in “Global Divide: Only 32 Countries Host AI Data Centers,” TechRepublic, June 23, 2025.

[16] Shangrui Wang et al., “Artificial Intelligence Policy Frameworks in China, the European Union and the United States: An Analysis Based on Structure Topic Model,” Technological Forecasting and Social Change, Vol. 212, 2025, article 123971.

[17] Statista, “Most Popular Global Mobile Messenger Apps as of January 2025,” 2025.

[18] iiMedia Research, “2025 Global Social Media User Rankings,” November 25, 2025; Sensor Tower data, cited in “The State of Social Media: Instagram and Facebook Still on Top,” The Wrap, June 11, 2025.

[19] StatCounter, “Search Engine Market Share Worldwide 2025”; Statista, “Global Search Engine Market Share 2025,” January 5, 2026. The estimate of Google’s daily search volume is based on standard estimates from industry data aggregators such as TechJury and HubSpot. See also Microsoft AI Economy Institute, Global AI Adoption 2025, January 2026.

[20] United Nations Conference on Trade and Development, Digital Economy Report 2019, UNCTAD, 2019.

[21] Marcus Vinicius de Freitas, Digital Sovereignty and Data Colonialism: Shaping a Just Digital Order for the Global South, Policy Paper No. 2519, Policy Center for the New South, 2025.

[22] Zu Wentian, “Cooperation in Global Artificial Intelligence Governance: Issues, Pathways, and China’s Participation,” International Economic Review, No. 4, 2025. [In Chinese.]

Authors’ affiliations: Institute for Advanced Studies in Humanities and Social Sciences, Sun Yat-sen University; Institute for International and Area Studies, Tsinghua University.

For the upcoming Fifth Plenum, the focus is “full and rigorous Party self-governance.”全面从严治党, and I found two articles in the latest issue of Qiushi- the Party’s leading journal- that offer some clues about the meeting’s direction. Their overlapping themes suggest that, beyond the previously announced focus on anti-corruption, the meeting may also address mechanisms for implementing decisions made by the central committee.

The first article is a republication of Xi Jinping’s January 12, 2026, speech at the Fifth Plenary Session of the 20th Central Commission for Discipline Inspection, under the title “Advancing Full and Rigorous Party Self-Governance with Higher Standards and More Concrete Measures.”以更高标准、更实举措推进全面从严治党 The second is “Improving Mechanisms for Implementing the Party Central Committee’s Major Decisions and Plans,”完善党中央重大决策部署落实机制, by Wang Xipeng, the Director of the Institute of Industrial Economics, Chinese Academy of Social Sciences.

The opening section of Xi’s speech emphasizes the need to implement the Party Central Committee’s major decisions and plans with greater resolve and effectiveness. The second article takes more of a “problem diagnosis–solution” approach. Among the shortcomings Wang identifies are insufficiently specific task assignments that leave too much room for discretion; an excessive reliance on work logs and written documentation in inspections, with too little on-site verification; and difficulties sharing inspection findings across departments. These points actually highlight the absence of a dedicated mechanism to oversee policy implementation itself. Current practices rely more on submitting documentation up the administrative hierarchy to demonstrate that work has been completed, but make it difficult to verify whether the results have actually met policy objectives. This also means that, beyond doing their jobs, grassroots officials must spend additional time proving they have done them.

Mechanisms for Tolerating Could Be Key

Despite the emphasis on policy implementation, it would be overly simplistic to characterize this merely as a push for tighter control. Wang’s article also explicitly criticizes simplistic approaches to accountability, noting that grassroots officials may opt for inaction because “the more they do, the more mistakes they make.” Xi’s speech likewise states that working creatively and the resolute implementation of central decisions “are not in opposition.”

My reading is that Beijing wants to distinguish between a failure to implement policy and experimentation that remains faithful to the policy’s underlying objectives. This is one of the shifts I consider worth watching, although it remains unclear how that distinction will be drawn or what mechanisms will support it. Possibilities include defining circumstances in which officials are exempt from accountability, treating proactive correction of mistakes as grounds for more lenient treatment, or establishing separate boundaries for pilot initiatives and experimentation.

What to Watch

Two questions deserve particular attention. The first is whether “improving mechanisms for implementing the Party Central Committee’s major decisions and plans” will become a standalone agenda item. If it appears as a separate section, that would indicate that the top leadership has come to regard policy implementation as an institutional issue, rather than merely a disciplinary one.

The second is whether the performance assessment system will be revised. If subsequent assessments begin to rely less on documentation and work logs, and instead incorporate findings from on-site verification, progress toward policy objectives, and public feedback, this would change the incentive structure for grassroots officials. As Zhou Li’an argues in his article, there’s an “impossible trinity” of governance. Rigid targets, tightly prescribed implementation rules, and limited political and economic resources simply can’t be achieved all together. What interests me most is how a new balance might be struck among the three.

Below are the English versions of two articles I translated with the help of AI.

Advancing Full and Strict Party Self-Governance with Higher Standards and More Practical Measures

Author: Xi Jinping
Published: October 15, 2026

The “15th Five-Year Plan” period is a critical time for laying the foundations and making a concerted push toward basically achieving socialist modernization. To turn the blueprint drawn up by the Fourth Plenary Session of the 20th Central Committee into reality, we must uphold and strengthen the Party’s overall leadership, persistently advance full and strict Party self-governance, strengthen the whole Party’s sense of mission and fighting spirit, consolidate the Party’s unity, keep the Party’s ranks pure, and raise the Party’s capacity and level of leadership.

Caption: On January 12, 2026, Xi Jinping, General Secretary of the CPC Central Committee, President of the People’s Republic of China, and Chairman of the Central Military Commission, delivered an important speech at the Fifth Plenary Session of the 20th Central Commission for Discipline Inspection of the Communist Party of China. Photo: Xie Huanchi, Xinhua News Agency.

I. More Resolutely and Forcefully Implementing the Major Decisions and Plans of the Party Central Committee

Implementing the major decisions and plans of the Party Central Committee is a fundamental requirement for upholding the Central Committee’s authority and centralized, unified leadership, and it is an important historical lesson in the continued development of the Party and the people’s cause. The Communist Party of China was born out of ideals and fights for its mission. It was under the strong leadership of the Party Central Committee that generations of Communists, undaunted by hardship, carried on the struggle and successfully led the Chinese people from semi-colonial, semi-feudal society to stand up, grow rich, and become strong, opening the right path of socialism with Chinese characteristics. Today we have reached a critical stage in basically achieving socialist modernization, and the road ahead will certainly bring major tests, including fierce winds, towering waves, and even raging storms.

As long as we have ideals in our hearts, the nation in our minds, and mission on our shoulders, we can take the long view, steadily strengthen our confidence and strength, overcome any difficulty, and unite the whole Party and the whole country in one purpose, so that the major decisions and plans of the Party Central Committee are truly carried out. We must conquer one “Loushan Pass” and one “Lazi Pass” after another. All Party organizations and all Party members and cadres must strengthen their sense of political responsibility and historical mission, take the Party’s founding aspiration as their own core purpose, and devote all their wisdom and strength to accomplishing the Party’s central task. Leading cadres at all levels must start from the Party’s mission and tasks and establish and practice a correct view of performance. They should ask themselves whether their thinking and actions have strayed from the lofty ideal of communism and the shared ideal of socialism with Chinese characteristics, whether they have departed from the fundamental purpose of serving the people wholeheartedly, whether they have drifted from the Party’s line, principles, and policies or the Central Committee’s major decisions and plans, and whether they have detached from national conditions and from the actual circumstances of their own regions and departments. With the spirit that success need not be credited to oneself but will surely bear one’s mark, they should focus single-mindedly on advancing Chinese-style modernization.

Our Party has sound mechanisms for implementing the Central Committee’s major decisions and plans, and overall they operate smoothly and effectively. At the same time, information gathered through inspection tours, audits, and supervision shows that problems persist, including failure to implement major decisions and plans, and implementation that is distorted or improper, and in some areas these problems are quite serious. It must be made clear that implementing the Central Committee’s major decisions and plans is a basic requirement of Party political discipline and political rules. We stress “upholding the Two Upholds” (两个维护) and maintaining a high degree of consistency with the Party Central Committee. This must be reflected in concrete action, not empty slogans, and we must not say one thing and do another. Anyone who violates these requirements must be held accountable: criticized where criticism is due, adjusted where adjustment is needed, and disciplined where discipline is warranted. There must be no light or vague handling of such cases. Political supervision in this area must be strengthened.

During the 15th Five-Year Plan period, the tasks of economic and social development are extremely demanding. We must focus closely on the Central Committee’s strategic arrangements, including fostering a new development paradigm, promoting high-quality development, and accelerating the building of a new development pattern. We must concentrate on building a modern industrial system, developing new quality productive forces according to local conditions, building a unified national market, expanding high-standard opening up, steadily advancing common prosperity for all, preventing a return to poverty on a regular basis, resolving local governments’ hidden debt, strengthening ecological protection, and balancing development with security. We must strengthen supervision that is specific, precise, and ongoing, make good use of inspection results, reinforce supervision of rectification, and ensure that the decisions and plans of the Fourth Plenary Session of the 20th Central Committee are implemented in practice. This year, local governments will gradually undergo leadership transitions. We must prevent officials from standing idle and waiting and watching as the transition approaches, and prevent officials who have just taken office from chasing short-term gains or “flip-flopping” (翻烧饼) after their arrival, so that the blueprint is followed through to the end. It should be emphasized that resolutely and forcefully implementing the Central Committee’s major decisions and plans does not conflict with creative work. All work must be grounded in reality and proceed from actual conditions, and we must avoid rigid copying and one-size-fits-all approaches. While strictly supervising, we should support and encourage regions and departments to explore effective methods and approaches for implementing the Central Committee’s major decisions and plans in light of their own conditions, so that the final results are consistent with the Central Committee’s intentions and the original purpose of the policies.

Implementing the Central Committee’s major decisions and plans depends ultimately on people. We must be vigilant against “two-faced people” (两面人) who harbor double intentions and say one thing while doing another. Such people take many forms. Some constantly proclaim political loyalty and the “Two Upholds,” and react quickly and loudly to the Central Committee’s decisions, yet in practice they engage in deception, do as they please, ignore orders, and disregard prohibitions, committing what are known as the “seven haves” (七个有之). Others embrace liberalism in their thinking and put individualism above all, accepting the new era’s socialism with Chinese characteristics only when it suits them and rejecting it when it does not. Others engage in political opportunism, flattering and ingratiating themselves, following the wind, and moving toward wherever interests lie, always ready to “jump ship.” Others practice factionalism in organizational matters, forming cliques, excluding dissenters, and using collective names to serve small-group interests. Others practice departmentalism in their work, guarding only their own “small plot of land” and sacrificing the whole for the part and the long term for the short term. And others practice a misguided form of “good-person-ism” in their duties, failing to stop or correct problems they discover and letting them spread, claiming this preserves unity while in fact avoiding responsibility. All of these behaviors violate Party principles, seriously obstruct the implementation of the Central Committee’s major decisions and plans, and cause enormous harm to the Party’s cause and image. They must be exposed boldly and cleared out decisively. During leadership transitions, we must be especially vigilant, promote genuinely loyal, reliable, honest, and responsible good cadres, and never allow “two-faced people” or those who put private interests first to slip through.

II. Using Institutions to Confine Power More Scientifically and Effectively

Confining power within a system of institutional constraints is an important task of full and strict Party self-governance in the new era. After the 18th National Congress of the Party, the first important intra-Party regulation we formulated was the Central Eight-Point Regulations (中央八项规定). We began with this because many problems associated with the “Four Undesirable Work Styles” (四风) appear on the surface as detachment from the masses and indulgence in luxury, but at their core they involve forming cliques for personal gain and colluding for mutual benefit, concealing exchanges of power for power, power for money, and power for sex, which seriously damaged the Party’s image in the eyes of the people. We started from the issues that the masses reacted to most strongly, set iron rules and imposed firm constraints, held fast to our goals and never relaxed, and used the spirit of nailing things down to implement them. This halted many unhealthy tendencies that were previously considered impossible to stop and eliminated some deep-seated ills that had persisted for years. It ended the chaos in which “hundreds of documents could not keep a single mouth in check,” and through the example of “moving the wooden pole to build trust,” it brought about a complete transformation of Party conduct and government style, generating powerful positive energy for the Party and the country’s development. The learning and education campaign carried out across the Party last year further unified thinking, deepened understanding, summarized experience, and improved measures, demonstrating our firm resolve to carry the Central Eight-Point Regulations through to the end. There is no shortcut to implementing the spirit of the Central Eight-Point Regulations. The key lies in two words: “constancy” (常) and “long-term” (长). Without constant attention, relapses occur; without long-term commitment, conscious compliance cannot take root. We must consolidate and expand the results of the in-depth learning and education campaign on the Central Eight-Point Regulations, continuously improve mechanisms for regularly identifying and resolving problems, and make work-style improvement routine and long-lasting.

Caption: From December 25 to 26, 2025, the Political Bureau of the CPC Central Committee held a democratic life meeting. Xi Jinping, General Secretary of the CPC Central Committee, presided and delivered an important speech. Photo: Xie Huanchi, Xinhua News Agency.

The practice of thoroughly implementing the Central Eight-Point Regulations shows that to confine power within a system of institutional constraints, we must both perfect the rules, weaving a tighter and sturdier cage, and improve enforcement, strengthening firm constraints. Since the 18th National Congress, the Party Central Committee has attached great importance to the development of laws and institutions. The number of regulations formulated and revised is unprecedented, and a relatively complete system of Party laws and regulations has taken shape. At the same time, we must recognize that some rules are overly general, lack targeted and operable provisions, lack close coordination among different regulations and leave gaps and loopholes, and that institutional development for new fields, new business models, and new groups lags behind. We must continue to improve Party laws and regulations, strengthen institutional supply according to the real needs of Party building and governance, quickly establish rules where they are missing, and promptly revise and supplement those that are incomplete or outdated, so that the system is comprehensive yet not cumbersome, effective, and practical, and avoid the problem of “using a cattle pen to hold a cat” (牛栏关猫).

Over the years, we have taken a series of measures to enforce laws and regulations, but problems persist where institutional rules exist only on paper, and in some places enforcement weakens at each successive level, resulting in “a paper cage that cannot hold a tiger” (纸笼禁虎). When explicit rules are not upheld, unwritten rules inevitably flourish. When unwritten rules dominate, explicit rules become mere decoration. Why are there so many political brokers and political charlatans active in society? It is because unwritten rules render laws and regulations ineffective and create a “broken windows” effect. Some cadres rely on personal networks rather than organizational channels, and some people trust personal connections rather than Party discipline and the law. If this continues, “bad money drives out good,” and “a personal note outweighs an official seal,” which will inevitably erode the political ecosystem and breed corruption and disorder. To curb unwritten rules, the key is to strengthen the enforcement of explicit rules. We must strengthen the publicity and education of laws and regulations, guiding Party members and cadres to understand discipline and the law, to know the explicit rules, and to hold them in awe, recognizing that laws and regulations are both a “tight-fitting headband” (紧箍咒) and a “protective talisman” (护身符). We must further increase the transparency of Party and government affairs, ensure that power operates in the open, and deprive unwritten rules of their market. We must uphold the principle that everyone is equal before laws and regulations, that compliance is not subject to privilege, and that enforcement admits no exceptions. We must seriously punish those who “run red lights” or “climb over fences,” and hold accountable those who bear leadership responsibility, so that institutional rules truly become high-voltage live wires that no one dares touch.

The effectiveness of institutional implementation in a region or department depends largely on its “first person in charge” (一把手). To confine power within institutional constraints, we must focus on ensuring that the “first person in charge” takes the lead in implementing the rules. The Party Central Committee’s opinions on strengthening supervision of “first persons in charge” and leadership teams set clear requirements for implementing democratic centralism and improving supervision of “three major and one important” (三重一大) decision-making. Members of leadership teams at all levels, especially “first persons in charge,” must set an example, take the lead in implementing the rules thoroughly, and ensure that the related supervision is also effective.

III. Advancing the Fight Against Corruption More Clearly and Resolutely

Since the 18th National Congress, our Party has deepened self-revolution, resolutely opposed corruption, and successfully forged a Chinese path of anti-corruption under the centralized, unified leadership of the Party Central Committee. This path combines addressing both symptoms and root causes and advances in an integrated way to make cadres “unable, unwilling, and not daring” to be corrupt. This path must continue to be followed resolutely.

At present, corruption remains prone to occur and recur. Facts once again demonstrate that the Party Central Committee’s judgment that “the anti-corruption struggle remains severe and complex, and the task of eliminating the breeding grounds and conditions for corruption remains arduous and heavy” is entirely correct. The anti-corruption struggle is a never-ending process and a continuous task. We must carry it out with the spirit of the Foolish Old Man who moved mountains and the spirit of Jingwei filling the sea, and persist to the end. Facts also remind us that corruption is the greatest risk, greatest threat, and greatest challenge facing our Party, a roadblock and stumbling block on the path of national development. If allowed to spread unchecked, it will inevitably undermine the economic development environment, trigger various risks, and shake the foundations of Party rule. Practice has also taught us that anti-corruption is a major struggle that we cannot afford to lose and must never lose, one that cannot stop for a moment or retreat by a single step. As the poem says, “While sunken ships are passed by a thousand sails, sick trees ahead are greeted by ten thousand blooming spring”; diseased trees must be uprooted and felled where needed. We must “press on the fleeing enemy while we have strength to spare,” maintain strategic composure and combat resilience, continue to root out corruption thoroughly, and get to the source of the problem. No matter how great the resistance or the cost, we must carry the anti-corruption fight through to the end. Regardless of who it is, how high their position, or how great their past contributions, anyone who engages in corruption will not be spared!

We must maintain a steady high-pressure posture. We must hold to the principle that wherever corruption exists it must be opposed, wherever graft is found it must be purged, and evil must be eliminated completely, so that corrupt elements have nowhere to hide. We must focus on areas where power is concentrated, capital is dense, and resources are abundant, closely watch for collusion between government and business, the protection of capital by power, and the infiltration of capital into politics. We must increase the investigation of corruption among “first persons in charge” and young cadres, and firmly remove corrupt individuals who do not reform and persist in wrongdoing. We must resolutely punish bribe-givers who knowingly break the law or repeatedly offend. We must dig deep to uncover new and hidden forms of corruption, including expected benefits, arrangements for nominal shareholding, and the “revolving door” between government and business. We must further intensify centralized campaigns against unhealthy tendencies and corruption close to the masses, and strengthen the governance of cross-border corruption and efforts to pursue fugitives and recover stolen assets. Localities and departments where major corruption cases have occurred must thoroughly eliminate their lingering poisons and completely remove the sources of contamination.

We must continuously enhance the penetrating power of the anti-corruption fight. We must grasp the new trends and characteristics of corruption, innovate our methods, and more promptly discover, accurately identify, and effectively govern various forms of corruption. We must deepen the joint investigation and governance of “style” problems and corruption, seeing through the surface of “style” to expose the essence of corruption. We must thoroughly investigate the practice of using business to sustain officials, officials to protect business, and officials and businesspeople forming one body, which lies behind inaction and arbitrary action. We must also thoroughly investigate requests for favors and interest transfers behind improper hospitality, and severely punish those who associate with political brokers and political charlatans. We must strengthen the empowerment of technology and make greater use of big data and other tools to improve the efficiency of supervision, discipline enforcement, and law enforcement. Of course, the use of new technologies must be governed by strict ethical norms and data security, and must be carried out strictly in accordance with Party rules, discipline, and the law. We must improve the mechanisms for implementing anti-corruption responsibilities. Party committees (Party groups) at all levels must firmly shoulder their main responsibility, and Party secretaries must fulfill their responsibility as first persons in charge. They must hold firm positions with a clear stance, lead relevant parties in fully assuming their responsibilities, and not treat anti-corruption as merely the business of discipline inspection and supervision commissions. They must truly know their responsibilities, take them on, and fulfill them.

Caption: On July 15, 2026, Xi Jinping, General Secretary of the CPC Central Committee, President of the People’s Republic of China, and Chairman of the Central Military Commission, inspected Shanghai. This photo shows Xi chatting warmly with residents’ representatives, subdistrict cadres, and community workers at the Party-masses service station in a residential area of Shimin Xincun, Banshengyuan Road Subdistrict, Huangpu District, during his inspection. Photo: Xie Huanchi, Xinhua News Agency.

We must put greater effort into advancing the integrated approach from top to bottom. The integrated advancement of “unable, unwilling, and not daring to be corrupt” lies in the word “integrated,” and it is also difficult precisely because it is integrated. We must strengthen systemic thinking and act simultaneously, in the same direction, and comprehensively. In practice, we may have different emphases at different stages, but we must not separate or neglect any of them, and we must prevent stage-based or link-based thinking from undermining the effectiveness of anti-corruption efforts. We must further improve the anti-corruption work mechanism and ensure coordination in task deployment, resource allocation, work advancement, and performance evaluation. We must connect daily Party organization supervision, discipline inspection and supervision, and supervision through inspection tours, audits, petitions, and public opinion, making full use of the “shadowless lamp” (无影灯) of comprehensive supervision and the “scalpel” (手术刀) of vigorous case handling, and promote integrated governance through coordination across the whole chain. We must focus on learning from cases to promote reform and governance, analyzing the causes of corruption, identifying management loopholes, and using typical cases for warning and education, so that old problems do not recur and no cost is paid in vain. We must select and appoint cadres according to the standards for good cadres in the new era, build healthy and positive relations among Party comrades and clean and close relations between government and business, and continuously purify the political ecosystem. We must strengthen the development of a new-era anti-corruption culture, improve the relevance and effectiveness of integrity education, and vigorously create a social environment that values integrity, rejects corruption, and promotes frugality while opposing extravagance.

Discipline inspection and supervision agencies bear great responsibility and noble mission in advancing full and strict Party self-governance. They must always remember what they are meant to do, firmly uphold the Party’s unity, and resolutely safeguard the Party’s advanced nature and purity. We must continue to strengthen the standardization, rule-of-law basis, and formalization of discipline inspection and supervision work, and continually improve the quality and efficiency of supervision, discipline enforcement, and law enforcement. We must hold fast to the principle of turning the blade inward and resolutely eliminate the “害群之马” (horses that harm the herd). We must continue to strengthen team building according to the requirements of being politically sound, professionally capable, of good conduct, and clean, and forge a “steel team” of discipline inspection and supervision personnel who are loyal, clean, responsible, and courageous and skillful in struggle.

Note: This is the main part of General Secretary Xi Jinping’s speech at the Fifth Plenary Session of the 20th Central Commission for Discipline Inspection on January 12, 2026.

Improving the Mechanisms for Implementing the Major Decisions and Plans of the Party Central Committee

Wang Xipeng

“During the years of war, the Party Central Committee and Chairman Mao commanded the entire Party and army by telegraph. The ‘dit-da, dit-da’ of the telegraph was the voice of the Party Central Committee and Chairman Mao, and the whole Party and army obeyed it unconditionally.” At a conference on Party building in central and state organs, General Secretary Xi Jinping guided Party members and cadres to understand, through the sound of “dit-da, dit-da,” that the Party Central Committee must have authority that is supreme and whose decisions are final. He pointedly declared: “If orders issued by the Party Central Committee are not heeded, and if orders are not obeyed and prohibitions are not observed, then what is there to talk about in upholding the authority of the Party Central Committee and its centralized, unified leadership!” At the Fifth Plenary Session of the 20th Central Commission for Discipline Inspection, the General Secretary again set a clear requirement: “We stress ‘the Two Upholds’ and maintaining a high degree of consistency with the Party Central Committee. This must be reflected in concrete action in implementing the major decisions and plans of the Party Central Committee. We must not shout empty slogans, and above all we must not say one thing and do another.” Upholding the authority of the Party Central Committee and its centralized, unified leadership includes upholding its leadership system, procedures, and rules, as well as its decisions, plans, and work arrangements. Implementing the major decisions and plans of the Party Central Committee is a basic requirement of Party political discipline and political rules. No matter how complex the tasks of a region or department, their primary responsibility is to implement the Party Central Committee’s major decisions and plans well. No matter how varied the positions and duties of Party members and cadres, their shared responsibility is to implement these decisions and plans well.

Implementing the major decisions and plans of the Party Central Committee depends on both political consciousness and institutional safeguards. Since the 18th National Congress of the Party, the Central Committee with Comrade Xi Jinping at its core has established and improved the institutions and mechanisms for implementing its major decisions and plans. It has strengthened the political responsibility of all regions and departments for implementation and built a full-chain system of work mechanisms covering task allocation, supervised implementation, regular reporting, inspection and circulation of findings, follow-up on results, and supervision and accountability. This has effectively ensured that the Central Committee’s orders are carried out smoothly and that its directives are obeyed.

First, the leadership system has been continuously strengthened and improved. The Political Bureau of the Central Committee has adopted provisions on strengthening and upholding the Central Committee’s centralized, unified leadership, and it takes the lead in treating the implementation of major decisions and plans as an important political responsibility. Central decision-making and coordinating bodies play a role in top-level design, overall coordination, integrated advancement, and supervision of implementation on major tasks.

Second, a division of responsibilities has taken shape. Under the centralized, unified leadership of the Central Committee, Party committees (Party groups) at all levels align their work with the required standards. Functional departments divide up the work. Inspection bodies follow up on results. Discipline inspection and supervision agencies conduct political supervision. Grassroots units implement policies creatively. Together they clear every “capillary” of implementation.

Third, work mechanisms have become more practical and effective. Relying on the Party’s organizational system, from central and state organs down to the grassroots front lines, responsibility is layered and passed down step by step, forming a powerful national “one chessboard” effort. Party committees (Party groups) at all levels treat the implementation of the Central Committee’s major decisions and plans as their primary responsibility. They conscientiously implement the “first item on the agenda” system, break tasks down item by item, assign clear divisions of labor, maintain work ledgers, and adopt list-based management and project-based advancement.

Fourth, the institutional framework has become more systematic and complete. The Central Committee has formulated and revised Party regulations, including the Working Regulations of the Central Committee, the Working Regulations of Local Party Committees, and the Working Regulations of Party Groups. These regulations make implementing the Central Committee’s major decisions and plans the first item among the duties of Party and government organs and the first function listed in the regulations on determining functions, structure, and staffing (the “three-determinations” regulations). The Central Committee has also formulated and revised regulations on intra-Party supervision, inspection tours, accountability, and disciplinary sanctions, thereby setting strict political discipline requirements.

Fifth, responsibility for implementation has been firmly enforced. The Party has strengthened education in political loyalty and political discipline, encouraged Party members and cadres, especially leading cadres, to establish and practice a correct view of performance, and seriously investigated and punished formalism and bureaucratism. It has established follow-up and feedback mechanisms, promptly studied and issued supporting policies and detailed implementation rules, strengthened political supervision, and deepened political inspection tours, ensuring unity of thought and consistency of action across the Party.

At present, the overall picture is clear. The institutions and mechanisms for implementing the Central Committee’s major decisions and plans continue to improve, and regions and departments are resolute and forceful in carrying them out. However, measured against the political requirement of “not discounting anything in implementation” and the disciplinary standard of “orders obeyed and prohibitions observed,” some localities and departments still have shortcomings and bottlenecks that cannot be ignored. In breaking down tasks for implementation, faced with cross-departmental, comprehensive deployments, some localities and departments have task divisions that are not sufficiently specific and clear, leaving too much room for discretionary interpretation. This causes actual implementation to drift from the original intent of the Central Committee and directly affects the depth and effectiveness of policy implementation. In terms of coordination, the cross-departmental coordination mechanisms at the central level operate fairly mature, but in some localities the corresponding coordination mechanisms remain weak, and the problem of departments passing the buck and obstructing one another has not been eliminated, creating real bottlenecks for work. In supervision and inspection, the work of central and provincial-level inspection bodies is generally standardized, but supervision work at the municipal and county levels still has weak links. Some inspection work relies too heavily on ledgers and written submissions, with insufficient on-site verification and front-line guidance. Among Party comprehensive departments, functional departments, and specialized supervisory agencies, mechanisms for linked inspections and sharing of findings have not been fully established. In reporting major matters to superiors for instructions, some reports are not timely or precise. Reporting good news while withholding bad, acting first and reporting later, and evading key issues persist. Some focus on reporting results while neglecting the process, some submit requests to multiple bodies, some repeat reports on a single matter, and some substitute reports for requests for instructions. In accountability work, some accountability is generalized and simplistic. Some cases lean toward “holding those below responsible and not those above,” shifting blame onto grassroots Party members and cadres. Others apply disciplinary sanctions simply, without carefully analyzing the nature of the problem or the actual harm it caused. This dampens cadres’ enthusiasm, initiative, and creativity, and it encourages the passive mindset of “the more you do, the more mistakes you make; the less you do, the fewer mistakes; if you do nothing, you make no mistakes.” These are constraints that affect whether the Central Committee’s major decisions and plans take root and produce results.

The system for requesting instructions and reporting is an important political, organizational, and work discipline of our Party. Since the 18th National Congress, the Central Committee with Comrade Xi Jinping at its core has attached great importance to this work. It has formulated and issued a series of Party regulations requiring all regions and departments to promptly report major decisions, major matters, and important situations to the Party Central Committee, moving this work fully onto institutional, standardized, and scientific tracks. Caption: The Regulations of the Communist Party of China on Reporting Major Matters for Instructions, which came into effect on January 31, 2019. Photo: Sun Tong, graphic design.

During the 15th Five-Year Plan period, China faces a more complex internal and external environment, and the tasks of reform, development, and stability are extremely demanding. Whether it is achieving breakthroughs in technological innovation to overcome “chokepoint” problems, advancing coordinated regional development, pursuing green and low-carbon transformation, or ensuring and improving people’s livelihoods and preventing and defusing major risks, none of these will be easy. We must run the entire development process under the Party’s comprehensive leadership and the Central Committee’s centralized, unified leadership, and use a sound institutional system to turn the strategic blueprint into real results. The Fourth Plenary Session of the 20th Central Committee emphasized that we must improve the mechanisms for implementing the major decisions and plans of the Party Central Committee to ensure they flow smoothly from top to bottom and are carried out forcefully. The major decisions and plans of the Central Committee are anchored in the development goals of Chinese-style modernization and concern the overall development picture and the fundamental interests of the people. Making each task take root and produce results depends on regions and departments implementing them fully and coordinating precisely and efficiently. Party organizations at all levels and the broad ranks of Party members and cadres must constantly examine whether their thinking and actions have strayed from the Party’s line, principles, and policies, or from the Central Committee’s major decisions and plans. They must break down departmentalism, prevent deviations in implementation, and pursue implementation with the determination of “leaving marks on iron and footprints on stone.” They must strengthen closed-loop supervision, hold each level accountable, and ensure there is no deviation in political direction, no gap between words and actions, and no shortfall in results.

Improving the mechanism for fully, accurately, and comprehensively understanding the major decisions and plans of the Party Central Committee

Thoroughly studying and understanding the strategic intent behind the Central Committee’s major decisions and plans is a prerequisite for implementing them well. If one has only a partial understanding of these decisions, or understands them incorrectly, it is easy to stray in practice, proceed superficially, or distort them. We must uphold and improve the “first item on the agenda” system, optimize mechanisms for transmitting and studying Central Committee documents, insist on linking theory with practice, and deeply understand the essential spirit and practical requirements of the Central Committee’s major decisions and plans. We must know both what is to be done and why, and truly absorb and internalize the spirit of the Central Committee. We must improve the mechanisms for turning study outcomes into action, so that after collective study, Party committees (Party groups) at all levels form clear work approaches and concrete measures, preventing the problem of “study and work being two separate layers,” where learning is one thing and doing is another. We must improve training and seminar mechanisms to help leading cadres at all levels deeply understand the strategic considerations, goals, tasks, and implementation paths of the Central Committee’s major decisions and plans. We must do the work of “decoding” policies and strategies, so that grassroots cadres understand both the task of “crossing the river” and the methods of “building bridges” and “building boats.” We must strengthen mechanisms for policy interpretation and dissemination. Relevant departments must promptly and accurately interpret the Central Committee’s spirit and the original intent of policies, serve as “spokespersons,” turn “document language” into “plain language,” and turn “grand principles” into “concrete matters,” so that the thinking and actions of Party members and cadres are truly unified with the Central Committee’s spirit.

Coordinated regional development is an inherent requirement of Chinese-style modernization. Since the 18th National Congress, the Central Committee with Comrade Xi Jinping at its core has planned and promoted major regional strategies, including the coordinated development of Beijing, Tianjin, and Hebei; the development of the Yangtze River Economic Belt; the construction of the Guangdong-Hong Kong-Macao Greater Bay Area; the integrated development of the Yangtze River Delta; and the ecological protection and high-quality development of the Yellow River Basin. These strategies have led to major achievements in coordinated regional development. Relevant provinces, autonomous regions, and municipalities have conscientiously implemented the Central Committee’s major decisions and plans, advancing regional coordinated development in greater depth and detail.

Captions for the four photographs in the original:
Upper left: Night view of the Xiong’an New Area, taken March 27, 2026 (drone photo, Xinhua reporter Xing Guangli).
Upper right: Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone at Hetao, taken April 24, 2025 (drone photo, Xinhua reporter Liang Xu).
Lower left: The Wangyu River cable-stayed bridge in Changshu, Jiangsu, after its closure, taken October 11, 2026 (drone photo, China News Service reporter Yang Bo).
Lower right: The Yellow River scenery in Lingwu, Ningxia, taken June 5, 2026 (drone photo, Xinhua reporter Yang Zhisen).

Improving the mechanism for organizing and implementing the major decisions and plans of the Party Central Committee

Whether the Central Committee’s decisions and plans can be translated into local practice, and whether a strategic blueprint can become a battle map for overcoming difficulties, is the touchstone for testing whether Party members and cadres are loyal to the Party and willing to take responsibility and act. Regions and departments must, on the premise of thoroughly understanding the Central Committee’s spirit and grasping the original intent of policies, promptly study and formulate specific implementation plans or measures suited to their actual conditions, and carry out detailed breakdowns and conversions. We must strengthen organizational implementation by establishing a management mechanism of “task list + responsibility list + deadline list,” clarifying key elements such as the implementing entities, goals, tasks, divisions of labor, deadlines, responsibilities, and supervision and support. This ensures that every stage has someone watching it, every task has someone managing it, and every milestone has a reckoning. We must establish a full-cycle management mechanism, covering everything from launch and advancement to acceptance and evaluation, with a closed loop across the entire chain and control over every process. We resolutely prevent efforts that start with great fanfare, drag on in the middle, and end without result. Competent departments must strengthen classified guidance and targeted policy measures. They should encourage regions and departments, on the basis of thoroughly understanding the essential spirit, to explore innovation according to local conditions and find effective methods and approaches for solving problems. We must improve the tracking and feedback mechanism for the implementation of the Central Committee’s major decisions and plans, regularly collect and summarize the implementation situation across regions and departments, and for the prominent difficulties and problems reported by grassroots units, higher authorities must promptly study and issue supporting policies and implementation rules that can be executed in practice. We must improve channels such as grassroots联系点 (liaison points) and direct information reporting points, and establish a closed-loop workflow of “discover problems, compile and report, distribute for handling, track implementation, and feed back results.”

Strictly implementing the system for requesting instructions and reporting to the Party Central Committee

The system for requesting instructions and reporting is an important institution of the Party and an effective working mechanism for implementing democratic centralism. The purpose of strictly implementing this system to the Central Committee is to enable the Central Committee to understand the situation in each region and department promptly, comprehensively, and accurately, so that it can analyze the situation realistically, make decisions, and solve problems. Regions and departments must conscientiously implement the Regulations of the Communist Party of China on Reporting Major Matters for Instructions, truly shoulder their primary responsibility for requesting instructions and reporting, and strictly follow the subjects, scope, procedures, and methods stipulated in the Party Constitution and Party regulations. Major decisions, major matters, and important situations that concern the overall picture or involve important decisions must be promptly reported to the Central Committee for instructions. We must improve the system of special reports on implementing the Central Committee’s major decisions and plans. With a highly responsible attitude toward the cause of the Party and the people, we must report both good news and bad, both achievements and mistakes, and both results and processes. We must not exaggerate or fabricate, must not conceal problems or whitewash the situation, and must not be empty and superficial or deceive superiors and mislead subordinates. We must establish and improve a mechanism for correcting errors. For problems in requesting instructions and reporting on major matters, such as inappropriate subjects, inaccurate content, irregular procedures, or unreasonable methods, superior Party organizations must promptly remind and correct them, and reflect these situations in evaluations and circulated notices, so that responsibility for requesting instructions and reporting is effectively transmitted and enforced.

Improving the mechanism for supervising and inspecting the implementation of the major decisions and plans of the Party Central Committee

To test the real effectiveness of implementing the Central Committee’s major decisions and plans, a scientific system of supervision, evaluation, and assessment is essential. We must further clarify divisions of responsibility, make Party committees (Party groups) at all levels bear primary responsibility, have discipline inspection and supervision agencies strengthen political supervision, and give full play to the roles of Party and government inspection bodies and relevant functional departments. Under the unified leadership of the Party committee, we must establish joint conference systems between Party and government inspection bodies and discipline inspection and supervision agencies, regularly agree on priorities for supervision and inspection, strengthen work coordination, information sharing, and resource sharing, and form a combined force of supervision. We should understand the implementation situation through various methods, including open inspections, undercover visits, and follow-up visits, go deep into the grassroots to identify deep-seated contradictions and problems, and both identify problems and help solve them. We must do the “second half” of supervision and inspection well. Through regular joint conferences, we should hold “joint consultations,” jointly “prescribe remedies” for prominent problems identified, carry out centralized rectification for widespread problems, and push for their resolution. We must strengthen the circulation of information, both amplifying typical examples and promoting good experiences and practices, and drawing negative examples as warnings and incentives. We must strengthen the development of laws and regulations and pay attention to elevating good experiences and practices formed in implementing the Central Committee’s major decisions and plans into institutional norms. We must improve evaluation work, establish scientific and objective standards, and focus on whether implementation is faithful to the original intent of the Central Committee’s policies, whether policy goals have been achieved, and whether the expected results have been obtained. This will free grassroots units from “filling in forms and preparing for inspections,” so they can truly focus their energy on implementation. We must establish a long-term mechanism for correcting formalism and bureaucratism, and seriously investigate and punish misplaced performance views, “image projects” and “vanity projects,” data fabrication, and blind decision-making.

Author: Researcher, China Academy of Discipline Inspection and Supervision

Zheng is a professor at KoGuan Law School of Shanghai Jiao Tong University. he earned his Doctor of Laws degree at PKU in 1998 and subsequently remained as a faculty member. He was a visiting scholar between 2000 and 2004 at the University of Toronto in Canada, as well as at the University of Michigan, Duke University, and Columbia University. From January 2004 to January 2014, he taught at the University of Hong Kong's Faculty of Law.

This Jan, I had the honor of translating his article, “When Wars of Aggression Become 'Law Enforcement': The Imperial Logic of American Counterinsurgency Law.”当侵略战争成为“执法行动”：美国平叛法的帝国逻辑 to English

Zheng’s observation is that rather than an expert community shaping policy, a policy framework comes first, and those in power then cherry-pick whatever serves their needs. This is also a form of path dependence in knowledge production in which, from the moment knowledge is produced, it no longer belongs exclusively to its author but becomes available to anyone seeking to use it. Both the earlier “engagement” camp and today’s “competition” camp operate within frameworks constructed by their respective communities. Yet replacing one framework with another is not fundamentally a matter of the community evolving. Instead, it depends on changes in the structure of power, followed by the construction of a new framework from the ground up.

For Zheng, the problem in America’s understanding of China is not simply a question of whether a particular framework is right or wrong. The problem is in the mechanism that produces these frameworks; it inevitably compresses a complex subject into a single narrative, then uses jobs, funding, and prestige to reward those who disseminate that narrative and penalize those who question it. Optimism and pessimism about China may appear to be polar opposites, but both involve fitting empirical evidence about what China actually is into an a priori framework of what China ought to be.

Whatever the prevailing framework, the American model of knowledge production about China is now gradually unraveling. Zheng cites ’s article “America Is Losing the Ability to Train Tomorrow’s China Experts” as the number of American students in China declines, younger Americans have fewer opportunities to experience life there firsthand. They become increasingly dependent on congressional hearings, intelligence summaries, and translated policy documents prepared for them by others.

(As someone who provides those kinds of translations, I know the limits. I can point out particular combinations of policy terms, but policy documents often contain nuances that are easier to grasp than to explain. Consider the difference between “implementing a more proactive fiscal policy with precision and effectiveness” and simply “implementing more proactive policies.” For readers who do not consult the Chinese original, the difference in emphasis can be difficult to discern.)

Zheng argues that competition within America’s China-watching community has relegated knowledge grounded in the closest contact with China to the lowest position in its hierarchy. Meanwhile, the shortage of emerging talent leaves fewer people to carry that knowledge forward. The knowledge underpinning U.S.-China policy is thus subject to a structural process of cherry-picking to support an existing policy direction. Incentive structures and generational turnover then entrench it, while the absence of firsthand experience in China deprives the resulting biases of a crucial corrective.

Some readers of this newsletter are part of the US China-watching community whose work I regularly read and from which I have learned a lot. I translate this essay not to judge that diverse community, but to share how it looks from a Chinese scholar’s perspective. Zheng’s judgments are open to debate. What makes it worth sharing, to my mind, is that he also turns the mirror toward China. In his view, the book’s greatest value for China lies in the cautionary tale it offers about China’s own mechanisms for producing knowledge about the US. China, too, tends to substitute secondhand narratives for firsthand research. It must also guard against a mirror-image form of self-Orientalism that treats America’s present as China’s future. When discussing the construction of an "autonomous knowledge system" (自主知识体系), China should move beyond the urge to coin new terms and instead establish practices of knowledge production that can withstand scrutiny.

Why Does America Keep Misreading China?

On David McCourt’s The End of Engagement

Zheng Ge

Over the past twelve months, China and the United States have staged a drama that has unfolded at a dizzying pace. On October 9, 2025, China’s Ministry of Commerce issued six announcements in succession, bringing key links in the rare-earth supply chain—from ore to finished products—under export licensing requirements. Announcement No. 61 extended the scope of these controls beyond China’s borders: any product containing more than one part per thousand of Chinese rare-earth content, regardless of where it was manufactured or to whom it would ultimately be sold, would first require a license from China. A week later, U.S. Treasury Secretary Scott Bessent issued a stern warning at a press conference, declaring that if China proved to be an unreliable partner, the entire world would decouple from it. Five days before that, Trump had announced on social media that he would impose an additional 100 percent tariff on Chinese goods beginning November 1. The threats were thunderous. But what happened next? On October 17, Trump himself reversed course in an interview, acknowledging that a 100 percent tariff was unsustainable. Just seven days had passed between the threat and its retraction. Another nine days later, Bessent revealed his own hand: the tariff threat had always been a negotiating tool, and the threatened outcome had now been avoided.

If you followed these headlines merely for their spectacle, you might take them as bluffing at the negotiating table—Trump’s version of the art of the deal. But pull the camera back, and a more unsettling fact comes into view: American decision-makers lacked even a basic assessment of the cards China held and the consequences of playing them. The U.S. Geological Survey’s figures were there for anyone to see: 83.7 percent of American rare-earth imports came from China, while dependence on China for heavy rare earths reached 97 percent. The International Energy Agency’s 2026 report stated clearly that, in 2024, China accounted for 91 percent of global refined rare-earth output used in magnets and 94 percent of sintered permanent-magnet production. These were public figures, not intelligence secrets. A country possessing this information should not have been surprised when China played its rare-earth card. Yet the United States was surprised—and kept making the same mistake. When the first round of controls took effect in April 2025, China’s rare-earth permanent-magnet exports to the United States fell from approximately 600 tonnes in March to 246 tonnes in April, then to just 46 tonnes in May. Ford’s Chicago plant shut down for a week. Six months later, Washington was still erupting in anger over the same kind of development.

What followed looked even more like a carefully scripted drama of reversals. On October 30, 2025, the two countries’ leaders met on the sidelines of the APEC summit in Gyeongju, South Korea, and announced a trade truce. In May 2026, Trump flew to Beijing. On September 23, Xi Jinping arrived in Washington for a state visit—the first state visit to the United States by a Chinese leader in eleven years—with Trump personally greeting him on the tarmac at Andrews Air Force Base. The two sides announced a further two-month extension of the truce. China pledged to purchase more American soybeans and postponed the implementation of its new rare-earth export controls until January 10, 2027. Treasury Secretary Bessent told Fox News that he had discussed with Vice Premier He Lifeng whether they could reach a bigger deal rather than a collection of small, piecemeal arrangements. A man who had called for decoupling a year earlier was now talking about a bigger deal. On the surface, this was diplomatic theater. At a deeper level, it was a forced recalibration after repeated collisions between perception and reality.

Figure 1: Major events in the China–U.S. rare-earth and tariff confrontation, 2025–2026 (compiled from public reporting)

This brings us to the question this article seeks to address: What kind of knowledge underpins American policy toward China? If that knowledge is systematically distorted, what mechanisms produce the distortion? David McCourt, a sociologist at the University of California, Davis, has published a new book that addresses precisely this question. Its title is The End of Engagement: America’s China and Russia Experts and U.S. Strategy Since 1989, published by Oxford University Press in September 2024. The book is not about China or Russia themselves. It is about where the knowledge informing American policy toward China and Russia is produced. A review in Foreign Affairs captured its conclusion particularly well: American policy too often swings between the extremes of optimism and pessimism, with swings far larger than changes in the target countries’ behavior can explain. That observation cuts through an obscuring layer: if policy responds to reality, fluctuations in reality and fluctuations in policy should broadly move together. What we see instead are small provocations triggering major shifts, and major facts eliciting slow responses. The distortion lies not at the point of input, but in the processing machinery in between. After reading this book, one discovers that the astonishing reversals and misjudgments in today’s China–U.S. contest were already foreshadowed in its pages.

A Book That Does Not Study China, Yet Does So Much to Explain the China Question

McCourt’s starting point is straightforward. After the Cold War, the United States pursued engagement with both Russia and China, believing that incorporating these countries into the world market and the American-led international order would, in time, make them more like the West. The first two chapters trace this history clearly. After 1989, George H. W. Bush and Bill Clinton continued engagement with China despite domestic opposition. Annual debates over most-favored-nation status recurred throughout the 1990s, until legislation granting permanent normal trade relations in 2000 and China’s accession to the World Trade Organization in 2001 brought engagement to its high point. In 2005, Robert Zoellick’s call for China to become a “responsible stakeholder” articulated the policy’s expectations most clearly: China’s rise was welcome, provided it rose in accordance with the role the United States had assigned it. Russia followed much the same script, joining the Group of Seven in 1998 and the WTO in 2012. By the late 2010s, this optimism was dead. Obama announced the pivot to Asia in 2011; Trump’s first National Security Strategy designated China a strategic competitor in 2017; and the trade war began in 2018. The age of engagement had ended. The conventional explanation attributes this transition to changes in the target countries’ behavior: China had become more assertive, and Putin more aggressive. McCourt does not deny these external factors. But he raises a question that almost every analysis overlooks: What role did America’s own expert communities play in the transition? Why did it occur at that particular moment, and why did it move in that particular direction?

To investigate, he conducted 170 semi-structured interviews, including 117 with China experts and 53 with Russia experts, between 2016 and 2023. His interviewees ranged from retired diplomats and former National Security Council officials to think-tank researchers and university professors. Of the ten U.S. ambassadors to Russia who had served since 1991, he interviewed six. The interviews employed snowball sampling and abductive coding, and all interviewees were identified by anonymous numbers. He also analyzed several prominent open letters published in The Washington Post, Politico, and other media outlets in 2019 and 2020. These included the July 2019 letter “China Is Not an Enemy,” drafted by five figures—M. Taylor Fravel of MIT, former ambassador to China J. Stapleton Roy, Michael Swaine of the Carnegie Endowment for International Peace, former Assistant Secretary of State Susan Thornton, and Ezra Vogel of Harvard—and signed by nearly one hundred people, as well as the backlash it provoked. McCourt examined the composition of more than ninety signatories one by one: Richard Bush and Cheng Li of the Brookings Institution, David Lampton of Johns Hopkins University, Douglas H. Paal of Carnegie, and C. Fred Bergsten and Nicholas Lardy of the Peterson Institute for International Economics. The list was almost a roll call of the engagement era. The letter’s reception was itself a footnote to the book’s argument: its signatories sought to keep the engagement framework alive, only to discover that they had already been pushed beyond the boundaries of the mainstream. Ezra Vogel died a year after the letter appeared. He represented an era that still believed understanding China had to begin with understanding Chinese society. David McCourt is a sociologist working from a constructivist perspective. His concern is not whether China or the United States is more justified, but how threats are socially constructed. With sociology’s scalpel, he opens the black box of the foreign-policy knowledge community.

The book’s central argument can be summarized through a contrast. Policy toward China underwent a paradigm shift: engagement, the overarching framework that had dominated for thirty years, was uprooted and replaced by strategic competition. Policy toward Russia, by contrast, stagnated: no new framework replaced the old one; relations gradually froze over. Why did the failure of engagement produce a revolution in one case, but merely an unfinished project in the other? McCourt’s answer is that the difference lay not in what Moscow and Beijing did, but in the internal structures of the two expert communities. China’s size, the depth of trade relations, and the number of academic positions helped create an American China-studies community large enough, sufficiently stratified, and internally competitive enough to generate a paradigm revolution. The Russia-studies community, by contrast, continued to shrink after the Cold War. Funding declined, positions disappeared, and the community could not even muster the scale needed to launch a revolution.

The Russian half of the story also deserves close attention because it serves as the control group in this natural experiment. McCourt divides American Russia experts into two camps. One is the “Russia we want” camp, which advocates containing and transforming Putin’s regime. Its representative figures include Alexander Vershbow, Daniel Fried, Celeste Wallander, and Michael McFaul. The other is the “Russia we have” camp, which advocates bargaining with Russia as it actually exists. Its representatives include Thomas Graham, Rose Gottemoeller, Fiona Hill, and Matthew Rojansky. The former is more ideological; the latter places greater weight on analytical restraint and nuance. The two camps argued for more than a decade, yet neither eliminated the other. Policy muddled along between resets and sanctions until the war in 2022 finally froze it in place. Without the support of a sufficiently large community, even disagreement could persist only at low intensity. This control group neatly demonstrates the book’s central theme: the energy driving policy change comes from within the community, not from the country being studied.

Figure 2: A comparison of America’s two expert communities (drawn from McCourt’s argument)

The book is particularly adept at dissecting the concept of engagement. McCourt argues that engagement has three faces. As a policy, it is a set of concrete arrangements, ranging from granting China most-favored-nation status and supporting its WTO accession to establishing various dialogue mechanisms. As a framework, it is a cognitive schema for understanding China, whose core belief is that economic interdependence will bring political convergence. As a community, it is a group of people who use that belief to determine who belongs and who is marginal, who is qualified to enter the National Security Council and who can only write reports that nobody reads. The three faces are mutually constitutive. Policies can be adjusted, but frameworks are difficult to loosen because they are anchored in people’s careers. For an expert who obtained tenure, a think-tank position, and government appointments through the engagement framework, overturning that framework amounts to repudiating the first half of their professional life. That is why engagement could not simply die of old age: its death required a coup.

Figure 3: McCourt’s dissection of the concept of “engagement” (drawn from the book)

That coup occurred after 2016. Trump’s election brought hard-liners who had long stood at the community’s margins into the centers of power. McCourt carefully traces their routes to the top: they did not persuade the mainstream with better evidence; they bypassed it and occupied the positions directly. One of the book’s most dispassionate—and most brutal—conclusions is its policy-world confirmation of the famous observation associated with Kuhn and Planck: paradigms change not through persuasion, but through the replacement of people. The older generation retires with its frameworks, while new frameworks enter the establishment with new people. Knowledge here is not a truth-seeking activity independent of power, but a by-product of the distribution of power.

McCourt also devises an ingenious generational analysis. In his interviews, he asks everyone the same question: When did you first visit China or Russia? The answers reveal a strong relationship between an expert’s attitude toward China and the period in which they first experienced the country. Those who arrived in China in the late 1970s and early 1980s had seen a poor country beginning to open up, and developed an almost religious faith in engagement. The generation that came of age after the 1990s first encountered a China already rising and self-confident, and was naturally skeptical of the narrative of political transformation. No genuine debate took place between the generations. What happened was simply a replacement of the people occupying the positions. In retrospect, the so-called breakdown of consensus often amounted to little more than a different set of license plates in the parking lot.

How Taking a Hard Line Became Good Business

A paradigm shift occurred. But why did it move toward greater confrontation rather than in some other direction? This is the most explanatory part of McCourt’s book. He identifies three mechanisms.

The first is polarization. The American China-studies community had long been divided between “dragon slayers” and “panda huggers.” The nicknames themselves are revealing: one side imagines itself as heroic warriors slaying an evil dragon, while the other is mocked as sentimental people embracing a panda. Both labels emerge from cartoon-like imagery rather than empirical research into Chinese society. This divide, which cannot be neatly mapped onto either party or institutional affiliation, was fully activated by the broader political polarization of the 2010s. When society as a whole becomes polarized, the middle ground becomes an intellectual no-man’s-land. One interviewee’s account is especially telling: in Washington today, anything you say about China from a middle-ground position will be attacked by both sides. Moderate, qualified voices were not refuted; they lost their place in the discussion. The corrective mechanisms a knowledge community ought to possess depend on dissenters remaining inside the arena. Once dissenters have been collectively driven out, all that remains inside is a chorus.

The second mechanism is competition for professional status—the most subtle and consequential mechanism of all. McCourt finds a hidden hierarchy within the community: experts with security backgrounds rank above those with economic backgrounds, who in turn rank above area-studies specialists with extensive experience living in China and command of its language and culture. In other words, the more distant the knowledge is from China, the higher its status; the closer it is to China, the more its objectivity—and even its loyalty—is questioned. Every place in this hierarchy is occupied by people with real names. At the area-studies level are Kenneth Lieberthal, David Lampton, Susan Shirk, and Michel Oksenberg, together with observers such as Orville Schell, who brings a background in the humanities. What they have in common is that substantial portions of their careers were spent doing fieldwork in China. One interviewee from the Trump camp referred to them sarcastically, saying that forty years of American engagement with China had followed the expert advice of precisely these people—Lieberthal, Winston Lord, Stapleton Roy, and Schell—who had supplied the intellectual foundations of successive administrations’ engagement policies toward China. At the economic level are Bergsten and Lardy of the Peterson Institute, David Dollar of Brookings, and Yukon Huang of Carnegie. They understand China’s industries and financial system, but do not make threats their professional stock-in-trade. At the security level are Michael Pillsbury, Newt Gingrich, and Peter Navarro, author of Death by China. Pillsbury’s The Hundred-Year Marathon reads Chinese strategic history as a century-long deception, and the book was almost standard issue in Trump’s circle. One interviewed expert described the new fashion with penetrating sharpness: people who had previously worked on the Middle East, Russia, or international-relations theory, and had never studied China, were now switching fields because China had suddenly become the “flavor of the month.” Former Soviet and Cold War specialists were now all doing China—Michael McFaul, Hal Brands, Thomas Wright—people who had scarcely met a handful of Chinese people in their lives. “Flavor of the month” is a cutting phrase, but an accurate one: when the hierarchy was reordered, experience in China became a liability. At the moment of paradigm change, this hierarchy performed a selection function: the knowledge elevated to the highest level was securitized knowledge of China—the kind that treats China first and foremost as a threat. For a young scholar seeking to advance quickly in the field, the most rational career strategy was not to learn Chinese and conduct fieldwork in China, but to study China’s military modernization and cyber capabilities. Taking a hard line thus became good business.

Figure 4: The status hierarchy within America’s China-studies community (drawn from McCourt’s argument)

The third mechanism is personalization. McCourt devotes two chapters to personal relationships and grievances. During Trump’s first term, Matt Pottinger’s ascendancy in China policy was inseparable from the personal experiences behind his hard-line stance. He had worked as a China correspondent for The Wall Street Journal, spending the early part of his career in its Beijing bureau. That experience shaped his profound distrust of China’s political system. He later put down his pen and joined the Marine Corps, eventually becoming deputy national security adviser and one of the most important architects of the White House’s hard-line approach to China. One detail recorded in the book is particularly symbolic: when a senior China expert submitted a policy report, Pottinger pushed it aside without even reading it. Personal distrust thus overrode the community’s accumulated knowledge. Navarro’s rise is even more revealing. This economist from the University of California, Irvine, had no standing in mainstream economics, and professional circles generally regarded his Death by China as alarmist. According to Josh Rogin’s account in Chaos Under Heaven, Jared Kushner discovered Navarro while searching Amazon for books about China and brought him into the campaign with a cold email. When citing this story, McCourt specifically notes that it may not be reliable. Yet the story circulated precisely because it captured something real: the selection criterion of the new paradigm was not recognition by the professional community, but compatibility with the boss’s instincts. The triumvirate of Trump, Navarro, and Robert Lighthizer thus tore a hole in America’s thirty-year free-trade consensus. An individual’s résumé became the underlying color of a national strategy. In Russia policy, meanwhile, Fiona Hill’s presence or absence directly determined whether policy traveled along the fast track of personalization or the slow track of bureaucracy. Changes in a knowledge community must ultimately be enacted through particular people, and particular people carry particular wounds, ambitions, and loyalties. Frameworks are abstract; the people who carry them are not.

Together, these three mechanisms explain why, once the transition occurred, it went too far. The book offers a compelling analysis of unintended consequences. In 2018, Kurt Campbell and Ely Ratner published their famous reckoning with China policy in Foreign Affairs, declaring engagement a failure. Both authors belonged to the Democratic establishment. Campbell later served as deputy secretary of state and Indo-Pacific coordinator in the Biden administration. Their intention in writing the article was to prepare the ground for a Democratic administration’s adjustment of China policy. It was an exercise in positioning: occupy the moral high ground of toughness toward China before the Republicans did, so as to avoid accusations of weakness in an election year. But the article’s actual effect was to give an even harder-line framework the appearance of bipartisan consensus, closing off any room for later recalibration. When the Biden administration genuinely wanted to ease tensions on certain issues, it discovered that its own article had already supplied the other side with ammunition. You intended to nudge the steering wheel, but ended up welding it in place. McCourt does not use the following term, so I will add it for him: this is path dependence in knowledge production—and path dependence with acceleration. Once a statement enters the public domain, it no longer belongs to its author. It belongs to everyone who wants to use it.

Figure 5: The unintended consequences of Campbell and Ratner’s 2018 article (drawn from McCourt’s argument)

At this point, a more fundamental question emerges: if today’s hard-line consensus is a product of the community’s internal dynamics, was yesterday’s engagement consensus not also such a product? McCourt’s answer is an honest one: it was. Engagement, too, was a framework constructed and maintained by a community, and it, too, involved the suppression of dissent. In the debates of the 1990s over separating human rights from trade, those advocating engagement as a means of promoting political transformation occupied the halls of power, while dissenters likewise had no place. This means that the systematic bias in American knowledge about China does not reside in the rightness or wrongness of any particular framework, but in the machinery that produces frameworks: it consistently compresses a complex object into a single narrative, then uses positions, funding, and prestige to reward those who disseminate the narrative and punish those who question it. Yesterday, the machine produced unrealistic optimism; today, it produces unrealistic pessimism. Optimism and pessimism appear to be opposites, but their cognitive structures are identical: both use an a priori framework of what China ought to be to trim and reshape the empirical evidence of what China actually is.

Psychologists call this confirmation bias: people tend to seek, interpret, and remember information that supports their existing beliefs. In Perception and Misperception in International Politics, Robert Jervis argued long ago that decision-makers do not first assess evidence and then form beliefs; rather, they begin with beliefs and then filter the evidence. Beliefs formed through historical analogies are particularly stubborn. Once embedded in a cognitive structure, subsequent evidence is assimilated into it and rarely becomes grounds for falsification. McCourt’s contribution is to place this individual psychological mechanism within the social structure of a community: confirmation bias ceases to be merely a defect inside the mind and becomes institutionalized. When the professional incentives of an entire community point in the same direction, individual cognitive biases are magnified into the collective certainty of a generation. That certainty is far more tenacious than an individual bias, because the feedback loops that penalize error have been severed. An ordinary investor who misreads the market loses money and adjusts afterward. An expert who gets China wrong, provided the error points in the same direction as the community, not only keeps their job but gains more opportunities to testify at hearings and appear in the media. Claims that China’s economy has peaked and predictions of China’s collapse have taken turns on Washington’s stage for more than twenty years. The predictions fail year after year, while the forecasters’ professional stock keeps rising. This is direct evidence of a failed feedback loop.

Three names are unavoidable on this malfunctioning production line. The first is Gordon Chang. In 2001, he published The Coming Collapse of China, predicting that China’s political regime would fall within five years. A quarter of a century later, the collapse has not occurred, yet he remains a regular guest on Fox News. One of McCourt’s interviewees offers a devastating assessment: having an argument and having a persona are two different things. What Chang has is a persona. In his portrayal, China is always weak, always on the brink of collapse, and this judgment bears no relation to on-the-ground observation. The second is Minxin Pei. McCourt’s book does not mention him, but he is the product of this production line with the most glittering academic credentials: a Harvard PhD, a former director of the China Program at the Carnegie Endowment for International Peace, and the first holder of the Library of Congress Chair in U.S.–China Relations. From China’s Trapped Transition in 2006 to China’s Crony Capitalism in 2016, then The Sentinel State in 2024 and The Broken China Dream in 2025, each of his books argues that China’s system is unsustainable. Meanwhile, the opinion pages of The New York Times, The Wall Street Journal, and Bloomberg remain open to him. A prediction’s deadline can be extended indefinitely, provided its direction accords with the community’s expectations. The third is Miles Yu. He appears in McCourt’s book as Mike Pompeo’s principal China-policy adviser and the author of the 2020 Nixon Library speech announcing the end of the engagement era. The book describes him as a historian in the mold of a new Cold Warrior. Born in China, he entered the State Department with the credentials of a U.S. Naval Academy professor. The central argument he sold to Pompeo was that the Chinese Communist Party and the Chinese people were two different things. This dichotomy became the theoretical foundation of that administration’s entire hostility toward China. The policy legacy he helped advance included large-scale investigations of ethnic Chinese scholars under the name of the China Initiative. The charges against University of Tennessee professor Anming Hu ultimately failed, but his career had already been destroyed. After leaving office, Yu followed Pompeo to the Hudson Institute and helped establish its China Center in 2022, with Pompeo serving as chair of its advisory board. At the end of that year, China’s Ministry of Foreign Affairs placed Yu on its counter-sanctions list through Order No. 4. What these three have in common is not an academic position, but their relationship to the machine: whatever the machine needs, they produce. In their writing, China is never a society to be understood, but a defendant awaiting conviction.

Another frequently overlooked fact deserves attention: although the paradigm shift began under Trump, it was the Biden administration that truly institutionalized and systematized it. Trump brought marginal figures into power; Biden’s team wrote the new framework into every strategic document, from the 2022 National Security Strategy to the entire architecture of semiconductor export controls. The seamless bipartisan continuity in the hardening of China policy is precisely the strongest confirmation of McCourt’s mechanism: once the new paradigm has completed its personnel replacement, it no longer belongs to any political party. It becomes part of the air the community breathes. Its opponents need not be persuaded; they need only be marginalized.

This Pathology of Knowledge Is More Than Seventy Years Old

As I read McCourt’s book, I kept thinking of the history I traced in my own Rethinking Law and Development. The capture of American foreign-policy knowledge by the cognitive structures of its communities is not a new disease that appeared in 2016. It is a new outbreak of an old affliction.

In the early Cold War, modernization theory was a standard product of this kind of knowledge. Walt Rostow’s The Stages of Economic Growth, whose subtitle is A Non-Communist Manifesto, cut human history into five stages and declared that every country would develop linearly along the path already traveled by Britain and the United States. This model, crude as it appears today, directly became the intellectual basis of American foreign-aid policy. The reason is exactly the mechanism McCourt describes: Rostow himself served first as deputy national security adviser in the Kennedy administration and then as national security adviser in the Johnson administration. Aid programs such as the Alliance for Progress were policy embodiments of his stages theory. An academic proposition became the will of the state not because of the model’s explanatory power, but because of the position held by its proponent.

Figure 6: The policy transmission chain of Rostow’s modernization theory

Alongside modernization theory came an epistemological invention with even more far-reaching consequences: the concept of underdevelopment. Around the time Truman’s Point Four Program was announced in 1949, the world was divided into the two poles of “developed” and “underdeveloped.” Underdevelopment was presented as a primitive condition through which every society had once passed, rather than a historical product of relations of colonial exploitation. The problems of the Third World thus ceased to concern who owed whom a historical debt. They became technical problems arising from those countries’ failure to catch up. The solution naturally became accepting aid and reforming institutions according to the aid provider’s template. In my book, I summarize this logic as a three-step chain: first, international aid; second, the price of aid—namely, institutional reform according to the provider’s prescriptions; and third, subordination following reform. Countries that remake their own institutions according to an external template ultimately become locked into the world order dominated by the aid provider.

The origins of this politics of knowledge can be traced further back—and China itself stands at the source. In 1919, Sun Yat-sen completed The International Development of China,《中国之国际发展纲要》, actively lobbying the international community to participate in the development of China’s industries and hoping to use international assistance to advance Chinese industrialization. This was one of the earliest efforts by the Chinese to promote the concept of development to the international community, but it received little response. Thirty years later, the United States began exporting “development” to the world through the Point Four Program. The research of historian Amanda Kay McVety shows that Dean Acheson candidly explained to Congress that it was a security measure. Although George Marshall publicly claimed that aid was directed against no country or doctrine, McVety states plainly that this was not true. Aid thus became an instrument of Cold War geopolitics, and the law-and-development movement extended this arrangement into the realms of institutions and knowledge. The historical irony is that China was among the first to promote the concept of development internationally in the hope of obtaining assistance. After its proposal was rejected, however, it followed a path that did not depend on aid. The countries that had refused to assist China later used aid as a lever to control other countries’ institutions. “Not relying on foreign aid means not being subject to others’ control” is easy to write, but extraordinarily difficult to accomplish. It means completing the primitive accumulation necessary for industrialization through generations of frugality and sacrifice, exchanging the solitude of self-reliance for the freedom of independence. In How China Escaped Shock Therapy, Isabella Weber reconstructs how China’s policy debates in the 1980s enabled it to avoid the radical transition experienced by the Soviet Union and Eastern Europe. Kenneth Pomeranz’s The Great Divergence, meanwhile, fundamentally undermines the Whiggish narrative of the inherent superiority of Western institutions. Taken together, these studies cut the ground out from under the intellectual genealogy of modernization theory.

In Legal Orientalism, Teemu Ruskola reveals how nineteenth-century America constructed China as a civilization without law, thereby justifying extraterritorial jurisdiction. In 1906, the United States even established a permanent U.S. Court for China, yet the one body of federal law that did not apply in that court was the U.S. Constitution. The forcible export of the rule of law first corrupted the exporter’s own principles of legality. One of Ruskola’s observations is particularly intriguing: nineteenth-century America itself was regarded by Europe as a semi-civilized country. Its enthusiasm for legal Orientalism arose partly from projecting its own anxieties about civilization onto a weaker Other. A century later, this psychological structure of projected anxiety has not disappeared; only its object and vocabulary have changed. Today’s various accusations concerning China’s rankings in rule-of-law indices, intellectual-property enforcement, and state capitalism are structurally continuous with the century-old claim that China had no law.

Figure 7: Three historical forms of the “standard of civilization” (adapted from Table 11-1 in Zheng Ge’s manuscript of Rethinking Law and Development)

In my manuscript, I organize this intellectual genealogy into three historical forms. Nineteenth-century colonial international law drew boundaries among the “civilized,” the “semi-civilized,” and the “barbarous,” with unequal treaties and consular jurisdiction as its institutional vehicles. Cold War modernization theory drew boundaries between the “modern” and the “traditional,” carried by aid conditionality and legal-transplant projects. Today’s discourse of rules draws boundaries through the language of a “rules-based order,” carried by alliances based on shared values, long-arm jurisdiction, and technology alliances. The vocabulary of boundary drawing has changed three times, but its logic has remained consistent: first, construct a framework of knowledge about the Other, then treat that framework as the Other itself, and finally, act on the basis of the framework.

The “Thucydides Trap” narrative now prevalent in Washington is the latest link in this genealogy. The metaphor’s academic formulation comes with qualifications, but once it leaves books and enters briefings and the media, it sheds the author’s limiting conditions and becomes an independent threat narrative. Policy circles embrace it precisely because it packages containment as obedience to the laws of history and disguises strategic choice as historical necessity. Its danger lies in its capacity for self-fulfillment: when both sides interpret the other’s intentions in the worst possible light and regard defensive measures as preparations for attack, the security dilemma spirals upward. Every repetition of the trap narrative adds fuel to that spiral. Knowledge here is not a mirror reflecting reality, but a mold shaping it.

Figure 8: The self-fulfilling mechanism of threat narratives

The two examples spanning seventy years, from Rostow to the Thucydides Trap, illustrate the same point: American policy toward China has never lacked knowledge. What it lacks is reflection on the mechanisms through which knowledge is produced. David Kennedy’s questioning of the law-and-development movement remains relevant today: the central issue has never been the technical question of whether law can promote development, but the political question of who has the authority to define development, and through what knowledge. McCourt’s book fills precisely this gap. He turns the spotlight away from the object being understood and toward those doing the understanding, allowing us to see that the people who appear as experts are themselves shaped by their structural positions within the community, their career incentives, and their generational experiences. The so-called consensus on China is less an understanding of China than a barometer of the distribution of power inside America’s knowledge community.

When Those Who Understand China Leave the Stage

If McCourt describes how this machinery operated in the past, the news of the past year or more shows it spinning without traction today. The experiential foundations of knowledge about China are visibly crumbling.

This year, Rush Doshi of the Council on Foreign Relations published an article that provoked intense debate. Its title was “America Is Losing the Ability to Train Tomorrow’s China Experts.” Doshi himself served as a Chinese official on the National Security Council under Biden and belongs to the new-paradigm generation in McCourt’s account. Even he can no longer remain unconcerned. The facts listed in his article are alarming: the Fulbright, Boren, and Critical Language Scholarship programs—academic-exchange programs that had operated between China and the United States for decades—are all suspended. He called for them to be restored through the opportunity presented by the leaders’ meeting. There were approximately 11,000 American students in China in 2019. By the 2022–2023 academic year, only about 350 remained, the lowest level since the 1980s. Behind these numbers lie concrete ruptures: a young American who has never lived in China can know the country only through hearings and intelligence summaries; a researcher who does not read Chinese cannot read original policy documents and must rely on translations selected by others. At the same time, experienced China specialists in the State Department, think tanks, and universities are retiring in large numbers, while the proportion of younger researchers who speak fluent Chinese and have conducted sustained fieldwork in China is pitifully small. One think-tank report calculated that, between 2020 and 2025, the number of scholars in American think tanks with more than twenty years of experience studying China fell by approximately 40 percent. At a report launch, Nicholas Burns put it bluntly: future U.S. ambassadors to China would no longer have the deep bench of talent on which he had been able to rely.

Figure 9: Changes in the number of American students in China (Institute of International Education Open Doors statistics and public reporting)

In a lecture at the University of Hong Kong late last year, Professor Diao Daming of Renmin University of China called this the cost of studying China from a distance. He pointed out that many younger researchers who came of age in the era of strategic competition have rarely set foot in China and know little or no Chinese. They substitute quantitative data and models for field experience and primary documents, forcing China’s institutional realities into templates derived from American politics and economics. At a time when mutual trust between the two countries is already extremely fragile, this abstract, assumption-driven approach to analysis is not merely regrettable; it is incubating a crisis. Since leaving office, former ambassador Burns has repeatedly stated in the media that America’s understanding of China is outdated, that decision-makers have underestimated China’s real strength, and that China is now an equal and worthy adversary whose capacity for sustained competition far exceeds Washington’s estimates. Cheng Li, former director of the Brookings Institution’s China Center, has observed that a group of scholars who understand China, including Zoellick and Lampton, have been marginalized, and that the influence of rational voices in decision-making circles has declined sharply. A wave of scrutiny by the executive branch and Congress has targeted scholars advocating engagement and cooperation. To avoid being labeled “pro-China,” scholars censor themselves, and fewer and fewer dare to voice views contrary to the mainstream. Some call this a new McCarthyism. Ezra Vogel has passed away, Lampton is advanced in age, and a generation’s experience is leaving the stage. The machine McCourt describes is still producing frameworks, but the pipes supplying it with experience are being pulled out one by one.

Read McCourt’s book alongside these facts, and the picture becomes complete. Competition for status within the community has already relegated the knowledge closest to China to the lowest rank, while the breakdown of the talent pipeline is leaving that knowledge without successors. Squeezed from both sides, the American understanding of China contains less and less experience and more and more framework. One expert interviewed by McCourt made a thought-provoking remark: the debate about China in Washington today consists of two groups of people, neither of whom visits China very much, arguing about what China is like. Once knowledge becomes detached from experience, all that remains is a war between frameworks—and a war between frameworks has no referee, only volume.

This helps explain the otherwise puzzling misjudgments in the rare-earth confrontation of 2025. China’s capacity to impose controls, its determination to enforce them, and its position in the industrial supply chain were all evident in public data. Any observer with a basic understanding of Chinese industrial policy would not have regarded the measures as mere bluff. Yet Washington’s chain of reactions suggests that few people there truly understood the weight of Announcement No. 61’s one-part-per-thousand rule. The U.S. trade representative first called it economic coercion, then said the rules could not actually be implemented. The two claims contradicted each other: Washington wanted every advantage while acknowledging none of the costs. In October 2025, Bessent promised to establish alternative rare-earth supplies within two years. By April 2026, he had revised that to four years, with progress reports every nine months. The shift from two years to four was not an update in technical assessment; it was reality finally breaking through the framework. Building a new rare-earth mine in the United States takes five to ten years from exploration to production. That timeline will not become a day shorter because someone speaks more aggressively on television. By January 2026, when Bessent discussed rare earths again, his message had become that supplies were flowing as expected, fulfillment exceeded 90 percent, and he was quite satisfied. Fewer than one hundred days separated “decoupling” from “quite satisfied.” What changed was not China’s behavior, but America’s understanding of the balance of power.

The semiconductor front tells the other side of the same story. In April 2025, Nvidia’s H200 chip, designed specifically for the Chinese market, became subject to additional restrictions. Three months later, sales were permitted to resume, and Jensen Huang publicly declared the Chinese market vitally important. In January 2026, the United States then imposed a 25 percent tariff on imported advanced semiconductors and changed the treatment of exports to China of H200-class chips from a presumption of denial to case-by-case review. The sales arrangements for a single product reversed repeatedly within a few months. What this exposed was not a carefully considered strategy, but a policy machine oscillating between the impulse to contain and corporate interests, between the demands of the framework and the constraints of reality. McCourt would say that this is a typical symptom of a community that has lost a stable framework: no framework is strong enough to unify policy, so every issue becomes a temporary battleground.

Figure 10: U.S. dependence on China for rare-earth imports and China’s share of production capacity (U.S. Geological Survey and International Energy Agency)

Even more revealing is the backlash generated by America’s own policy system. In February 2026, the Supreme Court ruled six to three that Trump’s sweeping tariffs imposed under the International Emergency Economic Powers Act exceeded presidential authority. The weapon of tariffs, used for more than a year, did not even rest on a secure foundation in domestic law. The White House immediately turned to other statutory authorities to continue imposing tariffs, but the new instrument had a statutory limit of only 150 days. It is difficult to describe a policy system that misjudges the external world and lacks a firm grasp of its own legal tools as acting on solid knowledge. Its actions rest on something else: whose voice is loudest within the community, which posture wins points during an election cycle, and a framework that continues to monopolize discourse despite repeated falsification by reality.

Another set of figures from this confrontation is worth recording. In 2025, U.S. soybean exports to China fell to their lowest level since 2018. Midwestern farmers were the first to receive the bill for distorted perceptions. The renminbi’s share of cross-border receipts and payments continued to rise, exceeding half in the first six months of 2026. As Washington escalated pressure over ports, chips, and currencies, the world did not stop to follow its script. Attributing all this to unfair competition is both a misreading and an evasion: it sidesteps the responsibility of developed countries for their own choices to deindustrialize. A system unwilling to confront the consequences of its own decisions will also struggle to confront the truth about others.

We can now answer the question posed at the beginning of this article directly. The knowledge underpinning American policy toward China is not simply insufficient. It is structurally biased toward reinforcing existing convictions. Confirmation bias is a psychological weakness at the individual level; at the community level, it is entrenched by incentive structures, amplified by generational replacement, and rendered increasingly uncorrectable by the severing of experiential pipelines. What McCourt demonstrates through 170 interviews is that this mechanism exists before any particular judgment about China. Yesterday it produced engagement; today it produces competition; tomorrow it will produce something else. What it produces depends more on the internal climate in Washington and less on China’s actual circumstances.

The Book’s Blind Spots—and the Work We Still Need to Do

Appreciating this book should not prevent us from recognizing its limitations. Some are methodological. All 170 interviews are anonymous, their quotations cannot be independently checked, and readers must trust the author’s coding and presentation. The author acknowledges that almost no one from conservative think tanks was willing to participate: only one of the 170 interviewees came from such an institution. This means that the description of the victorious side in the transition depends heavily on the recollections of the defeated side, and defeated participants tend to write history as a palace coup rather than as a debate they lost. The paradigm-shift argument also risks circular reasoning: the shift is defined as a change in framework, yet the evidence consists precisely of people’s statements about frameworks. Statements establish the framework, and the framework then explains the statements. More external evidence is needed to break the circle. Although the China–Russia comparison is elegantly designed, its causal attribution is not entirely clean. The two communities differ not only in size but also in disciplinary composition, funding sources, and relations with government. Attributing the divergence in policy trajectories mainly to community size is somewhat convenient. There is also a record that should embarrass the author: of the fifty-three Russian experts he interviewed, not one anticipated before 2022 that Russia would launch a full-scale invasion of Ukraine. If experts cannot grasp the largest upheaval occurring in the very area they study, even the most sophisticated causal account of how knowledge communities influence policy cannot conceal the failure of the knowledge itself. This may be the book’s deepest unintended lesson: communities can not only amplify bias but also collectively fail to see the elephant in the room.

A deeper limitation concerns perspective. McCourt’s camera remains trained on Washington throughout. China appears in the book only as something being discussed—a silent object. This American-centeredness is not an oversight by the author, but a faithful reflection of the condition of America’s entire knowledge community: the habit of understanding China policy as an internal American matter. In reality, however, China is not an object waiting to be defined. The contest of the past twelve months has shown that China has its own pace, its own toolbox, and its own ways of producing knowledge. The controls imposed in April 2025 on seven categories of medium and heavy rare earths have remained in force without interruption since their announcement. Under the Kuala Lumpur consensus, China’s six announcements were suspended, not canceled, with the expiry date clearly fixed on the calendar at November 10, 2026. Sitting down to negotiate while holding a decisive card and negotiating empty-handed are two different things. This predictable use of power contrasts with the American side’s constantly shifting posture. Observers can plainly see who is acting according to a framework and who is acting according to reality. Incidentally, McCourt’s research received funding from foreign-policy circles advocating restraint, something not adequately disclosed in the book. His repeated criticism that a community’s position shapes its knowledge applies to himself as well.

Figure 11: Changes in China’s rare-earth permanent-magnet exports to the United States (public reporting of Chinese customs data)

The book also fails to deal seriously with a basic historical question embedded in the engagement narrative. Rewriting more than thirty years of China–U.S. relations as the “failure of engagement” distorts history. Engagement did not fail; the illusion of changing China did. Engagement policy carried a concealed agenda of transforming China. When that agenda failed, some declared the entire policy a failure. But remove that agenda, and engagement itself brought the two countries and the world decades of overall peace and immense prosperity: hundreds of millions of Chinese people escaped poverty, American consumers gained access to affordable, high-quality goods, global supply chains achieved unprecedented efficiency, and the two countries engaged in tangible cooperation on financial crises, climate change, public health, and other issues. Judging success by whether China changed is like judging a friendship by whether the other person became a copy of oneself. The standard itself is wrong. What truly failed was never engagement, but the arrogance of treating another country’s development as one’s own engineering project. McCourt sees how frameworks change, but does not sufficiently pursue the question: Why must American knowledge about China always contain a prediction of what China will become? Why can it not accept China as itself? This question exceeds the scope of a single book, yet it is precisely the key to understanding American perceptions of China. From the assertion in the age of legal Orientalism that China had no genuine law, to the prediction in the age of modernization theory that China would eventually become “like us,” to today’s verdict that China necessarily constitutes a threat, only the conclusions have changed. The structure remains the same: China’s reality can acquire meaning only through an external framework.

Conclusion: Be Those Who Measure, Not Those Who Are Measured

At the end of his book, McCourt offers his American colleagues a prescription: reduce polarization within the community and allow experts with different positions to participate in policy debate. This is a mild recommendation and, judged against the mechanisms he himself reveals, one with almost no prospect of realization. Unless the logic of status competition is removed, polarization is not a matter of attitude but a structural problem.

For us, however, the value of this book lies not in its prescription, but in its diagnosis. It offers a rare case study of how a great power’s foreign policy can be held captive by its own mechanisms of knowledge production. This mirror should also be turned toward ourselves. Chinese academic discussion of America carries the same danger of frameworks preceding experience, the same tendency to substitute secondhand narratives for firsthand research, and the same need to guard against a mirror-image self-Orientalism that treats America’s present as China’s future. In the afterword to Rethinking Law and Development, I wrote: “Liberate China from being measured so that it can become the one who measures.” The other side of that statement is this: when measuring others, beware of the ruler in your own hand. The so-called “China puzzle”—a case scoring poorly on formal rule-of-law indicators yet sustaining rapid growth—already presupposes a Western yardstick. The right way to solve the puzzle is not to assign China a score, but to examine the markings on the ruler. The failure of the Washington Consensus and the success of China’s experience together demonstrate that institutions are not a prerequisite for development, but a variable that develops alongside it. Recognizing this requires not a political stance, but a method that gives empirical evidence priority and an epistemological humility.

Figure 12: The pendulum of American perceptions of China (schematic)

The sociology of knowledge offers a simple lesson: those who seek to understand must include themselves within the field of understanding. McCourt accomplishes half of this task. He makes America’s expert community an object of study, but does not extend that objectifying gaze to the fuller picture of how China understands China and how China understands America. America’s China-studies community no longer has the capacity to undertake this second half of the work; the generational gap in expertise and the chilling effect leave it struggling to sustain itself. This is precisely the responsibility—and the opportunity—of Chinese academia. The foremost requirement in building an independent Chinese system of knowledge is not to propose a profusion of new terms, but to establish a discipline of knowledge production that begins with experience and submits to empirical testing, ensuring that every judgment contained in our concepts can withstand reality pushing back. Understanding China and studying America depend neither on prophecy nor on condemnation. They depend on the long accumulation of experience and an honest acknowledgment of our own epistemological limitations. The outcome of great-power competition ultimately depends not on who shouts loudest, but on whose understanding of reality is more firmly grounded. The story of rare earths has already taught this lesson once. It will teach it many more times.

Appendix: Principal Works Referenced in This Article

David M. McCourt, The End of Engagement: America’s China and Russia Experts and U.S. Strategy Since 1989. Oxford University Press, 2024.

Robert Jervis, Perception and Misperception in International Politics. Princeton University Press, 1976.

W. W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto. Cambridge University Press, 1960.

Teemu Ruskola, Legal Orientalism: China, the United States, and Modern Law. Harvard University Press, 2013.

Kurt M. Campbell and Ely Ratner, “The China Reckoning.” Foreign Affairs, Vol. 97, No. 2, 2018.

Rush Doshi, “America Is Losing the Ability to Train Tomorrow’s China Experts.” Council on Foreign Relations, 2026.

Zheng Ge, Rethinking Law and Development. Peking University Press, forthcoming in 2027.

Zheng Ge, “From Bringing the Rule of Law to China to Making the Rule of Law Chinese: Lessons from Legal Orientalism.”

From the perspective of China’s concerns, the agreement to hold a technical dialogue on the EU’s Foreign Subsidies Regulation (FSR) is a notable development. By contrast, the inverter issue appears not to have been fully resolved. Although the EU clarified its position, the reference to further consultations suggests that differences may remain.

The proposal to continue exploring possible tariff reductions on certain goods is also intriguing and worth watching. For now, however, the language remains exploratory; need more time to see whether it leads to concrete arrangements.

On hybrid vehicles, the wording is:

The two sides reached an understanding on trade in hybrid vehicles in a manner consistent with WTO rules.

On rare earths, the two sides reached a mutually beneficial arrangement: China will continue to provide a “green channel” to expedite approvals for rare earth exports to the EU, while the EU will reciprocate by helping resolve priority individual licensing cases involving exports of dual-use items to China. My guess is that some of these cases involve the Dutch semiconductor sector. ASML has explicitly disclosed that its TWINSCAN NXT:1970i and 1980i DUV immersion lithography systems require export licenses from the Dutch government. Early last year, the Dutch government also brought certain semiconductor inspection equipment in export licensing list, with applications assessed on a case-by-case basis. Facilitating approvals for equipment supporting older DUV systems would be some progress.

On market access, China will expand imports of EU medical devices and hold a procurement matchmaking event during the China International Import Expo.

Below is the Chinese readout.

List of Agreed Outcomes

Trade and Investment Balance

1. The two sides will continue to explore the possibility of reducing tariffs on certain goods within the framework of World Trade Organization (WTO) rules.

2. The two sides will continue to strengthen communication and cooperation under the trade monitoring mechanism and make further active use of dialogue mechanisms to enhance mutual understanding.

3. Following intensive consultations, the two sides reached an understanding on trade in hybrid vehicles in a manner consistent with WTO rules.

4. The two sides recalled the guidance document on price undertakings in the countervailing duty investigation into electric vehicles and will continue the relevant procedures concerning company-specific price undertakings and reviews in that case.

5. The two sides will maintain dialogue on market access for medical devices. The EU side welcomes the measures taken by the Chinese side to expand imports of EU medical devices, including the organization of a procurement matchmaking event during the ninth China International Import Expo.

6. On the basis of risk assessments, the Chinese side will expedite work to recognize the application of the regionalization principle to eligible EU Member States. The two sides agreed to exchange information on methods and technologies for animal disease prevention and control and jointly explore ways to lift bluetongue-related restrictions on exports to China from the relevant Member States.

7. The two sides agreed to continue technical exchanges on computer reservation systems. They also agreed to hold further consultations on their respective regulatory frameworks for cosmetics and pharmaceuticals to further address existing and emerging market access issues.

8. The two sides agreed to hold a technical dialogue on the EU Foreign Subsidies Regulation (FSR).

9. The EU side clarified that its financing guidance for inverter projects does not target any specific country. The two sides will hold further consultations on this issue.

10. The two sides agreed to explore investment cooperation to promote their respective economic development and to discuss future-oriented cooperation.

Export Controls

1. The two sides reaffirmed the need to further strengthen the China–EU export control dialogue and welcomed enhanced communication and exchanges on their respective export control policies, including through the publication of policy guidance, the organization of government–business exchanges, and the provision of training.

2. The two sides agreed on the importance of enhancing the predictability and stability of global industrial and supply chains. The Chinese side is willing to continue facilitating the approval of export licenses for rare earths and permanent magnets destined for the EU through a “green channel” mechanism. The EU side will continue to work with its Member States to facilitate the resolution of priority individual licensing cases concerning exports of dual-use items to China.

3. The two sides reaffirmed their commitment to addressing concerns in the area of export controls and discussed the possibility of exploring structural facilitation measures for compliant trade in dual-use items between China and the EU.

4. The two sides reached an understanding under the export control dialogue mechanism to provide advance notification before making additions to control lists, enhance the transparency of listing and delisting procedures, and support the initiation of delisting procedures within their respective legal frameworks.

Intellectual Property

1. China and the EU have begun addressing systemic intellectual property issues and have made progress. The two sides agreed to continue working together to resolve the relevant issues and to set interim targets, focusing on effective and fair intellectual property protection and enforcement, as well as greater transparency and predictability. They agreed to monitor progress through the China–EU Intellectual Property Working Group.

WTO Reform

1. The two sides agreed to further strengthen bilateral communication and cooperation on WTO reform in an open and constructive manner. They committed to engaging in WTO reform and agreed to discuss all relevant issues with a view to achieving substantive progress.

Basically, it gave four reasons

1. Recently, some countries have repeatedly argued that the RMB is undervalued, seeking to force its appreciation through non-market means. Releasing the document at this time is intended to make clear that exchange rates are determined by multiple factors, not external political pressure.

2. Some countries have selectively cited undervaluation estimates in the IMF report to pressure China, while ignoring that different models yield different results. China hopes to prevent technical analysis from being turned into a political tool.

3. Responds to agenda-setting aimed at multilateral forums. Recently, there have been moves at the G20 and the OECD to link trade imbalances to Chinese policies. Issuing a formal document clarifies China’s position for subsequent international discussions and consultations, while opposing attempts to simply blame China for global problems.

4. To shift the discussion from “Should the RMB appreciate?” back to “How should each country adjust?” Global imbalances cannot be resolved solely through adjustments to China’s exchange rate; deficit countries must also address their own problems, including low savings, high consumption, fiscal deficits, and insufficient industrial competitiveness.

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My takes:

Beyond these official explanations, it is worth noting that China–EU negotiations are now at a critical stage. On October 8, the EU Trade Commissioner led a delegation to China for talks with Chinese Commerce Minister Wang Wentao. As Europe’s stance toward China becomes more hawkish, it’s imaginable that exchange rates were brought to the table during the negotiations, hoping to change the current trade situation by forcing the RMB to appreciate. The Chinese central bank’s release of a position paper at this juncture is also intended to respond to that pressure.

Overall, Beijing sees the renewed emphasis in Europe and the US on the “undervalued RMB” as an attempt to turn exchange rates into another tool to pressure China, much like environmental protection was 10 years ago. I don’t think Beijing will buy that. In Beijing’s view, unless Europe and the US address their own deep-seated structural problems, even an appreciation of the RMB would do little to resolve their economic difficulties. Instead, they might simply make further unreasonable demands and continue to pressure China.

In Beijing’s view, the RMB’s exchange rate is fundamentally determined by the market, while the current-account deficits of Europe and the US come from their own economic structures and the existing international monetary system. In effect, China is calling on Europe and the US to undertake domestic structural reforms while continuing reforms to the international monetary system, a position consistent with China’s long-standing arguments.

The policy paper specifically stresses the need to “guard against the impact of sharp short-term exchange-rate fluctuations, particularly abrupt depreciation, on financial stability.”重点防范汇率短期大幅波动尤其是短期急剧贬值影响金融稳定. This also carries an implicit warning that China would not oppose market-driven appreciation of the RMB, but if Europe and the US were trying to force it higher, the central bank would certainly intervene in the event of short-term overshooting.

I think it would be oversimplified to take the position paper as a hard-line approach. At the end of the policy paper, China endorses the broad direction of transforming the economic growth model, expanding domestic demand, and pursuing greater openness to the global economy. Although the paper does not state it explicitly, it conveys, between the lines, an expectation that Europe and the US should also have their own medium- and long-term policy plans and be firmly committed to implementing them. In other words, adjustment cannot be a one-way process in which others make demands of China alone. They must also advance their own reforms, with both sides moving toward common ground.

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Below is the Yuyuan Tantian’s article. I use AI to do translation

Why did the central bank publish its policy stance on the RMB exchange rate?央行为什么发布关于人民币汇率的政策立场

On the afternoon of October 8, the People’s Bank of China released a policy statement on the renminbi exchange rate.

The statement sets out the central bank’s position on exchange-rate issues in a systematic way. The term “policy position” refers to an official document issued on behalf of the state that represents its official stance in external communications.

To understand the statement, it must be viewed in its international context. Recently, certain countries have been loudly asserting that the renminbi is undervalued, even seeking to force it to appreciate through non-market means.

China’s release of its policy position at this juncture provides a clear basis for clarifying the issue.

At its core, the statement addresses three concerns. To understand them in plain language, we first need to understand what the international community is discussing—and what lies behind those discussions.

The exchange-rate issue itself

As Tanzhu has previously explained, claims that the renminbi is undervalued often rest on two underlying assumptions: first, that China has “manipulated” its exchange rate; and second, that pushing the renminbi to appreciate is a means of weakening the competitiveness of Chinese exports.

China’s first concern is this: All countries should respect the fact that exchange rates are the result of multiple interacting factors.

The document makes this clear from the outset: China operates a managed floating exchange-rate system based on market supply and demand, with adjustments made by reference to a basket of currencies, and remains committed to allowing the market to play the decisive role in exchange-rate formation.

One phrase worth noting is “managed floating.” This “floating” comes with certain conditions: no predetermined target level and no intervention in the long-term trend.

The document offers two reference points: the 2008 global financial crisis, and July of this year, when the yen briefly fell to a nearly 40-year low against the U.S. dollar, prompting joint intervention by the countries concerned. Put simply, China manages its exchange rate with reference to international rules and practices.

In the more than two decades since China’s exchange-rate reform, the renminbi has appreciated by a cumulative 23% against the U.S. dollar. Since 2010, it has gone through three appreciation cycles and three depreciation cycles.

Xu Peng, deputy director of the economic analysis division at the Market Research Institute of the Chinese Academy of Macroeconomic Research, told Tanzhu that allegations of “exchange-rate manipulation” are utterly groundless. This year, both the onshore and offshore renminbi strengthened past 6.7 to the dollar. Against a backdrop of currency depreciation in neighboring countries, China did not resort to beggar-thy-neighbor policies or competitive devaluation, demonstrating its responsibility as a major country.

If, as the United States and other Western countries suggest, China’s export competitiveness comes from “deliberately depreciating the renminbi,” then they misunderstand the current state of Chinese industry.

Guo Kai, president of the China Finance 40 Institute, told Tanzhu that forcing the renminbi to appreciate puts the cart before the horse and would harm other economies around the world.

One firm-level study found that a 10% appreciation of the renminbi led to a decline of less than 0.5% in renminbi-denominated export prices.

The idea that appreciation necessarily weakens competitiveness reflects a short-term, static way of thinking. Over a dynamic process of long-term development—particularly in China’s case—advantages in research and development and industrial supply chains allow industries to keep cutting costs and improving efficiency. The renminbi can appreciate even as Chinese industry becomes increasingly competitive.

China’s industrial development and exchange-rate movements over the past several years bear this out.

The imbalance issue

Background: In July 2026, the International Monetary Fund (IMF) released its 2026 External Sector Report, assessing China’s external position in 2025 as “stronger.” The report put the midpoint of the estimated gap in the renminbi’s real effective exchange rate at −21.3%. It is important to note that IMF reports are highly technical and easily misused. The IMF actually uses different models, which produce different results.

The IMF itself also says that this calculation is intended as a reference for discussion, rather than a definitive basis for assessment.

Wang Qing, chief macroeconomic analyst at Dongfang Jincheng, told Tanzhu that, using the IMF’s real effective exchange-rate index approach, the renminbi’s real effective exchange rate was slightly overvalued—by 0.5%—at the end of 2025.

China’s second concern is therefore this: We welcome international organizations’ participation in the discussion, provided their assessments are not misused. This is a prerequisite for ensuring that the international community can establish effective mechanisms to address new issues and developments in the global economy through consultation.

As the document states, using the IMF’s External Balance Assessment (EBA) results as evidence that the renminbi is undervalued constitutes a misinterpretation and misuse of those results.

Yet certain countries see only the figure suggesting undervaluation.

Behind this reasoning is an attempt to reframe the declining competitiveness of their own industries as a problem with China’s exchange rate. This requires further clarification.

Over the past few years, the global economy has experienced the shock of the pandemic, an energy crisis, inflation, rising trade protectionism, and the restructuring of industrial supply chains. Today, the United States and Europe face a common problem: insufficient competitiveness in domestic manufacturing and trade imbalances.

But “trade imbalances” are a long-standing phenomenon. The major surplus countries have changed over time, while the major deficit countries have remained largely the same familiar names. The problem lies in their own economic structures.

Pan Yuanyuan, an international investment expert at the Chinese Academy of Social Sciences, told Tanzhu that these countries’ approach is to use financial-market and exchange-rate fluctuations to influence China’s cross-border flows in the real economy and slow the accumulation of its overseas assets. Put simply, this would squeeze export earnings while potentially introducing uncertainty into the value of overseas assets already accumulated.

Some of the countries calling for renminbi appreciation were once major exporters themselves. When others asked them to reduce their exports, they repeatedly invoked respect for economic principles and the international rule of law. Now that their own exports have declined, they are demanding that other countries’ currencies appreciate. Why have they stopped talking about the principles of a market economy? This is a double standard.

They even use this argument to pin trade imbalances on China. That is not an attitude conducive to solving problems.

The surplus issue

Background: In technical discussions, a current-account surplus is often used as a basis for judging whether a currency is undervalued. That premise is itself flawed: there is no simple correspondence between a current-account surplus or deficit and the strength or weakness of an exchange rate.

China’s third concern is therefore this: Discussions of currency issues must address the central tensions in the current global monetary system, rather than focusing exclusively on a single current-account figure.

The document states that an analysis of exchange-rate movements must consider not only trade in goods but also trade in services; not only the current account but also the financial account; and not only economic fundamentals but also factors such as expectations.

China, meanwhile, has consistently been willing to contribute positively to a dynamic balance in the global economy. From expanding global supply after joining the World Trade Organization to boosting domestic demand after the 2008 global financial crisis, China has been deeply involved in several major rounds of global economic rebalancing.

At the same time, the surplus issue is fundamentally structural.

Since 2007, China’s current-account surplus as a share of GDP has gradually declined from its peak of 9.9%. Meanwhile, in recent years, China’s contribution to global economic growth has remained steady at around 30%. This shows that China is an “engine of growth,” not a “source of imbalance.”

What truly needs adjustment is the combination of low savings, high consumption, and insufficient industrial competitiveness in deficit countries.

China has also consistently worked to address this issue collectively through international cooperation.

At the recent G20 Finance Ministers and Central Bank Governors Meeting, China proposed that deficit countries reduce their fiscal deficits and raise domestic savings rates, while surplus countries moderately increase consumption and investment. All countries should formulate medium- and long-term policy plans, make clear commitments, and implement them resolutely.

Yet some voices outside China continue to reduce the issue to so-called “industrial subsidies” and the “renminbi exchange rate,” as though attacking China alone could alleviate their own problems.

This amounts to deliberate smearing. People directly involved in the negotiations told Tanzhu that, at last week’s G20 Trade Ministers’ Meeting, certain countries put forward agenda items that were highly discriminatory and intended to target China. But because other members opposed them or held different views, those countries ultimately failed to achieve their aims, and no consensus was reached.

Earlier, a meeting of the Organisation for Economic Co-operation and Development’s Trade Committee issued a joint statement addressing “overcapacity in specific sectors.” Some countries, however, portrayed it as carrying forward the outcomes of discussions at the G20 Trade Ministers’ Meeting.

In the face of such developments, the international community needs effective consultation.

Ultimately, resolving global imbalances comes down to how countries make adjustments, what commitments they make, and how they work together to implement them.

This policy statement seeks to clarify three points:

1. Exchange-rate issues must not be politicized, still less used to smear others.

2. Reports issued by certain international organizations are not jointly agreed upon by their member states. Ultimately, they represent one institution’s assessment, not an unquestionable authority, and must not be used selectively. Multilateral mechanisms must return to a process based on consensus and equal participation.

3. Certain countries must not portray problems of their own making as problems caused by others, then shift the blame. Responsibility for their own economic problems must be made absolutely clear.

The central bank’s systematic presentation of its policy position on the renminbi exchange rate is itself a statement of intent.

Going forward, China will continue to put its own affairs in order, while remaining willing to work with all parties to contribute positively to dynamic balance and sustainable growth in the global economy.

Jiang served as Deputy Secretary-General of the Chinese State Council between 2011 and 2018, one of the highest positions in China's policy-drafting. In this role, she has first-hand experiencce on formulating and implementing major economic policies. Prior to her government service, she established herself as a leading academic voice on industrial economics and development policy at the Chinese Academy of Social Sciences.

In her latest piece, she divides China’s reforms since 1978 into two phases. From 1978 to 2012, the emphasis was on “development-oriented reforms”发展型改革 introducing market mechanisms, opening up, and basically just to improve productivity and make economic growth. Since 2013, growth has remained a priority, but it also introduce the “governance-oriented reforms”治理型改革，whcih aims to address poverty, environmental pollution, and other social and economic challenges that accumulated during rapid growth. She argues that China now needs to focus more on “inclusive reforms”包容性改革 that let more people share in growth gains, backed by concrete institutional arrangements for social protection and public services. On the one hand, this means reducing government protection for favored firms while safeguarding private businesses’ property rights and ensuring that they can compete on equal terms. On the other hand, it means strengthening support for low-income groups, narrowing urban–rural gaps in public services, and helping workers cope with job displacement caused by industrial restructuring and artificial intelligence.

She also addresses the AI job replacement, arguing that such displacement could pose a major challenge to the existing social security system. Future unemployment could affect entire industries or groups of workers with particular skills, meaning that opportunities for reemployment in those fields could disappear just as workers lose their jobs. She argues that future social security arrangements should place greater emphasis on mechanisms for sharing economic returns, such as UBI and UBC. Her proposed response is to channel more returns from state-owned capital into public well-being and convert the capital gains generated by technological progress into assets shared by all citizens.

She believes that inclusive reform does not mean abandoning growth as a priority. It’s more like keeping economic development at the center of policymaking while responding more fully to public demand for education, healthcare, environmental protection, and a fairer distribution of income and wealth.

In her view, key of the reform is to balance three sets of competing priorities: ensuring sufficient resources for economic development while also making room for social security; encouraging local governments to pursue growth while preventing local protectionism which undermining unified national market; and allowing innovators to earn rewards while using taxation and redistribution to prevent the gains from technological progress from becoming overly concentrated.

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Below is the English ver of Jiang’s latest piece I translated with the help of AI, the Chinese ver was first published on Economists 50 Forum

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Development-Oriented, Governance-Oriented, and Inclusive Reform: Advancing Development and Strengthening Institutional Foundations

By Jiang Xiaojuan
Professor at the University of Chinese Academy of Social Sciences and President of the China Industrial Economics Association

Introduction

China’s distinctive development path has demonstrated strong vitality and significant institutional advantages, with reform and opening up serving as the key engine sustaining its steady, long-term progress. China’s reforms have consistently aimed to promote development, maintaining continuity while adapting to changing times. Guided by practical needs and a focus on addressing problems, they have identified different priorities at different stages.

Looking back, China has successively advanced two types of reform—development-oriented reform and governance-oriented reform—which provided powerful momentum for building a moderately prosperous society in all respects. Looking ahead, as China embarks on a new journey toward building a modern socialist country in all respects, it must pursue inclusive reform in greater depth, establishing firm institutional foundations for nurturing and expanding new quality productive forces and ensuring that all people share in the fruits of development.

I. Development-Oriented and Governance-Oriented Reform: Succession and Coexistence

The Third Plenary Session of the 20th Central Committee of the Communist Party of China (CPC) adopted the Resolution of the CPC Central Committee on Further Deepening Reform Comprehensively to Advance Chinese Modernization (hereafter, the Resolution), setting out a systematic agenda for further comprehensive reform.

The Resolution states: “Chinese modernization has advanced continuously through reform and opening up, and it will surely embrace broader prospects through reform and opening up.”

This statement establishes the historical significance of reform: without reform and opening up, there would have been no great miracles of economic development and social stability in China. It also highlights the importance of reform for China’s future: Chinese modernization cannot be achieved without continuing to deepen reform.

Taking 2013 as the dividing line, China’s 47-year reform journey can be broadly divided into a stage dominated by development-oriented reform and a stage that places equal emphasis on development-oriented and governance-oriented reform.

1. The development-oriented stage: Unleashing and developing productive forces as the primary task

The Third Plenary Session of the 11th CPC Central Committee launched the great undertaking of reform and opening up and socialist modernization. Deng Xiaoping stated:

“The most fundamental task in the socialist stage is to develop the productive forces. Ultimately, the superiority of socialism must be demonstrated by developing productive forces faster and to a higher level than capitalism, and by continuously improving people’s material and cultural lives on that basis.”

Accordingly, the central thrust of reform was defined as unleashing and developing productive forces, promoting economic development, and improving people’s lives.

The main substance of reform was a gradual transition from a planned economy to a socialist market economy. The Third Plenary Session of the 12th CPC Central Committee, held in 1984, proposed a “planned commodity economy,” marking the formal launch of this phase of reform. Subsequently, the Third Plenary Sessions of the 14th and 16th CPC Central Committees progressively deepened the requirements for establishing a socialist market economy. The aim was to give the market an increasingly important role in allocating resources, improve the efficiency of factor allocation, unleash and develop productive forces, and promote sustained, rapid economic growth.

Development-oriented reform achieved remarkable results, bringing about a tremendous expansion of productive forces. China’s economy grew rapidly during this period, with substantial increases in several major indicators.

Between 1979 and 2012, China’s gross domestic product grew at an average annual rate of 9.8%, far above the world economy’s average annual growth rate of 2.8% over the same period. Between 1978 and 2012:

• Urban residents’ annual per capita disposable income rose from 343 yuan to 24,565 yuan—an increase of approximately 70.6 times the initial level.

• Rural residents’ annual per capita net income rose from 134 yuan to 7,917 yuan—an increase of approximately 58.1 times the initial level.

• Total imports and exports rose from US$20.6 billion to US$3.8668 trillion—an increase of approximately 186.7 times the initial level.

In 2009, China became the world’s largest exporter and second-largest importer. Its international standing rose sharply: its economy climbed from 11th in the world in 1978 to second in 2010, making it the world’s second-largest economy after the United States.

In short, during the development-oriented reform stage, China made enormous advances in economic size, living standards, and openness, creating a globally recognized “growth miracle.”

2. Equal emphasis on development-oriented and governance-oriented reform: New circumstances and requirements

The Third Plenary Session of the 18th CPC Central Committee, held in 2013, adopted the Decision of the CPC Central Committee on Some Major Issues Concerning Comprehensively Deepening Reform. It defined the overall goal of comprehensive reform as improving and developing the system of socialism with Chinese characteristics and modernizing China’s governance system and capacity. “Governance” thus became another important strand of reform.

The requirements set by the CPC Central Committee and China’s national development goals called not only for continuing to unleash and develop productive forces, but also for more effective governance capacity better suited to high-quality development. From that point onward, China’s reforms followed two equally important tracks: development-oriented reform and governance-oriented reform.

An important difference between the two is that development-oriented reform places greater emphasis on “breaking”—removing the constraints of the traditional planned economy to unleash economic vitality. Governance-oriented reform places greater emphasis on “building”—constructing a systematic framework for the socialist market economy, making reform more systematic, holistic, and coordinated, and promoting comprehensive progress across different fields while continuing to develop the economy.

The equal emphasis on these two types of reform reflects both practical circumstances and guiding principles. After more than three decades, development-oriented reform had driven rapid economic growth but also allowed certain problems to accumulate, including substantial income inequality and environmental deterioration.

Calculated according to the revised rural poverty standard, China had 40.07 million rural residents eligible for poverty assistance in 2008. The national income Gini coefficient reached 0.491, indicating a relatively high level of inequality. Problems in food safety, the environment, and other areas became more pronounced, creating significant potential social risks. Unless properly addressed, these problems and risks would impede the timely achievement of a moderately prosperous society in all respects and obstruct the building of a modern socialist country.

The development and governance practices of this period required the coordinated advancement of both types of reform. High-quality development inherently requires their integration: China must continue to unleash and develop social productive forces and strengthen the foundations of economic development, while also reinforcing environmental protection and making substantive progress toward common prosperity.

The subsequently introduced new development philosophy—innovation, coordination, green development, openness, and sharing—likewise requires development-oriented and governance-oriented reform to work together within an integrated agenda.

II. Coordinating Development and Governance: The Core Issue, Market Participants, and Foundational Institutions

The Resolution calls for building a high-standard socialist market economy to provide institutional support for Chinese modernization. The following discussion examines this goal through the core issue of economic reform, the market participants in a socialist market economy, and its foundational institutions.

1. The core issue: The relationship between government and the market

1.1 The enduring central issue of reform

General Secretary Xi Jinping has stated:

“In pursuing socialist market economy reform, the core issue is properly handling the relationship between government and the market, enabling the market to play the decisive role in resource allocation and the government to better fulfill its role.”

Throughout China’s reform process, understanding how the relationship between government and the market has been handled—particularly in establishing the market’s position in resource allocation—is essential to understanding the fundamental character of reform.

The Third Plenary Session of the 14th CPC Central Committee proposed that the market should play a basic role in allocating resources under state macroeconomic regulation. The Third Plenary Session of the 16th CPC Central Committee called for giving greater scope to that basic role. The Third Plenary Session of the 18th CPC Central Committee replaced the term “basic role” with “decisive role” for the first time.

The Third Plenary Session of the 20th CPC Central Committee proposed “focusing on building a high-standard socialist market economy, giving full play to the decisive role of the market in resource allocation, and enabling the government to better fulfill its role.”

These important formulations clearly demonstrate the central place of the government–market relationship in the overall reform agenda.

1.2 Why this issue is central

In the context of China’s reforms, discussing the relationship between government and the market means addressing the crucial question of how resources are allocated.

An economy contains many different factors of production, distributed across different locations: land, capital, human capital, technology, and so forth. It also contains vast numbers of consumers seeking an enormous variety of products. Who uses these factors of production, what products they produce, and how those products are distributed to consumers are fundamental questions of resource allocation.

The government–market relationship is therefore about clarifying whether government or the market plays the decisive role in allocating resources.

Under the planned economy, government intervened directly in economic activity, allocating production factors through government plans. This created two obstacles to efficiency that were difficult to overcome.

The first was information processing. Central planning agencies had to collect and process vast quantities of constantly changing information about the entire economy. Even determining what each person wished to purchase and consume, and at what price, posed an enormous challenge. Planning agencies could not acquire this vast body of granular information, making it difficult to allocate resources to their most appropriate uses—the problem known as resource misallocation.

The second was incentives. Plans determined what to produce, how much to produce, and at what price to sell. They also determined the profits that could be distributed to each enterprise and the income each employee would receive. This arrangement lacked intrinsic incentives to increase output, improve quality, or innovate technologically, resulting in low production efficiency—the problem known as incentive incompatibility.

In a market economy, productive resources are allocated through market mechanisms.

First, prices convey a wide range of information. Prices are determined by the interaction of supply and demand. When a product is in short supply, its price automatically rises, discouraging consumption and stimulating production; the reverse also applies. This “invisible hand” can automatically and rapidly direct resources to where they are most needed, helping products and services better meet consumers’ individual needs.

Second, decentralized decision-making makes use of local knowledge. Countless enterprises and consumers can make appropriate decisions using only the information available to them locally.

Third, incentives encourage cost reduction, quality improvement, and innovation. Enterprises seeking profits and individuals seeking income have strong incentives to reduce costs, improve quality, and develop new technologies and products. Market competition’s mechanism of rewarding stronger performers and eliminating weaker ones compels enterprises to innovate continuously and improve their competitiveness.

Since reform and opening up began, properly handling the government–market relationship has primarily meant reducing government intervention in resource allocation, allowing the market to play a basic—and subsequently decisive—role, improving the efficiency of society’s resource allocation, accelerating economic development, raising living standards, and strengthening national capabilities.

General Secretary Xi Jinping has stated:

“The market determining resource allocation is a general law of the market economy. A market economy is, in essence, an economy in which the market determines resource allocation.”

The achievements of the past 47 years demonstrate that reform has greatly mobilized the initiative of all types of market participants and workers, fully unleashed productive forces, and delivered rapid economic growth and substantial improvements in living standards.

1.3 New requirements: Advancing development and governance together

In explaining the Resolution, General Secretary Xi Jinping stated:

“Focusing on the core issue of properly handling the relationship between government and the market, the draft resolution gives prominence to building a high-standard socialist market economy and sets out arrangements for key areas and critical aspects of economic reform.”

Properly handling this relationship remains the core issue in building a high-standard market economy.

In its section on building a high-standard socialist market economy, the Resolution states:

“We must better leverage the role of market mechanisms, create a fairer and more dynamic market environment, optimize resource allocation efficiency and maximize returns, both unleash vitality and ensure effective regulation, better maintain market order and remedy market failures, facilitate flows within the national economy, and stimulate society’s endogenous drive and innovative vitality.”

Why does the government–market relationship remain central? Because some reform tasks proposed many years ago remain unfinished, while economic and social development has generated new circumstances and problems that must also be addressed.

(1) Fully realizing the market’s decisive role requires deeper reform across more dimensions

From an economic theory perspective, “giving full play to the decisive role of the market in resource allocation” has two key dimensions.

The first concerns the rules of resource allocation: does the market or the government play the leading role?

The second concerns the behavior of market participants: do enterprises behave more like firms in a planned economy or firms in a market economy?

In terms of allocation rules, a typical planned economy places the principal aspects or stages of investment, production, distribution, pricing, and forms of ownership under government control. In a typical market economy, these are governed primarily by market mechanisms.

At a minimum, assessing these rules requires examining five questions:

1. Are product prices determined by the market or by government?

2. Have product markets developed a competitive environment in which supply exceeds demand?

3. Are factor markets competitive, and are factor prices market-determined?

4. Are market entry and exit determined by market forces?

5. Do competitors receive equal treatment, regardless of ownership type or geographic origin?

Since reform and opening up began, China has made significant progress in building its market economy, although progress has varied considerably across these dimensions. At present, supply exceeds demand in the product markets of the vast majority of industries, competition is relatively extensive, and prices are generally market-determined. Reform in the other three areas needs to accelerate, especially the market-based allocation of production factors and market entry and exit.

Factor markets are the foundation of the entire market system. At present, the market’s decisive role in resource allocation has yet to be fully realized. The Resolution emphasizes the need to:

“Improve factor-market institutions and rules, facilitate the smooth movement of production factors, allocate resources efficiently, and fully unleash market potential; establish a unified urban–rural market for construction land; improve the foundational institutions for the sound development of capital markets; and develop nationally integrated markets for technology and data.”

In short, the prices of all production factors should be market-determined, their movement autonomous and orderly, and their allocation efficient and fair. In particular, all types of economic entities should receive equal treatment. Markets should determine where resources are allocated on the basis of efficiency and risk assessments, enabling market participants to make reasonable decisions about factor use.

Fair market entry and an exit mechanism that eliminates weaker performers are fundamental to market-based factor allocation. They allow production factors to flow toward stronger enterprises and improve allocation efficiency.

At present, local market fragmentation continues to impede market access, while various subsidies interfere with fair competition and the elimination of weaker performers. These deep-rooted institutional constraints must be removed to unleash additional growth potential and develop productive forces.

Improving enterprise exit mechanisms is equally urgent and important. This is reform aimed at enabling weaker performers to leave the market. Rewarding stronger performers and eliminating weaker ones is a basic function of effective market allocation. Yet China has long lacked effective institutional arrangements for the latter.

To preserve employment and output in the short term, some local governments rescue enterprises that should otherwise exit, allowing inefficient firms to remain in the market. Strengthening corporate bankruptcy mechanisms and personal bankruptcy arrangements, and improving enterprise exit procedures, can substantially enhance the quality of economic development. These are important reforms requiring urgent progress.

In short, the market must play its decisive role at every stage—entry, operation, and exit—if total factor productivity is to improve effectively.

(2) Better government performance means stronger governance

Government must play an active role in a socialist market economy. Emphasizing its role is an important feature of China’s reform.

The Resolution describes this role in vivid terms: government must both “unleash vitality” and “ensure effective regulation.” Unleashing vitality means reducing intervention so that the market can play the decisive role in resource allocation. But what should effective regulation cover?

First, it should remedy market failures.

Market failures include the inability of market mechanisms to address negative externalities generated by market participants and the monopolies that competition may produce.

A typical negative externality occurs when an enterprise earns profits from production while society bears the costs of its pollution. Because incentives and constraints are misaligned, the market cannot resolve the problem by itself; government regulation is necessary.

Competition may also give rise to monopolistic enterprises. Such firms can use their market power to charge consumers high prices, harm consumer interests, and undermine competition through unreasonable practices. Government must therefore regulate monopolies and unfair competition.

Second, government should uphold social fairness and justice.

China is a socialist market economy, in which ensuring that all people share in the fruits of development is an inherent requirement. Government must play an active role in this regard.

Market allocation can lead to polarization in the distribution of social wealth, requiring stronger redistributive policies. As economic growth continues, society is also expressing more diverse and demanding expectations concerning basic education, essential healthcare, minimum-wage protection, social security, and employment protection.

A high-standard socialist market economy must achieve a substantial improvement in the extent to which development benefits are shared across society. This will strengthen public support for reform and build the shared understanding and practical momentum needed to deepen it.

For example, as second- and third-generation migrant workers increasingly integrate into urban life, their demands for equal opportunity and access to social benefits are growing stronger. This requires faster reform to ensure equal exchange and two-way flows of production factors between urban and rural areas, supporting their shared prosperity and development.

2. Joint development of two types of market-compatible enterprises

Moving from planned resource allocation to a system in which the market plays the decisive role requires more than changes to laws and regulations. It also requires changes in the behavior of market participants.

The behavior of competing enterprises is fundamental to the quality of market competition. A healthy market economy requires the rapid growth of enterprises whose conduct is consistent with the principles governing its operation.

2.1 Private enterprises: Natural participants in a market economy

Private enterprises are rooted in the market environment and are natural participants in a market economy. Their choices and budget constraints are determined by market mechanisms.

On the one hand, they pursue profits and long-term sustainable development as their core objectives while also taking account of various social responsibilities. On the other, they face relatively hard budget constraints and generally cannot obtain the same government support as state-owned enterprises.

Inefficient and uncompetitive firms are forced out of the market, allowing competition to reward stronger performers and eliminate weaker ones. The condition of the private sector therefore determines whether market mechanisms can function effectively. Without a well-developed private sector, the socialist market economy cannot operate effectively.

In the early years of reform and opening up, private enterprises were predominantly small and medium-sized. Their short decision-making chains, flexible incentives, and ability to change direction quickly allowed them to respond rapidly to market changes. Large numbers expanded swiftly in industries such as light manufacturing and textiles, where supply was limited, demand was pressing, and technological barriers were relatively low.

In recent years, the private sector has continued to expand, with marked improvements in its overall strength, innovative capacity, and competitiveness. It has moved beyond its earlier pattern of having many firms that were generally small, technologically unsophisticated, and of relatively low overall quality.

Private enterprises have rapidly improved their technology and product quality, reaching leading positions in some fields. By the end of January 2025, the number of private enterprises recognized as national high-tech enterprises had risen from 28,000 in 2012 to 420,000, while their share of the total had increased from 62.4% to more than 92%. Private enterprises have become a major force in scientific development and technological innovation.

New-energy vehicle and battery manufacturers, predominantly private firms, have attained technological capabilities that lead domestically and, in some cases, internationally. Most leading enterprises in the platform economy and artificial intelligence are also privately owned.

The CPC Central Committee attaches great importance to private-sector development. In November 2002, the 16th CPC National Congress explicitly proposed the “two unswerving commitments”: to unswervingly consolidate and develop the public sector, and to unswervingly encourage, support, and guide the development of the non-public sector. The CPC Central Committee has consistently upheld these commitments.

Since the 18th CPC National Congress, the CPC Central Committee with Xi Jinping at its core has continued to improve the theories, principles, and policies supporting private-sector development, establishing an institutional framework for encouraging, supporting, and guiding it.

The Third Plenary Session of the 18th CPC Central Committee stated:

“Both the public and non-public sectors are important components of the socialist market economy and important foundations for China’s economic and social development.”

It also made clear that “the property rights of the public sector are inviolable, as are those of the non-public sector.”

In 2023, the CPC Central Committee and the State Council issued the Opinions on Promoting the Development and Growth of the Private Economy. On February 17, 2025, General Secretary Xi Jinping attended a symposium on private enterprises and delivered an important speech, strengthening private businesses’ confidence and motivation.

In May 2025, the Private Sector Promotion Law of the People’s Republic of China came into force, writing the “two unswerving commitments” into law and providing firm legal safeguards for private-sector development.

Looking ahead, institutional arrangements must be further improved to create a fair, impartial, and trustworthy environment for the private sector and stabilize enterprises’ expectations.

In market access, areas related to national planning and investment—including competitive segments of infrastructure, major national technological research programs, and investment in future industries—should be equally open to all types of enterprises. Firms should be selected according to uniform criteria such as technology, scale, and performance, rather than ownership.

In fair competition, no enterprise should receive preferential access to production factors or market opportunities. No enterprise should obtain special benefits through protection from competition. All should face the market’s selection mechanisms on an equal footing.

In legal protection, the lawful rights and interests of enterprises under all forms of ownership must be equally protected. Equal treatment is particularly important in antitrust and administrative enforcement. Special emphasis should be placed on preventing and correcting the use of administrative or criminal measures to intervene in economic disputes. Violations of property rights and legitimate interests should be subject to the same liabilities, criminal classifications, and penalties, regardless of ownership.

Promoting high-quality private-sector development also requires avoiding a cycle in which policies and laws first create unfair competition and corrective measures are then introduced to repair the damage.

Some problems facing the private sector are the accumulated result of long-standing institutional, operational, and policy factors. It is inappropriate to wait for problems to accumulate and then rely on concentrated rectification campaigns to improve the environment.

Private enterprises still face explicit and implicit constraints in accessing production factors. Arbitrary fees, fines, and inspections, as well as improper property seizures, continue to occur. Judicial protection also requires further improvement when private enterprises become involved in economic disputes with government bodies or state-owned enterprises.

Unless these deep-rooted, long-term institutional problems and irregular uses of administrative power are addressed at the institutional level, temporary campaigns to improve the business environment will have limited lasting effect and may undermine private enterprises’ expectations and confidence.

At the same time, the private sector has its own shortcomings to address. Enterprises need to improve governance structures and management systems, strengthen compliance, and prevent corruption-related risks.

2.2 Better realizing the irreplaceable backbone role of state-owned enterprises

While vigorously developing the private sector, China must also consolidate and develop the public sector.

After years of reform and innovation, the state-owned economy has become much better adapted to the socialist market economy. In particular, recent initiatives to deepen and enhance state-owned enterprise reform have produced increasingly substantive results.

Market-oriented operating mechanisms have improved significantly. Boards of directors have essentially been established wherever required, with external directors generally constituting a majority. For state-owned enterprises in competitive sectors, profits and long-term development have become primary motivations, and their behavior increasingly resembles that of modern enterprises in a market economy.

As market participants in a socialist market economy, state-owned enterprises must also perform certain special functions.

The Resolution calls for state capital to be concentrated in key areas and directions: important industries and critical fields related to national security and the lifelines of the economy; public services, emergency-response capabilities, and public-interest fields affecting the economy and people’s livelihoods; and forward-looking strategic emerging industries.

These are areas in which private enterprises have limited willingness to participate or lack the necessary capabilities.

First, in innovation, state-owned enterprises should shoulder major responsibilities and take the lead, serving as sources of original technologies and leaders of modern industrial chains.

Their technological innovation capabilities continue to improve. From 2022 to 2024, centrally administered state-owned enterprises spent more than 1 trillion yuan annually on research and development for three consecutive years. In 2024, their R&D intensity rose to 2.8%.

Major innovations have emerged in human spaceflight, lunar and Mars exploration, deep-sea and deep-earth exploration, satellite navigation, nuclear power, new-energy technologies, and large aircraft manufacturing. State-owned enterprises have played important roles in these achievements.

Second, they should proactively undertake urgent and difficult tasks, playing a crucial role in responding to major risks and challenges such as epidemics and natural disasters, and in supporting major national events.

An evaluation system for the fulfillment of their strategic missions should be established to guide centrally administered enterprises in coordinating their economic, political, and social responsibilities and fully realizing their strategic support role.

Third, state-owned enterprises should continue strengthening their role in industries and fields critical to national security and the national economy. This includes ensuring supplies of important energy and resources, expanding domestic exploration and development, increasing reserves and output, and improving the deployment of state capital in overseas energy resources and critical strategic minerals.

They should also play an important role in developing key infrastructure hubs and new forms of infrastructure.

The next stage should continue to deepen state-owned enterprise reform, shifting budget constraints from “soft” to “hard” and ensuring equal participation in fair market competition. Reform should strengthen their core functions and competitiveness.

At the same time, the layout and structure of the state-owned economy should be optimized, enabling state-owned enterprises to fulfill their irreplaceable role and fully demonstrate the strategic, security-related, foundational, and patient-capital characteristics of state capital and state-owned enterprises.

3. Foundational institutions: Giving equal weight to development and governance, strengthening confidence, and stabilizing expectations

The Resolution makes systematic arrangements for further comprehensive reform, including reforms of foundational and economy-wide importance.

General Secretary Xi Jinping has emphasized:

“Build a unified national market, deepen market-oriented reform of production factors, and develop a high-standard market system. Improve the foundational institutions of the market economy, including property-rights protection, market access, fair competition, and social credit.”

These institutions are important because they provide the basic safeguards for the effective operation of a socialist market economy. They are necessary prerequisites and inherent requirements for allowing the market to play its decisive role in resource allocation and enabling government to better fulfill its role.

3.1 Property-rights protection

A high-standard socialist market economy should have clearly defined and strongly protected property rights.

The Resolution calls for “improving the property-rights system and ensuring equal and lasting legal protection for the property rights of all forms of ownership.”

Compared with earlier formulations, the addition of “lasting” is significant. It is especially important for strengthening confidence in the private sector’s long-term development and encouraging long-term investment.

Scholars in China and abroad generally recognize a significant positive relationship between property-rights protection and long-term investment.

Effective legal protection of the property rights of economic organizations under all ownership forms, as well as those of individual citizens, can enhance investors’ sense of security regarding their property and wealth, stabilize market expectations, strengthen society’s confidence in long-term development, and stimulate entrepreneurship and innovation.

By ensuring that secure property supports stable expectations, such protection establishes a firm institutional foundation for sustained, healthy economic and social development and lasting national stability.

Accelerating improvements in property-rights protection requires fair treatment and protection of all types of property rights.

At this stage, China should provide equal and lasting legal protection for non-public-sector property, abolish unreasonable provisions affecting it, and remove hidden barriers.

Particular attention should be paid to protection through law enforcement and the judiciary. Mechanisms for appeals, reviews, retrials, and other remedies in business-related property cases should be improved. Channels for resolving property disputes involving government should be made more accessible. The use of administrative or criminal measures to intervene in economic disputes should be prevented and corrected.

Violations of property rights and legitimate interests should incur the same liabilities, criminal classifications, and penalties, regardless of ownership. Mechanisms for identifying and correcting wrongful business-related cases should be strengthened, as should punitive compensation arrangements.

In institution-building, China should accelerate the enactment and revision of laws and regulations concerning rights in rem, creditors’ rights, equity interests, and other property rights. It should clarify ownership, improve the bundle of rights associated with property, and legally protect the various rights derived from ownership.

3.2 Market access

Entering the market is a prerequisite for businesses to participate in economic activity and the first threshold they must cross. How entry requirements are set, administered, and updated are all questions that must be addressed.

At present, local protectionism is a major cause of market fragmentation.

To promote local employment and development, some local governments prioritize local enterprises in market and investment opportunities through explicit or implicit entry barriers, unfair competition policies, and discriminatory government purchasing practices, while disadvantaging enterprises from elsewhere.

Such conduct obstructs the free movement and market-based allocation of goods and production factors across wider areas, undermines fair competition, and prevents optimal resource allocation.

On July 1, 2025, at the sixth meeting of the Central Commission for Financial and Economic Affairs, General Secretary Xi Jinping stated that advancing the unified national market requires “five unifications and one opening”: unified foundational market institutions, unified market infrastructure, unified standards for government conduct, unified market regulation and enforcement, unified factor and resource markets, and continued expansion of opening up both internally and externally.

These requirements establish the basic institutional framework for a unified national market. They identify a practical path for addressing difficult issues such as local protectionism, market fragmentation, and disorderly competition, while removing deep-rooted institutional and operational barriers.

In 2024, the Guidelines for Building a Unified National Market (Trial) were released, special initiatives to standardize business-related law enforcement were pursued, and the market-access negative list was further shortened.

Through both building new arrangements and removing old barriers, a more efficient, well-regulated, fairly competitive, and fully open unified national market is taking shape.

3.3 Fair competition

Fair competition is a core requirement of a market economy, and institutions safeguarding it are essential to improving resource allocation efficiency.

Only fair competition can enable stronger firms to succeed and weaker ones to exit, optimize resource allocation, and encourage sustained innovation and competitiveness.

Fair competition requires sufficiently competitive markets.

First, competition policies and legal frameworks should be established and improved, and antitrust and anti-unfair-competition rules effectively implemented.

Second, China should create a stable, open, transparent, and predictable competitive environment. Market information disclosure systems should be improved, the newly revised Interim Regulations on Enterprise Information Disclosure implemented, and enterprise disclosure practices standardized, allowing all firms to compete with adequate information and equal legal protection.

Third, the competitive pressures associated with the platform economy should be addressed comprehensively. A categorized and tiered antitrust review mechanism for business concentrations should be established and improved, alongside rules governing fair competition in the digital economy. Competition review and assessment systems should be explored for emerging market forms such as internet platforms, algorithms, and large AI models.

Fair competition also requires government to refrain from unreasonable market intervention.

When market participants allocate resources according to market rules, industrial overcapacity will generally not become extreme. Those that continue investing believe they possess stronger competitiveness and can use innovation to combine production factors more effectively, improve quality, lower costs, and raise efficiency.

Such competition allows efficient firms to displace inefficient ones and high-quality products to replace outdated products, improving resource allocation across the industry.

Government intervention, however, may use preferential policies to bolster enterprises that lack genuine competitiveness, preventing the market from rewarding stronger performers and eliminating weaker ones.

Strong firms relying on their own capabilities and weak firms supported by government assistance may then coexist. New firms keep entering while existing firms are not effectively selected out, inevitably aggravating overcapacity.

For most industries, the fundamental purpose of policy and law should be to provide all enterprises with fair market access, equal competitive standing, and equal legal protection.

Maintaining market unity first requires consistency in fiscal and taxation arrangements. The central government should standardize local investment-attraction rules and clearly define and strictly enforce the limits on fiscal subsidies, tax refunds, land-transfer concessions, and other preferential policies.

Illegal or unauthorized preferential treatment should be strictly prohibited. Local investment promotion should shift from competing to offer the most generous concessions toward competing to provide the best business environment and the most effective reforms.

3.4 Social credit

A market economy rests on extensive specialization and cooperation. Market participants engage frequently in transactions, exchanges, and partnerships, making contract performance, honesty, and trustworthiness especially important.

These factors determine the costs and effectiveness of social and economic interactions and the orderliness of economic activity. China therefore needs to accelerate the development of a social credit system deeply integrated into every aspect and stage of the national economy.

A new credit-based regulatory mechanism should be strengthened, with credit supervision covering the full chain and life cycle of business activities.

A tiered and categorized regulatory system should be established and improved: enterprises with good credit should face less interference, while those with poor credit should receive closer supervision. Rewarding trustworthiness and penalizing breaches of trust can improve businesses’ awareness of integrity and compliance.

At the same time, credit-restoration mechanisms should be improved for enterprises that actively rectify problems and establish compliance systems. A differentiated, tiered approach with phased removal of restrictions should allow and encourage businesses to rebuild their credit conveniently and efficiently.

III. Inclusive Reform: Promoting Social Harmony Through Institution-Building

Sharing the fruits of development helps promote social harmony. Sharing is an essential requirement of socialism with Chinese characteristics.

The Resolution emphasizes:

“Remain committed to a people-centered approach, respect the people’s principal position and pioneering spirit, respond through reform to the people’s concerns, and ensure that reform is for the people, relies on the people, and delivers benefits shared by the people.”

Efforts to share development gains have achieved some results in recent years. Experience shows, however, that policy adjustments not embedded in durable institutions have limited scope and strength and are subject to fluctuations.

Over the long term, achieving and sustaining a relatively stable level of shared development requires inclusive reform. Institutions must ensure that the public can fairly and reasonably share in the benefits of economic development and social progress, including in rights, opportunities, processes, and outcomes.

The World Bank’s 2018 report, Poverty and Shared Prosperity: Piecing Together the Poverty Puzzle, states that inclusive development centers on addressing social exclusion through institutionalized public policies, ensuring that everyone shares in development gains, removing unequal opportunities, and preventing social stratification from becoming entrenched. A comprehensive social protection system provides an important institutional safeguard.

Since the 2008 financial crisis, the Organisation for Economic Co-operation and Development (OECD) has paid increasing attention to persistent inequalities in growth, income, and wealth distribution within and between member countries. It has encouraged a shift from emphasizing economic growth alone toward greater inclusiveness, ensuring that growth’s benefits are more widely shared.

China’s further comprehensive reform should strengthen inclusiveness, dismantle institutional barriers to inclusive development, and establish supporting institutions that combine equality of opportunity with fairness in outcomes.

1. Accelerating reforms that support common prosperity: Promoting harmony through shared benefits

Since reform and opening up began, China’s economic strength has increased rapidly, living standards have continuously improved, poverty alleviation has achieved tremendous results, and urban social protection has steadily strengthened.

Overall, however, common prosperity requires a relatively high degree of sharing across society. At a minimum, this entails two basic conditions: relatively small income gaps between individuals and groups, and relatively small disparities in the basic public services provided by government.

Aggregate data indicate that this is a formidable task. Measured by the Gini coefficient, the most commonly used indicator of income inequality, China’s income gap narrowed steadily from 2008 to 2015 but has remained relatively large and stable since 2016. Within this overall pattern, the urban–rural income gap has narrowed slightly, while income inequality among urban residents has shown some tendency to widen.

Large income disparities not only directly undermine fairness and sharing but also constrain development. At present, the key constraint on China’s economic development has shifted from the supply side to the demand side. Large income gaps leave some residents without sufficient purchasing power.

Accelerating reforms to improve income distribution can therefore promote both sharing and development. There are two main directions for inclusive reform, both requiring faster research and stronger implementation.

The first consists of policies to narrow personal income gaps.

The priority is to accelerate institutional arrangements that raise the incomes of low-income groups. One focus of tax reform internationally in recent years has been reducing personal income tax burdens on low- and middle-income workers and households to make taxation fairer and more inclusive.

Given the characteristics of China’s current tax system, special additional deductions for personal income tax need further improvement.

Tax preferences for high-income earners should also be gradually eliminated. Local governments should not offer overt or covert tax concessions on the grounds that enterprises relocate, invest locally, establish venture capital funds, or launch new businesses.

Income from bringing rural collectively owned commercial construction land onto the market and making use of idle housing should be prioritized for improving rural residents’ social protection. Like urban residents, they should no longer need to rely on land as their social safety net. This would provide relatively low-income groups with more effective and stable protection.

Employment-first policies should be further improved. Particular caution is needed regarding technologies that simply replace labor, and related tax policies should be considered. For example, special taxes or levies could be imposed on certain robots and AI applications with clear job-displacement effects, with the proceeds earmarked for supporting displaced workers.

In short, meaningful progress toward common prosperity requires reducing the Gini coefficient below 0.4 and bringing the urban-to-rural income ratio below 2.0. This is an extremely challenging task, and sufficiently strong institutional arrangements must be put in place.

The second consists of policies to equalize basic public services.

At the modernization stage, improvements in quality of life increasingly depend on a greater supply of higher-quality public goods.

In China, substantially raising low-income groups’ incomes in the short term is difficult, making the expansion of widely accessible basic public goods particularly important.

First, social protection should be strengthened for groups whose coverage and benefits are relatively limited. Rural residents’ pension benefits, for example, are low and urgently need to be raised to a level appropriate to China’s stage of development and the requirements of common prosperity.

Second, reforms should be studied and advanced to fully incorporate urban residents without local household registration into urban public-service systems. Long-term residents from elsewhere should enjoy the same rights and treatment as residents with local registration.

Urban subsidized-housing reform should be advanced to cover all permanent residents.

Even when personal incomes differ, society’s level of sharing and harmony will improve substantially if citizens can enjoy high-quality, equal basic public services wherever they live, without major disparities in access to childcare, education, remuneration for work, healthcare, elderly care, housing, and assistance for vulnerable groups.

2. Accelerating social protection reform for the AI era: Promoting harmony through broadly shared technological benefits

Artificial intelligence is advancing faster than expected, bringing major changes to the relationship between innovation and employment.

AI’s disruptive and transformative effects on employment differ significantly from those of technological progress over the past several centuries. Even within the continuous technological progression from networking to digitalization to intelligent systems, the employment effects vary.

Networking primarily provides connections that make information transmission more efficient. Digitalization maps the physical world into the digital world, providing a basis for evidence-based decision-making. Both primarily empower people.

Intelligent systems are different. They possess some capacity to perceive, reason, make decisions, and act, enabling them to carry out relatively complete workflows and entire tasks.

For this reason, intelligent systems can rapidly replace some people’s work.

A U.S. study indicates that employment remained broadly stable during the networking and digitalization eras. Since 2022, however, although demand for high-knowledge, high-skill positions has remained steady, recruitment for entry- and mid-level white-collar jobs has slowed noticeably and even declined after August 2025. University graduates have felt the most direct effects.

At present, the jobs most likely to be replaced are standardized, repetitive roles centered on text, data, and information processing. Relevant positions in internet services, software, and call centers, for example, are particularly exposed.

AI is, of course, also creating new jobs. Overall, however, it is creating more new jobs than it is replacing.

If AI-driven job displacement continues, it may pose major challenges to existing social protection systems.

Earlier social protection systems underwent a transition from a “residual” model to an “institutional” model. Residual protection primarily assisted vulnerable groups. During industrialization, however, social protection became institutionalized.

The mobility of industrial society, wage employment, and separation from permanent productive assets such as land meant that citizens generally needed social protection at some stage of their lives. Countries therefore widely established five major forms of social insurance: pensions, healthcare, unemployment, occupational injury, and maternity insurance.

In the AI era, people may move frequently between employment and unemployment. Unemployment can affect entire industries or skill categories, leaving large numbers of people with the same occupational or technical background out of work simultaneously. Opportunities for reemployment may disappear at the same time.

If this trend continues, technological progress could generate a systemic social problem.

Social protection systems should, as far as possible, avoid encouraging dependency or unwillingness to work. In the AI era, however, neither individuals nor society as a whole can readily determine which skills or efforts will prevent unemployment. Hard work and continuous learning may not necessarily be sufficient.

Social protection should therefore become more universal.

Two widely discussed ideas warrant study: universal basic income (UBI) and universal basic capital (UBC).

UBI proposals advocate providing all citizens with an unconditional fixed cash payment, without means testing or work requirements.

UBC proposals advocate allocating each citizen a share of public capital so that everyone can participate in the capital returns generated by technological progress.

Their underlying logic is that AI may replace routine jobs on a large scale, continuously reduce labor compensation’s share of national income, and leave traditional, after-the-fact social assistance unable to offset technological unemployment.

UBI establishes a minimum income floor to meet the basic needs of people without work. UBC gives people rights to capital returns from AI industries, allowing everyone to share in part of the technological dividend.

Countries and some international organizations are actively discussing and studying these two inclusive social protection models as possible responses to AI’s employment impact. So far, however, no country has begun full-scale implementation. Increasing numbers of governments recognize that UBI’s universal income floor and UBC’s mechanism for sharing returns deserve attention.

China possesses substantial state-owned capital, alongside start-ups that continue to raise large sums in capital markets.

Using a greater share of returns on state-owned capital to improve people’s livelihoods, and converting a reasonable proportion of the capital gains generated by technological progress into assets shared by all, would help address employment challenges in the AI era and strengthen public acceptance and support for AI development and application.

3. Accelerating reforms that balance different interests: Promoting harmony by building consensus

An important feature of the modernization stage is that people’s aspirations for a better life become more diverse, as do their expectations regarding how society’s resources should be allocated.

At this stage, it becomes even more important to balance different interests, build consensus, and promote social harmony. Three relationships require particular attention.

First, China must properly handle the relationship between keeping economic development at the center and advancing work in other areas.

During the building of a moderately prosperous society, economic development was an urgent public aspiration and a matter of broad consensus.

During socialist modernization, people’s demands become more diverse. Material resources and government attention must inevitably be distributed across a wider range of fields, including education, healthcare, and the environment.

Yet every resource is finite. Society should therefore be guided toward a shared understanding of the importance of economic work, ensuring that substantial resources remain directed toward economic development.

At the same time, other fields also require progress and should receive resources and development opportunities according to public preferences and their own underlying requirements.

Second, China must properly handle the relationship between motivating local governments and building a unified national market.

The domestic and international political and economic environment is complex and challenging. For some time to come, local economies will continue to face multiple pressures, particularly in innovation-driven development, the circulation between production and consumption, and fiscal and tax operations.

Local governments must therefore be fully motivated to promote development and encouraged to manage economic work creatively in ways suited to local conditions.

At the same time, local efforts to stimulate growth may produce policies that undermine the unified national market.

Examples include restricting enterprises from relocating elsewhere; using qualification requirements and other explicit or implicit entry barriers to block products from other regions; granting unauthorized fiscal subsidies, tax refunds, and land concessions to attract investment; and abusing administrative power to exclude or restrict competition.

A unified national market is essential to leveraging China’s vast market size and improving resource allocation efficiency. Local practices that benefit one area at others’ expense weaken the country’s overall development potential.

China must therefore encourage local initiative while preventing conduct that undermines market integration. Achieving this balance requires sophisticated leadership and well-designed institutions.

Third, China must properly handle the relationship between encouraging innovation and safeguarding social fairness.

Innovation is a major source of new growth, and technology entrepreneurs are its most important driving force. They can earn substantial returns from innovation and become a significant part of the high-income population.

Increasingly, however, innovation takes the form of highly intelligent applications that employ relatively few people. In other words, it may generate a small number of exceptionally high earners while benefiting only a limited number of ordinary workers. More innovation may therefore be accompanied by greater income polarization.

Common prosperity is an important feature of Chinese modernization, and appropriate institutions and policies must safeguard its achievement.

This is a difficult issue on which consensus is not easy to build.

For example, narrowing income disparities would ordinarily call for more progressive taxation, with higher earners paying more. In practice, however, local governments seeking investment and economic growth often grant tax concessions to investors, holders of technological achievements, and executives of large corporations.

Such practices have a rationale from the perspective of attracting resources and promoting local growth, but they work in the opposite direction from common prosperity.

The relationship between these objectives must therefore be handled carefully, rather than pursuing one while neglecting the other.

4. Accelerating reforms for institutional opening up: Promoting harmony through mutual benefit

In the early years of reform and opening up, China’s overall industrial competitiveness was relatively weak. Within the international division of labor, it developed a typically vertical relationship with advanced economies.

Developed countries used their advantages in capital, technology, branding, and management to occupy medium- and high-end industries and high-value-added activities. China relied on lower labor costs and mainly engaged in lower-value-added activities such as processing and assembly.

Today, China and developed countries have established a horizontal division of labor in some industries. They cooperate and specialize within the same industries and product categories, with broadly comparable technologies and product standards.

Competition does not necessarily mean confrontation. Developed countries’ industries compete with one another, yet their countries can still cooperate.

As a major supplier with strong competitiveness across a broad range of products, China has enormous scope for both competition and cooperation with other countries.

During the period of vertical specialization, China’s relatively weak industrial competitiveness led it to rely heavily on preferential export policies, giving its opening up a policy-driven character.

Going forward, China should work to shift from policy-based opening up to institutional opening up.

The Resolution states:

“Proactively align with high-standard international economic and trade rules, make rules, regulations, management practices, and standards compatible in areas such as property-rights protection, industrial subsidies, environmental standards, labor protection, government procurement, e-commerce, and finance, and create a transparent, stable, and predictable institutional environment.”

These seven areas are central to high-standard international economic and trade rules. They are also key areas in which China falls short in aligning with international standards.

For example, property-rights protection is critical to building an innovative country.

For a long time, China primarily improved its industrial technology and overall competitiveness by introducing foreign technologies. Today, it is moving increasingly close to the global technological frontier.

Innovation resources now flow across borders on a highly globalized basis. Venture capital, scientific and technological talent, and innovation markets are deeply integrated into global systems.

Innovation resources tend to concentrate where the institutional environment for venture investment and entrepreneurship is more favorable. Weak intellectual property protection, or insufficient penalties for infringement, counterfeiting, fabrication, and fraud, will discourage innovators from investing and establishing businesses in China.

Similarly, in industrial subsidies, China has proactively adjusted export tax rebate policies for some competitive industries in response to changes in domestic industrial strength and the international competitive landscape.

The positive significance of institutional opening up lies in creating a more transparent and impartial environment and enabling Chinese industries to compete with those of other countries under fairer rules.

For many years, for example, China offered preferential export policies because its products were relatively uncompetitive internationally.

In recent years, China has recorded large trade surpluses. Although these mainly reflect the underlying competitiveness of its industries, their prolonged continuation may hinder the development of mutually beneficial international economic and trade relations. Reducing subsidies for export products is therefore necessary.

The essence of institutional opening up is to give markets a greater role in cross-border resource flows.

Policies should no longer favor one direction of activity over another. Instead, they should treat two-way cross-border flows of goods and production factors equally—including equal treatment of exports and imports, inward foreign investment and outward investment, and domestic and foreign-invested enterprises.

In conclusion, further comprehensive reform should begin with the goal of building a modern socialist country. It should not shy away from important and difficult reform requirements. Instead, China should identify the principal tasks of development-oriented, governance-oriented, and inclusive reform in a realistic manner that keeps pace with changing circumstances, providing firm institutional foundations for advancing Chinese modernization.

Participants were

Huang Yiping, Boya Distinguished Professor and Dean of the National School of Development at Peking University;

Zhang Xiaojing, Research Fellow at the Institute of Finance and Banking of the Chinese Academy of Social Sciences and Director of the National Institution for Finance and Development;

Wu Ge, Chief Economist and Assistant to the President of Changjiang Securities;

Shi Kang, Chair Professor at the Tsinghua University PBC School of Finance and Director of its Center for International Macroeconomic Policy.

Huang Yiping called on the central government to take on more debt to repair the balance sheets of local governments and households. He also argued that stimulus policy needs to be more imaginative. Despite successive rounds of new policies over the past three to four years, downward pressure on the economy has persisted. At this point, he suggested, somewhat more aggressive stimulus is needed to break that cycle. (My first thought was another package on the scale of the measures announced at the joint press conference by several major government agencies on September 24, 2024.)

Zhang Xiaojing emphasized that fiscal and monetary policy should be supplemented by “asset policies”: putting public assets to more productive use, improving their returns, and supporting households through mortgage relief, stronger social protection, and better public services. He also highlighted the tension between “investing in people” and central–local government relations—specifically, how governments are held accountable for results. Local governments may invest in people, but those people can move elsewhere. The benefits are therefore difficult to capture in local officials’ performance metrics, while the expenditure remains clearly visible. This weakens local governments’ incentives to make meaningful investments in people. To address this problem, Zhang argued that the central government should take the lead, with performance assessed over a longer time horizon.

Wu Ge, a veteran of Chinese monetary policymaking who spent many years in the People’s Bank of China’s monetary policy department, reiterated that economic weakness cannot be attributed entirely to structural factors such as population aging. Countercyclical policy still has a role to play. Fiscal, monetary, and other policies should work in concert, and the transition from old to new growth drivers should follow the principle of “establishing the new before dismantling the old,” rather than allowing policies to offset one another. He also called on policymakers to do more to guide market expectations. Monetary and fiscal policy should have a clear “reaction function”: excessively low inflation or weak nominal growth should automatically trigger interest-rate cuts, fiscal expansion, and measures to stabilize the housing market. If policymakers fail to act even as nominal indicators deteriorate sharply, markets will inevitably begin to question their resolve.

Shi Kang likewise supported greater central government borrowing to ease pressure on local governments. His particular concern was distribution: as industry shifts from labor-intensive to capital-intensive production, the gains from exports and technological progress may no longer flow automatically to ordinary households. Stronger policies to improve income distribution are therefore needed to ensure that households share more broadly in the benefits of growth.

Below is the full English version of the transcript I made with the help of AI. You can find the Chinese ver on the WeChat blog of New Economist 新经济学家智库

Shi Kang: Let us now move into the discussion. Rather than introducing another question, let us first ask Professor Huang to finish the fourth point he was making.

Huang Yiping: I would be very happy to continue. We are indeed facing some new issues, but imbalances are not necessarily all bad. My own thinking is evolving as well. We had global imbalances in the past, and now we are seeing new developments and some unusual factors.

If artificial intelligence develops in the direction I envisage, the mismatch between aggregate demand and aggregate supply may not disappear anytime soon. It could persist for some time.

At the beginning, Wu Ge asked: What problem does economics actually seek to solve? Our assumption is that resources are scarce. Economics studies how to use limited resources to produce more output and meet people’s needs, while also addressing the relationship between efficiency and fairness.

My preliminary assessment is that the mismatch between aggregate demand and aggregate supply may persist, and that this persistent imbalance would be detrimental to sustainable economic growth. In the past, China was still a relatively small economy, and external markets were more receptive to its output. Now that China has become a large economy, greater resistance in international markets would make domestic capacity pressures more pronounced. Going a step further, if AI affects supply and demand asymmetrically across national economies, the problems China faces today could become global problems in the future.

This has an important policy implication: for some time to come, we may need sustained policy support for aggregate demand, rather than just a one-off countercyclical stimulus when the economy is temporarily weak.

We can already see two things. First, the economy faces a degree of downward pressure every year. Policy support stabilizes it for a while, but the underlying downward pressure does not go away. Second, international imbalances seem to be widening.

Perhaps this is what Wu Ge was getting at earlier. Although I do not fully agree with his specific proposals, I agree with the general direction: we may need to consider more forceful ways to increase aggregate demand. This has become a very pressing issue, and it is not something we can resolve with a single intervention today.

More specifically, I would divide this into two broad areas. The first is structural measures, primarily to address domestic demand. Fundamentally, China’s insufficient domestic demand is mainly a problem of insufficient consumption. Investment also matters at the margin in the short term, but looking at the overall structure of the economy, the imbalance between strong supply and weak demand is quite evident.

We cannot rely indefinitely on consumer credit or trade-in programs to increase consumption. These measures can provide a short-term boost, but they cannot sustain a lasting increase in spending. Ultimately, it comes down to income and confidence.

Structural issues are also connected to industrial upgrading. We need to think further about what kinds of market mechanisms facilitate an efficient allocation of resources. Businesses and capacity that should exit the market need to be allowed to do so. We also need to discuss what kinds of industrial policies can promote upgrading without creating excessive pressure from surplus capacity.

I believe it is important to push ahead with market-oriented reform. On the one hand, we should allow the market to play a greater role in allocating resources. On the other, we should leave more of both resource allocation and income distribution to the market. This would help increase the household share of income, benefiting both consumption and the development of new quality productive forces.

The third structural issue concerns international cooperation. I broadly agree with what Shi Kang said about the pressures being felt overseas. China produces goods well, and other countries benefit from buying Chinese products. But China is now a large economy, which is different from being a small one.

Singapore, for example, has a very large current-account surplus relative to its economy, but its global impact is limited. When China exports a little more or a little less, it affects other countries’ economic structures, industrial development, employment, and income distribution.

We therefore need to build a new framework for international economic cooperation. As we pursue our own development, we also need to consider whether other countries can benefit from it. For example, we could engage in more investment cooperation and industrial cooperation. When companies manufacture overseas, they do more than export technology and products: they can also create local jobs, income, tax revenue, and GDP, contributing to shared prosperity. In the long run, I believe this is the direction we should pursue.

The immediate challenge, however, is that we are already facing this situation. We already have a policy framework, and many frameworks and measures to promote consumption have been introduced. On market-oriented reform, the Third Plenary Session of the 20th CPC Central Committee also called for the market to play its role in resource allocation.

Even if these measures prove effective, they may take time. They will not necessarily deliver results right now. In the meantime, do we need some countercyclical—or, we might say, aggregate-demand—policies to lift overall demand?

I have heard many of your analyses of fiscal and monetary policy: which is better, fiscal policy or monetary policy? I do not have a particularly strong preference. But when choosing policies—for example, whether it is more important to stimulate investment or consumption—the question is not whether we happen to prefer investment or consumption.

Rather, if we already have strong supply and weak demand, will investment made today ease that imbalance tomorrow, or make it worse? That is something we need to consider.

Both fiscal and monetary policy can be very effective. I will not discuss today whether fiscal policy works more directly than monetary policy. I still think investment is important, and stimulating consumption is not that easy. That is why I particularly agree with the point Zhang Xiaojing made.

If the short-term economic weakness and widening external imbalance we discussed earlier are related to a relative contraction in investment, how do we change that? If a whole range of issues—local government debt, real estate, excess capacity in traditional industries—are connected to this, then one possible solution, in my view, is balance-sheet restructuring.

My suggestion is to use increased leverage at the central government level to repair or improve the balance sheets of local governments, financial institutions, businesses, and households.

In essence, this is what the United States did during the subprime mortgage crisis: the government increased its leverage while businesses, institutions, and households deleveraged. When the crisis ended, the economy rebounded strongly.

If the balance sheets of these individual economic actors are not repaired, stimulus policies will ultimately be much less effective, because those actors will lack the capacity to undertake new activities.

I will not go into the specific mechanics. We need to think about what Wu Ge has been saying and come up with new approaches—to “think outside the box.”

We have been using these traditional policies for three or four years now. Each year, we provide some stimulus, the economy stabilizes for a while, but the downward pressure remains. If we adopt somewhat more aggressive measures, perhaps we will have a chance to break out of this cycle.

Shi Kang: That was very well put, Professor Huang, and it brings us back to Professor Zhang’s point. Professor Huang’s position essentially supports increasing central government leverage.

Those of you who were here this morning will remember that Professor Ju also raised this. His presentation was on renminbi internationalization and three dimensions of rebalancing in the Chinese economy. His three dimensions were somewhat different from yours: his were more macroeconomic, while yours are more focused on the micro level.

Professor Justin Yifu Lin disagreed with his proposal, but I think the general direction is right. Finding ways for the central government to increase leverage, and thereby relieve pressure on local governments, is an important direction.

Professor Huang also made an excellent point about moving beyond the traditional framework and finding new approaches. We cannot keep focusing only on trade-in programs or debating cash transfers—although cash transfers are still a good thing.

Xiaojing’s proposals and views are relatively new to most people. Please elaborate.

Zhang Xiaojing: Let me offer a few more thoughts, including on Professor Huang’s suggestion that we adjust the framework.

In the past, we relied on fiscal and monetary policy. Wu Ge also reminded us not to overlook monetary policy. Everyone talks about fiscal policy all the time. I think both are important, but neither is sufficient. Keynesianism is not enough.

I would like to add another category. I have already published an article on this—I believe it was in the eighth issue—arguing that we need “asset policy.”

That may sound new, but think about the proposal at the Third Plenary Session of the 20th CPC Central Committee to explore the management of the national macroeconomic balance sheet. This is essentially what it means.

We need to recognize that, in addition to the three main pillars of macroeconomic policy we usually discuss—planning, fiscal policy, and monetary policy—we should add a new one: balance-sheet policy. For simplicity, I call it asset policy.

What does that mean? Its most important element is the point we just discussed: a moderate rebalancing and redistribution of wealth between the government and household sectors.

How should we do this?

First, as we have said, China has substantial public-sector net assets. International comparisons show that our net assets are far greater than those of advanced economies. But all countries have public-sector assets—the United States has them, and Sweden has them too.

This has led to a new strand of thinking about public wealth and the wealth of nations, emphasizing how public-sector wealth can be accumulated and how its returns can be improved.

So my first proposal for asset policy is to put our many existing public-sector assets to productive use and increase their returns.

A one-percentage-point increase in the return on public-sector assets worldwide would be enough to meet global public infrastructure needs. Just one percentage point would suffice.

Imagine what it would mean if we increased the return on our own public-sector assets by one percentage point. I will not go into the specific figures, but it would be highly significant.

We must not leave this wealth sitting on paper. That is particularly important: we need to put it to work. Unlocking the value of existing assets has now become one of the most important tasks for local governments.

The second point is transfers. We should not look at all these assets and conclude that we must keep expanding production. In many sectors, further expansion is unnecessary.

I think we should make appropriate transfers. There are many ways to do this, including the fiscal and financial methods mentioned earlier. Residential mortgages are also relevant.

I have heard an argument that makes a great deal of sense, and I have raised it myself on several occasions: household mortgages are one of the most important sources of support keeping our banks going, because their interest rates are quite high.

Why do so many banks see consumer lending as a potential new opportunity? Because interest rates on consumer loans are also relatively high. But the scale of consumer lending is far smaller than that of mortgage lending.

If, in a sense, households have been subsidizing the financial sector—and even the state-owned sector—through their mortgages, we now need to find ways to reduce that subsidy and instead provide support to households.

How do we do that? Cutting interest rates seems difficult; we will not discuss that issue today. But even without cutting rates, we can subsidize interest payments. We have had many discussions with the Ministry of Finance about this.

I believe it will be extremely important to use fiscal and financial measures to reduce this burden on households. Reducing it is itself a form of wealth rebalancing.

Then, of course, there are pensions, healthcare, social security, and related public services. We absolutely need to strengthen these.

The central leadership has called for “investing in people.” In the past, we did not really have a clear concept of what that meant. Today, I think taking a balance-sheet approach represents a major change in how we think about both investment in people and debt risk.

In many past discussions, I have pointed out that, over more than 40 years, China’s assets and liabilities grew and expanded together. We incurred liabilities, but assets were created in return.

Whether through industrialization or urbanization, we could see the buildings, infrastructure, factories, machinery, and equipment. The physical assets were right there. Debt on one side, assets on the other: they appeared well matched, with no risk.

But if we invest in people today, we have investment and debt, yet no visible asset formation, because human capital is largely absent from our national balance sheet. This is an omission under the System of National Accounts, or SNA, framework.

Investing in people will be a national strategy for a long time to come. If we borrow to invest in people but cannot see the resulting assets, the two sides will appear out of balance. Unless we find a way to address this, governments will not be able to commit fully to investing in people. It simply will not happen.

Many local governments are already complaining: “You are asking us to invest, but once we have done so, nothing tangible has been created. We will be held accountable, and the assessments will show that our risks are very high.”

And that is before we even consider another problem: what if a local government invests in someone, and that person then leaves? The externalities are substantial.

I therefore have two points about this shift. Investing in people is itself a form of balance-sheet rebalancing.

First, the central government should take responsibility for this. That would address the externality problem.

Second—and this is very important—our future assessments of fiscal balance and debt risk must take an intertemporal perspective.

We cannot say: “Today we invested in someone. They attended a training course, listened to a concert, went to a live performance, and improved their capabilities in various ways. Tomorrow we should be able to see higher human capital on the balance sheet, along with patents and innovations.”

That is impossible. The assessment horizon must be extended. We need to look across time.

How should we measure the performance—the KPIs—of investment in people? This is a challenge for countries around the world. Some have established satellite accounts for human capital. Denmark and many other countries are doing this, and we should too.

My third proposal relates to Professor Huang’s point about the impact of AI.

AI’s effects are so substantial that asset policy must take them into account. Its impact is economy-wide. This is not simply a case of one industry suddenly running into trouble, followed by some targeted central government measures. Do we have enough money to support the process of so-called creative destruction on this scale?

One very important consideration is that local governments—and the central government as well, which has established a fund to guide investment in innovation—are investing in many AI companies.

Much of this investment takes the form of equity stakes, because many of these companies are privately owned. Through the returns generated by innovation, including AI innovation, governments will acquire substantial new assets and wealth.

My proposal is that, because AI’s impact is broad and systemic, the wealth obtained from these innovation returns should be earmarked specifically for the people adversely affected by AI.

This is my third asset-policy proposal: governments should accumulate new kinds of assets related to AI and technological innovation, and use those assets to support the people harmed by creative destruction.

Through these approaches, I believe we can gradually establish an asset-policy framework that goes beyond the traditional combination of fiscal, monetary, and planning policies. It would allow us to put our accumulated wealth—and we have a very substantial stock of it—to genuine use.

If we fail to put that wealth to work, then having it amounts to very little. Thank you.

Shi Kang: Professor Zhang has further explained how we might improve or reform the way we compile, assess, and even measure balance sheets. I find this particularly thought-provoking in the age of AI.

Around 2000, we had global imbalances. China ran large surpluses between 2000 and 2007. At that time, China’s economy was labor-intensive.

What did that mean? It meant that when China ran an export surplus, exporters of all sizes benefited. Workers and their families benefited too. It was a surplus whose benefits were broadly shared.

Today, when we conduct field research, we find that many companies—in semiconductors, integrated circuits, or new-energy vehicles—are capital-intensive.

This raises an issue in the context of AI: as industries diverge, the gains from external demand, or the benefits associated with these imbalances, are no longer broadly shared.

We therefore need a range of distributional policies, and I believe that need is urgent.

Now, let us invite Wu Ge to continue discussing monetary policy. I have a very specific question, and I wonder whether you agree.

The current policy stance is essentially described as “moderately accommodative” monetary policy, together with proactive fiscal policy. Would you favor removing the word “moderately”? Or would you add another qualifier to describe the monetary policy we need now? That is my question.

Wu Ge: The Chinese language is rich and nuanced, so you can choose whatever wording you like. But what people care more about is whether they feel a tangible financial benefit.

Speaking of tangible financial benefits, may I ask those of you who have stayed until the end a question? The central leadership attaches great importance to your income and your income expectations. So let me ask: How do you prove that your income is high, or that you have money?

That might sound like a pointless question: “I know perfectly well whether I have money.” But from a macroeconomic perspective, or from the perspective of money and banking, what does it mean to have money? Where is the money? Where has it gone? How does the amount of money increase? How does society as a whole acquire more money? Which comes first—the chicken or the egg?

From the perspective of money and banking, the answer is actually quite straightforward. All our income—including corporate income and even government revenue—exists as deposits within the banking system’s payment network.

Very few people can operate outside a payment or account system dominated by commercial banks.

I do not know whether everyone agrees with this principle, but it is a basic principle of money and banking: our money cannot escape the reach of the commercial banking payment system. That is the first point.

If all our money, or the vast majority of it, is in the banking system, what do we mean by the money people have? How much money do they have in their pockets? At the macro level, we call this M2.

What is M2? It is people’s deposits; it corresponds to how much money they have.

Where does that appear on the balance sheet of a bank, or of the commercial banking system as a whole? On the liability side.

All our money is in the banking system. Banks have assets and liabilities, and their liabilities consist primarily of M2—that is, people’s deposits.

And on the other side of the balance sheet? Banks can use funds to make loans, buy bonds, do other things, or even purchase foreign exchange. All of these can create money.

So, from a macroeconomic perspective, imagine treating the whole of society as one large system. Put together all the money people hold at commercial banks, and consolidate all commercial banks into a single bank.

Then ask: If people are to have more money and feel that they have more money—if M2 is to rise—what must happen?

The asset side needs to expand.

This is what macroeconomics and the theory of money and banking mean when they say that loans create deposits, or that credit creates deposits.

Where does money come from? It is generated through credit expansion.

So, if we want to meet people’s income expectations and aspirations, then from a money-and-banking perspective, we need a mechanism for credit creation. And that mechanism requires expansion on the asset side: lending and bond purchases.

In that sense, talking about income in isolation is not very meaningful. At its source, income—or deposits—is closely related to credit.

What, then, can support a steady expansion of credit, rather than the slowing year-on-year growth in outstanding credit that we have been seeing?

Some people would object: “No, this is simply what happens as a society ages. People’s desires diminish.”

But that is a matter of debate. The Nobel laureate Modigliani argued precisely that an aging society can stimulate consumption demand. The most rational elderly person would spend their last dollar at the very moment they leave this world.

So old age, especially the final stage of life, should be a period of substantial consumption, not contraction. Of course, this is debatable.

There are also many countries whose populations are much older than ours, and whose low-birth-rate problems are much more severe. Yet we have recently seen many positive changes in those countries.

Structural factors, long-term factors, and potential growth certainly affect the trajectory of credit creation, the opportunities for it, and income expectations. But they are not destiny.

Some countries are more deeply aged than China, yet when they get their countercyclical policies right, we can see employment rise—and even, in some cases, birth rates.

In this sense, cyclical and structural issues are not opposites. Handling cyclical problems well can help ease structural problems, and addressing structural problems well can help ease cyclical ones.

China faces multiple challenges and seeks to achieve multiple objectives. According to economic theory—including frameworks such as the Mundell–Fleming model and the Tinbergen rule—multiple objectives require multiple policy instruments.

What we need, therefore, is a package of policy measures with at least three arrows in the quiver. Trying to advance with a single instrument will not work. That is my first point.

Second, Chinese thinking, and Eastern philosophy more generally, tends to emphasize balance and moderation.

In this process, we really need to follow the central leadership’s principle of “establishing the new before dismantling the old.”

Take local government finances. If local fiscal activity is contracting, some other source of support must make up for it. If that replacement is not yet strong enough, the contraction should be smaller.

The same applies to the transition from old to new growth drivers, and from traditional industries to new industries.

The central leadership says we should establish the new before dismantling the old. We are very enthusiastic about new things—but does liking the new mean that we should reject the old?

How should we balance the two?

If they are moving at different speeds—if new industries are growing quickly while old industries are declining sharply, but the old industries still account for a very large share of the economy—should we reconsider the balance of support between them?

In this regard, the central leadership has placed considerable emphasis in recent years on assessing policy consistency: which policies encourage credit expansion, and which cause credit contraction?

If I remember correctly, the National Development and Reform Commission had a dedicated department to assess whether different policies were working at cross-purposes and whether they were consistent.

This is critically important. As we often say, macroeconomics contains many fallacies of composition: what is rational for an individual actor is not necessarily rational for the system as a whole.

My understanding is that we need to guard against precisely this fallacy.

Over the past few years, pressure on local finances has led many local governments to pursue additional tax revenue through practices that I believe the central leadership strongly opposes.

In reality, however, local governments still engage in them for various reasons. I think these are short-sighted methods that exhaust the very sources of future revenue.

They have a very substantial impact on people’s expectations and confidence, especially the confidence of private entrepreneurs. This deserves particular attention.

My final point is that policy needs rules—especially countercyclical policy.

Countercyclical policymaking is an art rather than a science. But whether we are talking about fiscal or monetary policy, I think we need rules and benchmarks.

I am not saying that we must mechanically adopt a rule used in another country, such as the Taylor rule. We can be more flexible. But we still need objectives.

For example, macroeconomic policy should take into account both real GDP and nominal variables. When nominal variables decline very sharply, policy should respond countercyclically.

Rules are crucial because credible rules can influence people’s expectations without every policy necessarily requiring immediate, concrete expenditure.

To borrow the image of Zhuge Liang’s empty-fort strategy: you can display your rule on the city wall without moving a single soldier, and people will still believe you.

But that credibility depends on whether you have actually followed through on the objectives you set in the past—whether your actions match your words.

For example, if we say we want to promote a moderate recovery in prices, then we must genuinely work to achieve it. If we say we want to halt the decline in the property market and stabilize it, then we must actually do so.

I believe the market would then work alongside the central government to move the economy toward a better, higher-quality balance. Thank you.

Shi Kang: Wu Ge has offered some excellent insights. I would like to ask another question, perhaps one that particularly interests me personally.

I recently read an article you wrote about exchange-rate movements following Federal Reserve rate hikes.

This is something many people are concerned about now. Perhaps the Fed will raise interest rates once more, or even enter a new tightening cycle. What impact would that have on the imbalances we are discussing?

After the financial crisis, those imbalances clearly narrowed. But what might the subsequent effects be this time?

Wu Ge: That question really should go to Professor Ju, who is an expert on international issues. But let me offer a brief response.

First, the market’s general view is that this rate increase would not necessarily mark the beginning of a full tightening cycle.

As everyone knows, the US economy has its own problems. An important backdrop to this round of rate increases is the situation in the Strait of Hormuz and, subsequently, the straits around the Red Sea. Following the closure of both passages, crude oil prices rose by $100.

Against that backdrop, when policy could otherwise lean either hawkish or dovish, such a powerful cost shock calls for a response. It may not be a repeat of the Volcker era, but I think a policy response is understandable.

Yet that is not what markets are most worried about—or at least not their main concern.

Over the past two years, we have seen a very unusual phenomenon in the United States: interest rates, especially market interest rates, have kept rising.

In principle, when US market interest rates rise, the dollar should appreciate. But over the past two years, we have instead seen yields on 10-year Treasuries and other US government bonds rise while the dollar has depreciated. The higher rates go, the weaker the dollar becomes.

Why?

Because people’s assessment of the US economy is no longer based only on the Taylor rule—growth and inflation—or on whether there will be one rate hike or two. Those considerations still matter, of course.

But a more important question has emerged since the Trump administration took office: Is the United States still a beacon for investors? People have begun to doubt that.

Over the past two years, overseas investors have therefore been reducing the share they allocate to US Treasuries and other US investments.

Selling US Treasuries or dollar-denominated assets is what allows the two developments to occur together: a rise in 10-year Treasury yields and a depreciation of the dollar.

Of course, the United States still has its technology sector and its AI industry. But, objectively speaking, technology and AI are themselves undergoing an adjustment.

Like Professor Huang, I believe that AI holds tremendous promise for the future. But from an investor’s perspective, what kind of business is AI, exactly?

At present, it is an industry characterized by high costs, high debt, and rising marginal costs—but also great promise.

From a business or investment perspective, that does not make it particularly well suited to a short-term, frenzied rush of investment.

In this sense, perhaps it resembles the railways during the Industrial Revolution. Railways could carry us toward distant horizons and a better future, but very few investors may actually have been able to make money from them in the short term.

Taken together, these factors mean that markets will certainly react to Fed rate hikes or cuts, but investors are more concerned—especially since Trump took office—about the sustainability of US public finances, the durability of central bank independence, and even the reshaping of the international political order.

There was a news report this morning that Trump had renewed his interest in Greenland.

I think all of these issues influence how investors view the United States. Their concerns go well beyond whether the next short-term rate move is 25 or 50 basis points.

1. Strategic Stability

   This is largely a continuation of the consensus reached in Beijing, with four additional formulations outlining the path forward:

   在务实合作中互利共赢，在良性竞争中彼此成就，在求同存异中妥处分歧，在累积互信中构筑和平。

   achieve mutual benefit and win-win results in practical cooperation, contribute to each other’s success through healthy competition, properly manage differences as they seek greater common ground, and build peace through greater mutual trust

   The emphasis is on the potential benefits of competition for both countries. It also acknowledges that bilateral differences will persist, while stressing the importance of building mutual trust through the process of addressing them.

2. AI Dialogue

   AI dialogue is the largest addition to the agenda. On AI safety, the Chinese perspective differs from that of U.S. tech CEOs advocating a slowdown in AI development: China tends to view AI risks more as engineering problems that can be addressed through human intervention.

   For now, the two sides’ priorities and interests do not align, making substantive progress on specific issues difficult in the near term.

   Moreover, both Beijing and Washington currently see AI as a strategic domain of bilateral competition. Any near-term cooperation is therefore likely to remain limited—for example, a mechanism for notifying each other of major AI risks.

3. Trade Truce

   In an interview with Fox News on Wednesday, U.S. Treasury Secretary Scott Bessent said the two countries had agreed to extend their trade truce, previously set to expire in November, by another two months. Beijing has yet to confirm the extension. Bessent led this week’s trade negotiations with China.

   Some interpret the short extension as a sign that negotiations are not going well. My reading is different: with opportunities remaining for the two leaders to meet again this year, the extension may be intended to leave room for another announcement at a subsequent meeting. The length of an extension is not necessary a reliable indicator of progress in the negotiations.

   The summit readout did not mention the investment or trade councils. However, China’s separate readout of the economic and trade consultations described the discussions as “candid, in-depth, and highly constructive.” I read “highly constructive” (富有建设性) as a more positive assessment than the standard “constructive” (建设性).

Others:

During his 2023 visit to the United States, when Biden was in office, Xi announced a plan to invite 50,000 young Americans to China for exchanges and study over the following five years. That target had already been met by May 2026. This time, Xi announced plans to invite 100,000 young Americans over the next five years. Now let’s see whether Trump counts this as another achievement that puts him ahead of Biden.

Below is the Chinese version of the readouts:

Remarks by H.E. Xi Jinping President of the People’s Republic of China at Arrival Ceremony at the White House

Honorable President Donald J. Trump and Mrs. Melania Trump,
Ladies and Gentlemen,
Dear Friends,

I’m very glad to pay a state visit to your beautiful country, the United States of America. Thank you, President Trump and Mrs. Trump, for the warm hospitality you have extended to me and my wife. On behalf of the 1.4 billion and more Chinese people, I wish to begin by extending sincere greetings to the American people and warm congratulations on the 250th anniversary of the American independence.

Both China and the United States are great countries, and both the Chinese and American peoples are great peoples. I am visiting the United States at President Trump’s invitation to carry on our friendship, expand cooperation, and promote the well-being of both our peoples.

Facing the changes in our world, in our times, and of historical significance today, China and the United States, as two major countries, shoulder a historic responsibility of advancing human development and progress.

Mr. President, during your visit to China this year, we agreed to build a constructive China-U.S. relationship of strategic stability, and this is widely welcomed by the people of our two countries and the international community. I am ready to work with you to steer the giant ship of China-U.S. relationship on a steady course toward the future.

—We should strengthen communication. China and the United States are different in national conditions, but through candid, in-depth and continued dialogue, our two countries can understand each other better, seek common ground while shelving differences, and build up mutual trust. President Trump and I have respect for each other. We have built personal rapport and stayed in touch. We encourage our government departments, such as those in charge of foreign affairs, economic matters, financial cooperation, law enforcement and people-to-people exchanges, to catch up on strengthening contact, and we support our legislative bodies in increasing exchanges.

—We should cooperate with sincerity. The interests of China and the United States are deeply intertwined, and there is plenty of room for us to work together. China-U.S. cooperation may not solve every problem in the world. But, without our cooperation, it would be hard to solve many of the world’s problems. China keeps its door wide open, welcomes American companies wanting to invest and do business there. We hope Chinese companies are treated fairly here in the United States. Working together, we can lengthen the list of cooperation, and shorten the list of issues. Both China and the United States are leading nations in artificial intelligence. We have both the capability and responsibility to develop and manage AI for good, and ensure that the development of AI is always under human control and serves the well-being of the people. On counternarcotics and law enforcement, the Chinese side is willing to strengthen cooperation with the United States. Our two sides may also increase direct flights to facilitate two-way travel and trade.

—We should coexist in peace. As I have said many times, China and the United States, as two major countries, stand to gain from cooperation and will both lose in confrontation. We do not need to avoid mentioning competition, but our competition should be a healthy one and should be kept within bounds. It should be a race of catching up with one another, not a wrestle in which one either wins or loses. China and the United States must hold the line of no conflict and no confrontation between us, and we can certainly find the right path for our two great countries to get along on this planet we both call home. Our two militaries should maintain regular dialogue, and improve mechanisms for crisis communication and prevention. The Thucydides Trap can be overcome.

Ladies and Gentlemen,
Dear Friends,

During the Second World War, Chinese and Americans fought shoulder to shoulder against fascist aggression. Chinese people have never forgotten that part of history, nor have the American people. The hope of the China-U.S. relationship lies in our people, and its future lies with the young. I am glad to announce an invitation for 100,000 young Americans to visit China for exchanges and study in the coming five years.

The giant panda has been an envoy of friendship between the Chinese and Americans. Here, I have a piece of good news. In a few days, two pandas, Ping Ping and Fu Shuang, will come to their new home in Zoo Atlanta and meet with the American people.

Ladies and Gentlemen,
Dear Friends,

Achieving the great rejuvenation of the Chinese nation and making America great again can go hand in hand. Let us meet the people’s expectation and show our historical initiative. Let us keep advancing the cause of friendship between our two peoples and work together to build a better world!

Thank you.

President Xi Jinping Attends the Arrival Ceremony at the White House Hosted by U.S. President Donald J. Trump

On the morning of September 24, local time, U.S. President Donald J. Trump hosted a grand ceremony at the White House to warmly welcome Chinese President Xi Jinping on his state visit to the United States.

Against the pleasant September hues in Washington, Chinese and American national flags fluttered in the breeze. Upon arrival at the White House by limousine, President Xi Jinping and Madame Peng Liyuan were warmly greeted by President Trump and Mrs. Melania Trump at the drop-off area. The two presidents and their wives posed for photos together.

Accompanied by President and Mrs. Trump, President Xi and Madame Peng walked into the White House where they signed the guest book.

Amid resounding military music, the two presidents proceeded to the Cross Hall. The military band played the national anthems of China and the United States.

After the national anthems, President Xi and President Trump each delivered remarks.

President Xi extended sincere greetings to the American people and warm congratulations on the 250th anniversary of American independence on behalf of the 1.4 billion and more Chinese people.

President Xi noted that he was visiting the United States at President Trump’s invitation to carry on friendship, expand cooperation, and promote the well-being of the peoples of the two countries. Facing the changes in the world, of the times, and of historical significance today, China and the United States, as two major countries, shoulder a historic responsibility of advancing human development and progress. During President Trump’s visit to China earlier this year, the two sides agreed to build a constructive China-U.S. relationship of strategic stability, and this is widely welcomed by the people of the two countries and the international community. President Xi said he was ready to work with President Trump to steer the giant ship of China-U.S. relationship on a steady course toward the future.

President Xi emphasized that China and the United States should strengthen communication. The two countries are different in national conditions, but through candid, in-depth and continued dialogue, they can understand each other better, seek common ground while shelving differences, and build up mutual trust. China and the United States should cooperate with sincerity. The interests of the two countries are deeply intertwined, and there is plenty of room for them to work together. China-U.S. cooperation may not solve every problem in the world. But, without the cooperation between the two countries, it would be hard to solve many of the world’s problems. Both China and the United States are leading nations in artificial intelligence, with both the capability and responsibility to develop and manage AI for good, and to ensure that the development of AI is always under human control and serves the well-being of the people. China and the United States should coexist in peace. As two major countries, they stand to gain from cooperation and will both lose in confrontation. China and the United States must hold the line of no conflict and no confrontation between the two countries. The Thucydides Trap can be overcome.

President Xi noted that Chinese and Americans fought shoulder to shoulder against fascist aggression. Chinese people have never forgotten that part of history, nor have the American people. The hope of the China-U.S. relationship lies in the people, and its future lies with the young. In the coming five years, the Chinese side will invite 100,000 young Americans to visit China for exchanges and study. The giant panda has been an envoy of friendship between the Chinese and American peoples. Two pandas, Ping Ping and Fu Shuang, will soon come to their new home in Zoo Atlanta and meet the American people.

President Xi emphasized that achieving the great rejuvenation of the Chinese nation and making America great again can go hand in hand. He called on the two sides to meet the people’s expectation, show historical initiative, keep advancing the cause of China-U.S. friendship and work together to build a better world.

President Trump extended warm welcome to President Xi on this historic state visit to the United States, and said that he has forged a great friendship with President Xi which is built on mutual respect and the vital interests of the peoples of both countries. The United States and China reached across the ocean centuries ago to trade and to learn. President Xi arrived at an important  moment for America, the 250th anniversary of independence. The two sides will continue their cooperation and contribute to a better world. He will have in-depth discussion with President Xi on topics including trade, security, AI and technology, which can lay a solid foundation for peace and prosperity for decades to come. The two countries fought together in World War II to win that war, with stories like the Flying Tigers still remembered by the people of both countries. He looks forward to continuing working together with President Xi and forging a better future for both nations.

After the remarks, President Xi and Madame Peng watched a performance by the United States Marines in the company of President and Mrs. Trump. The two presidents and their wives greeted and shake hands with the entourage of the other side. They then proceeded to the White House Rose Garden for a military review. The military band played the opening fanfare, and U.S. honor guards from different military services performed traditional drills and played instrumental music. Multiple combat aircraft flew over the White House in honor of the Chinese and U.S. presidents and their wives.

After the arrival ceremony, the two presidents and their wives withdrew to  the White House Oval Office where they had cordial and friendly exchanges.

Cai Qi, Wang Yi, and He Lifeng, among others, attended the events.

President Xi Jinping Holds Talks with U.S. President Donald J. Trump

On the morning of September 24 local time, President Xi Jinping held talks with the U.S. President Donald J. Trump at the White House.

President Xi pointed out that the Chinese and U.S. presidents exchanging visits in less than half a year is unprecedented in the history of China-U.S. relations. He and President Trump had maintained communication through different means, and worked together to steer the giant ship of China-U.S. relations. President Xi said that this May, he and President Trump agreed to build a constructive China-U.S. relationship of strategic stability. This new vision reflects the realities of China-U.S. ties, embodies the expectations for the future, and is an important step toward a right approach for the two countries to get along with each other. The two sides should turn this vision into action,strive to take their relationship where cooperation is the mainstay, competition is kept within proper limits, differences are managed and peace can be expected,and chart the right path for the two major countries to get along. China and the United States should, and have all the conditions to, achieve mutual benefit and win-win results in practical cooperation, contribute to each other’s success through healthy competition, properly manage differences as they seek greater common ground, and build peace through greater mutual trust, so that the people of our two countries and of countries around the world can all benefit from a constructive China-U.S. relationship of strategic stability.

President Xi stressed that the economic and trade teams of the two sides had a new round of consultations, and reached a new joint arrangement, which is good news for both the industries and people of our two countries and even the world economy. Cooperation is a two-way street. To keep the economic and trade ties stable, the list of cooperation needs to be lengthened, and the list of issues shortened. So long as both sides act in the spirit of equality, mutual respect, and mutual benefit, a pathway to resolving differences can always be found. It is hoped that the two sides will move in the same direction, adhere to mutual benefit and win-win results and promote the continued, steady development and improvement of China-U.S. economic and trade ties.

President Xi pointed out that both China and the United States have strong AI capabilities. They may have competition, but they may cooperate even more. The right thing to do is to draw on each other’s strengths, not guard against each other. The two sides can continue their dialogue on AI, exchange views on its risks and benefits,and jointly prevent the misuse and abuse of AI. AI must be kept under human control. A people-centered approach should be upheld, and AI should be developed for the positive and for good, so that AI will serve the progress of humanity.

President Xi stressed that the Chinese side’s position on safeguarding national reunification and territorial integrity is clear-cut. It is hoped that the U.S. side will adhere to the correct position of opposing “Taiwan independence,” and handle the Taiwan question with caution, so as to lay a solid foundation for China-U.S. strategic cooperation and the development of bilateral relations.

President Trump stated that President Xi’s state visit to the United States is a great visit. Both the United States and China are great nations. President Xi and he are good friends, and they maintain deep and close communication. Under their leadership, the U.S.-China relationship will undoubtedly be a success. A new round of consultations between the economic and trade teams of the two countries has produced new outcomes. The two sides should continue the dialogue and reach an even better deal. AI concerns the future of humanity. The United States and China should maintain dialogue and strengthen cooperation on AI.

The two presidents also exchanged views on major international and regional issues including the situation in the Middle East, the Ukraine crisis and the Korean Peninsula.

The two presidents agreed to support each other in hosting the 2026 APEC Economic Leaders’ Meeting and the G20 Summit.

Cai Qi, Wang Yi, and He Lifeng, among others, attended the talks.

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China’s View of the US Is Realist, Not Conspiracy

The original article writes:

when discussing what Beijing casts as the ultimate motives of US actors. Beijing pushes the same grand-conspiracy narrative on many topics.

It reads more like applying an asymmetrical standard to the US and China. When talking about American AI leaders, it takes their thoughts seriously, carefully distinguishing among effective altruism, liberal internationalism, and national-security realism, and emphasizing that these people may sincerely believe their actions serve all of humanity. Yet when it comes to Chinese researchers drawing conclusions from US export controls, corporate policies, and national-security partnerships, the article reduces their views to conspiracy theories and the effects of the government “propaganda.”

As someone who once studied international relations theory in the US, I see the matter differently. The Chinese way of thinking about the forces underlying US behavior is basically realist. It would be an overstatement to call it a conspiracy.

In realist theory, great powers use technology, institutions, alliances, and, of course, rules to preserve their advantages, while the language of security inevitably serves a certain power structure. As the author points out, deeply rooted convictions and internal disagreements lie behind American doctrines. But this diversity of thought cannot obscure the fact that, when the US administrative state exercises its power, competition and containment remain its most fundamental instruments.

And, when the US government and American companies define AI as a strategic technology that will determine national power and the outcome of competition between political systems, I would say it is entirely natural and fair for Chinese researchers to interpret American AI-safety discourse through interstate competition.

Interpreting the views of AI company founders as the result of genuine ideas and political convictions, while reducing Chinese researchers’ views of their American counterparts to conspiracy theories or propaganda, underestimates the intellectual agency of Chinese researchers. It also carries a somewhat condescending undertone.

China’s AI community may be the segment of Chinese society with the closest ties to its American counterpart. Many of its researchers have studied in the US or worked for American AI companies. Even more have received American-style academic training, read frontier papers without difficulty, and collaborated with American colleagues.

The original article argues that Chinese media propaganda has led researchers to adopt views of the US that are even more radical than the Party’s. I would argue the opposite: that these researchers have reached their own conclusions precisely because they have observed the American technology industry firsthand and personally experienced changes in US policy in recent years.

Sincerity Does Not Change the Nature of a Policy

Of course, as the original article says, “no trillion-dollar business builds itself without leveraging the pragmatics of capitalism and quotidian stakeholder interests.” Nor do I wish to pass judgment on whether Dario Amodei’s ideological convictions are sincere. That is the business of the Spanish Inquisition. I would rather return to the policies he has publicly advocated.

Put simply, Dario believes that the US should:

1. Do everything possible to restrict China’s access to AI chips, models, and talent, thereby eliminating the threat posed by China’s development of uncontrollable AI models.

2. Communicate with official Chinese channels in order to establish a shared U.S.–China regulatory framework in which he would participate.

He may sincerely believe that he represents universal interests while promoting an exclusionary set of policies that plainly benefit his own country’s companies and national power.

But to Chinese researchers on the receiving end, these restrictions are insulting. Rather than asking them to distinguish between sincere and insincere motives, I would invoke the American saying Mike Wallace quoted in his 1990s interview with a former Chinese leader: “If it walks like a duck and quacks like a duck, it probably is a duck.”

From the Chinese perspective, Dario’s two positions contradict each other. He characterizes China as an authoritarian state and claims that it is developing uncontrollable AI. In doing so, he strikes one of the most sensitive nerves among the Chinese public: he affronts the country’s narrative of national rejuvenation.

We should recall that the legitimacy of the 新中国 (the New China), or I’d prefer, the People’s Republic. It was founded in part on overthrowing the “three great mountains,”三座大山, foremost among them imperialist interference in China’s affairs. When an American technology leader publicly advocates restricting China’s access to critical technologies while also criticizing its political system, Chinese audiences will naturally interpret his safety agenda as an extension of an old power relationship into a new technological domain.

Chinese society, meanwhile, places great value on using tech innovation to make the economy more efficient and thereby improve human well-being. In other words, Chinese people don’t need to be guided toward the conclusion that Dario’s position is intended to restrict their right to development. They will arrive at it quite naturally.

This introduces another problem. As I understand, criticism and negotiation can coexist. When there are shared interests, even adversaries that are deeply hostile toward each other can communicate. But if the party initiating dialogue unilaterally denies the other side’s political legitimacy while simultaneously demanding that it accept a regulatory agenda under its own leadership, the failure of negotiations is entirely foreseeable.

Consider the establishment of diplomatic relations between China and the US. As the Sino-Soviet divorce occurred, all three sides of the China-Soviet-US triangle had concrete realist reasons for cooperation. Nevertheless, nearly eight years passed between Henry Kissinger’s 1971 visit to China and the formal establishment of diplomatic relations in 1979. I seriously doubt that Dario can expect the Chinese to accept his agenda within a short period of time.

Of course, I do not blame them. In China, our exposure to rationalism comes from Descartes, Rousseau, Montesquieu, and the Enlightenment, not from a work of Harry Potter fan fiction. Given their different philosophical traditions, China and the United States will inevitably approach AI differently. The problem is that China has never been the one to initiate the confrontation.

I am not a believer in any religion, but allow me to borrow from Matthew 10:34:

“Think not that I am come to send peace on earth: I came not to send peace, but a sword.”

Cooperation Cannot Be Built on Imagined Goodwill

U.S.–China AI dialogue certainly requires some degree of goodwill. But it would be naive to expect cooperation to rest on believing each other’s moral self-descriptions. China will not believe that U.S. export controls are motivated by concern for humanity's safety, just as the U.S. does not believe that China’s commitment to open-source AI is entirely motivated by a desire to democratize technology. Yet none of this prevents the two sides from communicating on concrete issues.

If they truly want results from AI cooperation, they need to limit the domain. They need to acknowledge that the other has security concerns as well as clear competitive interests. Requiring one side to accept the other's ideological narrative won’t help at all. Instead, they should establish verifiable, reciprocal rules concerning specific risks, such as AI-enabled cyberattacks, military miscalculation, and loss-of-control incidents.

Rather than relying on goodwill, enforceable mechanisms are the foundation of cooperation. I believe so, but decision makers do not need to believe that the other side consists of “good people” to cooperate in specific areas. If anything, only after stripping away imagined goodwill and comforting illusions can the two sides clearly perceive each other’s actual capabilities, interests, and red lines—and build institutions capable of functioning even in the absence of mutual trust.

Ju Jiandong, Chair Professor at Tsinghua University’s PBC School of Finance, moderated the discussion. Four senior policy advisor joined the discussion, including Justin Yifu Lin, former Chief Economist of the World Bank; Yu Yongding, former president of the China Society of World Economics and former director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences; Yao Yang, Dean of the Dishui Lake Advanced Finance Institute at Shanghai University of Finance and Economics and former Dean of Peking University’s National School of Development; and Li Xunlei, Chief Economist of Zhongtai Financial International.

It is rare to see four key policy advisors gather and discuss the macroeconomic issue. Thus, I think it’s highly valuable. It’s just one section of the Forum, so I may consider making a series.

All four economists’ policy arguments around one central question: With domestic demand insufficient and external trade pressures mounting, where should China turn to kick-start its next round of growth?

Ju Jiandong: Three mutually reinforcing imbalances

Ju identifies three interconnected problems facing China:

• Externally, a large manufacturing trade surplus points to the need to adjust the structure of China’s international assets and liabilities.

• Domestically, household consumption and aggregate demand are insufficient to absorb manufacturing output.

• Fiscally, local governments face substantial debt pressure, while the central government still has room to borrow.

In his view, the China–U.S. imbalance reflects the international division of labor: China has specialized in manufacturing, while the United States has specialized in finance. China’s trade surplus, therefore, cannot simply be attributed to subsidies or exchange-rate policies.

His proposed solution is for the central government to issue RMB 10 trillion in renminbi-denominated sovereign bonds to overseas investors, with the proceeds allocated as follows:

• RMB 2 trillion to raise pensions under the basic pension scheme for urban and rural residents, boosting household income and consumption.

• RMB 4 trillion to refinance local government debt and support local investment.

• RMB 4 trillion for central government investment in strategic industries such as AI and new energy.

Ju hopes this would simultaneously rebalance China’s international assets and liabilities, domestic supply and demand, and fiscal responsibilities between central and local governments. He also sees the proposal as a way to advance renminbi internationalization and expand the global supply of renminbi-denominated safe assets.

Justin Yifu Lin: Weak global demand is the starting point; investment remains the principal remedy

Lin’s argument is that slower global economic and trade growth has reduced China’s export growth, making it harder to absorb capacity built on expectations of much faster export expansion. Competition intensifies, investment slows, employment and income expectations weaken, and consumer confidence suffers.

He argues that expanding consumption within China cannot fully offset weak demand across global markets. This should not, however, be read as opposition to increasing consumption.

His policy recommendations center on three areas of investment:

• Industrial upgrading: seizing the opportunities presented by the fourth industrial revolution.

• Domestic infrastructure: focusing on green and new infrastructure—what I understand as broadly corresponding to the “six major infrastructure networks.”

• Overseas investment: encouraging Chinese firms to establish operations in Belt and Road countries, creating local jobs and income while supporting the development of Chinese industries and productive capacity.

Yu Yongding: Seize the window for expanding public investment

Of the five economists, Yu makes the most explicit case for expansionary policy.

He rejects the idea that a particular level of per capita income means China’s growth must inevitably fall to a predetermined rate. With the right policies, he argues, faster growth remains possible.

He also reiterates his objection to treating consumption as an independent engine of long-term growth. Consumption, in his view, is largely a function of income, expected income, and wealth. Short-term stimulus can lift spending, but cannot by itself change consumption’s long-term trajectory.

Yu argues that China’s infrastructure needs are far from exhausted. Public investment should not be judged solely by the commercial profitability of the entity operating a project; its long-term social benefits, contribution to regional development, and implications for national security also matter.

He therefore calls for the prompt implementation of expansionary fiscal and monetary policies, translating them into actual public investment. Better employment prospects and higher household incomes would strengthen confidence in future growth, encourage consumption, and reinforce the recovery.

(Yu’s position should not be reduced to opposition to consumption. It’s more accurate to describe that he does not see consumption as the initial driver. He believes investment, particularly public investment, is the key instrument for jump-starting growth and bringing consumption along with it.)

He also stresses the urgency of acting now. As U.S. Treasury yields rise, he argues, constraints on China’s fiscal and monetary expansion will multiply. If inflation picks up, further stimulus and interest-rate cuts will become more difficult.

Yao Yang: Move beyond the overcapacity argument toward global development and investment cooperation

Yao focuses on how China should respond to other countries’ growing sense of pressure from Chinese manufacturing.

He argues that it is unconvincing to discuss falling prices and “involution”—intense, often self-defeating competition—at home while categorically denying any mismatch between supply and demand abroad.

Yet China’s productive capacity and technology remain highly valuable when viewed through the needs of poverty reduction, industrialization in developing countries, and the global green transition.

If the United States and Europe want to develop their manufacturing sectors, he argues, they should allow Chinese companies to invest rather than broadly excluding them on national security grounds. He takes a relatively open view of joint ventures, ownership arrangements, and technology transfers, opposing blanket rejection of cooperation in the name of technological nationalism.

Yao’s central concern is that developing countries, too, are feeling competitive pressure from Chinese manufacturing. Ignoring this could lead to a broader coalition of restrictions on China.

His prescription is for Chinese companies to move beyond “selling products to the world” toward “investing, producing, and creating jobs around the world,” easing friction while opening up new room for growth.

Li Xunlei: The central government can borrow more, but efficiency and household income deserve greater weight

Li argues that China’s export growth over the past decade has been less exceptional than commonly perceived: it outpaced global export growth in five years and lagged behind in the other five.

Over the most recent five-year period, he notes, China’s exports grew by a cumulative 45.6%, compared with 48.8% globally—a gap of 3.2 percentage points. Export volumes may look large, but falling export prices mean China actually underperformed global growth in value terms.

His point is that, contrary to the view in some Western countries that China has squeezed out other exporters, the broader context has been a period of rapid global trade expansion.

On debt, Li argues that government borrowing has grown substantially faster than the economy. The question should therefore not be limited to “How much more can the government borrow?” It must also be “How much growth and income does additional borrowing generate?”

That does not mean expansion should stop. China’s low inflation still leaves room for borrowing, while households have begun deleveraging, making it unrealistic to expect them to take on substantial new debt to drive demand. With local governments already heavily leveraged, the central government should take the lead in adding leverage.

Li sees China’s external economic circulation as functioning more smoothly than its domestic circulation. Discussing the recent decline in the capital-output ratio, he places greater emphasis on directing resources toward household income, consumption, and “investing in people.”

His position is that additional debt and investment are not sufficient answers in themselves. What ultimately matters is whether they effectively improve household incomes and demand.

Where they agree—and where they differ

Below is a summary of the common ground and differences, prepared with the help of GPT-6-Astra.

Common ground: Active adjustment is needed; imbalances will not resolve themselves

To varying degrees, their arguments overlap on four points:

• Insufficient domestic demand requires a policy response.

• China’s strong manufacturing capacity needs a better combination of domestic and external demand, supported by appropriate institutional arrangements.

• The government still has room to act, particularly at the central level.

• International imbalances cannot simply be resolved by suppressing China’s industrial development.

Difference 1: Where should the effort to expand domestic demand begin?

• Lin and Yu: Put greater emphasis on increasing investment first, improving employment and income, and thereby lifting consumption.

• Li: Places greater emphasis on household income and investing in people, while warning about declining debt and investment efficiency.

• Ju: Combines pension spending with central and local government investment in a single package.

Difference 2: How should investment efficiency be assessed?

• Yu stresses that commercial-return measures can underestimate the social and long-term benefits of public investment.

• Li emphasizes that debt growing faster than the economy calls for greater attention to efficiency and the composition of spending.

• Lin focuses more on where investment goes: industrial upgrading, green infrastructure, and new infrastructure.

Difference 3: What should drive external rebalancing?

• Ju: Internationalizing renminbi sovereign bonds and adjusting China’s international asset-liability structure.

• Lin and Yao: Overseas corporate investment that creates demand, eases friction, and integrates Chinese firms into local economies.

• Li: International cooperation and more accurate communication about China’s economic and trade performance.

• Yu: Domestic policy adjustment, alongside greater caution about the risks of dollar-denominated assets.

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Below is the translation of their speech, and I have the Chinese version of the shorthand transcript; these have not been reviewed by the speaker.

Jiandong Ju: Achieving China’s Triple Rebalancing through the Internationalization of RMB Government Bonds

On September 19, the 2026 Tsinghua PBCSF Chief Economists Forum was held at Tsinghua University under the theme “2026 Review and Outlook of China and the World Economy—Global Rebalancing and Reconstruction of the International Monetary System.” Jiandong Ju, Chair Professor at the Tsinghua University PBC School of Finance, delivered a speech and proposed an analytical framework and policy plan for achieving China’s triple rebalancing through the internationalization of RMB government bonds. Ju pointed out that three types of contradictions are interrelated and mutually reinforcing, and that issuing RMB-denominated government bonds abroad by the central government is a policy tool for achieving triple rebalancing at the same time.

China’s economy faces three types of structural contradictions

External structural contradiction in manufacturing—the manufacturing surplus is large and continues to expand. In 2025, China’s current account surplus reached $735 billion, of which the goods trade surplus was about $1.2 trillion, and it has continued to expand recently.

Ju believes that both manufacturing and finance have sectoral economies of scale (externalities), meaning that the larger the sector, the more efficient firms are. According to the Ricardian logic of division of labor, decades of international market division of labor have led China and the United States to concentrate on developing their respective advantageous industries. As a manufacturing center, China produces and exports manufactured goods, thereby generating a manufacturing surplus. As a financial center, the United States absorbs international capital, and capital flows into the United States accordingly. In accounting terms, this appears as China’s trade surplus and the U.S. trade deficit. The so-called China-U.S. trade imbalance is a natural result of the market division of labor and cannot simply be attributed to China’s subsidies, exchange rate, or other policy distortions.

Domestic supply-demand structural contradiction in China—domestic demand is insufficient and cannot fully absorb manufacturing supply. China is transitioning from an industrial society to a welfare society, but old-age support and basic service guarantees for low-income households have not yet been fully established, and household consumption remains insufficient. The real estate downturn has further depressed domestic demand, and more manufactured goods need to find markets through exports. In 2025, China’s final consumption (household consumption plus government consumption) accounted for 56.9% of GDP, the lowest among major economies; the United States was 85.27%, Japan 72.72%, Germany 75.71%, Brazil 82.57%, and India 67.44%. Taking old-age insurance as an example, in 2024 the average monthly pension per urban and rural resident was 249.4 yuan. Ju estimates that raising the average monthly pension for urban and rural residents to 1,000 yuan (about four times the 2024 level) would require filling a funding gap of 1.59 trillion yuan.

Structural fiscal contradiction between central and local governments—the central government still has fiscal space, while local fiscal and debt constraints are more prominent. Local finances have long relied on land transfer revenue and debt financing. After the real estate downturn, in 2025 revenue from the transfer of state-owned land use rights was 4.1518 trillion yuan, down 14.7% year on year, and local governments relied more on debt rollovers and refinancing old debt with new borrowing. At the same time, in 2024 China’s central government debt-to-GDP ratio was 25.6%, significantly lower than Japan’s 200.9%, the United States’ 102.7%, the United Kingdom’s 100.7%, and Germany’s 44.0%. The central government still has considerable room to borrow.

However, the traditional external adjustment path is unlikely to resolve these contradictions. Ju pointed out that if China relied on RMB appreciation or trade measures to narrow the surplus, export competitiveness would decline, manufacturing employment would come under pressure, the effect of surplus adjustment would be uncertain, and the structural surplus might not necessarily disappear.

Internationalization of RMB government bonds promotes China’s triple rebalancing

Ju proposed three core conclusions:

First, how can China achieve rebalancing of its international assets/liabilities? A $1.2 trillion trade surplus constitutes a $1.2 trillion increase in China’s net assets. To achieve asset/liability rebalancing, one method is for China to reduce $1.2 trillion of external assets by selling $1.2 trillion of external assets (mainly U.S. Treasuries), but selling U.S. Treasuries would shock the global U.S. Treasury market. Another method is for China not to sell the foreign (U.S.) debt it holds, but instead to issue 10 trillion yuan of RMB-denominated government bonds, increasing China’s external debt by 10 trillion yuan, thereby achieving rebalancing of China’s international assets/liabilities.

The 10 trillion yuan in proceeds from externally issued government bonds can be spent in three areas: 2 trillion yuan to raise the average monthly pension for urban and rural residents to 1,000 yuan; 4 trillion yuan to swap local government (new) debt, that is, to use government bond proceeds to purchase local government debt, with local governments using the debt proceeds to increase local government investment; and 4 trillion yuan for new central government investment.

Second, 2 trillion yuan to raise pensions will increase the income of urban and rural residents and increase consumption demand; 4 trillion yuan to increase local government investment will increase local investment demand; and the central government’s 4 trillion yuan can be invested in AI, new energy, and other strategic industries, increasing central government investment demand. New demand from these three areas will substantially raise domestic aggregate demand and achieve rebalancing of the macroeconomic supply-demand structure.

Third, using 4 trillion yuan of government bonds to swap local debt will use sound central fiscal space to ease local government debt pressure, support local fiscal expenditure, promote local government investment, and achieve central-local fiscal rebalancing.

Externally issuing 10 trillion yuan of RMB government bonds can also accelerate RMB internationalization and provide safe assets to the world. Currently, global safe assets ($40 trillion of U.S. Treasuries) have almost reached the ceiling for U.S. Treasury issuance. The internationalization of RMB government bonds is timely.

Ju believes that China’s economic rebalancing involves long-term structural reform, and resistance and difficulty are great. It is difficult to find a single policy that simultaneously balances China and abroad, urban and rural areas, and central and local governments. The internationalization of RMB government bonds is precisely a policy measure that balances the interests of all parties and is an approximate Pareto improvement.

Justin Yifu Lin:

Let me start, just to set the ball rolling. I think the biggest problem in today’s world is, on the one hand, of course, imbalance, but a bigger problem than imbalance is the recession of the global economy, and a major recession. We can see this from the numbers. For example, from 1960 to 2008, the United States grew at an average annual rate of 3.3%; but from 2008 to last year, U.S. growth averaged only 2.1% per year. The euro area grew at an average annual rate of 3.1% from 1960 to 2008. From 2008 to last year, 2025, its average annual growth was only 0.9%. For OECD countries as a whole, from 1960 to 2008, average annual growth was 3.4%, but from 2008 to last year, 2025, it was only 1.7%. From a global perspective, average annual growth was 3.7% from 1960 to 2008. From 2008 to last year, average annual growth was only 2.7%. So, after the outbreak of the international financial and economic crisis in 2008, its shockwave was somewhat like that of the so-called Great Recession brought about by the 1929 Wall Street crash. At the time, it was thought we might well enter a Great Recession. Now it seems that, indeed, almost 20 years have passed in the blink of an eye. Whether in the United States, Europe, OECD countries, or the world as a whole, economic growth has entered a long-term weakness. This is the most important reality of the current world economy.

This reality is also closely linked to what we call global imbalances, because before the 2008 crisis, the growth of the globalized world economy and trade was more than twice the global economic growth rate. After 2008, world economic growth declined, and, more importantly, trade growth slowed even more than world economic growth. For example, before 2008, world economic growth averaged 3.7% per year; more than twice that would be 8 or even 9. After 2008, world economic growth slowed from 3.7 to 2.7, and trade growth was even lower than 2.7.

What does this mean for world trade and for global imbalances? As everyone knows, after reform and opening up, China’s economy grew very fast, and its trade grew even faster. For example, look at China’s export growth: from 1978 to 2008, average annual export growth was 18.1%. If we look only at the period after joining the WTO up to 2008, growth was even faster, averaging 21.4% per year. Why? We reformed and opened up at the same time; opening up allowed us to use the international economy as a Ricardian division of labor, improve our efficiency, and bring about rapid economic growth. But to seize this growth opportunity, if most of our exporting enterprises are private and have very strong entrepreneurship, they want to see 20% export growth every year. How? I must invest quickly, and only then can I seize the opportunity brought by this economic growth and export growth. But after the 2008 crisis broke out, trade growth suddenly fell sharply, and our export growth also fell sharply. For example, from 2008 to last year, our export growth fell from around 20% to about 5% now. What does this create? Originally, investment was always made on the basis of 20% annual growth, forming production capacity. When export growth suddenly declines, that production capacity becomes overcapacity. With overcapacity, competition naturally becomes very fierce—that is one point. So, involution—why is there involution? Large capacity and small demand naturally lead to involution. That is the first point. Then this has a great impact on us. What is that impact?

First, these export sectors have formed very large production capacity in the past, but in the face of current market demand and expected future demand—since what they see is that the global economy has not recovered and exports have not recovered—what are we to do under such circumstances? Of course, domestically, it has been proposed that we rely on domestic consumption to absorb the insufficient demand for these export capacities. China is indeed a large economy, but our share of the world is only 18%. You cannot rely on the strength of this 18% of demand to make up for the weakness of 82% of demand. So if we want to rely on increasing domestic consumption to rebalance, first, the quantities are not commensurate: you cannot use an 18% increase in demand to make up for an 82% shortfall in demand. Second, it is not only a matter of quantity; it will certainly also affect confidence. Because these export sectors have huge overcapacity, under such circumstances, their investment slows, new job creation slows, and more importantly, their business conditions are poor, bringing pressure for employment and wages to fall. Some enterprises may not be able to keep operating and will have to close, and unemployment will rise. Under such circumstances, confidence in domestic consumption is insufficient. This is, in fact, closely related to the insufficient consumer confidence we have had in recent years.

Under such circumstances, how can our country rebalance, and how can the world rebalance? In my view, the main answer is probably still investment. On the one hand, under conditions of overcapacity, consumers will absolutely not have the confidence to increase consumption. What we can do, of course, on the one hand, is rely on investment to upgrade industry and seize the opportunity of the fourth industrial revolution. On the other hand, rely on investment to increase domestic infrastructure. Of course, traditional infrastructure has already been built quite extensively; we can increase green infrastructure related to global warming and increase new types of infrastructure needed to seize the fourth industrial revolution. This is an investment. The second aspect is relying on enterprises “going global.” Our domestic export sectors can invest in countries along the Belt and Road. Investing there can, on the one hand, create local employment and raise local incomes, and on the other hand, absorb our domestic production capacity.

So let me start, just to set the ball rolling. Having discussed the current situation, I tend to support Yu Yongding: in the end, investment is the main measure for resolving domestic imbalances, and investment is the main measure for resolving international imbalances.

Yu Yongding:

Today, I will not follow, point by point, the procedure laid out by Jiandong. I think this is a rare opportunity: the audience consists of highly educated people who understand economics very well and also possess a certain degree of influence. I would therefore like to use this opportunity to discuss more than just the issue of imbalances. Yesterday at Tsinghua University, I spoke specifically about international imbalances and the internationalization of the renminbi. Here, I would like to briefly present some of my views.

First, The decline in the economic growth rate—which, as everyone knows, is currently around 5 percent—is not necessarily inevitable.

Some scholars believe there are certain indicators, such as per capita income, and that once per capita income reaches a particular level, economic growth must slow down. But this is not actually the case. If you look at the figures for the United States, its per capita income was US$8,000 in the 1920s and had increased more than fourfold—to US$42,000—by the 1990s. Yet during both periods, its economy grew at around 4 percent, sometimes a little more and sometimes a little less. Per capita income differed by a factor of four between those two periods, but the economic growth rates were the same.

Therefore, you cannot simply select a particular indicator and conclude that, once that indicator reaches a certain level, economic growth must fall to a particular rate. I regard that as a metaphysical—or overly deterministic—view.

My first point, therefore, is that the decline in economic growth to its current level of around 5 percent was not inevitable. What is the implication? If we manage things well, we can achieve a higher rate. I cannot say exactly how high, but we should not adopt a fatalistic attitude and assume that this is the best we can do. It is not. Human actions matter.

Second, I want to emphasize that there is no such thing as a consumption-driven model of economic growth.

Many people say that China needs to shift from investment-driven growth to consumption-driven growth. This proposal has been advocated most strongly by American economists, such as Grossman and Summers. Yet in the United States, these same economists emphasize the need to strengthen infrastructure investment. Summers, in particular, has recently made very strong recommendations to the U.S. government in this regard.

In fact, throughout the history of economic thought—from Marxist political economy to orthodox Western neoclassical economics—there is no theory that supports the idea of a consumption-driven model of economic growth.

What, then, drives economic growth? These figures come from the Conference Board, which I consider a relatively authoritative source. They are recent figures. Looking at average global economic growth over several decades, which factor made the largest contribution? Without question, it was the capital stock. Average economic growth was slightly above 3 percent, and the capital stock contributed 2.8 percentage points. That is its contribution to growth, not its proportional share.

People are very fond of discussing total factor productivity. However, there is a widespread misunderstanding of total factor productivity in terms of growth theory. Textbooks on economic growth make it very clear that it is a residual category: when there are economic changes that you cannot explain, you classify them as total factor productivity. Yet we treat it as something mysterious and extraordinary—something we must pursue. I believe this reflects a misunderstanding, and the issue requires further study.

Look at its contribution: it is the smallest component. That is my second point.

Third, China’s productivity and productive efficiency are not as poor as we ourselves sometimes imagine. Whenever the subject comes up, people immediately say that China is inefficient.

There are three principal measures of productive efficiency: labor productivity, the capital-output ratio, and total factor productivity.

If you make horizontal international comparisons, labor productivity is straightforward. China has experienced one of the fastest rates of per capita income growth in the world, so its labor productivity cannot possibly be very low.

Some may say that China’s labor productivity is high only because it uses a large amount of capital. In that case, look at the capital-output ratio. China’s capital-output ratio is in the upper-middle range internationally. For this indicator, a lower figure means higher efficiency. In developed Western countries, the figure is generally above 10, whereas China’s is around 7. Japan’s is even higher.

Therefore, whichever indicators you use to measure productive efficiency, China ranks in the upper-middle range worldwide.

Why, then, do some people insist that China’s productive efficiency is low? Their argument is that China invests too much; because of diminishing marginal returns, excessive investment must result in low efficiency. But if you examine the data, you will find that this argument is incorrect.

Fifth(there’s a jump here), China’s infrastructure investment is far from saturated.

You may remember that, over the past ten or twenty years, the most popular view has been that China’s infrastructure was already saturated—that we should not invest any more because the investment would be inefficient and unprofitable. This view is completely wrong.

The 15th Five-Year Plan has already established very clear objectives for infrastructure development. Everyone is familiar with the six major backbone networks. The 15th Five-Year Plan constitutes a rejection of our previous belief that infrastructure investment was completely saturated. I fully support this position.

Sixth, Many people strongly emphasize that infrastructure is inefficient and produces no commercial return. This is also a seriously mistaken view.

Infrastructure investment—which, in my discussion, includes public investment—should primarily be evaluated in terms of its social and long-term benefits. These benefits often cannot be measured.

Suppose I build a lighthouse. Every passing ship benefits from it, but how do you collect payment from those ships? Where is the financial return? Such a project can only be provided by the state.

To give a more extreme example, national defense is extremely important. But what is the rate of return on national defense? How would you calculate it?

We must therefore develop a comprehensive understanding of the “rate of return” on infrastructure and public investment. Suppose I build a high-speed railway. The railway company itself may continue to lose money, but the provinces, cities, and counties along the route can all develop as a result.

I now travel around the country every month. The cities have been developed very well, and I find the experience extremely pleasant—but I have not directly paid for all those benefits.

You cannot use a simple measure of commercial returns to determine whether an infrastructure project should be undertaken. You should consider whether it is necessary from the perspective of the country’s long-term development and national security.

Put simply, our infrastructure remains grossly inadequate. It is by no means saturated.

Seventh, I particularly want to emphasize that consumer demand is an endogenous variable.

Everyone here has studied economics and knows how the consumption function works. Short-term fiscal stimulus can help increase consumption, but it cannot change the long-term trend of consumption growth.

Consumption is a function of income, income expectations, and wealth. Put simply, it is a function of expected income. If income expectations do not change, the effects of stimulus will be limited, no matter how much stimulus is applied.

Last year, 700 billion yuan was spent. Yet, as we can now see, the growth rate of consumption has been declining year after year.

The point I want to emphasize is that because consumption is an endogenous variable, short-term fiscal stimulus can have some effect, but its effect is limited. Experience has already demonstrated this.

Eighth, Increasing infrastructure investment is an effective way to restart the economy.

Let me return to macroeconomic regulation. I joined the Chinese Academy of Social Sciences in 1979. At that time, every year someone would say that China was facing a severe economic crisis and that major problems were about to occur. Yet every time, we managed to overcome them.

Why? The basic prescription was infrastructure investment.

Infrastructure investment is an area in which China possesses an institutional advantage. After we undertake infrastructure investment, economic growth accelerates. Once growth accelerates, consumption rises. Rising consumption then further consolidates economic growth. Ultimately, the economy often grows faster and faster and becomes increasingly overheated, until policy has to be reversed to cool it down.

This was basically the pattern from the 1980s and 1990s through 2008 and 2009.

I am not opposed to increasing consumption. Marx said that the purpose of production is consumption. Without consumption, production has no meaning. But how do you make consumption grow? Investment is a key factor—especially infrastructure investment.

Why do I emphasize infrastructure investment? Does that mean we should not emphasize semiconductor manufacturing or other industries? No. I emphasize infrastructure because it is a form of public investment, and the need for it is relatively easy to assess. If you possess all the relevant information, you can identify what China lacks.

For example, China currently relies on imports for 72 percent of its oil. This is highly unsafe. If the relevant straits were blockaded for six months or a year, the consequences for us would be enormous.

The state recognized this problem long ago and therefore made major efforts to establish strategic petroleum reserves. Without this work, we would have run into serious problems long ago. Many Western countries are now experiencing severe inflation and are highly vulnerable to oil shocks.

My point is that individual microeconomic actors cannot clearly perceive these issues, but the state should be able to see them. It should formulate the necessary plans. The network—the six major backbone networks—is extremely important.

Ninth, China’s fiscal position is sustainable. You can make the comparisons yourselves, so I will not elaborate.

Tenth, we must not miss this opportunity.

Why? Because global price conditions are changing. Oil shocks are pushing prices up everywhere. China has the lowest price level—or lowest inflation rate—while the figures in other countries are much higher.

The United States is also facing increasingly serious problems. The yield on its government debt has already exceeded 5 percent. Under such circumstances, there are many constraints on our ability to adopt expansionary fiscal and monetary policies.

This window of opportunity must not be missed. Once it is gone, it will not return.

If inflation rises and prices increase, it will become extremely difficult to introduce expansionary fiscal and monetary stimulus or to cut interest rates.

We have had this opportunity for many years, and we must not squander it. We still have the opportunity now.

Eleventh: The current-account balance, The current-account balance is equal to domestic savings minus investment. But my view differs somewhat from Jiandong’s. You were not entirely explicit about whether we should reduce the current-account deficit [possibly “surplus” in the intended meaning].

To a large extent, your proposal is that, for the sake of restoring balance, we should increase our holdings of foreign assets. Yet at present, we are doing precisely the opposite: we are reducing our holdings of U.S. dollar assets.

Why? The United States faces three problems.

First, its government debt is increasing. The United States has accumulated too much government debt, and its government-debt-to-GDP ratio is already extremely high.

Second, from a stock perspective, the United States’ international-payments position is excessively imbalanced. Its net foreign debt stands at US$21.27 trillion, equivalent to 66 percent of GDP.

In 2006, people were deeply concerned that a balance-of-payments crisis might occur when U.S. net foreign debt was US$1.8 trillion, or 18 percent of GDP. It has now increased many times over—from US$1.8 trillion to approximately US$21.3 trillion.

We now see many international research organizations examining this issue. Comrades Huang Yiping and Wei Shang-Jin participated in the Paris Report, which emphasized the effects that stock imbalances in international payments can have on the world economy.

Therefore, the United States faces an excessive stock of government debt, a stock imbalance in its international payments, and an IT bubble. Of course, we cannot say with certainty whether the bubble will burst, but there are major problems.

The key issue is that we must accelerate our domestic policy adjustments and adopt more expansionary fiscal and monetary policies.

We have ample policy space. We must accelerate the implementation of the modern infrastructure system. We must complete the planning as quickly as possible, turn those plans into projects, and turn those projects into actual construction and economic activity.

My final words are these:

Opportunity knocks but once; time, once lost, never returns. Ten thousand years is too long—seize the day, seize the hour. (quote from Mao)

Yao Yang：

The previous two speakers discussed relatively theoretical issues. I would like to address a more practical one: the international reaction to China’s overcapacity and the newly emerging notion of a so-called “China squeeze.”

Let us look at the macroeconomic data. Last year, China had a merchandise trade surplus of US$1.2 trillion, while the United States had a merchandise trade deficit of US$1.4 trillion. These two figures are roughly equal. Other countries are essentially caught in between: they run deficits with China and surpluses with the United States, which offset each other.

Take India, for example. Its exports to the United States are growing, but so is its trade deficit with China, which has already exceeded US$100 billion. Vietnam has overtaken China as the country with the largest trade surplus with the United States, but that entire surplus is offset by its deficit with China. In fact, Vietnam runs an overall trade deficit.

Given this pattern, global imbalances are fundamentally a China–U.S. issue. This so-called “mirror-image” pattern had already taken shape before 2008. The problem is that the United States is on the demand side: it creates demand for the rest of the world. China creates supply. That is why the rest of the world is directing its criticism at China.

How should we respond? I think our response should consist of a three-part argument.

First

I do not think a strategy of directly confronting the international community and insisting that China has no overcapacity can succeed.

Why not? Because here at home, we say every day that we have excess capacity—that this is why competition has become so intense and why prices are falling. As intellectuals, we cannot turn around on the international stage and claim the opposite.

We must therefore acknowledge that our domestic demand has, at the very least, failed to keep pace with our capacity to supply. That is why our Producer Price Index is falling and why we have such intense “involutionary” competition. That is the first level of the argument.

To put it another way, when Yellen threw a punch at us a few years ago, we should have dodged and let her punch land on cotton. Instead, we held up a shield, which only encouraged her to punch harder. Now the notion of a “China squeeze” has emerged. If we insist that we have no such problem, we will once again fall into their trap. They have set a trap for us—why should we walk straight into it? That is the first level.

Second

We should tell the world that, from a global perspective, China’s productive capacity is not excessive.

Professor Lin just mentioned that the global growth rate is declining. In my view, the world has always faced an enormous challenge: the challenge of poverty reduction and economic growth. Eighty percent of the world’s population still lives under difficult conditions and continues to need economic growth.

Over the past decade or so, global discourse has been completely dominated by the United States and Europe. Without realizing it, we have allowed ourselves to be drawn into their framing of the issue. In reality, the most important global challenge is not so-called geopolitical risk. If geopolitical risk were truly the main problem, Chinese companies would not be able to expand abroad in any case. The greatest challenge remains global development.

From the perspective of global development, China’s productive capacity is far from excessive. This is particularly true given the challenge of climate change. The main products China exports are now closely connected with the global effort to combat climate change.

If we frame the issue from this perspective, I believe we can claim the moral high ground: China is supplying the world with productive capacity and technology—and with the most advanced technology at that. This is the second level.

Third

We should put the ball back in their court.

The United States has been pursuing reindustrialization for twenty years, beginning during the Obama administration. Has it succeeded? No. Manufacturing’s share of U.S. GDP has not increased; instead, it has declined. You are undergoing deindustrialization, so how are you going to reindustrialize? China can help you. We can tell the United States that China can help.

As for Europe, if your products are not competitive, then open your doors and allow us to invest. Yet what we see today is that both the United States and Europe are using so-called national security concerns to keep Chinese investment out. They may even nationalize Chinese investments without justification.

We have the moral high ground on this issue. Why do we not use it?

There is, however, a problem here. I believe there is an undesirable tendency toward technological nationalism within China: We worked so hard to develop these technologies, so why should we transfer them to other countries?

Europe and the United States have also proposed arrangements under which they would hold a 51 percent controlling stake, while we would hold 49 percent and transfer our technology. I think that sounds perfectly reasonable. After all, that is exactly what China did thirty years ago.

Morally speaking, we have no grounds for refusing other countries what we ourselves asked of them thirty years ago. Moreover, their request is a compliment to China. Why should we not accept it?

Even if we transfer technology in this way, given the current pace of our technological progress, I do not think we are likely to fall behind in the end. On the contrary, if you ask Chinese companies themselves, they will tell you that this competition is beneficial to them.

At least among the companies I have dealt with, not one has complained about so-called involution. What they complain about much more is shipping goods and then being unable to collect payment. That is their biggest problem. They do not complain about intense competition.

They all say that competition is a good thing: “I can compete my rivals out of the market, and it pushes me to advance technologically at a very rapid pace. What is wrong with that?”

China now faces a two-sided global situation. On the one hand, the competitiveness of our products is increasing. On the other hand, we must recognize that not only developed countries but also developing countries are now feeling competitive pressure from China.

Whenever I attend international conferences, everyone talks about this issue. We cannot turn a blind eye to it. Nor can we wait until the rest of the world forms a “united front” against us—as if the other nineteen members of the G20 were to join forces and demand that China take action. In the long run, that would constrain China’s international room for maneuver.

Conversely, if Chinese companies can expand abroad smoothly, we will be able to re-create another China overseas. That would be a crucial strategic move toward strengthening both China’s overall national power and its soft power.

That is all I wanted to say.

Li Xunlei:

Thank you to the organizers, and thank you, Professor Ju, for the invitation. I will take a few minutes to briefly outline my views.

The global economy needs to rebalance because it is suffering from imbalances. I strongly agree with Professor Lin’s earlier point that the global economy is facing not only imbalances but also recessionary pressures. Why have these recessionary pressures emerged? Why has global economic turbulence intensified?

My long-term explanation is that the period of peace has lasted too long. Historically, the global economy has often restored balance through war. Yet it has now been 81 years since the end of World War II—an extraordinarily long period of peace by historical standards. During this period, the world’s population more than tripled, rising from 2.5 billion to 8.1 billion. This has led to the mass extinction of species and intensified the conflict between humanity and nature.

Prolonged peace—especially when the rules remain unchanged—also intensifies conflict among people, while widening disparities between rich and poor become increasingly widespread. The imbalances I observe are therefore multidimensional rather than confined to a single area. There are imbalances within countries, between countries, and among individuals.

Geopolitical conflicts exist between countries, particularly in connection with China’s rise. Professor Yao Yang also asked earlier: Why has China become the target of so much criticism? It is because China’s economy has developed too rapidly and its manufacturing sector has become increasingly powerful. For China, of course, this is a good thing. In the early 1990s, China accounted for only 2 percent of global GDP; today, that figure has risen to 18 percent. It is therefore understandable, in my view, that other countries would seek to contain China.

At the same time, we should not shy away from acknowledging that China has also encountered imbalances in the course of its economic development. These include rising debt, regional disparities, the phenomenon of people “lying flat,” and the sharp decline in the number of births.

A fourth issue is the growing strain on trust between countries. Western countries have been repatriating their gold from the United States, reflecting concerns about both U.S. Treasury securities and the U.S. dollar. Meanwhile, economic growth has increasingly become debt-driven.

This chart illustrates income disparities, an issue with which everyone is already familiar, so I will not discuss it in detail.

The next chart shows that the global economy has entered an era of debt-driven growth. It presents macro leverage ratios—the combined leverage of governments, businesses, and households—which have continued to rise. The red line represents China.

Although China’s economy has undeniably grown very rapidly and attracted worldwide attention, our debt has also increased. China’s macro leverage ratio has surpassed that of the United States and the average level among developed economies. It remains below Japan’s, but we must also consider the costs and trade-offs associated with economic growth.

This chart compares government leverage ratios. Over the past five years, China’s government debt has increased cumulatively by 106 percent, while its GDP has grown cumulatively by 35 percent. In other words, Chinese government debt has grown three times as fast as GDP.

If everyone believes that this three-to-one ratio represents an acceptable cost, then we can continue using debt to drive the economy. However, when the central government calls for high-quality development and improvements in both quality and efficiency, this may also reflect concern about the excessive pace of debt growth.

Of course, I also agree with the two previous speakers, Professor Lin and Professor Yu, that China can continue increasing government debt. Why? Because China’s rising debt has not triggered inflation. As long as China remains in a long-term, low-inflation environment, we will retain considerable room to borrow, even if the efficiency of debt-financed growth is relatively low. We still face many problems that need to be addressed.

Why can the United States not continue borrowing indefinitely? Because U.S. inflation is too high. In recent years, the U.S. fiscal deficit and the yield on ten-year Treasury securities have risen in tandem. Although the U.S. macro leverage ratio is lower than China’s, U.S. borrowing is concentrated primarily in the government sector.

If we break debt down by sector, we can see a substitution effect. In the United States, government borrowing has replaced household borrowing: the government is leveraging up while households are deleveraging, and government borrowing is being used to support household consumption.

In China, all three sectors—government, businesses, and households—have taken on debt. However, if we examine the figures over a longer period, we find that the household sector has already begun to deleverage.

I therefore believe that Chinese households are only at the beginning of the process of repairing their balance sheets. They are unlikely to return to a period of renewed leverage in the near term. Under these circumstances, only greater government leverage can maintain economic balance. We should harbor no illusions about this.

Additional government borrowing should come primarily from the central government because the leverage ratios of local governments are already very high. Meanwhile, debt has increased on a net basis across emerging-market economies; only in advanced economies has debt generally declined. These are the figures for the past five years.

Another point that we should emphasize internationally is that China’s exports have not grown particularly rapidly over the past decade. We may have the impression that they have grown very quickly, but in reality, China’s export growth outperformed the global average in five of those years and underperformed it in the other five.

Over the most recent five-year period in particular, China’s exports grew cumulatively by 45.6 percent, which was 3.2 percentage points below the global growth rate of 48.8 percent. It may appear that China is exporting an enormous amount, but our export price index has been declining. In terms of export value, China actually underperformed the global market over the past five years.

The situation is therefore not as Western countries describe it: China has not been squeezing them out of the market. Rather, the entire world has entered a period of rapid trade growth. This is something we should emphasize in our international communications.

We have now entered the age of artificial intelligence. The international economic environment has improved again, and stock markets have also performed very strongly—not only in the European Union, but also in Japan, South Korea, Taiwan, and elsewhere.

At this stage of the new, fourth technological revolution, I believe we should advocate stronger global cooperation, particularly cooperation with the United States. China and the United States have inherently complementary economies. Only through cooperation can we overcome the problems of global imbalance and recession.

Although the United States regards China as a competitor, I believe we should continue to emphasize the positive side of the relationship: the complementarity between the two countries remains very clear.

I would add, however, that interest-rate cuts by the U.S. Federal Reserve may not be as effective as they once were. In the past, the Fed’s rate cuts worked well because the U.S. economy was driven primarily by consumption. Since last year, however, U.S. capital expenditure has increased sharply, and the country has begun placing greater emphasis on investment.

Investments in areas such as electronics and semiconductors are relatively insensitive to interest rates because the companies involved have very high gross profit margins. Under these circumstances, I believe the impact of the Federal Reserve’s interest-rate policy will be weaker than before.

Finally, I want to emphasize that we must look at the data. Before prescribing remedies, we should follow the new development model proposed by the central government—a model in which the domestic and international economic circulations reinforce each other.

At present, China is experiencing relatively smooth international circulation but impeded domestic circulation. The weakness of domestic circulation is reflected primarily in the declines in investment and consumption growth that Professor Yao Yang mentioned earlier.

What are the underlying causes? We can formulate effective policies only after identifying them.

The central government has also proposed investing in people. For example, an article published in Qiushi at the beginning of this year noted that China’s incremental capital-output ratio was 2.8 in 2021 and subsequently rose to around 8. It has recently declined somewhat, to approximately 6. Overall, these figures suggest that we need to make better and more carefully optimized choices in allocating resources.

Such optimization would contribute to the healthy development of China’s economy. I therefore lean toward policies that increase household income and promote consumption.

Thank you.

This is hardly a new phenomenon. It is a recurring feature of US–China communication. For example, when discussing “crisis management,” the US side hopes to establish hotlines so that intense competition can continue “safely.” China asks the US to stop conducting close-in reconnaissance, thereby eliminating what it sees as the crisis's root cause. Similar conceptual differences have repeatedly emerged in the two countries’ definitions of “terrorism,” “sovereignty,” and other terms. They are now resurfacing in discussions of “AI risk.”

I’m not saying that the two sides have no common ground. During the Biden administration, China and the US both supported the Bletchley Declaration, which pointed out that frontier AI could pose serious risks, including cybersecurity risk, malicious use, and insufficient human control over AI systems. This shared understanding has at least provided some basis for cooperation.

But still, the two countries think of different kinds of risks first when they use the term.

My insufficient observation is that, partly because AI company CEOs shape the public debate, the most obvious concern among US frontier AI companies and in some American policy circles is whether humanity can remain in control of AI. And the NIMBY effects of data centers can also be partly attributed to locals’ lack of confidence in controlling it; once it’s built, it’s out of their control. (Also recommend to read ’s piece on that )

While China seems more concerned with how AI services may affect existing social structures, for example, how “AI family members” might change young people’s understanding of kinship and family relationships. The central question is whether society can absorb the disruption AI causes.

The former worries that the rapid growth of AI capabilities could outstrip humanity’s ability to control them. The latter focuses more on AI’s effects on interpersonal relationships and social interaction. These examples do not capture the full range of views in either country, of course, but they do offer an interesting contrast.

In an article published in September 2026, Dario Amodei argued that the development of frontier AI models should be slowed. His central concern was that the cycle of capability improvement could exceed humanity’s ability to understand and control these systems. He called on the US government to impose tougher restrictions on China’s ability to develop AI, including limits on technology transfers and China’s access to advanced chips, as part of this effort to slow development.

His argument quickly provoked heated discussion, or I think it’s more accurate to say unified opposition on the Chinese internet. Most believed Amodei was trying to capture the regulatory to consolidate his company’s position in advanced AI models. The Global Times characterized his proposal as an attempt to constrain China’s AI development through technological barriers and a monopoly over rule-setting, thereby preserving America’s dominance in frontier technologies.

Some Chinese regulatory and economic policy debates reflect different concerns.

On the regulatory side, on April 10, 2026, the Cyberspace Administration of China and several other government agencies published the Interim Measures for the Administration of Anthropomorphic Interactive Artificial Intelligence Services. The measures prohibit providers from offering minors services that simulate intimate relationships, like virtual family members and romantic partners. They also require providers to guard against emotional manipulation, excessive dependence, and harm to real-world interpersonal relationships.

In my view, these measures reflect an understanding of AI risk centered on how AI shapes human interactions and people’s perception of reality. Policymakers seem particularly concerned that if people become accustomed to AI family members that constantly accommodate their preferences. Forming emotional attachments to them may also make youth struggle to understand the disagreement and mutual compromise inherent in real family relationships. AI could become like the memory parasites in Rick and Morty, which reproduce by creating only pleasant memories of themselves.

A similar way of concern appears among some of China’s senior economic policy advisers. Economist Luo Zhiheng, who attended economic symposiums hosted by Premier Li Qiang in July 2023 and October 2024, focused in an article published earlier this month on the “K-shaped divergence” between AI and the rest of the Chinese economy.

Luo argued that the strong performance of AI-related industries and investment, combined with the weakness of traditional sectors such as real estate, is widening income disparities across industries and social groups. Because AI industries create relatively few jobs, the economic gains they generate are less likely to be shared across different sectors of the economy.

His policy recommendations emphasize reforms to China’s income-distribution systems. The point is to ensure that gains from the economic transition are shared and to prevent current disparities from hardening into long-term structural imbalances.

Huang Yiping, dean of Peking University’s National School of Development, has a similar argument. He warned that the AI era could reproduce the “Engels’ pause”, which is a period when labor productivity rises rapidly while workers’ real wages remain low, causing social inequality to grow sharply. Huang has called for an AI dividend-sharing fund that would channel some of the gains generated by AI back to the public.

Taken together, these discussions have a similar concern framework. Compared with concerns about “AI escaping human control,” which have become influential in the US, Chinese regulatory and economic policy debates focus more directly on the social consequences people may have to endure.

This also helps explain why any study of China’s understanding of AI risk cannot rely on the voice of a single government agency.

The latest article by Minister of State Security Chen Yixin is definitely a policy text worth reading. But an article's importance and the range of views it can represent are not the same.

If the director of the FBI published an article about AI’s effects on US national security, the Chinese US watchers should certainly read it. But they won’t treat it as the basis for understanding how the US perceives AI risk and its competition with China. Chen’s article should be approached in the same way.

Under the background of US–China competition in AI, the national security perspective undoubtedly carries more weight. But there’s a reason that Chinese policy language routinely calls for “coordinating development and security,”统筹发展与安全, with “development” and “security” appearing side by side. Concerns about AI’s social effects on the economy, employment, income distribution, and youth development remain relevant.

Chen’s article discusses AI cyberattacks, espionage, imbalances in global technological development, the failure of governance mechanisms to keep pace with technological change, and how it might change the war. These issues also reflect a concern with how governments and societies should respond to the social consequences of AI.

Such social concerns overlap with national security objectives, but it would be overly simplistic to reduce it to political security. Summarizing China’s view as “China cares only about political security” would obscure the range of concerns in Chinese policy debates.

Returning to the differences between Chinese and American understandings of AI risk, I would interpret them as different starting points rooted in each country’s social realities, which should not be treated as two mutually exclusive national positions.

It is neither realistic nor necessary to require the two sides to reach the same conception of risk before they can engage with each other. Instead, each side needs to understand what the other is trying to save in the name of “safety,” and what outcomes it would regard as reducing risk.

Otherwise, even if they use the same terminology and endorse similar principles, China and the United States may still fail to reduce the risks posed by AI.

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Trade

This is a point I find particularly interesting. Xi called for:

Addressing each other’s economic and trade concerns in a balanced manner and promoting the healthy and stable development of bilateral economic and trade relations.

In a balanced manner” is a choice of words I believe is worth chewing. It’s not just language signaling cooperation. It’s also calling for reciprocity. I read it as Beijing pushing back against a one-sided understanding of improved economic ties as primarily a matter of addressing India’s demands. China also expects India to respond to Chinese concerns; on top of that is the business environment for Chinese companies operating in India. It also implicitly signals Beijing’s view that its own economic and trade concerns have yet to receive an adequate response.

Boundary Issue: The “Two-Track” Approach Enters Leader-Level Messaging

The formulation had previously appeared in a meeting between Wang Yi and India’s Special Representative on the boundary question, Ajit Doval. China and India have long differed in their emphasis on how to manage the boundary issue in relation to the broader bilateral relationship. Beijing maintains that the boundary issue should be placed within the larger context of bilateral ties, while New Delhi places greater emphasis on stability along the border as a prerequisite for improving relations. This kind of tension has complicated the improvement of bilateral ties and made the border issue a drag on the relationship.

The Chinese readout this time calls for:

Advancing bilateral relations and the boundary issue in parallel, allowing the two tracks to reinforce each other.

This is a step forward from the language in the Chinese readout of the August 31, 2025 meeting in Tianjin, which stated that the boundary issue should not define the overall China–India relationship. At least from Beijing’s perspective, the boundary issue has moved a little bit from a constraint on better ties to an area where progress can be made and be supported by improvements in the relationship. But still, I would be relatively cautious about how it’s going forward.

Political Assurances?

In the Chinese readout

India’s policies and positions on Taiwan and Xizang-related issues remain unchanged, and India does not allow any forces to conduct anti-China activities on its territory.

It’s not the first time India has made such a statement, so this is more like a reaffirmation of existing assurances rather than a new commitment. Nevertheless, reiterating these positions can help ease political concerns, so I think it is still a relatively positive signal.

One additional point on Xi’s speech:

Innovation-driven development comes first among the four proposals, followed by peace, civilization communication, and global governance. The speech sees AI as a tool for upgrading member countries’ industries. Read alongside this section’s opposition to “decoupling and severing supply chains”脱钩断链 and “small yards with high fences,”小院高墙, AI cooperation can be understood as serving both development and members’ capacity to withstand external technology restrictions.

In his remarks at the second session, Xi once again placed the “Open-Source and Inclusive AI Initiative” first among his five proposals, just reflecting how “AI-maxxing” the Chinese leadership is.

But AI is only the most obvious point. What I think deserves closer attention are the calls to “develop a system of standards and specifications” under the fourth initiative, on smart manufacturing cooperation, and for “mutual recognition of competency standards” under the fifth, on developing science and technology talent. The former concerns aligning standards across production systems; the latter concerns recognizing engineering competencies. Both are must-haves for transferring manufacturing capacity across borders. In a sense, these proposals also signal China’s willingness to help establish its manufacturing capabilities in other BRICS countries, potentially extending that process to other developing economies. But industrialization does not come without preconditions; whether that ambition can be realized, however, will depend heavily on whether participating countries have the capacity to absorb those capabilities. Willingness is just the most basic; more important is the infrastructure and whether the government can maintain a consistent policy.

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Below is the transcript of the Chinese readout of the Xi-Modi meeting. To be fair, I’ve also included the readout from India’s Ministry of External Affairs. And also Xi’s speech, which I made the translation with the help of AI:

Xi Jinping Meets with Indian Prime Minister Narendra Modi
On the afternoon of September 12, 2026, local time, President Xi Jinping met with Indian Prime Minister Narendra Modi in New Delhi, India, on the sidelines of the 18th BRICS Summit. The two leaders held a candid and in-depth exchange of views and reached an important consensus that China and India should be partners.

Xi Jinping noted that China has always viewed and developed China–India relations from a strategic and long-term perspective. “Over the past two years, Prime Minister Modi and I have met twice, guiding China–India relations from a fresh start to a new level. Institutional exchanges between the two countries have gradually resumed, the list of areas of cooperation has continued to grow, and bilateral trade has reached another record high. This hard-won progress should be cherished.” China and India have different national circumstances, but they are fully capable of drawing on each other’s strengths, supporting one another, helping each other succeed, and pursuing common development. Amid an international situation marked by intertwined turbulence and transformation, China and India, as the world’s two most populous countries and important members of the Global South, shoulder significant responsibilities. Both sides should keep humanity’s future and their peoples’ well-being in mind, work together to advance high-quality cooperation within the expanded BRICS grouping, and contribute more positive momentum to world peace, stability, development, and prosperity.

Xi Jinping outlined four points on ensuring the steady and sustained development of China–India relations.

First, set the right course through an objective and rational strategic understanding. China and India are partners for cooperation, not rivals, and represent development opportunities for each other, not threats. This strategic assessment is based on the two countries’ stages of development and the international environment, and serves the common interests of both countries and their peoples.

Second, help each other succeed through a commitment to mutually beneficial cooperation. Both sides should focus on development—their broadest common ground—and strengthen friendly exchanges and mutually beneficial cooperation. They should expand cooperation in people-to-people exchanges, direct flights, and other areas to effectively strengthen public support for bilateral relations. They should address each other’s economic and trade concerns in a balanced manner and promote the healthy and stable development of bilateral economic and trade relations.

Third, overcome obstacles through the political wisdom of mutual respect and understanding. Both sides should work to advance bilateral relations and the boundary issue in parallel, allowing the two tracks to reinforce each other, while maintaining peace and tranquility in the border areas.

Fourth, contribute to the well-being of the world through open and inclusive multilateral cooperation. Both sides should support each other’s BRICS chairmanships, strengthen coordination within multilateral frameworks including the United Nations, the Shanghai Cooperation Organization, and the G20, work together to address global challenges, and unequivocally uphold international fairness and justice.

Modi said that he and President Xi Jinping had held numerous productive meetings, guiding India–China relations in a positive direction, which serves the common interests of the two countries’ more than 2.8 billion people. The two great civilizations of India and China have engaged in exchanges, learned from each other, and advanced together for thousands of years. India has always viewed India–China relations from a strategic and long-term perspective and is willing to be China’s partner rather than its rival, regarding each other’s development as an opportunity rather than a challenge.

India pursues an independent foreign policy, and the development of its relations with China is not subject to third-party influence. India’s policies and positions on Taiwan and Xizang-related issues remain unchanged, and India does not allow any forces to conduct anti-China activities on its territory.

India is willing, on the basis of mutual respect and trust, to maintain high-level exchanges with China, strengthen strategic communication, promote mutually beneficial cooperation, deepen people-to-people exchanges, and advance bilateral relations further. Both sides should work together to maintain peace and tranquility in the border areas.

India thanks China for supporting its hosting of the BRICS Summit and will fully support China’s BRICS chairmanship next year. India is willing to coordinate and cooperate closely with China to strengthen cooperation among Global South countries, promote a multipolar world and economic growth, and serve as a force for stability and progress in a turbulent world.

Cai Qi, Wang Yi, and other officials attended the meeting.

Prime Minister’s bilateral meeting with Chinese President Xi Jinping (September 12, 2026)

Prime Minister Shri Narendra Modi met with H.E. Mr. Xi Jinping, President of the People’s Republic of China on 12 September 2026, on the sidelines of the BRICS Summit in New Delhi.

2. The two leaders welcomed the steady progress in India-China bilateral relations since their last meeting in Tianjin in August 2025. They reaffirmed that both countries should take a strategic and long term perspective of their ties. Differences should not become disputes. Prime Minister highlighted that both sides must be guided by three mutuals- mutual respect, mutual sensitivity and mutual interest.

3. Prime Minister emphasized that peace and tranquility in the border areas remains an essential basis for the continued development of bilateral relations. He underlined the need for both sides to observe existing agreements and understandings on border related issues. The two leaders expressed commitment to a fair, reasonable, and mutually acceptable resolution of the boundary question proceeding from the political perspective of their overall bilateral relations and the long-term interests of the two peoples.

4. The two leaders took note of the progress in people-to-people ties and underscored the need to further promote cultural exchanges, business linkages and greater mobility between the two countries. On economic and trade relations, they underlined the need to address each other’s concerns, including structural trade imbalance and supply chain issues, and facilitation of meaningful and predictable market access.

5. The two leaders agreed that both sides must continue to expand common ground on regional and global issues, and in addressing challenges.

6. Prime Minister appreciated China’s support for India’s BRICS chairship and its contributions towards the success of the BRICS Summit-2026.

New Delhi
September 12, 2026

Shouldering the Responsibilities of Our Times and Taking the Lead
—Address at the First Session of the 18th BRICS Summit

Your Excellency Prime Minister Modi,
Colleagues,

It is a pleasure to gather with you in New Delhi. I thank Prime Minister Modi and the Indian government for their thoughtful arrangements.

This year marks the 20th anniversary of BRICS cooperation. Over the past two decades, the BRICS cooperation mechanism has continued to grow in strength and scope, demonstrating robust vitality and becoming the world’s most influential platform for cooperation among emerging markets and developing countries.

These have been 20 years of pursuing greater self-reliance and strength. As a leading force in the Global South, BRICS countries have upheld their independence and actively explored development paths suited to their national conditions, setting an example for emerging markets and developing countries seeking to build strength through solidarity.

These have been 20 years of standing together through adversity. Undaunted by difficulties, BRICS countries have forged ahead, joining hands to confront challenges including the global financial crisis, the COVID-19 pandemic, and climate change. We have steadfastly safeguarded the common interests of the Global South and contributed stability and positive momentum to the world.

These have been 20 years of fruitful achievements. BRICS has undergone a historic expansion, established a comprehensive, multilevel cooperation framework, and continuously deepened cooperation in trade, investment, finance, science and technology, and other areas, entering a new stage of high-quality cooperation within the expanded BRICS grouping.

Today, changes unseen in a century are accelerating across the world. The Global South is growing markedly stronger, and the trend toward a multipolar world is unstoppable. At the same time, countercurrents of unilateralism and power politics are surging, multilateralism and the international order are under strain, and deficits in peace, development, security, and governance continue to widen.

I put forward the Global Development Initiative, the Global Security Initiative, the Global Civilization Initiative, and the Global Governance Initiative precisely to address these deficits and help build a better world. BRICS countries must stand firmly on the right side of history, take the lead in responding to the challenges of our times, guide the international order toward greater fairness and equity, and work together to build a community with a shared future for humanity.

First, BRICS countries should take the lead in promoting innovation-driven development.

A new round of scientific and technological revolution and industrial transformation, exemplified by artificial intelligence, is advancing rapidly and profoundly reshaping global development. BRICS countries must firmly seize the initiative, strengthen AI cooperation, encourage open-source development, openness, cooperation, and sharing, and advance practical cooperation toward greater innovation and higher levels of development.

Not long ago, China worked with other parties to establish the World Artificial Intelligence Cooperation Organization. China is also developing an international AI application cooperation center serving BRICS countries and others. These efforts provide important platforms for strengthening AI cooperation globally, particularly among countries of the Global South. We welcome the active participation of all BRICS countries.

Here, I propose a BRICS initiative on AI-enabled new industrialization. China stands ready to work with all parties to deliver more research, development, and application outcomes and deepen cooperation in industrial and supply chains. Facts will prove that “decoupling and severing supply chains” cannot halt our development, while building “small yards with high fences” will only confine those who erect them and divide the world.

Second, BRICS countries should take the lead in safeguarding peace and stability.

The world today is far from peaceful, with turbulence and instability becoming more pronounced. At its root, this reflects the erosion of the postwar international order and the failure to effectively uphold the purposes and principles of the United Nations Charter. BRICS countries should stand firm, uphold justice, and work to end armed conflict and preserve peace.

We should uphold a vision of common, comprehensive, cooperative, and sustainable security; oppose Cold War thinking and bloc confrontation; oppose violations of other countries’ sovereignty and interference in their internal affairs; and participate constructively in resolving hotspot issues, making a distinctive BRICS contribution to solutions that address both symptoms and root causes.

The situation in the Middle East and the Gulf continues to evolve in complex ways. This conflict has inflicted severe losses on the peoples of countries across the region and runs counter to the common interests of the international community. I have put forward a four-point proposal on safeguarding and promoting peace and stability in the Middle East, calling for de-escalation, an end to hostilities, and the advancement of peace.

The parties concerned should remain committed to a political settlement and work toward a permanent and comprehensive ceasefire. They should give due attention to addressing the root causes, rebuilding trust among countries in the region, and establishing a new security architecture. The Palestinian question remains at the heart of the Middle East issue. Its fundamental solution lies in implementing the two-state solution and achieving peaceful coexistence between Palestine and Israel. China is willing to work with fellow BRICS members to play its due role in bringing peace and tranquility to the Middle East and the Gulf region.

Third, BRICS countries should take the lead in promoting mutual learning among civilizations.

The beauty of a harmonious soup lies in blending different ingredients. As inheritors of ancient civilizations and home to diverse cultures, BRICS countries should become a garden where different civilizations flourish together in an atmosphere of inclusiveness and coexistence.

We should uphold the common values of humanity and advocate exchanges, mutual learning, and harmonious coexistence among civilizations. We should successfully organize the BRICS People-to-People Exchanges Forum, share experience in governance, and build positive momentum for the stable development of relations between countries. We should deepen cooperation in culture, tourism, education, and other areas, strengthen youth exchanges, and encourage more frequent interaction, mutual understanding, and friendship among our peoples.

Fourth, BRICS countries should take the lead in reforming and improving global governance.

The kind of global governance system we build will determine the future of human society. BRICS countries should respond to the broader trend toward greater democracy in international relations, promote a more just and equitable global governance system, uphold the authority of the United Nations, and oppose withdrawal from international organizations, the repudiation of agreements, and the establishment of rival frameworks.

We should support the multilateral trading system with the World Trade Organization at its core, advance WTO reform, oppose the indiscriminate imposition of tariffs, and resist all forms of protectionist measures. We should take a leading role in global governance in new domains such as cyberspace, outer space, and the deep sea, and strengthen the voice of Global South countries.

Colleagues,

Throughout two decades of challenges and progress, solidarity and cooperation have remained the source of strength driving the BRICS endeavor forward. We must treat one another with sincerity, seek common ground while setting aside differences, respect each other’s core concerns, and use communication and dialogue to enhance mutual understanding and properly manage disagreements and differences, ensuring steady and sustained BRICS cooperation.

China will assume the BRICS chairmanship next year and host the 19th BRICS Summit. China stands ready to take this opportunity to work with all parties to build consensus and shape the future, ushering in a third “golden decade” of BRICS cooperation and jointly creating a bright future of prosperity and progress.

Thank you.

Strengthening the Foundations of BRICS Cooperation and Empowering the Global South

—Address at the Second Session of the 18th BRICS Summit

Your Excellency Prime Minister Modi,
Colleagues,

I thank Prime Minister Modi and the Indian government for hosting this meeting.

Today, changes unseen in a century are accelerating across the world. The collective rise of the Global South has become a key force driving the world toward multipolarity. At the same time, the international landscape is marked by intertwined turbulence and transformation, with risks and challenges continually emerging. To bring greater stability to the world and make it a better place, BRICS countries must seize the historical initiative, unite the countries of the Global South, and play a positive, stabilizing, and constructive role in international affairs to advance the common well-being of humanity.

A world without rules is like an intersection without traffic lights: chaos and disorder are inevitable. Fairness and justice are the shared aspirations of all peoples. International rules should be written jointly by all countries. The logic that “might makes right” is untenable and should have been abandoned long ago. Countries of the Global South must work together to uphold the international rule of law and safeguard the basic norms governing international relations, including sovereign equality, non-interference in internal affairs, and the peaceful settlement of disputes. We must ensure that international law and international rules apply equally to all, without double standards.

All countries, regardless of their size, strength, or wealth, are equal members of the international community. Countries of the Global South must hold high the banner of multilateralism, uphold the authority and role of the United Nations, and support reforms that make multilateral institutions more effective, ensuring that all countries can participate equally in international affairs. We should keep World Trade Organization reform on the right track, uphold principles such as most-favored-nation treatment, and actively explore the development of new, future-oriented rules. We should support the operations and development of the New Development Bank to promote cooperation among Global South countries. We should also reform and improve the international financial architecture to give developing countries greater representation and a stronger voice.

To accomplish great things, we must put people first. Countries of the Global South should pursue a people-centered approach to development and advance the implementation of the UN 2030 Agenda for Sustainable Development. In the five years since China proposed the Global Development Initiative, we have worked with partners to carry out more than 2,000 cooperation projects and train more than 200,000 people in various fields, benefiting people in over 120 countries. China’s door to the outside world will open ever wider. We have fully implemented zero-tariff treatment for all 53 African countries with which we maintain diplomatic relations. We will continue to expand voluntary and unilateral opening-up and share development opportunities with all countries.

In confronting the constant emergence of global challenges, we should adopt comprehensive measures that address both their symptoms and root causes. Countries of the Global South should work together to advance security governance and jointly respond to traditional and non-traditional security threats. We should improve global climate governance and promote the full and effective implementation of the Paris Agreement. Guided by a people-centered approach and the principle of harnessing technology for good, we should accelerate the development of a global AI governance framework based on broad consensus, enabling emerging technologies to illuminate the path toward shared prosperity.

Colleagues,

For the expanded BRICS grouping to achieve more and develop further, we must strengthen the foundations of practical cooperation. We should draw on our strengths as a grouping rooted in emerging markets and connected to the wider Global South, uphold open cooperation and mutual benefit, maintain stable and unimpeded industrial and supply chains, and foster a large, integrated market. We should build incubators for innovation, upgrade traditional industries, develop emerging industries, and lay the groundwork for industries of the future. To this end, I propose five initiatives.

First, an initiative for open-source and inclusive AI. China will take the lead in establishing a dedicated BRICS AI open-source hub, support cooperation in the development and application of large language models, and organize specialized AI training programs to build an open AI ecosystem.

Second, an initiative to facilitate trade and investment. China proposes establishing a BRICS partnership on special economic zones, creating a smart portal, and promoting policy coordination to develop new hubs for openness and development. Next year, China will host a BRICS Forum on Trade in Services to foster new drivers of economic and trade cooperation. We welcome the active participation of all parties.

Third, an initiative for digital industry cooperation. China will promote the establishment of a BRICS digital industry cloud platform, offering digital skills training, facilitating technical exchanges, and connecting industry partners to advance the development of the digital economy.

Fourth, an initiative for smart manufacturing cooperation. Through this initiative, China stands ready to help BRICS countries build smart factories and develop a system of standards and specifications, jointly advancing the transformation and upgrading of manufacturing.

Fifth, an initiative to develop talent in science and technology. China proposes establishing a BRICS alliance for engineer training to carry out joint training programs and promote mutual recognition of competency standards. China will launch a BRICS exchange program for young talent in science, technology, and innovation to cultivate more highly skilled professionals in these fields.

Colleagues,

This year marks the beginning of China’s 15th Five-Year Plan period. The plan is not only a blueprint for China’s own development, but also an agenda for cooperation with the world. China will continue to pursue high-quality development, expand high-standard opening-up, implement the Global Development Initiative, and advance high-quality Belt and Road cooperation, sharing opportunities and creating prosperity with countries around the world. Let us work together with one heart and one mind to advance cooperation within the expanded BRICS grouping and write a new chapter of solidarity and collective strength for the Global South.

Thank you.

Majuqiao is located along Beijing’s southeastern Sixth Ring Road. Beijingers traditionally consider places that are upwind and upstream to be more desirable. But Beijing’s prevailing winds come from the northwest, and its few rivers generally flow from northwest to southeast. This leaves Majuqiao on the less favoured side of the city’s geography—and it has become Beijing’s largest casual labour market.

There is a popular saying in Beijing: “If you have money, you wouldn’t live in Tiantongyuan天通苑; if you fall on hard times, you head to Majuqiao.” The idea is that the rich would avoid living in an large community such as Tiantongyuan. But if you have run out of options, you can try your luck in Majuqiao, where short-term work may at least help you get by.

Cong Rui’an began conducting fieldwork among temporary workers in 2018. He has also worked a range of day-labour jobs himself. I think his firsthand experience offer rare insight into these workers’ living and working conditions.

Given how highly urbanised China has become, listening to this conversation sometimes felt like listening to a twenty-first-century counterpart to Mao Zedong’s Report on an Investigation of the Peasant Movement in Hunan. One of the points I found most interesting was how day labourers choose among the jobs available to them. Jobs at pharmaceutical factories tend to be the most “formal” and regulated. They provide the best meals and pay relatively well, around RMB 200 a day. Yet day labourers are often reluctant to take them because these factories exercise unbearable strict control over workers’ movements. The psychological toll also greater than in other workplaces.

The nature of casual labour also contributes to a dysfunctional relationship between workers and employers. Labour brokers and employers assume that casual workers are unreliable, so they resort to harsh methods to keep them under control. The workers, in turn, feel that they are being treated without dignity or respect, which gives them even less incentive to work hard. When employers see them slacking off, it reinforces their existing stereotype: These workers really are unreliable, so we need to control them even more strictly. The result is a vicious cycle of distrust, disrespect and increasingly coercive management.

Cong beleives that the key to improving the lives of casual workers is to improve working conditions and labour protections for long-term employees. This would reduce employers’ reliance on casual labour and, ultimately, give those who remain in the casual labour market greater bargaining power.

In some ways, the anxiety that day labourers experience in the face of an uncertain future is shared by many contemporary white-collar workers around the world. You can find work if you are willing to take it, but fewer and fewer jobs feel worth choosing.

Thanks Cong’s kind authorization, I can translate the podcast to English.

Below is the full transcript of the podcast:

MaJuQiao Day Labor, Dignity at Work, and the Career Choices of Young People

A Conversation Between Cong Rui’an and Liangzi Interviews

Speakers

• Cong Rui’an (丛瑞安): PhD candidate in Political Science at Tsinghua University

• Liangzi (凉子): Creator of the Bilibili channel Liangzi Interviews (凉子访谈录)

• Production Staff: Other people present during the recording

The Current State of Work in Majuqiao and Problems in the Labor Market

Cong Rui’an:

There is a saying that has circulated in Beijing for many years: “If you have money, don’t live in Tiantongyuan; if you’re down on your luck, head to Majuqiao” (有钱不住天通苑，落难必闯马驹桥).

Liangzi:

As the Chinese saying goes, “A person lives for dignity, just as a tree lives for its bark” (人活一口气，树活一张皮). Just because I need to earn one or two hundred yuan doesn’t mean I should have to let you treat me like a dog.

Cong Rui’an:

My name is Cong Rui’an. I am currently a PhD candidate in the Department of Political Science at Tsinghua University, and I have been conducting research and fieldwork related to Majuqiao.

Liangzi:

Can people really make money doing day labor?

Cong Rui’an:

Yes. But making money and actually saving money are two different things.

There are two seemingly contradictory descriptions of Majuqiao.

The first is that if you want to work in Majuqiao, you can find work every day.

The second is that Majuqiao is no longer what it used to be—that there is less and less work available.

These two descriptions may sound contradictory, but they are actually describing the same situation. There are still plenty of jobs in Majuqiao, but fewer and fewer of them are worth choosing. In other words, there are fewer jobs that immediately look attractive to workers.

Take parcel sorting, for example. These jobs recruit large numbers of workers every day, but labor brokers may shout by the roadside for hours without attracting anyone. Everyone knows the work is exhausting, so they do not want to take it.

By contrast, suppose someone arrives on an electric motorcycle or in a minivan, pulls over, and says, “I need a few people for some light moving or cleaning work. It pays 180 or 190 yuan. Who wants to go?” That would be considered a good job, and everyone would immediately crowd around.

But jobs like that have become less common, which is why people feel there is less and less work.

In theory, if someone hardens himself and is determined to work every day, he can find a job every day. But then the question becomes: if this is what I have to do every single day, what kind of life am I really living?

In Majuqiao, work is not a multiple-choice question. It is a series of true-or-false questions that appear one after another and require an immediate answer. You either check “yes” or mark “no.” If you say no, the next question immediately appears. The choices keep coming, and you cannot go back.

You might think, “It’s already late today, so there probably aren’t many good jobs left. Should I take this parcel-sorting job?”

But perhaps you still have a little money in your pocket, and you know how exhausting parcel sorting is. You may decide that you do not need to take it. Maybe a better job will appear tonight or tomorrow, so you turn this one down. That is a perfectly natural response.

Liangzi:

Could we put it this way? If you are sufficiently diligent and hardworking, then even if you do not yet have a long-term plan, you can still find relatively stable employment.

Some people may avoid long-term, stable jobs because they believe those jobs offer no future or do not pay enough. That may be why they come here.

But if someone is genuinely willing to look for a long-term job, chances are they can find one—as long as they are willing to endure hardship.

Cong Rui’an:

The problem is that “being willing to endure hardship” has to mean something. There has to be a standard.

Suppose we were discussing whether you should accept a job that paid only 1,000 yuan a month. No matter how hardworking you are or how much you can endure, many people would still refuse it.

If I refuse a job that pays 1,000 yuan and look instead for one that pays 2,000, 3,000, or 4,000 yuan, then the question is: how much money would make the hardship worthwhile? What kind of hardship should I be expected to endure?

More and more people have come to realize that they repeatedly hit walls at work. The jobs available to them are not what they want, but they cannot find anything better.

There is also severe information asymmetry (信息不对称) in our labor market, especially in the market for long-term employment.

Many people travel here from distant hometowns after being promised a good job. They may also be charged a large fee. But after working for only a couple of days, they discover that the job is nothing like what they were promised.

What can they do? If they leave, they may not receive any wages at all, and they will have lost their travel expenses as well.

Many people try to save only one or two thousand yuan so that they can afford to leave and search for a different job.

We all understand the logic: if a person finds a genuinely good job, they will usually stay. If the job is good, why would they quit?

As a result, the jobs that remain constantly available on the labor market tend to be the worst ones.

Liangzi:

But that raises another question. If a person can earn only around 150 yuan a day in Majuqiao, couldn’t they find that kind of work in a township or county?

At the very least, couldn’t they find it in their nearest prefecture-level city? Why do they have to come to Beijing? The cost of living in major cities such as Beijing, Shanghai, and Guangzhou is so high. Why come here at all?

Cong Rui’an:

First, major cities such as Beijing, Shanghai, and Guangzhou still provide an enormous number of jobs. The volume of labor demand is high. In smaller cities and counties, it may actually be harder to find work.

Second, living expenses in Majuqiao are not necessarily that high.

If you earn 150 yuan a day, a daily bed rental may cost around 20 yuan. After spending some more on food, you may still be able to save a little.

If you rent by the month, your living situation can also become more stable. The cheapest room I have personally seen cost only 200 yuan a month.

A PhD Student’s Experience as a Day Laborer and the Idea of the “City’s Image”

Cong Rui’an:

That room was underneath a staircase. Someone had put up a board to partition off the space. When you opened the door, there was only a bed and a bare incandescent bulb overhead. There was nothing else.

The light was off when I first walked past, so I thought it was a storage space. Then some light from outside fell into the room, and I realized that someone was actually sleeping inside.

I asked the labor broker about it, and he told me the rent was 200 yuan a month.

A worker could earn enough to cover an entire month’s rent for a room like that in a little more than one day. Of course, there may also have been slightly better rooms available for 200 yuan. I simply did not see them myself.

Liangzi:

But why would someone choose to live in a room like that? After working for one or two days, they could afford something at least slightly better.

Cong Rui’an:

On the one hand, a person may genuinely lack the means to improve their living conditions. On the other hand, they may simply not want to work the extra days required.

But they are supporting themselves through their own labor. They have not robbed anyone or harassed anyone. What gives us the right to condemn them? I think their choice is perfectly understandable.

Liangzi:

Yes, I think you are right.

Cong Rui’an:

At most, someone might say that they are “damaging the image of the city” (影响城市形象).

But this city also belongs to me. I am part of it. Why does my presence in the city damage its image, while your presence supposedly improves it?

Liangzi:

So this is really a form of elite arrogance.

Cong Rui’an:

The jobs I did most often were security jobs. I also worked as a waiter, in factories, in landscaping, in cold-storage facilities, and as a parcel sorter. Those were the main types of work I did.

Liangzi:

What was it like to do those jobs?

There is also another dimension to this. You were doing them as someone who had been a graduate student at Peking University and was now a PhD student at Tsinghua University. How did these experiences affect you?

Cong Rui’an:

The experience varies greatly from one job to another.

Security work is relatively easy. At some security jobs, you can sit there or stand around looking at your phone. Your main purpose is simply to be physically present and prevent a “broken windows” effect (破窗效应).

Factory work is different.

Some factories constantly scold and pressure you. They try to control you in every possible way, including methods that completely disregard your dignity.

They may shout, “Hurry up and work! You people can’t be slower than everyone else!”

Once, when I arrived at a workplace, several labor brokers were chatting happily. One of them proudly said, “I made two more workers cry yesterday.”

They were delighted to share stories like that. It was an extremely dehumanizing situation.

Of course, we could say that all work contains some element of dehumanization. But because these jobs demand extremely high output and intensity, the dehumanizing aspect becomes particularly obvious.

The employer wants you to sell your labor power and nothing else. As long as you are a person capable of providing labor, that is enough. Your other feelings, your dignity, and your needs are irrelevant to them.

Liangzi:

What was it like to spend an entire day doing that kind of work?

Cong Rui’an:

It was very painful.

You have no dignity. People are constantly scolding you, and both your body and mind gradually become numb.

Some might say, “Of course it was difficult for you. You are a doctoral student, a master’s student, or a graduate of an elite university. Naturally, you would not be accustomed to such work.”

But isn’t this exactly what many day laborers experience all the time?

That is precisely why they do not want to take these jobs.

I wrote about one example in my book.

A man on the street was mocking the people around him. He said, “Why don’t any of you go and sort parcels? You’re all useless. Look at me—I’m strong, I’m used to the work, and I can handle parcel sorting. Why can’t you?”

I teased him by asking, “Brother, why aren’t you doing it today, then?”

He froze and had nothing to say. Everyone around him burst out laughing, and the moment passed.

He knew perfectly well that it was a bad job. That was why he had not taken it himself.

Everyone understands how much pain such a job can cause. It may sometimes be worth choosing, but if I have the option not to choose it, I would rather not.

Liangzi:

Is it only because the pay is low and the work is physically demanding?

Cong Rui’an:

The pay is not necessarily that low. Some jobs pay 190 yuan a day. Of course, if they paid 300, 400, or 500 yuan, then, as the saying goes, “A generous reward will bring forth brave volunteers.”

To be honest, the pay at the pharmaceutical factory was quite good. You earned 200 yuan for working ten to twelve hours, and the food they provided was also delicious.

If you completely set aside the psychological pain and emotional damage, it was actually a very good and properly managed job.

It was the only job I ever did where I could leave early and still receive some wages. I worked for four hours, and they paid me for only three, but at least they paid me. In that respect, they handled things reasonably well.

Liangzi:

One can imagine how difficult it was. Even though you were a student—one of society’s so-called “favored children of heaven” (天之骄子)—the experience was still extremely painful.

Ordinary workers may not have prestigious degrees or extensive formal education, but they are still human beings. And every human being has dignity.

The Harshness of the Day-Labor Market

Cong Rui’an:

As the saying goes, “A person lives for dignity, just as a tree lives for its bark” (人活一口气，树活一张皮). That is more or less what it means.

Liangzi:

Exactly. Just because I need to earn one or two hundred yuan does not mean you have the right to treat me like a dog.

No human being can tolerate that kind of mistreatment indefinitely, even if they appear to have adapted to it.

Cong Rui’an:

These workers are no different from the rest of us.

Liangzi:

Any one of us could fall on hard times.

Cong Rui’an:

That is why people say, “If you have money, don’t live in Tiantongyuan; if you’re down on your luck, head to Majuqiao” (有钱不住天通苑，落难必闯马驹桥). It has circulated in Beijing for many years.

Liangzi:

Any one of us could experience one of those moments of misfortune.

That is why we should not stand on the moral high ground and accuse these workers of being lazy. We should not say, “Look, you can earn 200 yuan a day. What are you complaining about?”

Put yourself in that environment and try it. You might not last even half a day.

Cong Rui’an:

That said, a room renting for 200 yuan a month is an extreme case. Most people would not choose to live in a place like that.

Liangzi:

Even so, the environment is extremely harsh for these day laborers.

They have little dignity at work. They may be told that a shift lasts ten hours, but it becomes eleven or twelve. What can they do about it? They need the money.

Cong Rui’an:

The long-term labor market is a highly unequal market. The day-labor market, by contrast, is relatively equal in a certain sense.

You can scold me or push me around, but if you make me work too long, refuse to pay me, or humiliate me beyond what I can tolerate, I may genuinely fight back.

I have no support and very little to lose. As the Chinese saying goes, “The barefoot person is not afraid of the person wearing shoes” (光脚的不怕穿鞋的). In other words, someone with nothing to lose may be less afraid of conflict than someone with property or status to protect.

Liangzi:

At worst, I can give up the hundred or so yuan you owe me.

Cong Rui’an:

I can fight you, or I can simply walk away. Either way, I have very little to lose.

Such conflicts may be less common in northern China and more common in the south. Sometimes an argument escalates into serious violence.

A few days ago, I was talking with an older man who runs a barbecue restaurant near Majuqiao. He had recruited workers from Majuqiao several times, but the results were never satisfactory. He said that some workers had also pressured him into paying extra money.

According to him, some people would use every possible method to avoid work. The moment no one was watching them, they would hide in the bathroom.

If he realized that someone was incapable of doing the job and told them to leave, they would demand travel expenses.

We can set aside the question of whether that demand was reasonable. The point is that they would find different ways to prolong the confrontation. If he refused to pay, he would face a conflict.

He told me that he lacked the experience to handle these situations. When someone tried to intimidate him, he did not know what to do.

Some workers might even injure themselves deliberately and then demand compensation. When that happens, an inexperienced employer has few ways to respond.

In the end, he found two local friends and had them throw the troublemaker out. He had to resolve the situation by combining authority with intimidation—what Chinese people call “using both kindness and force” (恩威并施).

This helps explain why so many local labor brokers behave like jianghu bosses—“big brothers” or “big sisters” of the street world (江湖大哥、江湖大姐). Without that kind of commanding personality, it is difficult to survive for long in the labor-broker business.

Liangzi:

In other words, even if someone did not originally have that kind of personality, the job requires them to cultivate it so that they can keep the situation under control.

Cong Rui’an:

People are shaped and constrained by their occupations.

An occupation creates an identity for me, and I have to perform that identity.

I am normally very introverted. But when I enter an urban village (城中村), I become outgoing and actively talk to everyone.

In my ordinary life, I rarely haggle with people, and I certainly do not fight. But on the streets of an urban village, I will say, “Give me your real price. How much does this actually cost?”

That may be part of the way an environment shapes the social roles people perform.

Liangzi:

When people enter a particular environment, they gradually become what that environment needs and expects them to be.

So whether we are talking about day laborers or employers, neither side is particularly comfortable.

Why do employers use such aggressive and severe methods to control day laborers and force them to meet production targets? Partly because they believe that workers frequently take advantage of them.

They think, “You took my money, so you should at least produce approximately the amount of work expected of you.”

Even after imposing strict controls, they still believe that many workers are constantly looking for ways to avoid work.

The Vicious Cycle Between Workers and Employers

Cong Rui’an:

Labor brokers and employers think, “You Majuqiao workers are unreliable, so I have to behave aggressively to make you obey.”

The workers think, “You don’t respect me, so why should I work hard for you?” They respond by putting in even less effort.

The employer sees them avoiding work and thinks, “I was right—you’re unreliable. I need to control you even more severely.”

This creates a vicious cycle. Eventually, the two sides reach a kind of destructive equilibrium.

But no matter what happens, the workers must be paid the full amount they were promised. Refusing to pay them is completely unacceptable.

Liangzi:

So even if someone arrives later and is more conscientious and hardworking than the earlier workers, entering this environment will still make that person miserable.

Cong Rui’an:

On the other hand, working hard and performing well can also bring benefits.

If you demonstrate that you are diligent and willing to work, the employer may like you. The next time a similar job comes up, they may contact you directly instead of recruiting people on the street.

After a while, the employer may say, “Brother, I need another five or six workers. I don’t want to go to the street and recruit them myself. Find some people for me and act as the crew leader.”

The worker then temporarily becomes a crew leader or labor broker.

For example, the employer may give him 200 yuan per worker and tell him that he can decide how much to pay the workers themselves. If he pays each worker 150 yuan—or even 100 yuan—he keeps the difference.

Many people improve their circumstances by working hard and gradually entering an employer’s private network (私域关系). Jobs obtained through private relationships often pay more and have better conditions.

But this may also mean working harder, developing a deeper personal relationship with the employer, or becoming more skilled at dealing with people.

Liangzi:

When people spend a long time in Majuqiao, do they form their own social networks? Do they get to know one another?

Cong Rui’an:

Yes.

Liangzi:

Do they want to get to know one another?

Cong Rui’an:

It is very easy to meet people there.

Suppose I go somewhere to work and have a good conversation with another worker. I might say, “Brother, let’s add each other on WeChat.” We scan each other’s codes, and now we are connected.

Liangzi:

Then, if one of you hears about a job in the future, you can bring the other person along.

Cong Rui’an:

These relationships can be positive, but they are also fragile.

In many cases, they are still fundamentally economic relationships. Because everyone is in a difficult financial position, all kinds of disputes can easily emerge.

Some people get to know you because they eventually want to borrow money from you. Once they have the money, they may never repay it. They simply disappear into the crowd, and you never see them again.

At the same time, there are also very sincere and moving forms of mutual assistance.

I am willing to help you, and we are willing to support one another.

Part of this may be because everyone shares the same predicament and exists within the same relations of production (生产关系) and physical space. But part of it also comes from the simple fact of being human.

Liangzi:

The good within human nature is brought out by the circumstances.

Cong Rui’an:

There is an example in my book.

Once, I was working as a parcel sorter. I had already completed the work assigned to me, but the labor broker and the team leader insisted that I go to another work area.

They said, “Keep working on these parcels. You are not allowed to leave until you finish.”

There were only ten minutes left before the end of the shift. I thought, “There is no way I can finish all this in ten minutes.”

But I was relatively obedient at the time and did not dare to resist, so I kept working.

Suddenly, two other workers came up behind me and said, “Everyone else has already gathered to leave. Why are you still working here? Hurry up and go!”

I said, “They’re watching the front. I can’t get out.”

They replied, “Climb over from here.” They showed me where to climb and how to escape, and I got out that way.

Workers would also warn one another whenever the crew leader was approaching.

To put it somewhat negatively, they also taught one another when it was possible to slack off and where they could rest. But that was another gentle form of mutual assistance.

There was also something that happened outside work that I found very interesting.

A man had been drinking and got into a verbal argument with someone. The other person hit him with a brick, knocking him to the ground. The injured man was taken to hospital, and the attacker was taken away by the police.

Two things remained on the ground: a brick and a pool of blood.

A police officer came over and carefully kicked the brick to the side of the road so that it would not block the way or injure someone.

Then a dog suddenly ran over and tried to lick the blood. Everyone nearby immediately began shouting and drove the dog away.

No one wanted to see a dog licking the blood of a person who had just been taken to hospital.

I think that response arose naturally from somewhere deep within them.

Part of it came from the emotional connection created by sharing the same social space or field (场域). But it also came from something broader and simpler that people share merely by being human.

Why Cong Rui’an Began Studying Majuqiao Liangzi:

How did you first become interested in this subject?

Cong Rui’an:

It began in 2018 through a very accidental opportunity.

I had a friend from my undergraduate years whose friends had long been interested in temporary workers and related labor issues.

One day, he asked me, “We’re going to Majuqiao in a couple of days. Do you want to come?”

I thought, “Why not?” So I went. It happened very naturally and largely by chance.

Liangzi:

But why did you want to go?

Cong Rui’an:

This was how I thought about it.

First, I am a member of the CPC. Second, I study political science and have long studied issues related to Marxist-Leninist theory.

These theories require me to observe how people produce and live, and to understand how relations of production (生产关系) shape individuals.

That means I need to enter a place filled with real labor practices in order to understand and study them.

I therefore saw it as a natural mission—or perhaps a naturally developed academic interest. Eventually, Majuqiao became part of my life and produced concrete research outcomes.

At the time, I did not have many opportunities to conduct fieldwork elsewhere.

In other words, an opportunity to study Majuqiao appeared, and I took it.

The specific location was accidental. But even if I had not gone to the urban village in Majuqiao, I probably would have gone to another urban village or factory. I would eventually have selected—or accidentally encountered—one of these places.

Majuqiao happened to be the place I encountered.

Liangzi:

We have been discussing Majuqiao as a particular social field. What kinds of people are there? What are their ages, occupations, and backgrounds? Why do they come to Majuqiao?

Cong Rui’an:

The workers can be divided into several categories.

The first consists of long-term workers (长期工), mainly employed by factories in the surrounding area or slightly farther away.

The second consists of student workers (学生工), who mainly come during the winter and summer holidays.

Then there are gig and casual workers (零工).

Some of them have long-term jobs but also take temporary jobs on the side. They may work for one or two days during weekends, holidays, or other periods of free time to earn some extra money.

Another group relies primarily on daily-paid jobs (日结工), and their situations also vary.

Some people use Majuqiao as a temporary base. The cost of living is low, so they can maintain their lives cheaply while taking care of personal matters. Once those matters are resolved, they plan to leave.

Others become exhausted by long-term employment and come here to rest for a few days. They take an occasional temporary job, clear their heads, and change their routine while searching for another long-term position.

But these people can easily become another category: those who simply remain in Majuqiao.

They are not necessarily what outsiders imagine—people who came because they were determined to “pursue freedom,” or because they were simply lazy.

They may only have wanted to rest for a while. They had recently become exhausted and wanted to find somewhere to recover, do the occasional day job, or “lie flat” for a while (躺平).

But once they lie down, they may find that they cannot get back out.

Majuqiao has a powerful attraction. Life there is free and comfortable. Prices are low, and housing is cheap.

The jobs are paid daily. You can work for one day and then take several days off. Whether you work is entirely up to you.

People may discover that, at least in the short term, this life is more comfortable than working in a factory.

They think, “If that is the case, why shouldn’t I stay here and do day labor?”

Of course, they may know that this is not a long-term solution. But everyone is capable of telling themselves, “I’ll think about long-term plans later. Tomorrow’s problems can wait until tomorrow. For today, I’ll just enjoy myself.”

One day follows another, and eventually many people find themselves held in Majuqiao’s gravitational pull.

Liangzi:

What is the approximate age range of this group?

Cong Rui’an:

Among the people who gather on the street, the gender ratio is roughly three women to seven men. Men account for more than 70 percent.

Many of them look as though they are in their forties, but they may actually be only in their thirties. Work and the pressures of life can make people look much older.

I once met a man on the street who looked like he was in his sixties or seventies.

He reminded me of the elderly character in the Chinese comedy Goodbye Mr. Loser, from the famous exchange, “Ma what Mei? What Dongmei?” (马什么梅？什么冬梅？)

But when I looked at his identity card, I discovered that he was only around fifty. His entire face had aged dramatically.

There are also young people in Majuqiao. But younger workers may be more likely to stay in their rented rooms and find jobs on their phones rather than gathering on the street.

As for the exact proportion, it is extremely difficult to calculate.

The Career Choices of a New Generation

Liangzi:

Do these workers genuinely have no other options? Do they have to stand on the street looking for casual work?

Why don’t they deliver food, work as couriers, or drive for a ride-hailing platform?

Cong Rui’an:

Life is not a mathematical problem.

Human beings do not simply place several options side by side, compare their advantages and disadvantages, and then select the optimal one. That is how a machine calculates, not how a person chooses.

Human choices are often influenced by sudden events and by memories of past experiences. Different factors gradually push a person toward a particular option.

At a macro level, we can certainly offer structural explanations for people’s choices.

But ultimately, we need to return to the specific individual. How does this person understand the world around them? How do they understand their work? How do they understand their own choices?

Liangzi:

In that sense, they are no different from those of us who follow the standard path of going to school and then finding a job.

Whether someone is a white-collar or blue-collar worker, everyone is fundamentally the same.

Cong Rui’an:

We share many of the same ideas, and we live in the same world.

Liangzi:

I am curious about something.

People born after 1995 or 2000 grew up in the information age. They have seen a much larger world through the internet, including the lives of wealthy people.

Under these circumstances, would they still be willing to work as day laborers or security guards?

Cong Rui’an:

Then the question becomes: what should they do instead?

What do you think they should do?

Liangzi:

Perhaps they should find work that allows them to accumulate skills and continue improving themselves.

Cong Rui’an:

You mean learning a trade, for example, or joining a factory and gradually working their way up?

But there is a problem: is that genuinely feasible?

First, it is genuinely not feasible for some people.

A person may not be good at formal learning. Or they may lack the interpersonal skills required to move up. Such cases certainly exist.

Second, do they actually have access to the necessary opportunities?

You might say that there is no real barrier to learning a technical skill, or that anyone in a factory can rise step by step as long as they work hard.

But as we discussed earlier, different people understand these possibilities differently.

Someone may have attended a vocational training school and discovered that they could not master the material. Someone else may have spent money on training but still failed to find a job. A third person may have heard about someone who paid a large amount for training and still remained unemployed.

Or perhaps the individual is simply afraid of taking the risk.

All these factors can discourage someone from trying to acquire a technical skill.

The same applies to the idea of rising through the ranks at a factory. What happens after I start trying to move up? Can I genuinely advance?

How many people spend their entire lives working in factories and remain ordinary production-line workers?

If you argue that the new generation has seen a larger world and therefore should not choose jobs such as security work, I think the logic should be reversed.

It is precisely because they have seen more of the world that they may be more likely to choose this kind of work.

Today, even someone living in the most remote village can scroll through Douyin on a smartphone and see the glamour and excitement of the wider world—the “bright lights and lavish lifestyle” (灯红酒绿).

That person then begins to wonder: can I ever obtain that kind of life?

If I cannot, why should I work myself to death? Why shouldn’t I choose a job that makes my life easier and more comfortable?

The previous generation may have endured worse working conditions, but they were willing to work relentlessly because the future they hoped for seemed relatively concrete and attainable.

Where is that hope for the new generation?

I am not saying that young people have no hope at all. I am asking: even if I have those hopes, what difference does it make? Can I genuinely obtain the glamorous lifestyle that I desire? Can I become rich, famous, or highly accomplished?

It is extremely difficult.

Instead of exhausting myself in pursuit of something that is visible but unattainable (可望而不可即), perhaps I should first try to make my life more comfortable.

That is why we are seeing two apparently contradictory trends.

On the one hand, employment is becoming increasingly short-term and fragmented—a process we might call the “short-termization of work” (短工化). People’s jobs are becoming less stable.

On the other hand, more and more young people are pursuing stable jobs within the state or public-sector system (体制内).

One group chooses stability, while the other appears to choose instability. But both choices reflect the same underlying problem.

Faced with a highly uncertain and apparently unattainable future, people choose whatever makes them more comfortable and gives them a sense of certainty.

That certainty may still have been created externally. It may even be illusory. But illusory certainty is still a form of certainty.

This also helps explain why so many young people pursue what they consider spaces of freedom—for example, becoming “slash workers” with multiple professional identities (斜杠青年), or working while traveling.

People are trying to find spaces of freedom and autonomy within broader structural uncertainty. They want to do something that provides a stronger sense of achievement and personal agency.

If I work in a cubicle, I may face constant restrictions and criticism. If I open a small bubble-tea shop instead, I may feel that I have at least some control over my own life.

It may still be a form of alienation in the Marxist sense (异化), but it is a form of alienation that feels slightly more comfortable.

That is roughly how I understand the situation.

The Freedom of Food-Delivery Riders and the Broader Problem of Gig Work

Liangzi:

Even if the positive feedback is small, it is continuous. Every cup of bubble tea you sell can provide a small sense of achievement.

After observing and studying Majuqiao, what can we learn that might help us understand our own lives?

Cong Rui’an:

At the very least, Majuqiao can encourage us to reflect on our own lives.

How many times have we covered our own eyes and refused to see some of the realities within our lives?

Liangzi:

For example, does a person genuinely enjoy their work?

One person may quit after being scolded for a single day. Another may endure it for a year before leaving. Someone else may endure it for ten years.

But fundamentally, they may all be confronting the same question: the relationship between freedom and certainty.

Cong Rui’an:

A person may try to recover through food-delivery work some of the freedom they lost in a factory.

At the very least, choosing a delivery route may feel relatively free. Even if the route is not genuinely under the rider’s control, there is no supervisor standing directly behind them, watching constantly and suddenly shouting abuse.

When I ride through the streets at high speed, I can at least feel a degree of freedom. I can feel the wind blowing against me.

I can also decide what music I want to play. I might even attach a loudspeaker to the back of my bike and blast music through the streets—what people in China sometimes call “street blasting” (炸街).

These are small freedoms, but they belong to me.

Liangzi:

From an economic perspective, food delivery may also be the relatively optimal choice available to that person.

At least a food-delivery rider remains in contact with society instead of becoming completely disconnected from it.

Cong Rui’an:

Yes.

Personally, I believe that instead of treating the gig-work problem as a matter of “fixing” gig workers themselves, we should understand it from the perspective of society as a whole.

If we improve working conditions and labor rights for long-term workers, the number of gig workers will naturally decline.

Some existing gig workers will move into long-term employment, while fewer long-term workers will leave their jobs and enter the gig economy. Both changes will reduce the overall number of gig workers.

Once the supply of gig workers decreases, wouldn’t it be reasonable for those remaining in the market to earn higher incomes?

For this reason, I believe that improving and regulating the long-term labor market is extremely important.

The second issue is information asymmetry in the labor market.

We need to conduct serious, grounded fieldwork. We need to hear what temporary workers themselves are saying, respect their ideas, and treat them as individual human beings rather than as a “problem” that needs to be solved.

Every city—and the modern economy itself—needs temporary workers.

Temporary labor has existed throughout history. You cannot simply “govern Majuqiao out of existence” (把马驹桥治理掉) and assume that the problem has been solved. Temporary workers will always exist.

They are an essential part of society, and their labor helps keep society functioning.

We should not always approach them from a superior position and condescendingly “bend down” to listen to them (俯下身去听他们说话). We should genuinely sit down, remain with them, and listen to what they have to say.

They must have rights of their own. Workers must be able to speak in their own voices.

I hope that future systems of social governance will enable more workers to receive meaningful protection of their rights and to make their voices heard.

That includes long-term workers, white-collar employees sitting in office cubicles, and the day laborers of Majuqiao.

Only when people are able to speak for themselves can they gain a form of freedom and certainty that is at least somewhat genuine.

That is how I see it.

Liangzi:

Every worker deserves to live with dignity.

It does not matter whether someone is classified as a gig worker or a long-term employee. If they earn their living through labor—if the money comes from their own blood, sweat, and effort—then they deserve respect.

By the logic many people carry around, Beijing should be happy to look the other way. Observers tend to assume that the Chinese government welcomes content that deconstructs Western history. The latest Qiushi article seems overturned such assumption.

On September 1, Qiushi, the Party’s flagship theoretical journal, published an essay titled “Recognizing the Historical Nihilist Essence of ‘Pseudo-History Theory.’”认清“伪史论”的历史虚无主义本质 Two things are worth explaining for readers unfamiliar with Chinese political conventions. First, Qiushi is the Party’s leading theoretical journal; its articles typically represent formal, authoritative statements of official policy. Second, the piece is signed “Wen Ping” (文平). The last time (I can find) this byline appeared was in the second issue of Qiushi in 2022, on the topic of historical confidence. It is almost certainly a pen name, perhaps short for “cultural commentary” (wenhua pinglun 文化评论)?

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To my mind, what’s new in this article is not the attack on “historical nihilism” as such. It is that the range of such criticism has expanded—from nihilism that deconstructs Chinese history to nihilism that deconstructs Western history. In a sense, I believe this signals that China does not evaluate historical questions on a simple “pro-Western” versus “anti-Western” axis.

A little bit background, in the Chinese context, the term “historical nihilism” (lishi xuwuzhuyi 历史虚无主义) has usually referred to a specific category of content that disparages heroic episodes within Chinese history —in short, a sort of narratives that flatter the West and denigrates China.

“Western pseudo-history theory” (weishi lun 伪史论) is at the opposite end of that spectrum. It argues that the entire edifice of Western ancient history is a fabrication; the glories of ancient Greece, Egypt, and Rome were concocted by modern Europeans to construct a sense of civilizational superiority, while the true origin of human civilization lies in China.

Given China’s sheer population, believers in pseudo-history are far from few in the lower-tier internet market, and many of them like to style themselves as debunkers of “Western centrism.” Though, this posture acturally betrays a deeper insecurity. If all of Western history is fake, then the West managed—on the strength of just a few hundred years of development—to defeat an agrarian civilization with an industrial one in the Opium War of 1840. Doesn’t that prove the " superiority of Western civilization precisely” that the pseudo-historians so bitterly denounce?

I would not read the Qiushi article in isolation. Readers familiar with my earlier writing will remember the “Chigua Mengzhu” (吃瓜蒙主) affair late last year: a blogger shot to fame with the theory that Dream of the Red Chamber was secretly written to “mourn the Ming,” igniting a Han-nationalist historical controversy over the Ming-Qing transition. The authority that stepped in at the time was the Zhejiang Provincial Publicity Department, whose article “Beware the ‘1644 View of History’ Hijacking the Narrative” settled the matter officially, criticizing such narratives for “deconstructing the continuity of Chinese history.” Back then, it was just provincial publicity department.

But this time, the Qiushi article explicitly links the community spreading pseudo-history with believers in “the Yuan and Qing were not China” (元清非中国) and the “1644 view of history” (1644史观), charging that they “tacitly align and resonate with certain overseas narratives aimed at deconstructing the continuity of Chinese civilization.” 与境外某些旨在解构中华文明连续性的叙事形成暗合与共振。This actually places last year’s “mourning the Ming” episode and this year’s campaign against pseudo-history within a single governance framework.

Look closely at the choice of examples. When the article opens by cataloguing pseudohistory, it juxtaposes two kinds of claims: on one side, assertions that directly deny China’s documented history, such as “the Tang dynasty never existed” or “the Song dynasty lasted 800 years”; on the other, precisely the claims that “Mount Emei is the Alps” and “the Yongle Dadian gave birth to modern Western civilization.” By filing the signature claims of Western pseudohistory under the same “variant of historical nihilism” as “the Tang never existed,” the article completes its verdict.

And if that reading seems too subtle, the article also states directly that “extreme pseudohistory rhetoric proliferating online continues to spread overseas, and has already damaged our country’s academic discourse power and external cultural image.” That sentence can only point to Western pseudohistory. After all, a Chinese person who denies the Tang dynasty existed will simply be dismissed as a crank—but if someone claims “ancient Greece was forged,” there will be people ready to package the phenomenon into a straw man of “Chinese state propaganda directed abroad.” Moreover, the article’s final paragraph specifically states that “history must not be arbitrarily altered, and the ancient and splendid civilizations of all peoples must not be dissolved into nothingness” it clearly covers more than Chinese history.

The article then seals off the last avenue of defense: “Whatever the original intentions behind these claims, their actual consequence is often that national identity is deconstructed and cultural foundations are eroded.” This preemptively answers the most common self-justification offered by pseudo-history’s devotees that ”we are only deconstructing the West.”

The logic underneath is not hard to grasp. For Beijing, the “pluralistic unity of the Chinese nation” and the continuity of Chinese civilization are the bedrock of national identity. Both the ultra nationalism that would expel the Qing from “China” and Western pseudohistory erode that bedrock; just as the former carries the latent risk of ethnic separatism, the latter damages China’s cultural image abroad. Pseudohistory theory has never been the Chinese government’s friend. Many people simply mistook it for one.

Below is the Qiushi article I translated with the help of AI

Recognizing the Historical Nihilist Nature of “Pseudo-History Theory”

By Wen Ping

For some time now, a series of absurd arguments collectively known as “pseudo-history theory” (wěishǐlùn) have continued to ferment online, gradually entering the public eye. Among these are extreme assertions that directly deny the authentic recorded history of Chinese dynasties—such as claims that “the Tang Dynasty never existed at all” or that “the Song Dynasty reigned for 800 years”—as well as far-fetched and preposterous narratives like “Mount Emei is the Alps” or “the Yongle Encyclopedia gave rise to modern Western civilization.” When such bizarre and outlandish viewpoints are crowned as “historical truth” and run rampant, while rigorous archaeological findings are instead denounced as “falsified historical records,” what we face is no longer ordinary online rumor, but a new form of historical nihilism. It wields algorithms as a “new-style weapon” and spreads in a viral, fission-like manner among certain populations through “pan-entertainment” methods. The value orientation and dissemination logic hidden behind it merit our in-depth scrutiny.

Historical nihilism, as an erroneous social ideological trend, has philosophical idealism as its foundation. It often cloaks itself in the guise of “scholarship” or “art”—exquisitely packaged and highly seductive—while in reality harboring specific political intentions, posing a real threat to our nation’s cultural security and ideological security. Among these, the extreme manifestations that openly deny the Party’s history, vilify the Party’s leaders, and smear heroic figures are relatively easy for the public to see through, given their blatant stance and crude methods, and thus become universally reviled. However, historical nihilism has not perished as a result; rather, it constantly shifts strategies and changes its appearance. “Pseudo-history theory” is one variant of current historical nihilism marked by an especially strong anti-intellectualist character. Although it styles itself as “doubting antiquity” (yígǔ), it is fundamentally different from the scholarly practice of doubting and authenticating ancient texts based on rigorous evidence, and the two must never be conflated. History has never been a discipline immune to doubt; newly unearthed archaeological findings and newly discovered documents and classics can often correct previously entrenched historical understandings. Modern Chinese historiography was established precisely through the dual drive of empirical spirit and rational doubt. Its epistemological foundation lies in the principle that any historical judgment must withstand the test of evidence and the scrutiny of reason. “Pseudo-history theory,” by contrast, has completely abandoned the basic bottom line of empirical research. It does not exercise prudence where “historical materials are insufficient,” but rather deliberately turns a blind eye where “evidence is conclusive.” Its cognitive logic has slid from “having doubts” to “deliberate doubting,” and degenerated from “seeking truth” to “seeking difference.” Under the name of “doubting antiquity” while practicing “nihilism,” “pseudo-history theory” is not merely a disorder of historical cognition, but a concentrated projection of historical nihilism at the methodological level. While gravely distorting history, it also dissolves people’s capacity for critical thinking and public reason on a mass scale.

It is especially worth noting that, against the backdrop of the rapid evolution of information technology, historical nihilism exhibits new features—diversified carriers, fragmented discourse, and stratified dissemination through niche circles. In particular, it precisely targets adolescent groups whose values are still taking shape, employing facetious and playful modes of expression paired with emotionalized, immersive discursive strategies, giving it an extremely strong power to confuse and deceive. The traffic logic of platforms naturally chases conflict and favors extreme emotional content and sensationalist narratives, which precisely aligns with the cognitive characteristics of the post-truth era: emotion precedes fact, stance precedes evidence, and resonance precedes reality. The algorithmic mechanisms of short-video platforms further accelerate the spread of “pseudo-history theory.” The rigorous and weighty institutional and cultural history of the Tang Dynasty draws little attention, whereas a shocking headline like “the Tang Dynasty is a fabrication” can rapidly harvest traffic. Such “pseudo-history narratives” follow a well-developed dissemination formula: first, use astonishing conclusions that overturn common sense to grab eyeballs; then take fragmented information out of context and splice it together through misdirection, packaging it as so-called “evidence,” and forcing it upon naive audiences under the name of “innovative findings.” Serious historical writing is being re-encoded into consumable “emotional commodities.” Disseminators exploit the weaknesses of minors—their lack of historical training and limited life experience—to beautify anti-intellectualist absurd conjectures as “penetrating insights,” continually generating a cheap sense of superiority: “everyone else is drunk, and I alone am awake.” Meanwhile, some minors, having been long immersed in the information cocoons created by algorithmic recommendations, are continuously fed homogenized and extreme viewpoints, repeatedly reinforcing their existing cognitive biases. After a batch of self-media accounts that manufactured and spread extreme “pseudo-history theory” were dealt with in a concentrated crackdown in 2025, the related dissemination did not fall silent. Instead, it shifted toward decentralized, covert dissemination pathways: more extreme assertions were broken down into short phrases and inserted into short-video comment sections, live-stream danmu (bullet comments), and community message boards. Its deep-seated harm must not be underestimated.

It should be recognized that “pseudo-history theory” is not merely a battle of ideas confined to cyberspace; it also harbors multiple political and social risks, and its negative effects have already spread from the virtual space into real society. The extreme pseudo-history rhetoric flooding the internet continues to spread overseas, already damaging our nation’s academic discourse power and external cultural image. On a deeper level, some “pseudo-history theory” narratives carry an undertone of ethnic separatism, objectively becoming a theoretical accomplice in denying the pluralistic-yet-unified configuration of the Chinese nation. For example, some define the Tang Dynasty as a “barbarian regime” based solely on imperial bloodlines, and the groups that spread such claims often simultaneously subscribe to erroneous arguments such as “the Yuan and Qing were not China” and the so-called “1644 view of history,” forming a tacit alignment and resonance with certain overseas narratives aimed at deconstructing the continuity of Chinese civilization. Whatever the original intentions behind these arguments, their actual consequence is often to deconstruct national identity, erode cultural foundations, and shake the conviction in the continuity of the Chinese nation—placing the historical consensus of the Chinese national community at risk of being fragmented. Looking at the present, some overseas forces are harnessing artificial intelligence to mass-produce false information that alters history, and there is a real risk that large volumes of AI-generated fake historical materials could flood back into the domestic internet. Once such false content infiltrates foundational corpora, it will cause AI systems to continuously output biased historical narratives, thereby forming a vicious cycle of “algorithms amplifying bias—bias entrenching cognition—cognition reshaping algorithms,” constituting a long-term, hidden, and even irreversible erosion of the historical cognition of the Chinese people, especially adolescents.

As the ancients said: “To destroy a nation, one must first eliminate its history.” General Secretary Xi Jinping has repeatedly emphasized the need to “establish and uphold a correct view of history, of the nation, of the state, and of culture” and to “clearly oppose and resist historical nihilism.” In the face of the continued spread of “pseudo-history theory,” we must analyze it in depth, refute it forcefully, and respond in a coordinated manner across technological governance, educational guidance, and legal safeguards. We must fully implement the responsibility system for ideological work, tighten and firmly enforce the primary responsibility of online platforms, and drive mainstream value orientation deeply into algorithmic recommendation models—never allowing algorithms to become a mouthpiece for historical nihilism. Accounts that have long disseminated “pseudo-history theory” should be dealt with in accordance with the law and regulations, severing the chain by which pernicious ideas spread; extreme conduct that disrupts public order and crosses legal bottom lines must be seriously held to legal account according to law. At the same time, schools and families should work in concert to continuously enhance adolescents’ historical literacy and media literacy, striving to achieve a paradigm shift from “knowledge instillation” to “cognitive immunity,” helping minors improve their ability to distinguish true from false in historical rumors and hold their cognitive bottom line in an internet environment surrounded by algorithms. The popularization of authentic history must also learn to tell stories using new-media approaches, helping people establish a correct view of history.

History must not be arbitrarily altered, and the ancient and splendid civilizations of all ethnic groups must not be dissolved into nothingness. From the countless records preserved in the annals of the magnificent Tang Dynasty and the cultural relics and historic sites spread across the country, to the physical remains that generation after generation of archaeologists continue to unearth in confirmation of our civilization, authentic history is supported by a complete and solid chain of evidence and needs no self-justification. What truly needs to be carefully protected is the public reason that respects historical fact and holds evidence in awe. In the face of the various erroneous arguments of “pseudo-history theory,” we should take historical fact as our shield, the rule of law as our sword, and education as our foundation—speaking out proactively, daring to draw our blade, and resolutely resisting the erosion of historical nihilism. This is both the reverence and protection that our history of several thousand years deserves, and, even more, the weighty responsibility we must shoulder for the next generation and for the future!

The China–Kyrgyzstan–Uzbekistan railway is a critical piece of infrastructure for China’s efforts to develop its logistics network across Central Asia. The two sides also called for modernizing border crossings and strengthening “soft connectivity” by aligning institutions, standards, and rules. The project has two main practical implications: it will give China an additional westward transport route through Central Asia, while helping transform Kyrgyzstan from a peripheral endpoint into a regional transit hub. However, the railway remains under construction, and its commercial viability will ultimately depend on its costs, freight capacity, and operational efficiency.

2. China-Kyrgyzstan relations

China and Kyrgyzstan signed the Treaty of Permanent Good-Neighborliness, Friendship and Cooperation. Compared with the previous treaty between China and the five Central Asian states, the new bilateral treaty imposes more specific restrictions. It stipulates that neither party may join an alliance or grouping that harms the other’s sovereignty, security, or territorial integrity; conclude such a treaty with a third country; allow a third country to use its territory to harm the other party’s interests; or permit organizations or groups targeting the other party to be established or operate within its territory. These provisions are stricter than the 2025 treaty’s commitment not to participate in alliances or groupings directed against the other parties. Nevertheless, the new treaty does not create a military alliance or a collective-defense arrangement: an attack on one party would not automatically oblige the other to deploy forces or provide military assistance.

3. The SCO Is Expanding Its Economic Role

Xi’s speech brings artificial intelligence, green energy, the digital economy, mineral resources, transportation, and border-port cooperation into the Shanghai Cooperation Organization framework, indicating that China wants the SCO to move beyond its traditional focus on counterterrorism and security coordination. The most substantive commitments include implementing 100 science and technology cooperation projects over the next three years, establishing an international cooperation center for AI applications, advancing solar and wind power projects, creating a port-economy cooperation center, and supporting increased exports from member states to China. However, SCO members have widely differing interests, and the organization lacks both a unified market and strong supranational institutions comparable to those of the European Union. These initiatives are therefore more likely to be implemented through separate cooperation between China and individual member states than through an integrated SCO-wide economic system.

Below are Xi’s activities during SCO, including his remarks at the SCO Plus meeting, remarks at the 26th Meeting of the Council of SCO Heads, and Xi’s talk with Kyrgyz President Sadyr Japarov (I made with the help of AI):

Xi Jinping Holds Talks with Kyrgyz President Sadyr Japarov

August 31, 2026,

On the morning of August 31, 2026 local time, President of the Kyrgyz Republic Sadyr Japarov held talks with Chinese President Xi Jinping at the Yntymak Ordo presidential complex in Bishkek.

Bishkek was blessed with crisp autumn weather. When President Xi Jinping and his wife Peng Liyuan arrived by motorcade, they were warmly received by President Japarov and his wife Aigul Japarova.

President Japarov held a welcoming ceremony for President Xi. The two presidents stepped onto the reviewing stand as a military band played the national anthems of China and Kyrgyzstan. They reviewed the guard of honor. When President Xi reached the center of the formation, he greeted the guards in Kyrgyz, to which they responded, “Forward! Forward!” The two presidents then shook hands with members of each other’s delegations and watched the march-past. The two presidential couples entered the main hall and posed for photographs in front of the national flags of the two countries.

Following the welcoming ceremony, the two presidents held talks.

President Xi first extended, on behalf of the Chinese government and people, congratulations on Kyrgyzstan’s Independence Day.

President Xi noted that, under the joint guidance of the two presidents in recent years, China-Kyrgyzstan relations have achieved leapfrog development and cooperation has flourished across the board. This cooperation has supported the development of both countries, delivered tangible benefits to their peoples, and promoted regional peace, stability and prosperity.

This year marks the 105th anniversary of the founding of the Communist Party of China and the first year of China’s 15th Five-Year Plan. China is comprehensively advancing the building of a strong country and national rejuvenation through Chinese modernization. Kyrgyzstan is also working to implement its National Development Program through 2030. China is ready to work closely with Kyrgyzstan to better align their development strategies, deepen exchanges of experience in governance, produce more tangible outcomes from practical cooperation, and further advance the building of a China-Kyrgyzstan community with a shared future.

President Xi emphasized that high-level political mutual trust and firm mutual support are important guarantees for the steady and sustained development of China-Kyrgyzstan relations. China firmly supports Kyrgyzstan in safeguarding its national sovereignty, independence and territorial integrity, and supports the Kyrgyz people in pursuing a development path suited to their national conditions. China is ready to continue firmly supporting Kyrgyzstan on issues concerning each other’s core interests.

The signing of the China-Kyrgyzstan Treaty of Permanent Good-Neighborliness, Friendship and Cooperation will provide an important legal foundation for enduring friendship and firm mutual support between the two countries.

President Xi called on the two sides to deepen practical cooperation. They should fully implement the intergovernmental economic and trade cooperation plan, diversify traded goods, and develop new areas of growth such as digital trade and cross-border e-commerce.

The two sides should ensure the high-quality construction of the China-Kyrgyzstan-Uzbekistan railway, a major transport artery that carries the region’s aspirations for development. They should modernize border crossings and deepen “soft connectivity” in institutions, standards and rules.

The two countries should undertake more flagship projects in fields such as renewable energy and resource recycling, implement their green-minerals cooperation documents, and pursue cooperation across entire industrial chains. They should jointly develop the Belt and Road joint laboratory, strengthen cooperation in artificial intelligence and other fields, and use scientific and technological innovation to make bilateral cooperation more effective.

The two sides should also further facilitate travel between their countries and expand cooperation involving young people, the media, tourism, sports, healthcare and local governments, thereby continuing to strengthen the social and popular foundations of China-Kyrgyzstan friendship.

President Xi said that China and Kyrgyzstan should expand law-enforcement and security cooperation, jointly combat terrorism, separatism and extremism—the “three forces”—as well as drug trafficking and transnational crime, and work together to preserve regional peace and stability.

China supports Kyrgyzstan in playing a greater role in international and regional affairs and is ready to further strengthen coordination with Kyrgyzstan within the United Nations framework. The two sides should jointly implement the four global initiatives, oppose hegemonism and power politics, uphold genuine multilateralism, safeguard international fairness and justice, and promote a fairer and more equitable system of global governance.

As founding members of the Shanghai Cooperation Organization, China and Kyrgyzstan should advance the implementation of the outcomes of the Tianjin Summit, promote common regional development, and take the SCO’s development to a new level.

President Japarov said it was a great honor to receive President Xi during celebrations marking the 35th anniversary of Kyrgyzstan’s independence. The visit further demonstrated the deep friendship and high level of political mutual trust between Kyrgyzstan and China and represented an important milestone in the history of bilateral relations. The signing of the Treaty of Permanent Good-Neighborliness, Friendship and Cooperation would open broader prospects for the relationship.

Kyrgyzstan and China are close neighbors, and the ancient Silk Road has long connected the two countries. In recent years, with the rapid development of the Kyrgyzstan-China comprehensive strategic partnership for a new era, bilateral relations have entered a golden period and reached their highest level in history.

Kyrgyzstan appreciates China’s selfless support and assistance at every critical stage of the country’s development. The Kyrgyz side warmly congratulates China on the 105th anniversary of the founding of the Communist Party of China and the start of the implementation of its 15th Five-Year Plan. Kyrgyzstan admires China’s remarkable development achievements under President Xi’s leadership and is ready to learn from China’s experience in governance, particularly President Xi’s commitment expressed in the words, “I will work selflessly and live up to the people’s expectations.”

China has always been a priority in Kyrgyzstan’s foreign policy and is Kyrgyzstan’s closest friend and most reliable partner. Kyrgyzstan firmly adheres to the one-China principle and is ready to deepen good-neighborly and friendly relations with China on the basis of mutual respect, equality and mutual benefit.

Kyrgyzstan is ready to work more closely with China in trade and investment, connectivity, scientific and technological innovation, energy, minerals and the green economy. It also seeks closer exchanges in education, healthcare, culture and youth affairs. The two sides should jointly combat the “three forces” and safeguard regional security.

Kyrgyzstan is ready to actively advance construction of the China-Kyrgyzstan-Uzbekistan railway and develop it into a “steel Silk Road” of the new era and a new link of friendship between Kyrgyzstan and China.

President Xi’s four global initiatives will help countries jointly address common challenges and build a fairer and more stable international order. Kyrgyzstan is ready to coordinate closely with China through multilateral platforms including the United Nations, the Shanghai Cooperation Organization, the China-Central Asia mechanism and the World Artificial Intelligence Cooperation Organization, and to jointly safeguard global peace and stability.

On behalf of the Kyrgyz government and people, President Japarov expressed deep sympathy over the mudslide disaster in Gyirong, Xizang, China.

President Xi thanked him and said that the Communist Party of China and the Chinese government were making every effort to search for missing Chinese and foreign nationals, relocate and resettle affected residents, treat the injured, and prevent secondary disasters. China had also provided emergency assistance to Nepal. China has both the ability and confidence to overcome the disaster and rebuild the affected communities.

Following the talks, the two presidents jointly signed:

• the Joint Declaration of the People’s Republic of China and the Kyrgyz Republic on the High-Quality Development of the Comprehensive Strategic Partnership for a New Era; and

• the Treaty of Permanent Good-Neighborliness, Friendship and Cooperation between the People’s Republic of China and the Kyrgyz Republic.

They also witnessed the exchange of bilateral cooperation documents covering investment, transportation, customs and sister-city relations. During the visit, the two sides signed more than 20 additional cooperation documents in such fields as science and technology, education, culture and people-to-people exchanges, and the media.

At noon, President Japarov and his wife hosted a welcoming banquet for President Xi and Peng Liyuan at the Yntymak Ordo presidential complex.

Cai Qi, Wang Yi and others attended the events.

Advancing Higher-Quality Development of the Shanghai Cooperation Organization

Address at the 26th Meeting of the Council of Heads of State of the Shanghai Cooperation Organization

President Japarov,
Colleagues,

It is a great pleasure to meet with you in Bishkek. I thank President Japarov for the thoughtful arrangements made for this meeting. Since assuming the SCO chairmanship, Kyrgyzstan has organized a wide range of productive activities under the theme “Together Toward Sustainable Peace, Development and Prosperity.” China highly appreciates its work.

August 31 and September 1 mark the 35th anniversaries of the independence of Kyrgyzstan and Uzbekistan, respectively. On this occasion, I wish to extend my sincere congratulations to President Japarov and President Mirziyoyev, and to the friendly peoples of Kyrgyzstan and Uzbekistan.

This year marks the 25th anniversary of the Shanghai Cooperation Organization. Twenty-five years ago, against the backdrop of the profound lessons of the Cold War, the real threat posed by the “three forces” of terrorism, separatism and extremism, and the strong aspirations of the region’s peoples for peace and development, regional countries reached a broad consensus on working together to safeguard their sovereignty, security and development interests. It was under these circumstances that the SCO came into being, and it has since demonstrated growing vitality.

Over the past 25 years, the SCO has traveled an extraordinary journey. Its most significant achievement has been its gradual development into a new type of regional organization with the broadest geographical coverage, the largest population and enormous development potential. Its most valuable intellectual legacy has been the pioneering formulation of—and consistent commitment to—the Shanghai Spirit, which features mutual trust, mutual benefit, equality, consultation, respect for diverse civilizations and the pursuit of common development. Its most important experience has been finding the right way for countries to coexist through non-alliance, non-confrontation and not targeting any third party, thereby enabling regional countries to work together to build a common home.

Today, 25 years later, changes unseen in a century are accelerating. Dialogue and confrontation, win-win cooperation and zero-sum competition, and multilateralism and unilateralism are locked in intense contest, while the shadow of war has not disappeared. At this crossroads concerning humanity’s future, the SCO should shoulder its historical responsibilities and take the initiative in guiding the course of history.

First, we should prioritize development and create prospects for common prosperity.

We should promote universally beneficial and inclusive economic globalization, consolidate cooperation in traditional fields such as trade and investment, connectivity, energy and resources, and expand cooperation in emerging areas including artificial intelligence, the digital economy, green industries and green minerals. In this way, we can deepen regional cooperation and upgrade its quality.

China regards the SCO region as a priority for high-quality Belt and Road cooperation and for implementing the Global Development Initiative. In accordance with the region’s development needs, China will continue to organize events such as the SCO Digital Economy Forum and Agricultural Expo.

China will establish an international cooperation center for AI applications serving SCO countries. It will continue working with SCO countries to develop an additional 10 gigawatts of solar power and 10 gigawatts of wind power capacity. Over the next three years, China will jointly carry out 100 science and technology cooperation projects with SCO countries and continue providing China-SCO training for professionals in green industries.

China welcomes interested member states to participate actively in the “Shared Big Market—Export to China” initiative and seize the opportunities presented by China’s vast market.

To facilitate regional trade and ensure smooth logistics, China supports efforts to improve the quality and efficiency of the Trans-Caspian International Transport Route. China will also establish a China-SCO Port Economy Cooperation Center in Tianjin.

Second, we should make security a priority and create an environment of common security.

We should adopt a coordinated approach to traditional and nontraditional security threats. We should combat the “three forces” of terrorism, separatism and extremism, as well as transnational organized crime, drug trafficking and telecommunications fraud. We should strengthen cooperation in information security, biosecurity and outer-space security, and guard against external forces interfering in countries’ internal affairs, undermining political security or destabilizing the region.

China is ready to work with all parties to follow a vision of common, comprehensive, cooperative and sustainable security, and to develop the SCO into an important platform for implementing the Global Security Initiative.

China advocates a rational, coordinated and balanced approach to nuclear security and supports stronger multilateral partnerships in this field. China also supports putting the SCO’s “four security centers” into operation at an early date to strengthen member states’ capacity to address security threats and challenges.

Third, we should put people first and strengthen the foundations of friendship for generations to come.

Diverse civilizations and cultures are defining features of our region. We should take into full consideration the historical and cultural traditions, social systems and stages of development of different countries. We should build networks of cooperation among legislatures, political parties, schools, think tanks, businesses and media organizations, and promote people-to-people exchanges to inject new vitality into good-neighborliness and friendship among member states.

China is ready to work with all parties to implement the Global Civilization Initiative and supports a greater role for people-to-people friendship organizations, including the SCO Committee on Good-Neighborliness, Friendship and Cooperation. We should successfully organize the SCO Forum on Innovation and Sustainable Development, the SCO People’s Forum and the SCO Friendship Cities Forum.

China will establish a China-SCO Basic Education Cooperation Center. It is also prepared to continue building bridges for mutual learning and closer ties between peoples through programs such as Confucius Institutes and Luban Workshops.

Fourth, we should uphold dialogue and consultation and improve fair and orderly governance.

We should uphold the equality of all countries, large and small. Regional affairs should be discussed and decided through consultation. We should seek common ground while managing differences, properly address disagreements through dialogue and consultation, and respond to common challenges through multilateral cooperation.

President Mirziyoyev and President Tokayev have respectively proposed the Samarkand Solidarity Initiative and the Initiative for World Unity for Just Peace and Harmony. China appreciates and supports both initiatives.

China supports the SCO in carrying out exemplary cooperation to implement the Global Governance Initiative. The focus of this SCO Plus meeting on strengthening the role of the United Nations and building a multipolar world represents a successful example of such cooperation.

China proposes further improving the SCO’s operating mechanisms and enhancing the efficiency of its decision-making and implementation. We welcome more like-minded countries as SCO partners so that they can jointly participate in improving regional and global governance.

On international and regional hotspots such as Ukraine, the Middle East and Afghanistan, China is prepared to strengthen communication and coordination with all parties, address both symptoms and root causes, and promote political settlements.

Colleagues,

As long as we remain true to our original aspirations, no distance will deter us; as long as we remain steadfast in our commitment, no difficulty will prevent us from reaching our goal.

China is ready to work with all parties to continue upholding the Shanghai Spirit, implement the SCO’s development strategy for the next decade, pursue higher-quality development, and make greater contributions to building a community with a shared future for humanity.

Finally, I congratulate Prime Minister Shehbaz Sharif on assuming the chairmanship of the Council of Heads of State. China is ready to work with other member states to support Pakistan in carrying out its work as the SCO chair.

Thank you.

Jointly Advocating an Equal and Orderly Multipolar World and Making Global Governance More Just and Equitable

Your Excellency President Sadyr Zhaparov,

Colleagues,

It gives me great pleasure to join fellow members and partners of the SCO family in celebrating the 25th anniversary of our organization. I wish to thank President Zhaparov for his kind invitation and the thoughtful arrangements by the government of Kyrgyzstan.

The meeting today focuses on strengthening the role of the United Nations and building a multipolar world, and it demonstrates SCO’s commitment to reforming and improving global governance as required by our times.

Currently, major changes unseen in a century are accelerating across the globe. Hegemonism, unilateralism and protectionism are resurging against historical trends. Nevertheless, the overwhelming majority of the world do not condone power politics, conflict and confrontation, or isolation and backwardness. What they want instead is to hold a place on the world stage through national development and international cooperation. In recent years, the rise of the Global South is driving a profound shift in the international balance of power. The trend toward a multipolar world is irreversible.

What kind of multipolarity does the world need? How are countries going to take part in and promote it? The international community should build consensus and make the right choice that can stand the test of practice and history. As a responsible major country, China advocates for an equal and orderly multipolar world.

—Sovereign equality and mutual respect are fundamental principles. The history of the world is written by all nations. Multipolarity, independent choice of development paths, and greater democracy in international relations are the right way forward. We should ensure equal rights, equal opportunities and equal rules for all countries, regardless of their size, strength and wealth. As an important part of a multipolar world and a key driving force behind it, the Global South countries ought to have greater representation and voice in international affairs.

—Balance, order and the rule of law are inherent requirements. The purposes and principles of the U.N. Charter set the basic norms of international relations, and serve as the bedrock of the postwar international order. We should promote the common values of humanity, reject double standards, exceptionalism, foreign interference, bullying and the law of the jungle, and advance the rule of law in international relations. Major countries in particular should take the lead in observing international norms and honoring the rule of law, and work together to tackle global challenges.

—Multilateralism, dialogue and consultation are essential pathways. The domination of international affairs by a few is an injustice left over from history, and global governance dictated by one, a few or a bloc of countries is not true multilateralism. World affairs should be discussed by all, and international norms should be set by all. The authority and vitality of the U.N. need to be restored. Multilateral mechanisms, global and regional, should enhance their coordination and improve their efficiency.

—Mutual benefit, win-win, and inclusiveness are the way forward for development. Countries are not isolated islands, but partners with intertwined interests and a shared future. Protectionism, decoupling and supply-chain disruption will lead nowhere. We should focus on the development agenda, uphold openness and cooperation, and bridge the digital and AI divides, so that technological revolution and development achievements can benefit all nations.

Colleagues,

After a 25-year journey, the SCO has successfully set a stellar example in conducting relations among big countries, among neighbors, and among countries of different sizes. It has successfully brought together half of the world’s population and a quarter of the global economy, generating strong driving forces for development. A more united and vibrant SCO is fully capable of making greater contributions to an equal and orderly multipolar world.

First, we should advance common prosperity in the vast continent straddling Asia and Europe with the SCO Strength. Cooperation within the SCO has been fruitful in political, security, economic, trade, people-to-people and cultural domains, and our organization is now a key platform for Eurasian countries to jointly pursue development and tackle challenges. We should continue to leverage our strengths, unlock our potential, and connect the multiple growth poles across the continent through high-quality Belt and Road cooperation. We should empower each other, help each other succeed, and work together to create new opportunities and promote shared prosperity.

Second, we should promote the development and rise of the Global South through the SCO Wisdom. The organization takes root in the Global South, its heart beats with the Global South, and it is an important pillar of South-South cooperation. We should carry forward the Shanghai Spirit, strengthen and expand the SCO Plus partnerships, and jointly speak up for peace, foster synergy for development, build bridges for cooperation, and pave the way for win-win outcomes.

Third, we should guide the reform and improvement of global governance through the SCO Action. Our organization takes it as its mission and responsibility to make the global governance system more just and equitable. We should stay committed to building partnerships rather than alliances, and engaging in dialogue rather than confrontation. We should adhere to the principle of “planning together, building together and benefiting together” to encourage equal participation in global governance by all countries and ensure all will benefit from it.

Colleagues,

In global governance, stagnation is regression. It is important that SCO member states and partners ride the trend of history and shoulder the responsibility of our times. Let us take the people-centered and action-oriented approach, jointly advocate an equal and orderly multipolar world, make global governance more just and equitable, and build a community with a shared future for humanity.

Thank you.

Edit: My bad that I didn’t include the Xi-Putin meeting’s readout. already made an English ver, in case someone needs to check it:
https://sinocism.notion.site/Xi-Jinping-Meets-Russian-President-Putin-3cd84ece41d781c995a5d1be62cb9720

That is the assessment of Xu Shiling, Deputy Director of the International Humanitarian Law and Humanitarian Policy Program at the International Academy of the Red Cross, Soochow University, who said the conditions behind the disaster had been developing for years—even though the destructive flow unfolded in only a matter of minutes.

The debris flow traveled approximately 22 kilometers, descended nearly 4,000 meters and reached the affected border area in just six to seven minutes. These figures demonstrate the extraordinary speed and intensity of the event, Xu said.

A disaster years in the making

The geography of the Himalayan region was one of the fundamental factors behind the disaster.

Deep, narrow river valleys cut through enormous glacier-covered mountains. Over geological time, this landscape created the conditions in which ice and rock could accumulate immense potential energy. Once part of the glacier collapsed, the steep drop and confined valley allowed the material to accelerate rapidly and move downhill with enormous destructive force.

“The six to seven minutes were, in fact, a long time in the making,” Xu said, explaining that the drivers of the disaster had existed well before the glacier collapse itself.

In recent decades, the surfaces of the region’s mountains have become increasingly unstable. Xu identified climate change and global warming as important contributing factors. Rising temperatures can weaken glaciers while also destabilizing the rock, soil and loose material beneath and around them, increasing the possibility of fractures, slope failures and collapses.

Xu also pointed to the potential long-term effects of the powerful earthquake that struck Nepal in 2015. The earthquake affected glaciers, rock formations and soils across the region, leaving some mountain slopes more fractured and prone to failure.

In the August 26 event, part of a glacier tongue collapsed together with rock and other material. As the mass rushed downhill, it picked up additional loose debris and developed into an extremely fast-moving flow.

Similar events have occurred elsewhere in the Himalayas, Xu noted. What made this disaster especially destructive was not only the magnitude of the hazard but also the concentration of people and infrastructure along its route.

A major border port, surrounding communities and areas of intensive human activity lay in the path of the flow. The event therefore illustrates a central principle of disaster-risk analysis: a natural hazard becomes a human disaster when it intersects with exposed and vulnerable populations.

“The factors or drivers of disaster events may already be in place long before a particular event occurs,” Xu said. “The eventual losses depend not only on the magnitude of the hazard but also on what lies along its path.”

The precise timing and scale of an individual collapse may be a matter of probability. In this case, Xu said, an extreme but low-probability event occurred in a location where the consequences were severe.

Mountain environment complicates rescue operations

The same terrain that intensified the mudslide has made search-and-rescue operations extraordinarily difficult.

In mountainous areas, roads are commonly constructed along river valleys because this is often the most practical and economical option. However, rivers, floods and debris flows also follow these valleys. As a result, the infrastructure needed to reach remote communities is frequently located directly in the path of natural hazards.

“This is a universal problem in mountain regions,” Xu said. “The roads and the hazards often follow the same route.”

The mudslide destroyed or severely damaged regular access roads, preventing rescue teams from reaching the affected areas through conventional means. Responders have had to repair roads while simultaneously identifying alternative routes on foot or by air.

The remoteness of the disaster zone has created further logistical challenges. Rescue teams operating at the site need food, equipment, communications and places to rest, but both supplies and usable space are limited. Establishing and sustaining operational bases in such conditions is itself a major task.

Even after rescuers reach the affected area, the unstable environment continues to threaten their safety.

Threat of secondary disasters

Xu identified two major secondary hazards: the possible outburst of barrier lakes and the risk of another collapse from the same glacier or surrounding mountain slopes.

Landslides and debris flows can block rivers, forming temporary natural dams and creating barrier lakes. Because the valley surface remains loose and geologically active, new landslides may continue to occur. If a natural dam fails, the sudden release of impounded water could produce another destructive flood or debris flow.

A further glacier collapse could have similarly serious consequences. Either type of secondary event could strike rescue teams working in the disaster zone, as well as communities downstream.

Rescue personnel have reportedly had to withdraw temporarily from dangerous locations in response to safety alerts. Such withdrawals demonstrate the difficult balance between searching for victims and protecting responders from additional hazards.

Xu said continuous monitoring is therefore essential. Authorities on both sides of the border must closely observe glaciers, unstable slopes, rivers and barrier lakes while ensuring that rescue teams have clear warning and evacuation procedures.

The psychological burden on rescuers

Not all the challenges facing rescue workers are technical or immediately visible.

Xu emphasized the emotional and psychological pressure on those searching through the affected area. Some rescuers may know the missing or deceased personally—as friends, colleagues, acquaintances or members of the same community.

They are also likely to understand the survival prospects of people buried under mud and debris. This knowledge can intensify their grief while they continue carrying out physically demanding and dangerous work.

“The rescuers feel the same shock and grief as the rest of us,” Xu said. “Some are searching for people they knew, while being fully aware of the survival rates and the reality of what they may find.”

At the same time, rescuers are driven by a strong professional and personal sense of duty. Xu described this as an “inner mission” that compels them to continue despite exhaustion, danger and emotional distress.

The response should therefore address not only responders’ physical safety but also their mental health. Psychological assistance, adequate rest and long-term support may be needed for personnel exposed to traumatic scenes and personal loss.

Humanity should guide the cross-border response

Because the disaster crossed an international boundary and affected people of different nationalities, it also raises important questions concerning humanitarian law and policy.

According to Xu, the most immediately relevant principles concern the humane management of the dead and missing, the respectful treatment of their families and the proper handling of bodies, identities and personal information.

These responsibilities become particularly complex in a cross-border emergency. Victims may be citizens of Nepal, China or other countries, while their families may be waiting for information far from the disaster area.

Xu said humanity must remain the central value and fundamental principle of the response. All victims and their families should be treated with dignity, regardless of nationality or which side of the border they are on.

This means conducting searches and identification work carefully, handling human remains respectfully and sharing verified information with families through appropriate channels. Authorities must also avoid unnecessary delays in notifying relatives or transferring remains because of administrative and jurisdictional complications.

The humanitarian principle does not require either country to disregard sovereignty, national security, political interests or border-management responsibilities. Rather, Xu argued that both sides should preserve a neutral humanitarian space in which necessary discussions and negotiations can take place.

Such neutrality can prevent political considerations from obstructing urgent rescue and relief work. It can also support coordination between authorities while ensuring humane care for victims, missing persons and their families.

“Cooperation and coordination in rescue and relief should take priority over more conservative geopolitical considerations,” Xu said. “That does not mean disregarding sovereignty or security. It means maintaining the neutral space necessary for humanitarian discussion and action.”

China–Nepal coordination is a common interest

The physical route of the disaster makes bilateral coordination indispensable. It began with a glacier collapse in Nepal, struck China and then continued farther downstream into Nepal.

Both countries lost lives, both are conducting rescue operations, and both will have to address recovery and reconstruction. Cooperation is therefore not simply a diplomatic choice but a matter of common safety and shared interest, Xu said.

Ongoing coordination has included the exchange of data, satellite imagery and technical assessments. The two sides have also been monitoring upstream areas for signs of further glacier collapses, landslides, barrier-lake failures or floods.

Xu described the monitoring of secondary hazards as one of the most urgent priorities. Another major event would threaten not only rescue teams but also communities that have already suffered from the initial disaster.

Sharing information and alerts, however, is only part of the task. The more difficult challenge is to jointly develop contingency plans for possible secondary disasters.

Such plans should establish how rescue teams on both sides will respond to new warnings, where they will evacuate, which communication channels they will use and how authorities will alert downstream communities. They should also account for circumstances in which damaged infrastructure or interrupted communications prevent conventional warnings from reaching those at risk.

“The difficult part is not necessarily creating a mechanism for sharing monitoring information and alerts,” Xu said. “The challenge is jointly developing contingency plans for rescue teams and communities on both sides in the event of another disaster.”

China has also supported Nepal by providing technical expertise, relief supplies and financial assistance. Xu said such support is appropriate and relevant given the scale of the disaster’s impact on Nepal.

Bilateral cooperation will remain important after search-and-rescue operations end. The two countries will need to discuss infrastructure restoration, livelihood recovery, environmental monitoring and measures to reduce the risk of similar disasters.

International assistance should reflect needs and capacity

Beyond bilateral cooperation, the disaster has drawn wider international attention. Xu said the need for global support should be evaluated by considering two factors: the scale of the affected country’s needs and its capacity to meet those needs.

Some countries can manage a large disaster primarily through domestic resources, while others may require international assistance even during smaller emergencies. The appropriate level of support therefore depends on the specific context rather than the hazard’s magnitude alone.

Nepal is highly exposed to earthquakes, landslides, floods and other natural hazards. Over time, the country has developed considerable experience and capacity in search and rescue, emergency medical assistance and rehabilitation. Those capabilities have been evident in the response to the August 26 disaster, Xu said.

However, the severity and geographical extent of the event may place sustained pressure on Nepal’s available resources. Domestic capacity may be sufficient for some immediate tasks but struggle to meet all the needs associated with relief, rehabilitation and reconstruction.

International assistance should initially respond to the specific requests and priorities identified by Nepal’s government. Countries and humanitarian organizations should avoid sending unsuitable assistance that could burden local logistics or duplicate existing resources.

In the longer term, affected families will need help rebuilding homes, restoring livelihoods and recovering access to essential services. Roads and other infrastructure will have to be reconstructed, while communities may require continuing medical, psychological and financial assistance.

Xu said international support could become even more important during this extended recovery phase than during the initial emergency.

“Rebuilding people’s lives will involve a series of enormous tasks,” Xu said. “Global support is needed and may be needed even more in the longer term.”

Lessons for future Himalayan disasters

The Nepal August 26 Mudslide demonstrates that an extreme disaster cannot be understood simply as an isolated natural event.

The destructive flow lasted only minutes, but the underlying conditions developed over a much longer period. The region’s steep valleys and glacier-covered mountains created the physical setting, while climate-related warming and geological disturbance contributed to instability. The presence of communities, infrastructure and economic activity in the flow’s path then transformed an extreme natural hazard into a major human disaster.

The event also shows how risk in the Himalayas can cross administrative and national boundaries. A glacier collapse in one country can rapidly threaten communities, infrastructure and rescue personnel in another. Monitoring and emergency planning must therefore extend beyond individual jurisdictions.

Xu’s analysis points to several priorities: stronger monitoring of glaciers and unstable slopes, improved early-warning systems, safer mountain infrastructure, joint China–Nepal contingency planning and sustained support for affected communities.

The disaster also reinforces the importance of putting humanity at the center of the response. Respectful management of the dead and missing, timely assistance for families, protection of rescue personnel and cooperation across borders are not secondary concerns. They are essential parts of an effective humanitarian operation.

Ultimately, Xu said, future losses will depend not only on whether extreme natural events occur but also on how governments and communities prepare for them, where infrastructure is built and how quickly countries cooperate when hazards cross their borders.

Because I say so. OK, these four consecutive articles are important because the author is “Zhong Caiwen.”中才文. This is the pen name for the Office of the Central Financial and Economic Affairs Commission中央财经委员会办公室. It is the top-level economic decision-making and coordination body within China’s highest leadership, like the supreme command center for economic policy. A similar example is the more commonly seen “Ren Zhongping” (People’s Daily important commentary).

Ministries and commissions like to use pen names in their writing. I think there are two considerations: if they go through a ministry's or commission's formal document approval process, the internal review and approval procedures are often much more complicated. Using a designated collective pen name allows for a relatively faster response. On the other hand, if the article were published under an individual’s name, it would not fully represent the institutional stance, so the commission uses a collective pen name.

The last time the Central Financial and Economic Affairs Commission published a series of consecutive articles was during last year’s National Day holiday, which focused more on the 15th Five-Year Plan. My reading experience was that it was more like a supplement of incremental information to the content of the July Politburo meeting.

These four articles represent the Central Financial and Economic Affairs Commission Office’s assessment of the current economic situation, which is why I think they deserve attention.

What views do these four articles reflect?

These four articles follow a “3+1” structure. The first three articles explain the current state of China’s economy, while the fourth shapes policy expectations by laying out priorities for the next phase of work.

The first article discusses the resilience and vitality of China’s economy, focusing on its structure, namely the development of new growth drivers such as robotics, artificial intelligence, and high-end manufacturing. The second article focuses outward, explaining the positive impact of China’s economy on the world, including the spillover of clean energy technology and the outward layout of manufacturing, pushing back against the “China shock” narrative. The third article explains the recent 4.7% economic growth rate and why incremental policies were not introduced as many had expected.

The fourth article is especially important. It lists the priorities for the coming months, including one key judgment: goods consumption has already tended toward saturation, and services consumption is where the focus of expanding consumption should be going forward. (This confirms the view I expressed in my reading of the late-July Politburo meeting.)

From the text, the current policy focus remains on the supply side of the services sector.

In some areas of China, goods consumption has already tended toward saturation or entered a phased plateau. We need to adapt to the consumption needs of different groups, expand high-quality supply, and actively cultivate and strengthen emerging consumption. Services consumption is the key area for future consumption expansion. We need to innovate consumption scenarios, optimize the consumption environment, and tap the potential of services consumption.

Compared with previous years, this year’s policy documents and the way discussions are framed both show that the emphasis has shifted more toward services consumption. The characterization that “goods consumption in some areas of China has already tended toward saturation or entered a phased plateau” means that, in the short term, the policy side will no longer place special emphasis on stimulating physical goods consumption. Policy resources will shift toward expanding service consumption.

In addition, the article mentions “expanding imports and promoting balanced trade development.” In my view, this means that China’s approach to resolving the long-standing European complaints about the China-EU trade deficit is not to restrict exports, but to increase imports from Europe. Of course, whether this can be resolved still depends, in my view, on whether Europe can provide the goods China needs. This still depends on the outcome of subsequent negotiations between the two sides.

Other thoughts:

From the order in which the articles are arranged, the first of the four already focuses on industrial upgrading, still using the qualitative framework of “stability,” “resilience,” “newness,” and “quality.” Only the third article looks back and explains the 4.7% economic growth rate in the first half of the year, which reads more like a response to the growth rate falling short of the externally expected 5.0%. This shows that the assessment of the economic situation still centers on structural optimization rather than simply fixating on the growth rate itself. That said, considering that this year’s growth target has already been lowered from last year’s 5%, the government will hold the lower bound of growth, while whether it can reach the upper bound is more a matter of “doing what one can.”

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On incremental policy:

The pace of fixed investment deployment will be accelerated, but there will be no large-scale expansionary policies.

The fourth article mentions at the very beginning that in the first half of the year, the average daily balance of funds in the national treasury was relatively large. The purpose is to urge local governments to speed up spending. Money sitting idle in the treasury means the government needs to improve the efficiency of existing funds. The next step is to accelerate disbursement, speed up investment implementation, and put the money to use. Later in the article, it also mentions promoting investment to “stop declining and stabilize,”止跌回稳, urging local governments to spend the existing investment that has already been deployed but not yet disbursed.

If you look at it from the expectations-management perspective, this can also be seen as a way of showing the reserves of policy, demonstrating that available resources remain sufficient, and that even if large-scale stimulus is not introduced for the time being, there is still enough ammunition to respond to changing conditions.

But looking back at the third article, it also mentions that “the focus of China’s current investment policy is not simply to maintain a certain speed, but to better adapt to the requirements of high-quality development and pay more attention to investment quality and comprehensive efficiency.”(当前我国投资政策的着力点不是要简单维持一定速度，而是更加适应高质量发展要求，更加注重投资质量和综合效益。) This means there will be no “spending for the sake of maintaining investment growth.” Resources will still be concentrated on the “six networks” (water networks, new-type power grids, computing power networks, new-generation communications networks, urban underground pipeline networks, and logistics networks) and on people’s livelihoods.

Below is the full text of four essays that I translated using AI.

The Resilience and Vitality of China’s Economy（Aug.22）

Zhong Caiwen

Since the beginning of this year, under the strong leadership of the Communist Party of China Central Committee with Comrade Xi Jinping at its core, all regions and government departments have taken active steps and risen to challenges. They have effectively responded to various external shocks and domestic difficulties and made solid efforts to promote high-quality development. China’s economy has shown a trend of shifting toward new growth drivers and an improved structure, producing noteworthy results. In the first half of the year, the main macroeconomic indicators remained generally stable. Gross domestic product (GDP) grew by 4.7 percent, continuing to rank among the highest of the world’s major economies. Prices rose at a reasonable pace, employment remained generally stable, and the balance of international payments was broadly maintained. Meanwhile, the profits of industrial enterprises above the designated size increased by 18.7 percent, national general public budget revenue rose by 4.7 percent, and the economic performance of some market entities improved.

China’s economy is currently at a critical stage in which old and new growth drivers are shifting at a faster pace and the development model is undergoing transformation. In assessing China’s economy, one should not look only at the speed of growth, still less dwell on whether the figures for a particular quarter or month are high or low. Instead, greater attention should be paid to the quality of economic performance, with a focus on the substance of scientific and technological innovation, the level of industrial development, and the sustainability of economic growth, as well as on whether enterprises—the main entities engaged in business operations—possess vitality. In fact, viewed in terms of quality and efficiency and from a longer-term perspective, profound changes are taking place in China’s economic development, demonstrating powerful resilience and vitality.

China’s scientific and technological innovation is steadily being translated into industrial competitiveness. Since the beginning of this year, many striking achievements have been made in science and technology. For example, new breakthroughs have been achieved in key and core technologies such as integrated circuits; China has moved to the forefront of the world in the research and development of innovative drugs; and Chinese rockets have been successfully recovered both at sea and on land. The supporting and leading role of new growth drivers has strengthened. In the first half of the year, the value added of the equipment manufacturing and high-tech manufacturing industries grew by 9.3 percent and 13.3 percent, respectively, maintaining sound momentum. They are expected to open up new space for development through technological empowerment. The research, development, and application of robotics and artificial intelligence are gaining strong momentum. Industrial robots, surgical robots, cleaning robots, and bionic robots are becoming representative products of “intelligent manufacturing in China.” Artificial intelligence is driving the manufacturing sector’s orderly transition toward intelligent, digital, and green development, while the transformation and upgrading of traditional industries are accelerating.

China’s position as a hub in global industrial and supply chains continues to grow stronger. China has deployed innovation chains around industrial chains and used innovation chains to strengthen the latter. For a new energy vehicle, more than 10,000 parts and components can be assembled within four hours at an automaker in the Yangtze River Delta. For a humanoid robot, efficient collaboration among various enterprises in the Pearl River Delta can create a “one-hour industrial ecosystem.” China’s exports of intermediate goods have grown rapidly, supplying key parts and components to global industrial and supply chains and effectively ensuring their stable operation. China’s complete industrial and supply chains have not only improved production efficiency both within China and around the world, but also provided greater certainty for stable global economic growth.

Chinese enterprises are undergoing a remarkable digital and intelligent transformation as they restructure themselves. Some enterprises use big data to assess market demand and artificial intelligence algorithms to optimize production scheduling. Through flexible manufacturing and customized services, they can precisely meet market demand for small-batch and personalized products. Some enterprises use digital production systems to seamlessly connect production lines, logistics centers, and consumer orders, achieving integrated, end-to-end fulfillment with “zero contact.” This greatly shortens delivery times and ensures that products reach consumers in a “fresher” state. Some construction enterprises are applying industrialized standards, digital precision, and automated efficiency to turn the building of “good homes” from “construction on worksites” into “manufacturing in factories.” Changes of this kind have greatly expanded enterprises’ scope of operations, enabled them to break through geographical constraints, and demonstrated their strong vitality.

Risks and hidden dangers in China’s economic operation are being addressed and contained in an orderly manner. Since the beginning of this year, the property market has shown stronger signs of bottoming out and stabilizing. In some first- and second-tier cities, transactions involving previously owned homes have increased significantly and exceeded sales of new homes. Prices have stabilized, and inventory pressure has eased to some extent. Existing hidden debts of local governments are being replaced in an orderly manner, while the number of local government financing vehicles continues to fall. Reforms aimed at defusing risks among small and medium-sized financial institutions, reducing their number, and improving their quality are steadily advancing, and the number of high-risk local small and medium-sized financial institutions has declined. Overall, we have strictly controlled new risks, appropriately handled existing ones, and rigorously guarded against sudden defaults and other major risk events. In preventing and defusing major risks in the economic sphere, we have held the line against systemic risk.

The China Council for the Promotion of International Trade recently organized a delegation of business representatives to visit the United States, reflecting the aspirations and shared views of the business communities of both countries. During face-to-face exchanges, members of the U.S. business community spoke highly of China’s strengths in emerging fields such as advanced manufacturing, artificial intelligence, clean energy, quantum computing, and life sciences. They called for expanded pragmatic cooperation while maintaining necessary competition. At the same time, executives of a number of U.S. companies investing in China said that the Chinese government’s efforts to stimulate domestic demand, safeguard and improve people’s well-being, strengthen public services, and enhance local research and development capabilities would bring bright prospects for China’s economy. These efforts would also create new scenarios and new opportunities for multinational companies to deepen their presence in China. They said they would increase investment and expand their operations in China, casting a “vote of confidence” in the country through concrete action.

China’s economy is like a vast ocean, capable of withstanding winds and waves. It has the solid foundation accumulated through more than 40 years of reform and opening up, as well as a vast consumer market, a strong manufacturing base, well-developed infrastructure, a large pool of talent, and complete industrial and supply chains. The underlying conditions supporting China’s long-term economic growth and the fundamentals of its positive trajectory have not changed. In assessing China’s economy, only by fully understanding the country’s various strengths and enormous potential can one avoid “letting floating clouds obscure one’s view.” In the second half of the year, as major projects identified in the central and local 15th Five-Year Plans and national-level special plans successively begin construction, and as macroeconomic policies are applied in a timely and more effective manner, China’s economy will undoubtedly remain within an appropriate range and successfully accomplish the goals and tasks for the entire year.

China Is an Active Contributor to World Economic Growth and a Powerful Anchor of Stability(Aug. 23)

Zhong Caiwen

Since the beginning of this year, in the face of a grave and complex external environment marked by intertwined changes and turmoil, China’s economy has forged ahead under pressure and continued to move toward innovation and higher-quality development, demonstrating vigorous vitality and strong resilience. This has not only laid a solid foundation for a good start to the 15th Five-Year Plan period, but also injected powerful momentum and much-needed certainty into the world economy.

China is a primary engine of the world economy and has made important contributions to global development and prosperity. For many years, China has accounted for around 30 percent of global economic growth, making it indisputably the world’s “number one engine.” In the first half of this year, China’s economy grew by 4.7 percent, in line with the annual target and among the highest growth rates of the world’s major economies, continuing to stand out from the rest. Domestic demand played the leading role, contributing more than 80 percent of economic growth, with consumption alone accounting for nearly 50 percent. The recently released 15th Five-Year Plan for Expanding Consumption is China’s first national-level special plan in the field of consumption. In the coming years, the potential and scope of Chinese consumption will be further unleashed. In the first half of this year, China’s consumer price index rose by 1 percent year on year. This reasonable recovery in prices was consistent with the requirements of macroeconomic regulation and stood in sharp contrast to the situation in many countries, where rising global prices for energy, raw materials, and other goods have driven up inflation and eroded consumers’ purchasing power. China’s economy is characterized by solid foundations, numerous strengths, strong resilience, and enormous potential. The supporting conditions and underlying trend for its long-term growth remain unchanged. China will continue to be the most powerful, stable, and reliable source of momentum for global economic growth.

China is an anchor of stability for global industrial and supply chains, providing strong support for the smooth functioning of the world economy. Whether confronting the COVID-19 pandemic or the repercussions of geopolitical conflicts, China has consistently remained a staunch defender of the resilience and stability of global industrial and supply chains. Since late February this year, the conflict involving the United States, Israel, and Iran has disrupted passage through the Strait of Hormuz, creating tight supplies of international crude oil and key raw materials. Thanks to the accelerated green transformation of China’s economy and society in recent years, nearly four out of every 10 kilowatt-hours of electricity consumed across the country now come from green energy. The retail penetration rate of new energy vehicles in China has also continued to rise, reaching a cumulative 54.1 percent in the first half of the year. Drawing on its formidable strengths in new energy, China has actively responded by reducing crude oil imports, greatly easing the pressure driving up international oil prices. China’s industrial sector has maintained efficient and stable production, offsetting supply shortfalls caused by production stoppages and logistical disruptions in certain regions. The Wall Street Journal stated that China had supported the world economy by reducing its oil imports. France’s Le Figaro argued that China had saved the world economy for the second time since the 2008 international financial crisis. Through technological innovation and robust market competition, China has built the world’s largest and most complete new energy industrial and supply chain system. Over the past decade and more, it has helped reduce the average levelized cost of wind and photovoltaic power generation worldwide by more than 60 percent and 80 percent, respectively. China’s advanced and practical technologies in photovoltaics, wind power, and energy storage, together with its high-quality products such as electric vehicles and electric motorcycles, have turned the dream of an energy transition into reality for many developing countries. Distributed photovoltaic and microgrid projects undertaken by Chinese enterprises in sub-Saharan Africa have lit up the African night. Going forward, China will further guide the rational and orderly cross-border distribution of industrial and supply chains, align its efforts with the industrialization aspirations of Global South countries, and help more countries develop their economies, expand employment, and improve people’s well-being.

China is one of the world’s sources of scientific and technological innovation, injecting powerful innovation-driven momentum into global economic development. Innovation is an important endogenous driver of economic growth. Through its own philosophy of innovation-driven development and successful practices, China is becoming one of the world’s leading arenas for innovation on a massive scale. China’s innovative capabilities have increased significantly. According to a report by the World Intellectual Property Organization, China rose from 34th place in the Global Innovation Index in 2012 to 10th place in 2025, while the number of its science and technology clusters ranked among the world’s top 100 has been the highest globally for three consecutive years. Since the beginning of this year, China’s innovation achievements have continued to attract worldwide attention. The humanoid robot “Lightning” broke the human world record in a half-marathon in a single stroke; the semiconductor industry’s “Tao’s Law” emerged; China’s space program achieved a succession of major breakthroughs, including both maritime and land-based rocket recovery; and Kimi K3, the world’s first open-source large model with nearly three trillion parameters, was unveiled to great acclaim. China’s innovation achievements are reaching the world at an accelerating pace. In the first half of this year, eight out of every 10 humanoid and quadruped intelligent robots sold worldwide were made in China, while the total value of overseas licensing transactions involving Chinese innovative drugs reached approximately US$110 billion. A growing number of foreign-invested enterprises have said that China has developed into a “super training ground” for global technological innovation and a “hard-core gym” for competitiveness: developing in China enables companies to better exercise their innovation “muscles” and strengthen their competitive “physique.” China is increasingly becoming an enabler of global innovation. In July this year, the World Artificial Intelligence Cooperation Organization was formally established in Shanghai. This was a major initiative by China to respond to the calls of the Global South and unite the international community in actively promoting the development and governance of artificial intelligence. Foreign media have commented that the principles advocated by China—being people-centered and using AI for good—together with the open-source nature of Chinese AI technology, are more closely aligned with the trends of scientific and technological innovation and the needs of Global South countries. They will help bridge the global intelligence divide and ensure that all parties benefit on an equal footing.

China is a practitioner of mutual benefit and win-win cooperation, creating broad space for the cooperative development of countries around the world. Facts offer the best rebuttal to distortions and smears such as the “China Shock 2.0” and “China squeeze” narratives. Chinese manufacturing improves the well-being of people in countries around the world. As the world’s largest manufacturing country, China continues to provide the global market with high-quality, competitively priced, stable, and reliable products. During the recent heat wave that swept across Europe, Chinese air conditioners brought relief to European consumers and became so popular that they were difficult to find. Behind this “cool strength” lay Chinese companies’ keen insight into overseas market demand, the rapid response of their complete industrial chains, their leading energy-saving and environmentally friendly technologies, and the fast deliveries made possible by the China-Europe Railway Express. The benefits of Chinese manufacturing are shared by consumers and partners worldwide.

The Chinese market provides new opportunities for global development. In today’s world, the market is the scarcest resource. China imports goods worth more than 20 trillion yuan annually and is a major export destination for nearly 80 countries. While some countries are turning toward protectionism, China has consistently remained committed to expanding opening up. By lowering import tariffs, hosting the China International Import Expo, and launching the “Export to China” series of activities, it has provided vast market space for goods and services from around the world. Beginning on May 1 this year, China fully implemented zero-tariff treatment for all 53 African countries with which it has diplomatic relations, marking another milestone in China-Africa economic and trade cooperation. Facts have shown that the “shock” and “squeeze” narratives are false propositions that call a deer a horse and distort the truth. China’s high-quality economic development has brought the world new and even greater opportunities.

What Does Economic Growth of 4.7 Percent in the First Half of the Year Tell Us?

Zhong Caiwen

True strength reveals itself amid wind and rain, and confidence is forged through trials. In the first half of the year, China’s economy forged ahead under pressure, maintaining a generally stable trajectory while continuing to shift toward new growth drivers and higher-quality development. Gross domestic product (GDP) grew by 4.7 percent year on year. We responded forcefully to changes in the external environment, including geopolitical conflicts and economic and trade frictions, and effectively navigated a complex domestic situation marked by strong supply and weak demand as well as an overlap of longstanding and emerging problems. These hard-won achievements are all the more valuable.

Measured against the target, 4.7 percent is an economic growth rate that meets expectations. The Central Economic Work Conference and the annual sessions of the National People’s Congress and the Chinese People’s Political Consultative Conference set the expected economic growth target for the full year at 4.5–5 percent. The 4.7 percent growth recorded in the first half falls within this reasonable range. It accords with the Party Central Committee’s sound assessment of the economic situation and the requirements of its policy arrangements, laying a solid foundation for a good start to the 15th Five-Year Plan period. Major economic indicators remained stable, while employment and prices were broadly steady. The 4.7 percent growth rate was broadly consistent with current conditions in factor supply, technological progress, institutional innovation, and other areas. It is a realistic rate aligned with China’s potential economic growth rate. Major economic provinces generally grew faster than the national average, playing their role as pillars of the economy. At the same time, China’s financial risks continued to recede in the first half of the year, local government debt risks were defused in an orderly manner, and various constraints remained appropriately balanced, leaving room for responding to uncertainty and improving the quality of development.

Viewed in terms of its composition, 4.7 percent is a growth rate with real substance. Behind this figure lies an economy shifting toward new growth drivers and an improved structure, delivering a high-quality development report card underpinned by solid stability and sustained by forward momentum. Its technological content is higher. New quality productive forces have steadily gathered momentum. Innovative enterprises with core technologies that play leading roles in industrial chains, as well as specialized and sophisticated enterprises focused on particular market segments, are emerging and growing at a faster pace. In the first half of the year, new growth drivers directly contributed more than 40 percent of economic growth. Artificial intelligence is empowering industries across the board. A succession of new-generation open-source large models has recently been released, while China has systematically put forward its approach to building an AI ecosystem and establishing an order for AI governance. Innovative achievements continue to emerge, and the number of AI-related patents granted rose by 34.8 percent year on year.

The growth rate also has a stronger green component. The transition toward green and low-carbon energy has accelerated, with clean energy accounting for 36.2 percent of electricity generated by enterprises above the designated size in the first half of the year. New green growth drivers expanded rapidly: lithium battery output increased by 39.3 percent, the cumulative retail penetration rate of new energy vehicles reached 54.1 percent, and the development of zero-carbon industrial parks and zero-carbon transport corridors proceeded in an orderly manner.

Its contribution to people’s well-being is also more tangible. China implemented measures to stabilize employment, expand job opportunities, and improve job quality, while strengthening social security. Residents’ incomes increased steadily. In the first half of the year, China’s per capita disposable income grew by 5.2 percent year on year in nominal terms. The consumer market continued to expand, and new growth areas such as services consumption and experience-based consumption continued to develop. Retail sales of services rose by 5.3 percent in the first half, while consumption in lower-tier markets, including county-level areas, recorded the fastest growth. Holiday consumption and inbound consumption also remained robust.

Having forged ahead under pressure, the 4.7 percent growth rate demonstrates powerful resilience. As worsening external headwinds overlapped with domestic cyclical and structural pressures, China’s economy rode out the storm and delivered a satisfactory report card, demonstrating a strong capacity to withstand shocks and regulate itself.

Externally, geopolitical turbulence has persisted, and the conflict in the Middle East has disrupted global energy markets, leaving many countries facing energy shortages and soaring oil prices. China made early arrangements to develop a new energy system and a petroleum reserve system while implementing a market-diversification strategy. Its efforts to ensure energy supplies and stabilize prices have proved forceful and effective. No market shortages of petroleum products or similar problems have occurred over the past six months, and the foundations of China’s energy security have grown increasingly solid. Meanwhile, against a backdrop of rising global trade protectionism and increasing tariff and non-tariff barriers, Chinese products have won favor among consumers in a growing number of countries because of their strong value for money. China’s exports have remained robust. From electric vehicles, lithium batteries, and photovoltaic products to artificial intelligence, robots, and innovative medicines, Chinese products are reshaping the country’s foreign trade landscape through cutting-edge technologies and original innovation.

Domestically, addressing risks accumulated over many years in areas such as local government debt, the property market, and small and medium-sized financial institutions has objectively produced a certain contractionary effect on the economy and required some sacrifice in terms of economic growth. These short-term costs, however, have secured long-term stability and sustainable economic and social development. At the same time, judging from market fundamentals, the imbalance between strong supply and weak demand remains pronounced. In particular, China faces considerable pressure in halting the decline in investment and restoring stable growth. The rate of investment growth is closely related to a country’s stage of development. At present, the focus of China’s investment policy is not simply to maintain a particular growth rate, but to better meet the requirements of high-quality development and give greater attention to investment quality and overall returns. In the first half of the year, China concentrated its efforts on strengthening the coordinated development of the “six networks,” promoting the renewal and upgrading of manufacturing, and addressing weaknesses in water conservancy facilities and urban underground pipeline networks, directing more resources toward investment in the future and in people’s well-being.

Looking ahead, the 4.7 percent growth rate has substantial momentum behind it. China’s economic development enjoys ample room for maneuver, enormous market potential, and powerful resilience and vitality.

There is potential for growth. As research and development investment continues to increase, China’s capacity for original innovation is steadily strengthening, and scientific and technological innovation is becoming deeply integrated with industrial innovation. Innovation-driven development is emerging as a powerful engine of China’s economic growth. China has one of the world’s largest talent pools, and its human-capital advantage is steadily shifting from a demographic dividend based on quantity to one based on quality. New factors of production, including data and computing power, continue to empower traditional factors, jointly supporting high-quality economic development.

Reform will continue to generate dividends. We place emphasis on using reform to solve development problems, and the economy’s endogenous momentum is continuously strengthening. The development of a unified national market is advancing in depth. Prominent problems involving local governments’ noncompliant investment-promotion practices, barriers to market access, bidding and tendering, and other areas are being rectified. This will broaden and deepen China’s market and further unlock the potential of its enormous scale. Continued comprehensive measures to address “involution-style” competition will foster a healthier market environment, compelling enterprises to move beyond competition based solely on price and accelerate the transition from scale expansion and price competition to quality improvement and value-based competition.

There is also room for policy action. Unlike some economies that rely on high debt and large deficits to stimulate growth, China has not followed a path of excessive dependence on forceful policy stimulus. Its aggregate policies have remained proactive and effective, while structural policies have applied precisely targeted measures, thereby avoiding the creation of “policy dependence.” Overall, the supporting conditions and underlying trend for China’s long-term economic growth remain unchanged. China has an ample toolkit of macroeconomic policies and still has considerable room for countercyclical adjustment. It is well positioned to introduce pragmatic and effective incremental policies in response to changing circumstances and is capable of accomplishing its economic and social development goals and tasks for the full year.

Steadily Advancing High-Quality Development for the Long Term

Zhong Caiwen

The meeting of the Political Bureau of the Communist Party of China Central Committee held on July 30 made comprehensive arrangements for economic work in the second half of the year. It called for the economy to continue developing toward new growth drivers, higher quality, and better performance, and for efforts to secure a good start to the 15th Five-Year Plan period. To successfully carry out economic work in the second half of the year, we must thoroughly implement the decisions and plans of the Party Central Committee, intensify countercyclical adjustments, fully leverage the effectiveness of existing policies, and promptly plan and introduce pragmatic and effective incremental policies to strengthen the momentum of development and stimulate social vitality.

Macroeconomic policies must be more proactive, effective, and efficient. China should continue implementing a more proactive fiscal policy and a moderately accommodative monetary policy. In the first half of this year, the average daily balance of the national treasury was relatively high, indicating that substantial fiscal funds were available. The pace of fiscal spending and the use of bond proceeds should be accelerated so that tangible progress is achieved as quickly as possible. Fiscal operations must be closely monitored and treasury funds effectively allocated to ensure that primary-level governments have the resources needed to meet the basic needs of ensuring people’s livelihoods, paying salaries, and maintaining normal government operations. A range of monetary policy tools should be employed and adjusted as appropriate to maintain ample liquidity, improve the monetary policy transmission mechanism, and keep the cost of social financing at a low level. Structural monetary policy instruments should be properly implemented to provide stronger support for key areas such as expanding domestic demand, promoting scientific and technological innovation, and assisting small, medium-sized, and micro enterprises. Coordinated fiscal and financial policies to stimulate domestic demand should be optimized, creating a transmission chain in which fiscal policy provides guidance, financial instruments amplify its impact, and market-based operations deliver results. Assessments of consistency in macroeconomic policy orientation should be strengthened. Reasonable transition periods must be provided when major policies affecting enterprises’ production and operations are adjusted.

Domestic demand must be effectively expanded through sustained efforts. Consumption of goods in some sectors of China’s economy is already approaching saturation or has entered a temporary plateau. It is therefore necessary to respond to the consumption needs of different groups, expand the supply of high-quality goods and services, and actively cultivate and strengthen emerging forms of consumption. Service consumption will be a key area for future consumption growth. New consumption scenarios should be developed, the consumption environment improved, and the potential of service consumption unlocked. Fixed-asset investment declined by 5.7 percent in the first half of the year, making it necessary to halt the decline and restore stable investment growth. Projects and funding should be better coordinated, and the planning and development of the “six networks” should advance steadily. Stronger factor support must be provided, and the construction window offered by the peak season in the third quarter should be fully utilized to accelerate the approval and commencement of major projects already identified in the 15th Five-Year Plan. This year, 800 billion yuan has been allocated through new policy-based financial instruments, mainly to supplement the capital of major projects. These funds should be directed to specific projects as quickly as possible to leverage greater private investment.

Innovation must lead the way in accelerating the development of a modern industrial system. Basic research is the source of the entire scientific system and the foundation for solving all technological problems. Long-term and stable support for basic research should be increased, the capacity of the scientific and technological innovation system to make coordinated breakthroughs should be strengthened, and the deep integration of scientific and technological innovation with industrial innovation should be promoted. The “AI Plus” initiative should be implemented in depth to create new forms of the intelligent economy and enable artificial intelligence to empower industries across the board. At the same time, the AI governance system should be improved and the legislative process for foundational AI laws accelerated. Since the beginning of this year, demand for AI computing power has grown rapidly, driving faster development of the semiconductor industry. China must strengthen the supply of advanced computing power while avoiding indiscriminate or excessive expansion. Efforts should be made to achieve breakthroughs in frontier technologies, develop industries of the future, foster emerging pillar industries, and continuously advance the transformation and upgrading of traditional industries.

Contradictions must be confronted directly to foster a fair and orderly environment for market competition. Regulations on developing a unified national market should be formulated and implemented. Local investment-promotion practices and corporate competitive conduct should be regulated through both negative and positive lists. Comprehensive measures should continue to address “involution-style” competition, particularly disorderly low-price competition in certain sectors, and guide relevant industries back toward value-based and rational competition. In recent years, corporate accounts receivable have continued to grow rapidly, while average collection periods have lengthened and debt recovery has become increasingly difficult. This has become a deep-seated problem troubling businesses. Regular mechanisms should be established to resolve payment arrears owed to enterprises, and malicious defaults should be investigated and rectified. Governance mechanisms for platform enterprises should be improved to promote the regulated and healthy development of the platform economy. Pricing reforms for public utilities such as water, gas, and heating should be advanced gradually and steadily.

Domestic and international priorities must be coordinated to expand the scope for mutually beneficial international economic and trade cooperation. The more turbulent and complex the external environment becomes, the more firmly China must uphold opening up and promote win-win cooperation across multiple fields. Trade in intermediate goods, cross-border e-commerce, digital trade, and green trade should be actively expanded, while trade in services should be vigorously developed. Imports should be increased to promote more balanced trade, and the China International Import Expo should be successfully organized. The management system for outbound investment and the comprehensive overseas service system should be improved to make outbound investment more sound and secure and to strengthen the protection of China’s overseas interests. China should actively attract and utilize foreign investment, bolster foreign investors’ confidence in investing and developing in China, and support foreign-invested enterprises in maintaining a long-term presence in the Chinese market.

A solid foundation must be laid by maintaining an unwavering focus on agriculture, rural areas, and rural residents. Regular, targeted assistance should be carried out in depth to consolidate and expand the gains of poverty alleviation and ensure that no large-scale return to or descent into poverty occurs. Food security is a matter of fundamental national importance. China’s summer grain output exceeded 300 billion jin for the first time this year. Continued efforts must be made to ensure strong agricultural production and secure bumper harvests of autumn grain and grain for the full year. The production and prices of hogs and other agricultural and livestock products should be stabilized, and the high-quality development of the beef cattle and dairy cattle industries should be advanced. The development of high-standard farmland is an important vehicle for implementing the strategy of securing food supplies through the sustainable use of farmland and advances in agricultural technology. Sound mechanisms for its construction, operation, and maintenance must be established to ensure that every plot developed meets the required standard and delivers lasting benefits.

Multiple measures must be taken to strengthen public well-being effectively and substantially. Employment is the foundation of people’s livelihoods. The number of college graduates has reached a new high of 12.7 million this year, making it necessary to increase employment support for key groups. China currently has around 200 million people in flexible employment, including a large number engaged in new forms of employment, and measures to protect their rights and interests must keep pace. The impact of artificial intelligence on employment should be thoroughly assessed and effectively addressed, so that technological progress and inclusive employment can advance together. Expanding consumption requires strengthening residents’ capacity and willingness to spend. Pragmatic measures should be studied and introduced to increase the incomes of urban and rural residents through high-quality development. Inclusive, foundational, and safety-net programs for people’s well-being should be strengthened. Services and support for older people and children should be improved, and a tiered and categorized social assistance system should be established. The initiative for sustained improvement in air quality should be implemented in depth, the three landmark campaigns under the Three-North Shelterbelt Forest Program should be successfully carried out, and the goals of peaking carbon emissions and achieving carbon neutrality should be advanced actively and prudently.

The bottom line must be upheld and security safeguards firmly reinforced. As an ancient saying reminds us, “Those who are discerning prevent disasters before they arise; those who are wise prepare for future dangers.” We must adopt bottom-line thinking and effectively prevent and defuse all types of risks. The real estate market should be stabilized, and urban renewal should be advanced to a high standard. The package of measures for resolving debt risks should be properly implemented, and local government debt risks prudently defused. Financial risk prevention and control should be strengthened, while reforms to resolve risks, reduce the number, and improve the quality of local small and medium-sized financial institutions should advance steadily. Comprehensive reform of investment and financing in the capital market should be deepened, mechanisms for bringing medium- and long-term funds into the market further improved, and the resilience of and confidence in the capital market strengthened. All types of risks and hidden dangers should be thoroughly investigated and rectified, major and especially serious accidents resolutely prevented, and the safety of people’s lives and property, as well as overall social stability, effectively safeguarded.

China’s economic development enjoys ample room for maneuver, enormous market potential, and powerful resilience and vitality. We must remain confident, rise to challenges, and fully leverage all opportunities and advantages. With greater drive and an even more vigorous spirit, we must ensure that high-quality development advances steadily and delivers lasting progress.

Some background: Professor Zhang is an economist focusing on the labour economy. In a talk show, when asked what social security gig workers have, she said (to avoid ambiguity, I am quoting her original words here):

Let us explore this further. It is generally believed that those of us in formal employment tend to think that people in informal employment or gig work have no security. But from the perspective of labour economics, their flexibility is itself a form of welfare. They are flexible, unlike those of us working nine to five. You go to work every day, and your social security benefits are very good. You may have the state’s five insurances and one housing fund and so on, but you sacrificed your freedom in exchange for that social security. So when it comes to flexible employment, it is meant to be flexible. What they want is freedom; what they want is to maximise the part of their lives they manage themselves, but at the same time their social security will certainly be relatively weak. You manage yourself, so why should there be an employer to pay your social security, or why should the state or the government pay so much for you? On the other hand, regular workers have already handed over their time and freedom, so the government or the employer must guarantee certain benefits for them. So I think we should not imagine flexible employment as having nothing at all.

This kind of statement quickly stirred up an uproar on the Chinese internet. The well-known media figure Hu Xijin胡锡进 said her brain had “short-circuited.” Most other criticisms accused her of being out of touch and saying things like “ Let them eat cake.”I haven't seen much defended her point.

Frankely speaking, I do not want to criticise her too much. I’ve translated some of her pieces into English. Also, as a longtime reader of hers, I know that Professor Zhang has worked deeply in the field of labour economics for years; she conducted a lot of research on China’s gig economy, repeatedly calling for stronger labour protections for these flexible workers, and even proposing that the beneficiaries of AI and the government should jointly bear responsibility for the livelihoods of workers affected. She is certainly not among the “cold-hearted elites” that many people imagine her to be.

At the same time, however, I simply do not agree with her opinion this time. I believe social security and freedom should not be understood as an either-or choice.

In her remarks, regular workers trade their time, freedom, and organisational obedience for social security, healthcare, and pensions, while flexible workers gain greater autonomy and must therefore accept relatively weak social security. The problem, as she said later in the program, is that most simply don’t have sufficient alternatives at the very beginning.

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For different kinds of gig workers, flexibility can’t be understood as equal. For those at the top of the pyramid. They can compare different jobs and are therefore willing to trade some income and security for autonomy over their time. But for most gig workers, so-called flexible employment often means flexibility they are forced to accept. They lack stable job opportunities and can sustain their income only by taking orders and part-time work, becoming involuntary recipients of transferred risk.

I previously translated a podcast episode featuring Sun Zhongwei, Deputy Dean of the School of Politics and Public Administration at South China Normal University, who has long studied the transformation of Chinese manufacturing. Over the past decade, Chinese manufacturing has undergone large-scale automation upgrades, but automation did not immediately bring about mass layoffs. One reason is that many factories gradually reduced their workforce through natural attrition, halted new hiring, and reassigned workers internally. Another important factor is that many workers who left the factories didn't just leave the workforce; they moved into courier services, food delivery, ride-hailing, catering, and other service industries.

For many, this was essentially a shift from one kind of low-wage, high-intensity, highly repetitive manufacturing job to another kind of service job that is relatively free but equally insecure. Leaving the factory does not mean regaining autonomy. Platform dispatching, rating, and reward mechanisms assign more orders to riders who log on consistently. Ride-hailing platforms also frequently set completing a certain number of orders as the threshold for rewards. At best, this is nothing more than the freedom to arrange one’s time in a purely formal sense.

Another interesting finding in research by Sun Zhongwei and his collaborators is that migrant workers without local household registration, who have long been mobile, are often less worried about being replaced by automation than local workers. This is because they were already accustomed to high mobility and instability, and many of them did not have many existing benefits to lose in the first place. In their view, if one job disappears, the worst case is simply finding the next one. In a sense, this shows that not worrying about losing a job does not necessarily mean a person is freer. It may also mean that the person has long had little left to lose. I believe a healthy society should not describe forced flexibility as welfare, but should instead fill this protection gap and bring gig workers into the social security network. Only then is there a chance of achieving genuinely decent work.

Of course, if we step outside this debate, Professor Zhang’s remarks provoked such a strong reaction because of where Chinese society stands today.

In periods of sustained economic growth, flexible employment is more easily understood as opportunity. In 1998, Liu Huan wrote the song “Start Over from the Beginning.”从头再来 became popular under the social backdrop of the Asian financial crisis and state enterprises' layoffs. Many had lost their jobs, but everyone believed there were still plenty of opportunities, and even if you lost your job, you could start over. In that environment, expectations of growth easily obscured social security's inadequacy.

But many young people today face fiercer competition and increasingly uncertain career prospects, driven by AI. So when people hear that freedom and social security can only be an either-or choice, what many of them actually hear is this: the risk you bear is the result of your own personal choices. This also explains why so many workers react with such strong revulsion to statements like this.

On a higher level, I believe this is part of a Polanyi-style transformation that China is undergoing. What Polanyi called the “countermovement” refers to the phenomenon in which, as the market continuously expands and pulls ever more spheres of life into competition and exchange, society generates a force demanding its own protection, attempting to re-embed the economy within social relations. In China, however, this countermovement is led less by society itself than by the state: the protective force more often manifests as government-led macroeconomic regulation, industrial policy, antitrust measures, curbs on the disorderly expansion of capital, and the building of social security, all of which attempt to re-embed economic activity within society and political objectives.(no doubt that they need to pour more resources into areas like constructing social security for gig workers)

The past fourty-plus years of reform have essentially been a process of continuous market expansion. The market unleashed enormous efficiency and created unprecedented wealth and opportunities for social mobility. At the same time, however, it rapidly eroded part of the protective functions previously carried by state-owned enterprises and the work-unit system. The market wants workers to be more mobile and flexible, yet it tends to shift the risks that come with this flexibility onto individuals as much as possible.

After entering the 2010s, as China completed industrialisation and gradually bid farewell to the “economy of scarcity,” the mobility brought by marketisation began to replace the stability of the work-unit system, but no new form of protection matching it was provided in time. Workers are asked to bear nearly all the risk, yet in the course of their work they are subject to management and control resembling that of employees. They have lost the stability of the work-unit system, yet they have not truly gained the corresponding professional autonomy.

It is precisely in this sense that the series of social currents that gradually emerged after 2018, including growing attention to labour rights, reflection on 996（Working from 9 am to 9 pm, six days a week.） and excessive involution, young people attempting to withdraw from competition, and society’s pursuit of stable positions in state-owned enterprises and the civil service, can all be understood as expressions of a demand for social protection. Or, to put it in terms of my favourite first law of political science: where there is oppression, there is resistance.

These phenomena do not mean that market reforms should be rejected, or that we should return to the planned economy. Rather, they show that more and more people are beginning to refuse to bear alone all the risks the market creates. What they truly demand is not a choice between freedom and security, but a social security system that matches modern forms of labour while preserving mobility and room for choice. Workers should be able to switch platforms, switch careers, or even temporarily stop working, without losing healthcare, pensions, and basic livelihood protection because of a single spell of unemployment. This is not a backlash against marketisation, but more like countermovement in which society demands that the market accept public constraints, and Professor Zhang’s remarks unfortunately landed squarely on a raw nerve in Chinese society.

I believe this piece is invaluable for understanding China’s reforms of its state-owned banks in the 1990s, as well as how China gradually integrated itself into global financial markets.

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The author recalls the failure of CNOOC's first overseas IPO, which he led in 1999. The core reason for that failure was a difference in how China and the outside world perceived exclusive franchise rights. In China’s eyes, the monopoly that came with an exclusive franchise was a positive; but international markets saw it as a risk, reasoning that there was no legal guarantee the company would hold that monopoly forever. In a sense, this difference in perception (I’d rather not call it a “gap”) remains widespread even today.

Cao also looks back on how, two decades ago, he helped design the prototype of Hong Kong’s renminbi-reflux mechanism—the “clearing bank + offshore market” model—and how that model was later taken global in the wake of the 2008 financial crisis. He uses this experience to reflect on how to break through the traditional “impossible trinity” of currency policy, which holds that free capital flows, an independent national monetary policy, and a stable exchange rate cannot all be achieved at once. In his view, China’s approach to RMB internationalization was to first let the renminbi circulate offshore and then gradually loosen convertibility—in other words, rather than forcing a choice at one corner, it left room on all three fronts to find a middle-ground solution.

Below is the full English ver of the article I made with the help of AI; it hasn’t been reviewed by Cao Yuanzheng

Cao Yuanzheng: The Two Decades of China’s Financial System Reform That I Experienced

Cao Yuanzheng, Visiting Professor of Management Practice, School of Economics and Management, Tsinghua University

This year marks the twentieth anniversary of the founding of the China Finance 50 Forum. Twenty years ago, at the same time as I became a member of the 50 Forum, I left the State Commission for Restructuring the Economic System, where I had worked for more than a decade, due to the restructuring of Chinese government institutions, and was reassigned to the Bank of China. I was transformed from a researcher and formulator of economic reform policies into an implementer of them. Over these twenty years, I participated in the reform of China’s financial system, witnessed the opening up of Chinese finance to the outside world, and experienced the process by which Chinese finance grew from weak to strong, continuously deepening its capacity to serve China’s economic development and increasingly moving onto the world stage.

I. The Development of a National Investment Bank and the Reform of State-Owned Enterprises

Unlike commercial banks, which are dominated by asset-and-liability business and characterized by deposits and loans, investment banks do not have massive balance sheets; rather, they are non-bank financial institutions primarily engaged in underwriting stocks and bonds. Although investment banking has a long history, its true rise came only after World War II, and especially in the era of floating exchange rates, marked by the decoupling of the U.S. dollar from gold in 1973. To hedge against interest rate and exchange rate risks, capital markets—including financial derivatives—developed rapidly. The endless stream of financial instruments and their corresponding financial engineering theories and operational innovations gave birth to a large number of new financial institutions engaged in investment banking.

China began to understand investment banking after reform and opening-up, particularly after the 1990s. As the market economy developed, both township enterprises and enterprises owned by the whole people came to recognize the importance of establishing corporate governance mechanisms. Restructuring into joint-stock companies became a natural choice, and combined with the preliminary development of China’s capital markets, capital market business became a new hotspot in Chinese finance, and securities firms emerged accordingly. However, compared with the developed international capital markets, China’s capital market—despite its rapid development—remained small in capacity and insufficient in scale. Compared with the increasingly mature international investment banks, the investment banking business of China’s securities firms lagged enormously, both technically and managerially, and was still taking its first tottering steps. Under these circumstances, the pressing needs of institutional reform and financing forced enterprises to turn their eyes overseas. In 1993, with the successful H-share listing and issuance of Tsingtao Brewery, international investment banks began to become involved in the joint-stock restructuring and listing financing of Chinese enterprises. Capital market business became a focus of competition among domestic financial institutions, and, by comparison, strengthening the competitiveness of national investment banking business was put on the agenda.

In the mid-1990s, China Construction Bank and the Bank of China took the lead in this area. China Construction Bank established the China International Capital Corporation (CICC) as a joint venture with the internationally renowned investment bank Morgan Stanley, each holding a fifty percent stake, with its registered office in Beijing. The Bank of China took a different path, leveraging its advantage of long-term overseas operations to register BOC International Holdings (BOCI) in London, wholly owned by the Bank of China. One was a joint venture established domestically, and the other was wholly owned yet steeped in the international capital markets. Different paths, but the same purpose: to learn advanced international investment banking techniques and set a benchmark for the development of China’s capital markets. Zhou Xiaochuan, a member of the 50 Forum and then Vice President of the Bank of China, had advocated for the establishment of BOCI. Later, when he became President of China Construction Bank, he also personally served concurrently as Chairman of CICC.

In 1998, the State Commission for Restructuring the Economic System（国家经济体制改革委员会） was abolished, and I was reassigned to the Bank of China, tasked with participating in the restructuring of BOCI. At that time, Hong Kong had just returned; Chinese-funded institutions in Hong Kong no longer needed to adopt a strategy of decentralized operations, and the stability and prosperity of Hong Kong also became a duty-bound responsibility for Chinese-funded institutions. BOC International Holdings relocated its registration back to Hong Kong, and on the basis of the non-bank financial institutions affiliated with the Bank of China in Hong Kong, it was restructured and established as BOC International Holdings Limited, becoming an internationalized investment bank spanning the capital markets of London, Singapore, and Hong Kong.

When BOCI Holdings was established, the Asian financial crisis was raging. In Hong Kong, international speculative capital repeatedly moved back and forth, suppressing the stock and foreign exchange markets; the financial markets were filled with an air of desolation, and the linked exchange rate system hung in the balance. On the mainland, hit by the Asian financial crisis, enterprises found their operations even more difficult. A large number of state-owned enterprises became insolvent and went bankrupt, and layoffs and unemployment became a widespread phenomenon. Newly born, BOCI immediately faced a grim economic and financial situation. While being entrusted by the Hong Kong SAR government to help counter the speculative activities of international speculators, BOCI also shouldered the responsibility of assisting in the joint-stock restructuring and listing of state-owned enterprises.

In 1999, BOCI was appointed as one of the lead underwriters for the overseas listing of China National Offshore Oil, a project which I chaired. China National Offshore Oil had originally been an offshore oilfield development unit subordinate to the Ministry of Petroleum Industry石油工业部. In 1998, with the restructuring of the Chinese government, the Ministry of Petroleum Industry was abolished and split into three: apart from the north (China National Petroleum Corporation, CNPC) and the south (Sinopec), offshore oilfield development became a separate wholly state-owned enterprise. However, under the planned economy system, all profits were handed over to the fiscal authorities and all expenditures were allocated by the fiscal authorities. The three oil companies split off from the Ministry of Petroleum Industry all fell into the embarrassing situation of insufficient capital, high debt ratios, backward governance structures, outdated modes of operation, and inadequate momentum for development. Strengthening capital and improving governance structures through listing financing became an inevitable choice. An overseas listing would not only strengthen market discipline but also facilitate international cooperation.

After National Day in 1999, China National Offshore Oil formally launched its overseas listing roadshow. This was the first overseas listing of a large central state-owned Chinese enterprise. The roadshow route ran from Asia to Europe, with final pricing in New York. The Asian leg of the roadshow was highly successful, with enthusiastic subscription, but in Europe and America the atmosphere was cold and indifferent—especially as global oil prices declined, sales became increasingly difficult and the price kept sliding. In the end, the issuance had to be terminated, and we returned disappointed.

The failure of China National Offshore Oil’s first overseas listing and issuance was a bucket of cold water poured over BOCI, which had aspired to set a benchmark for national investment banking. For the first time, we felt to the bone the harsh mercilessness of the market; for the first time, we experienced with searing pain the powerlessness and helplessness of a small, weak Chinese investment bank in the international market. The Asian market understood China but not oil; the European and American markets understood oil but not China—leaving us caught in a dilemma.

But the market does not believe in tears. While we continuously wrote self-criticisms, we also seriously reflected on the gaps we faced. Beyond certain technical and capability issues, the biggest gap was our understanding of market mechanisms, especially in specialized markets. For example, China National Offshore Oil Corporation was the only company authorized by the state to conduct offshore oil extraction, and the parent company had injected this exclusive franchise right into the listed company. When we valued it, we assumed that being the only shop in town—an exclusive monopoly operation—was a favorable factor. But the international market did not interpret it that way; it regarded this as a risk, an unfavorable factor. The reasoning was: what law guaranteed that the Chinese government would forever grant this listed company the exclusive right to extract offshore oil? If there was none, a risk discount was needed. Frankly speaking, I had worked at the State Commission for Restructuring the Economic System and the Institute of Economic System Reform of China for fourteen years, and I thought I understood the market economy. But reality coldly handed me a failing grade.

The core technique of investment banking is enterprise valuation, and the departments and processes of an investment bank are almost entirely designed and built around valuation. It is a three-dimensional reproduction of the market economy mechanism at the micro level. Inside an investment bank there is a “Chinese Wall,” with different departments set up on either side of the wall—one end connected to the issuer, that is, the company intending to list, and the other end connected to the investors, that is, the market. The departments at the two ends are strictly forbidden from crossing the wall: not only must document information be kept confidential and not cross the wall, but there must also be physical separation, and personnel are not allowed to interact. In an economic sense, these two ends are in fact reproductions of the supply and demand curves, and the “Chinese Wall” is the point at which supply and demand intersect. The department at the end of the wall connected to the issuer, driven by interest, will work to prove how excellent the quality of the company intending to list is; while the department at the other end of the wall connected to investors, equally driven by interest, will repeatedly emphasize how picky the market is. When the company intending to list approaches the Chinese Wall from both ends through a series of processes, the significance of the market is expressed to the fullest. Under the repeated fault-finding of the department at the end of the wall representing the interests of market investors, the department at the end of the wall representing the interests of the issuer must continuously dig out the investable highlights of the company intending to list; the value of the enterprise is thereby discovered, and valuation is thus formed. But this is not the end of the process. A simulated market, after all, is not the real market. An investment bank’s valuation of an enterprise is only a price range; the final pricing must still be determined through the roadshow. The roadshow involves one-on-one negotiations with investors, especially institutional investors represented by mutual funds, collecting the bids—including quantity and price—of different investors for the same target enterprise. By continuously narrowing the price range, the accumulated final result is the public offering quantity and the offering price.

Under the investment banking organizational structure that simulates the market, the most important responsibility of the end of the wall connected to the issuer—aside from marketing to clients—is to research the enterprise in order to value it. In theory, to do valuation well, one must understand the client even better than the client understands itself. Apart from finance, law, and other requisite financial capabilities, one must also have the ability to understand the physical production processes of the enterprise. In a sense, only by understanding the physical production processes of the enterprise can one grasp its financial processes. Therefore, investment banks all have industry groups, whose members mostly have backgrounds in that industry or are professionals in that field. The number of industry groups depends on the business direction and scale of the investment bank. At the same time, an investment bank also needs professional economic and market research teams, including in macroeconomics, to provide support.

In an economic sense, the market economy selects the superior and eliminates the inferior. In the capital market, the enterprise with the highest market valuation in its industry is also the enterprise with the best business model—the benchmark enterprise. In investment bank valuation, apart from the general construction of valuation models, the customary method is the comparable company method. One searches the international capital markets for comparable benchmark enterprises to serve as reference points, uses the benchmark enterprise as a model to adjust the business model—including the corporate governance structure—that is, to restructure, and thereby obtains the optimal market pricing.

From the above, an optimized organizational structure, excellent industry research capability, and skilled valuation techniques together constitute the core competitiveness of an investment bank. After the failure of the CNOOC issuance, BOCI, on the basis of reflection, began to build its own capabilities in this way. On the one hand, it relied on its own efforts to build a talent pipeline, conducting large-scale, one-time recruitment of graduate students from key domestic universities to form industry groups, and sending them to overseas institutions for training. On this basis, it made campus recruitment an ongoing effort, replenishing fresh blood year after year, and thereby maintaining internal competitive pressure that selected the superior and eliminated the inferior. On the other hand, in accordance with the needs of China’s economic reform and development, it sought breakthroughs in key industries to build competitiveness. In 2000, the Shenzhen municipal government decided to carry out reform in the field of public utilities, and BOCI was entrusted to serve as an advisor. Seizing this opportunity, BOCI organized young rising talents, divided them into several groups, and extensively researched domestic and international restructuring cases in public utility fields such as water supply, gas, and public transportation, repeatedly pondering their physical characteristics and related financial arrangements. On the basis of a thorough understanding of asset specificity, they formed practical and effective restructuring plans, successfully introduced overseas strategic investors, and won widespread acclaim.

It was precisely by virtue of its unique understanding of “whole-process, whole-network” and “whole-process, not whole-network” that BOCI established a competitive advantage in this field, extending its business to infrastructure fields including public utilities in various localities, successively serving as financing advisor for the Beijing-Shanghai High-Speed Railway, the West-to-East Gas Transmission project, the State Grid, the Beijing Subway, the Beijing Olympic venues, and more. More importantly, a single flower does not make spring. As a national investment bank, we had a responsibility to elevate our experience into theory to be shared by society. While summarizing the Shenzhen experience and publishing a monograph, I discussed with 50 Forum members Zhang Shuguang, Sheng Hong, and Mao Yushi and together established the Unirule Public Utilities Research Center. The Center brought together the various industry associations of China’s public utilities, established a board of directors, and I served as chairman. The Center’s mission was to provide decision-making references for the government, solutions for enterprises, and high-quality academic resources for society in the field of public utilities. The Center successively released the Green Paper on China’s Public Utilities, published a variety of monographs and translated works, organized theoretical and case discussion seminars, promoted the exchange of experience among peers, and powerfully advanced the application of PPP techniques and institutional arrangements in China’s infrastructure field.

Twenty years have passed, and China’s national investment banks have completely changed their former appearance of being “poor and blank.” Not only are institutions numerous, but their competitiveness is also improving. The scale of China’s capital markets now ranks among the world’s foremost. At the same time, Chinese enterprises, whether state-owned or private, all believe that restructuring and listing is an important method for strengthening capital and accelerating development, as well as an important avenue for improving governance and raising competitiveness. The two reinforce each other. At present, in the restructuring of Chinese enterprises and in listings both at home and abroad, one can see the figure of Chinese-funded investment banks competing on the same stage as foreign banks. Although we still have a considerable distance to go compared with the international majors, the facts of the past twenty years demonstrate that only by opening up to the outside world and “swimming in the open sea” can one develop the ability to weather storms. We believe that China’s national enterprises and national investment banking industry will grow increasingly in the course of opening up.

II. The Commercialization Reform of China’s Banking Industry and the Development of Chinese Finance

In January 1984, marked by the separation of the Industrial and Commercial Bank of China from the People’s Bank of China, China for the first time began to possess a financial architecture with a central bank and commercial banks independent of the fiscal authorities. But at this time, not only was the financial market still in its infancy, but the banks were still government-led specialized banks, still linked to and even dependent on the fiscal authorities by countless ties. Entering the 1990s, although the financial market had developed considerably and various types of non-bank financial institutions had sprung up, as far as the specialized banks were concerned, they still bore the responsibility of helping to reform state-owned enterprises and fully supporting economic development. There was neither the condition nor the will to build the systems and mechanisms for their own autonomous operation, self-assumption of risk, responsibility for their own profits and losses, and self-restraint—that was still a work in progress.

In December 1993, the State Council promulgated the “Decision on the Reform of the Financial System.” In this decision, the reform goal of “turning the state specialized banks into genuine commercial banks” was clearly put forward for the first time. This opened the process of the commercialization reform of state-owned banks. Because of my work at the State Commission for Restructuring the Economic System, I participated in the relevant work of drafting this decision. Thereafter, I became involved in the actual process of pushing forward this reform, which also constituted one of the reasons why I was reassigned to the Bank of China after the Commission for Restructuring was abolished.

The first task I undertook upon joining the Bank of China in 1998 was to draft a restructuring plan for the Bank of China’s Hong Kong business.

The Bank of China is China’s earliest national bank, and its predecessor can be traced back to the Da-Qing Board of Revenue Bank in 1905. After the founding of New China, with the establishment of the planned economy system, the market foundation for financial development disappeared, all domestic financial institutions were merged into the People’s Bank of China, and the Bank of China, which had existed for decades, thus became the Foreign Business Bureau of the People’s Bank of China. However, overseas, and especially in Hong Kong, New China’s international financial activities were still conducted in the name of the Bank of China. Hong Kong at that time was still a British colony, and constrained by objective conditions, the Bank of China implemented a policy of decentralized operations. In addition to the Bank of China itself, there were thirteen banks including Po Sang, Nanyang Commercial, Chiyu, Yien Yieh, Sin Hua, and the Kwangtung Provincial Bank, four of which were registered domestically and the rest registered in Hong Kong. Together they constituted the Bank of China Group in Hong Kong. In 1997, with Hong Kong’s return to the motherland, the necessity for decentralized operations disappeared, and the drawbacks of overly small capital, complex structure, and low efficiency began to be exposed; restructuring was truly important. The basic idea of the restructuring was to use Po Sang Bank as the main body, inject the businesses of the other banks into Po Sang, and—except for retaining the Bank of China Hong Kong Branch, Nanyang Commercial Bank, and Chiyu Bank—successively deregister the other banks. On this basis, Po Sang Bank would list and be renamed Bank of China (Hong Kong). In December 1999, this restructuring and listing plan was approved by the State Council and began to be implemented. In 2002, Bank of China (Hong Kong) listed overseas in a red-chip form; the restructuring and listing ultimately achieved great success, accumulating useful experience for the commercialization reform of China’s banking industry.

Since the beginning of this century, following China’s accession to the WTO and its commitment to open up the financial services industry, the commercialization reform of state-owned banks was urgently placed on the agenda. This urgency can be glimpsed from the asset-and-liability situation of China’s banking industry at the time. In 2002, the capital adequacy ratio of China’s state-owned banks averaged only about four percent, while the level of bad debts was as high as about twenty percent—the level of bad debts was almost five times that of capital. Judged by the Basel Accord’s eight percent capital adequacy standard for the banking industry, they had already gone bankrupt five times over. China’s banking industry had almost entirely fallen into a state of technical bankruptcy of insolvency.

In fact, as early as the mid-to-late 1990s, people had already noticed the problem of making bank balance sheets healthy. To this end, in 1998, four major asset management companies (AMCs) were simultaneously established, each corresponding to one of the four major state-owned banks to separate out bad debts. At the turn of the century, Zhou Xiaochuan, a member of the 50 Forum and then President of China Construction Bank, wrote a special article proposing the use of a “good bank, bad bank” mechanism to accelerate the reform of state-owned banks, which caused a great stir. With the development of China’s economy, and especially the improvement in the operating conditions of state-owned enterprises, the conditions for the reform of state-owned banks also began to be in place. As the conditions for reform grew increasingly ripe and the urgency of reform grew increasingly prominent, the two reinforced each other. On January 1, 2004, the curtain finally lifted on the Bank of China’s commercialization reform through the joint-stock system.

Compared with previous reforms, this reform started from adjusting the property rights structure of financial institutions, reshaping their governance mechanisms, transforming their internal processes, and establishing a commercialized foundation for sustainable operations, so that financial institutions could truly become market entities. This series of reform projects consisted of three relatively independent yet interrelated parts:

First, taking the cleanup of the balance sheet as an opportunity, reshape the relationship between the state and financial institutions. Its core was to establish a limited-liability mechanism. The state exercised the rights of the contributor of capital through Central Huijin Investment Ltd. (hereinafter “Central Huijin”) and assumed limited liability up to the amount of its contribution, thereby severing the “father-son relationship” between the state and enterprises. Financial institutions would assume their own risks, operate autonomously, and be responsible for their own profits and losses.

Second, taking joint-stock restructuring as the breakthrough point, establish a sound corporate governance structure. Through strategic investors introduced under the guidance of the banking regulatory authority, establish a shareholders’ meeting and a board of directors, with the board hiring the management and the management hiring the employees, forming a modern enterprise system. In order to make this mechanism stable and sustainable over the long term, the measure of public listing of commercial banks in overseas capital markets was adopted, so as to strengthen the constraints of market discipline.

Third, taking the establishment of the China Banking Regulatory Commission as the lever, establish a third regulatory system independent of the government, implement the separation of administrative power from regulation, and strengthen professional regulation.

Based on the experience of the successful restructuring and listing of BOC Hong Kong two years earlier, the Bank of China was selected as one of the first two pilot banks. And since I had participated from beginning to end in the restructuring and listing of BOC (Hong Kong), it was only natural that I also participated in the design and operation of the overall listing plan for the Bank of China. The Bank of China was a century-old establishment with numerous legacy problems, and it operated globally. Subject to the supervision of the regulatory authorities of different countries, with varying regulatory standards, just for the restructuring alone there were several tons of various documents and materials, and the personnel directly participating in the restructuring business numbered in the thousands. One can imagine the difficulty and the enormous workload involved. From this one can also imagine what a vast and arduous reform project the joint-stock reform, restructuring, and listing of all the state-owned banks was.

This reform project was also an innovation project. In this process, the theorists and practitioners of Chinese economics and finance, grounded in China’s actual conditions, creatively used various financial instruments and successfully completed the reform tasks. One important innovation was the creation of Central Huijin Investment Ltd. Central Huijin was initially a company of the central bank; it borrowed the central bank’s balance sheet, used foreign exchange as capital to inject into the banks, shored up the banks’ capital adequacy ratios, and rescued the banks from the brink of technical bankruptcy. On this basis, through the four major asset management companies stripping out bad debts, the fiscal authorities reducing profits, writing off bad debts, and other comprehensive measures, the banks’ balance sheets were made healthy, laying a financial foundation for sustainable operations. It should be explained that such a process of making the balance sheet healthy was also a process of corporatization reform amounting to a complete rebirth. The original state-owned banks had, in the balance-sheet sense, already ceased to exist; in their place, newly established companies took over the licenses, trade names, and clients of the original banks and reopened for business—this bank was no longer that bank. For example, the current Bank of China is a limited liability company first wholly established by Huijin, which then underwent joint-stock reform to form a joint-stock limited company; it took over the license and clients of the original Bank of China and began its new operations. It also meant that although the original Bank of China Limited remained under absolute state controlling ownership, the state now assumed limited liability up to the amount of its capital contribution, thereby severing the traditional father-son relationship of soft budget constraints between the government and state-owned enterprises.

In order to consolidate the fruits of this reform and enable the banks to operate sustainably on a commercialized track, the banks’ corporate governance structures needed to be reshaped and their business and management processes needed to be re-engineered. On the one hand, each bank established a shareholders’ meeting and a board of directors, with the board hiring the management; at the same time, in order to strengthen the constraints of market discipline, the banks went public, and since international market discipline is stronger than domestic, the banks listed not only domestically but also overseas. On the other hand, each bank repositioned itself in accordance with its own business characteristics and re-engineered its various processes in a market-oriented manner, with the market-oriented re-engineering of human resources processes being the focal point. For example, I myself had been a bureau-director-level cadre of the State Commission for Restructuring the Economic System, but in the re-engineering of human resources processes, I not only lost my cadre status but also had to sign a labor contract with the Bank of China—if my performance was poor, the Bank of China could terminate the labor contract. Clearly, such a constraint is a strong constraint, and the process re-engineering thereby bid farewell to the traditional mode of operation.

This round of reform aimed at becoming genuine commercial banks took the establishment of Central Huijin on December 31, 2003, as its starting point. It was first launched by the Bank of China and China Construction Bank, then spread to various types of state-owned financial institutions—including both commercial banks and non-bank financial institutions—and came to a close with the public listing of China Everbright Bank in 2012, lasting eight years. This round of reform gave Chinese financial institutions a new look, and their operating philosophies, modes of operation, capital adequacy ratios, risk management capabilities, and technological levels all rose to a new level. In hindsight, this round of reform came at exactly the right time and was accurately implemented, thereby constituting the foundation for the Chinese financial system’s successful defense against the global financial crisis of 2008.

In this round of reform, the 50 Forum devoted great effort, and many of its members contributed greatly. They were: Zhou Xiaochuan, then Governor of the People’s Bank of China; Lou Jiwei, then Vice Minister of Finance and later Chairman of China Investment Corporation; Guo Shuqing, then Director of the State Administration of Foreign Exchange and later Chairman of Huijin; Xie Ping, then Director-General of the Financial Stability Bureau of the central bank and later General Manager of Huijin; and Li Bo, then Deputy Director-General of the Legal Affairs Department of the central bank. The achievements of China’s banking industry today embody their sweat.

III. The Internationalization of the Renminbi and Chinese Finance Moving onto the World Stage

In 2015, the International Monetary Fund announced that the renminbi would be included in the SDR, formally taking effect on October 1, 2016. This was the fifth reserve currency after the U.S. dollar, the euro, the pound sterling, and the Japanese yen, marking the entry of renminbi internationalization into a new stage.

Because of my work at the Bank of China’s Hong Kong institution, I was among the earliest to become involved in the arrangements for the cross-border use of the renminbi. As early as twenty years ago, hit by the Asian financial crisis, Hong Kong’s financial markets were in turmoil and all trades were depressed. Hong Kong’s stability and prosperity concerned not only the welfare of Hong Kong residents but also the success or failure of “one country, two systems.” After the Asian financial crisis, a series of policies favorable to Hong Kong’s stability and prosperity began to be implemented, the most important of which was CEPA, that is, the Closer Economic Partnership Arrangement between the mainland and Hong Kong under the WTO framework. One important measure of this was implementing zero tariffs on products originating in Hong Kong exported to the mainland. By that time, however, since most of Hong Kong’s manufacturing had already relocated, there were few products originating in Hong Kong. Although the CEPA arrangement was beneficial, it was a drop in the bucket. Hong Kong’s recovery from the Asian financial shock was to a large extent thanks to the free travel of mainland residents to Hong Kong. Large numbers of mainland residents traveled to Hong Kong for tourism—eating, staying, traveling, and shopping—which drove Hong Kong’s consumer industry and supported the income growth of Hong Kong’s grassroots classes. But a problem also became prominent: because the renminbi was still a non-convertible currency, although mainland residents had purchasing power, they had no means of expressing that purchasing power. How to give mainland residents a means of expressing their purchasing power became key. Under the circumstances that the renminbi was still not convertible, one feasible arrangement was for Hong Kong to allow the direct use of the renminbi locally. The cross-border use of the renminbi was thereby placed on the agenda.

However, once the use of the renminbi in Hong Kong was raised, a series of policy and technical difficulties came rushing in, the core of which was the opening of the capital account of China’s balance of international payments. From Hong Kong’s perspective, under the circumstances that the renminbi was non-convertible, the renminbi used in Hong Kong needed to be fully recovered by the mainland—that is, the renminbi needed to flow back. From the mainland’s perspective, if the renminbi could not flow back through the current account (imports), then it would need to be arranged to flow back through the capital account, and this would not only bring pressure on the mainland, which at the time was extremely thirsty for foreign exchange to balance its international payments, but also—with the Asian financial crisis as a cautionary precedent—it was still hard to predict what opening the capital account would mean. Thus, the focal point of the contradiction became whether a closed renminbi reflux loop could be formed so as to effectively control the risks of opening the capital account.

In 2003, I began to participate in the design of this reflux loop. After repeated deliberation and continuous argumentation, a special arrangement was formed that leveraged the specific advantages of Bank of China (Hong Kong): at the consumption venues frequently visited by mainland residents traveling to Hong Kong, designated merchants could accept the renminbi, and the renminbi revenue of these designated merchants would be promptly converted into Hong Kong dollars by Bank of China (Hong Kong); Bank of China (Hong Kong) signed an agreement with the Shenzhen Branch of the People’s Bank of China to transport the renminbi positions (mainly cash) it obtained from the designated merchants back to the mainland. Thus, the renminbi flowed out of the mainland through the current account via multiple channels (carried by individuals), but flowed back into the mainland through the capital account via a single, special, closed conduit (the special arrangement between BOC Hong Kong and the Shenzhen Branch of the People’s Bank of China).

It should be pointed out that under such a special arrangement, Bank of China (Hong Kong) was in effect performing the function of central bank clearing. Its essential significance was: under the circumstances that the renminbi was non-convertible—that is, under the circumstances that there was no foreign exchange market settlement—the clearing of the market could only rely on the central bank’s clearing. And since the central bank, by virtue of its sovereign nature, found it difficult to conduct cross-border clearing, it entrusted a financial institution that it could trust and that was within its jurisdiction to seek agency clearing business.

With the implementation of the above special arrangement, mainland residents could pay directly with renminbi when consuming in Hong Kong. Not only was consumption convenient, but the scale of renminbi use also greatly increased. While promoting the stability and prosperity of Hong Kong’s economy, it also made the original cash-based clearing conduit between BOC Hong Kong and the Shenzhen People’s Bank appear too narrow, unable to fully meet the need for renminbi reflux. So, outside the conduit, a “pump” was set up—that is, through special arrangements, certain mainland institutions were designated to issue renminbi bonds in Hong Kong to channel renminbi funds back to the mainland. At first these were the major banks, and later this was extended to the Ministry of Finance as well. This measure both eased the congestion of the original clearing conduit and, by opening a new channel for reflux through bonds, expanded the reflux of the domestic currency through the capital account, laying the foundation for Hong Kong’s offshore renminbi financial market. At this point, the basic framework of renminbi internationalization—the genetic makeup of “clearing bank + offshore market”—began to be laid.

The international financial crisis of 2008, which originated in the United States, brought a severe shortage of international dollar liquidity; the “dollar shortage” caused normal international economic and trade exchanges to grind to a halt for lack of means of payment. Employing a new international currency for international payments, so as to ease the severe shortage of international liquidity, became a pressing task. And since China’s GDP already ranked among the world’s foremost, and even more because China had become one of the largest international trading entities, the renminbi became the first choice for a newly emerging international currency, and the renminbi was thereby internationalized, no longer merely confined to Hong Kong outside the mainland’s borders. Clearly, the international demand for the renminbi presented the challenge of opening the capital account and achieving convertibility for a developing country even more acutely before China.

With the support of the Boyuan Foundation, Wu Xiaoling, a member of the Academic Committee of the 50 Forum, took the lead in organizing large-scale research activities on renminbi internationalization. One of the difficulties of the research was the question of the relationship between the international use of the renminbi and the opening of the capital account. In this regard, Hong Kong’s experience needed to be seriously explored and summarized, so as to elevate it from a passive, temporary, expedient arrangement into an active, long-term, stable strategy of internationalization. I undertook this research and produced the special research report “The Position and Role of Hong Kong in the Internationalization of the Renminbi.” The conclusion of the research was: on the basis of the financial authorities of both sides reaching a consensus and cooperating closely, a mechanism could be formed for the renminbi to flow back to China and operate in a closed manner under the condition that the capital account was non-convertible. The best arrangement was to designate an international bank that the Chinese financial authorities could manage to act as the clearing bank. This would not only not harm the objectives of China’s foreign exchange controls, but would on the contrary be conducive to the accumulation overseas of renminbi flowing out through the current account. Once the overseas financial authorities gave permission, the renminbi accumulated overseas could form an offshore renminbi financial market, and flow back to China through already-formed or newly created domestic-currency capital-account reflux channels—for example, renminbi raised in the offshore market entering in the form of direct investment. It is worth noting that this research supported by the Boyuan Foundation was not content merely with writing a research report, but aimed to form an operable policy system and implementation measures. The research team continuously communicated with the financial authorities of both Hong Kong and the mainland, and while providing intellectual support, also solicited the opinions of financial institutions in both places and provided advisory opinions, making the operation more meticulous. The most obvious result was jointly promoting the formation of the Hong Kong Monetary Authority’s Circular No. 2 of 2010. The circular determined that: first, the flow of renminbi into and out of Hong Kong was the right of the People’s Bank of China, and Hong Kong would not interfere; and on this basis, the renminbi would be treated the same as other freely convertible currencies and could be used for transactions in Hong Kong’s financial markets. At this point, the model of “clearing bank + Hong Kong offshore market” was formalized and standardized. Using Hong Kong as a blueprint, offshore renminbi markets in Taiwan, London, Frankfurt, Paris, Singapore, Bangkok, Seoul, and North America were successively opened, and the internationalization of the renminbi made its formal entry onto the global stage.

Since cross-border trade settlement in renminbi began on July 2, 2009, only nine years have passed. Over these nine years, the internationalization of the renminbi—though its urgency was within expectations—unfolded beyond expectations. Its speed was so rapid and its scale so enormous that those of us who participated in its design in those days had never anticipated it. On July 2, 2009, the pilot for cross-border renminbi settlement of goods trade began with only 365 enterprises in the five cities of Shanghai, Shenzhen, Guangzhou, Zhuhai, and Dongguan. By 2010 it had expanded to twenty provinces, and by 2011 all enterprises in all provinces nationwide could use the renminbi for trade settlement—not only for goods trade but also for services trade. More importantly, it could be used for cross-border direct investment. At present, the renminbi has become the world’s seventh-largest international payment currency and second-largest trade financing currency; its scope of use extends across the globe, and it has thereby entered the SDR to become one of the reserve currencies of various countries.

More importantly, the internationalization of the renminbi created fresh experience for resolving the contradiction between the opening of the capital account and convertibility for developing economies. Due to the needs of my work, over the past nine years, I have visited the central banks and major financial institutions of almost all of Eurasia and half of the Americas to explain renminbi internationalization. To put it accurately, this was not merely proactive promotion, but more often exchanging views and discussions with foreign counterparts at their invitation, from which I deeply appreciated the uniqueness of this fresh experience—which at the same time strictly conformed to the general logic of economics.

The traditional view holds that if the capital account is opened, it necessarily means the convertibility of the domestic currency with foreign currencies, and once convertibility exists, the inflows and outflows of international capital—especially short-term capital—will disturb macroeconomic stability. The Asian financial crisis of twenty years ago and today’s financial turmoil in Argentina and Turkey are the examples commonly cited by the traditional view. The necessity of opening the capital account and the risks of opening it present a difficult choice. But the successful practice of renminbi internationalization shows that the domestic-currency side of the capital account can be opened first, and then the convertibility of domestic and foreign currencies on the capital account can be achieved—that is, first realize the flow of renminbi through the capital account, and then create the conditions to realize the convertibility of domestic and foreign currencies. This step-by-step approach helps reduce difficulty, ease contradictions, and gradually approach the goal.

Theoretically speaking, the core of this fresh experience is that it created a non-corner solution to Mundell’s impossible trinity. Traditional theory holds that among the three—monetary policy independence, a fixed exchange rate, and free capital flow—only two can hold at a time, that is, the corner solution of 1+1+0=2. But the experience of renminbi internationalization shows that, under the condition of satisfying an aggregate solution of 2, non-corner solutions such as 1+1/2+1/2 and 2/3+2/3+2/3 can also hold. In other words, relax monetary policy independence a little, let the exchange rate float in a managed way a little, and open the capital account a little—all can satisfy the basic condition of an aggregate solution of 2. The emergence of non-corner solutions means that the corner solution of Mundell’s impossible trinity is not the only solution; it has multiple solutions, thereby opening up in practice multiple paths and related arrangements for opening the capital account. This both enriches, in theory, the connotation of Mundell’s impossible trinity, while at the same time, through its diversity, tenaciously proving the theoretical soundness of the Mundell trinity, thereby foreshadowing the direction of convergence for opening the capital account and its related arrangements.

The practice of renminbi internationalization enriches economic theory and also propels the deepening of China’s financial reform and opening-up. With the development of renminbi internationalization, the marketization of exchange rates, and further the marketization of interest rates, has become a new key area and important link of reform, and behind this in turn is the opening of the financial markets and the financial services industry. This in turn demands the reform and innovation of the financial regulatory system. With such a ratchet effect—interlocking, rolling forward—Chinese finance presents a pattern of a great power with great finance. The development of Chinese finance has entered a new stage, and it finally needs to face the problems of the world.

In the process of renminbi internationalization, the 50 Forum also made major contributions. Not only did it, during the international financial crisis of 2008, repeatedly organize discussions on related issues and form a series of ideas and results, but more importantly, many of its members personally participated in advancing this process. They were Zhou Xiaochuan, Wu Xiaoling, Yi Gang, Li Yang, Yu Yongding, Li Bo, Guan Tao, Huang Yiping, and others. I thank them and the teams they led—especially the central bank team—who, when the tsunami of the international financial crisis struck, not only faced the danger without fear but on the contrary seized it as an opportunity, opening up a new chapter in the internationalization of the renminbi at the opportune moment.

A Mission That “Did Not Make Sense”

In early 1971, Jiang Zemin was a forty-four-year-old engineer who had recently left the Wuhan Institute of Thermal Machinery and joined the First Ministry of Machine Building as deputy director of its Foreign Affairs Office. He had worked in the automobile and electrical industries, studied factory production in the Soviet Union, and traveled with technical delegations to France and Japan. This combination of engineering and foreign experience made him a natural candidate when the ministry needed a leader for an industrial survey mission to Romania.

The assignment was unusual. Besides Albania, China had never provided a systematic aid program to a Warsaw Pact country (Albania quit the Warsaw Pact in 1968). However, in 1971, China had agreed to help Romania build facilities for automobile molds, bare copper wire, hydraulic and pneumatic components, electrical equipment, and measuring instruments. To launch the investigation and aid program, the Ministry gathered fifty-one specialists from factories and design institutes across China. Thus, Jiang was selected as the leader of this specialist group. Before departure, Jiang required each group to investigate comparable plants at home, collect technical materials, and prepare a preliminary design.

Jiang arrived in Bucharest on July 28, 1971, with the six members of the automobile-mold group. Other teams followed in August and September. For most of the specialists, this was their first trip abroad. What they saw immediately put the purpose of the mission into question.

During the early 1970s, China’s economy was stagnating. Food and consumer goods remained scarce. However, in the eyes of Jiang’s team, Romania appeared much wealthier. The visitors saw new apartment buildings; many Romanians had private automobiles, televisions, and refrigerators. Its factories were also more modern than they had expected. Many operated machinery imported from West Germany, Italy, Britain, and the United States.

Some team members began to describe the mission as “the poor helping the rich” and “the technologically backward helping the advanced.” Their concern came directly from the factories and streets around them. If Romania already possessed Western machinery that China could not manufacture, what exactly was a Chinese aid team doing there?

Jiang understood that the team could hardly continue its work until this question had a convincing answer. After doing observation and analysis, he told team members that China was passing through an extraordinary diplomatic period. He said, “After years of isolation, the country needed an opening in Europe. Romania occupied a valuable position inside the Warsaw Pact: it resisted Soviet control, maintained relations with Western countries, and had begun to build an economy less dependent on Moscow. Cooperation with Romania could therefore serve a purpose far beyond the factories under negotiation.”

For a mid-level official in the machine-building bureaucracy, Jiang’s reasoning was remarkable because it rested on observation rather than privileged information. He had no access to the secret exchanges taking place among senior Chinese, Romanian, and American leaders. He could only work from the contradiction before him: China was sending industrial assistance to a country that appeared more prosperous and technologically advanced. Rather than conclude that the mission was misguided, Jiang treated this contradiction as a clue. If the assignment made little sense as conventional foreign aid, Beijing must have valued cooperation with Romania for a broader strategic purpose.

Events at the diplomatic level confirmed his inference. China was seeking a way out of its international isolation, while Romania was quietly helping Beijing and Washington explore the possibility of improved relations. Jiang had therefore discerned a larger diplomatic shift from the limited evidence available to him. More importantly, he turned that insight into an effective response to the team’s doubts. By explaining how their assignment could contribute to China’s wider opening, he gave the specialists a reason to view Romania’s relative prosperity as an opportunity rather than a reason to question the mission. Complaints about “the poor helping the rich” subsided, allowing the team to concentrate on its work. The episode demonstrated not only Jiang’s ability to recognize the broader significance of an unfamiliar assignment, but also his capacity to restore confidence and unite a team around a shared purpose.

Challenge the Existing Aid Model

The next problem arose from Romania’s understanding of aid. Since Chinese construction aid was usually sent to countries that had little industrial capacity, Chinese teams were accustomed to designing and equipping a complete factory or production line. Romania instead asked China to provide only the workshop, production line, or individual machine that suited a particular project. It would combine that contribution with its own factories, products, drawings, and industrial equipment. Chinese participants called this “ordering from the menu” (点菜). The ministry history describes it as a new form of Chinese aid, and it was the first time the delegation had to turn such a selective request into a workable plan.

The electrical measuring-instrument project at Timișoara offers a clear example. Romania planned a new plant that would combine precision meters, multimeters, and switchboard frequency meters in the Chinese-supported part with older Romanian products transferred from a Bucharest factory. Some equipment would be made in Romania, some had already been imported by Romania, and some would come through Chinese aid. The Chinese contribution was therefore one part of a production system Romania was assembling for itself.

This arrangement differed sharply from the complete factory the Chinese team had expected to design. Romania changed the product list and output targets, and several items were to be made from Romanian drawings, including products Chinese factories had not previously manufactured. The team had to determine whether Chinese processes and equipment could produce each item and what machinery, tooling, and technical responsibility China could safely undertake. It could no longer begin with a Chinese factory design and reproduce it abroad.

Jiang asked the team to evaluate each request according to China’s actual industrial capacity. He reported the departures from the original agreement to the Ministry and the Ministry of Foreign Economic Relations and sought instructions. The direction he then conveyed did not force Romania back to a complete Chinese package. Where Romania supplied drawings, the team would first examine whether Chinese processes and equipment could make the product. If they could, China could undertake the process design and provide the equipment and tooling within its capacity. If they could not, the product would not enter China’s commitment.

The flexibility that Jiang proposed seems normal nowadays. However, it took some courage in the 1970s. The great influence of the ultra-left ideology and the “Gang of Four” hindered any change in work procedure. Jiang’s new proposal, which indicated that Chinese design and implementation of aid programs needed to compromise with Western technology, was a great violation of ultra-left ideology. The idea initially met with considerable skepticism. Jiang nevertheless persuaded Fang Yi, the minister responsible for China’s foreign economic relations, to approve this new approach. Fang later recalled that Jiang had faced considerable difficulty in convincing him because China had long followed a fixed procedure in foreign-aid construction. Jiang succeeded because his proposal rested on thorough investigation and a clear sense of responsibility. Jiang’s innovative idea demonstrated that he was willing to challenge current practices according to new situations.

Learning Western Technology Through Romania

Jiang did not limit his scope to finishing the aid program. Rather, he treated Romania as a unique example to learn about technology importation, which was a taboo during Mao’s era. Romania was a socialist economy with extensive access to Western machinery in the 1970s. Romanian factories often combined locally made equipment with machines imported from several capitalist countries. Chinese engineers could see the imported technology operating inside complete production lines, compare it with equipment used in China, and discuss its strengths with Romanian specialists. Direct access of this kind remained rare in the early 1970s.

Jiang asked his team to approach Romanian engineers with humility and to treat the projects as mutually beneficial technical cooperation. The attitude produced practical results. Romanian specialists allowed Chinese visitors to inspect machinery closely, brought out equipment drawings for them to examine, and provided samples and technical formulas. In the bare copper wire project, these materials helped Chinese factories think about a new series of wire-drawing machines rather than merely copying an entire foreign production line.

The most important follow-up came from a West German high-speed rolling mill at a Romanian wire factory. It operated at forty-five meters per second. China’s only comparable mill, imported from Hungary in the 1950s, reached fifteen to twenty-one meters per second and frequently caused production accidents. Jiang proposed adding the Romanian equipment to the two countries’ scientific and technical cooperation program. In July 1972, a Chinese group returned to study its production process. Jiang also encouraged the group to remain in Bucharest for an international mining-machinery exhibition so that it could examine other recent technologies. After the group returned, the Ministry of Metallurgy and the First Ministry of Machine Building began considering a domestically designed high-speed mill with an annual capacity of about 300,000 tons.

For Jiang, Romania’s technology-import model offered a practical reference. Unlike other Chinese people who considered foreign technology an ideological threat, foreign machinery provided a benchmark and a source of technical knowledge in Jiang’s mind. Organized study could then lead to domestic design and production. Importing technology strengthened self-reliance when Chinese industry treated the equipment as material to be understood and absorbed. The Romanian mission allowed Jiang to apply this idea several years before China began importing Western technology on a much larger scale.

A Window Before China Opened

Jiang’s experience in Romania is worth mentioning, because it showed an approach to leadership that would become increasingly important as China moved towards opening to the world. Faced with an assignment that appeared inconsistent with China’s circumstances, he did not simply defend existing policy or follow established procedures. He examined the situation, identified the larger diplomatic change behind the mission, and adjusted China’s aid practices to conditions that policymakers in Beijing had not anticipated. At the same time, he recognized that engagement with a more technologically advanced country could serve China’s own development. These judgments shared a common premise: established policy should be tested against reality, and foreign relations should ultimately expand China’s capacity to develop itself. These were precisely the abilities required of a leader guiding China through deeper reform and greater engagement with the international economy: reading changes beyond China’s borders, overcoming resistance within the bureaucracy, and turning foreign contact into domestic development.