What this covers
Alice Han and James King, hosts of China Decode, examine China's pursuit of import substitution—near-total self-sufficiency across manufacturing, technology, and industrial goods—and trace its consequences for global trade and Asian security. The discussion centers on how China's exports have surged 40 percent since 2019 while imports remain essentially flat, producing a trade surplus larger than the combined surpluses of the next eight countries and exceeding the historic peaks of Japan and Germany as a share of GDP. The hosts unpack the mechanics of this shift: economies of scale, competing local governments, and a flexible labor force that allow China to undercut traditional manufacturing rivals. They examine concrete examples—Volkswagen moving EV production and R&D into China at half the offshore cost, Chinese firms like CATL now building plants in Europe—and argue that foreign multinationals increasingly experience China not as a profitable market but as a hyper-competitive proving ground where survival requires radical price cuts and product redesign.
The episode splits into three distinct movements. First, the economic rebalancing: Beijing is experimenting with school-holiday stimulus to boost tourism spending, but the hosts assess this as unlikely to durably shift consumption patterns without structural reforms to household balance sheets, pensions, and social security. Second, the geopolitical turn: a tense week in Asia saw Japanese Prime Minister Sanae Takaichi warn that a Chinese attack on Taiwan could trigger Tokyo's military response, while Taiwan announced a $40 billion defense buildup. The hosts read these moves alongside Xi Jinping's confrontational pressure on the US, interpreting them as evidence that American support for Taiwan may be ebbing. Third, the forecast: China's trade surplus could exceed $1 trillion by year's end, and despite talk of rebalancing, the hosts predict a return to manufacturing and infrastructure-led growth, with fiscal deficits possibly rising above 4 percent in early 2026 to hit a five-percent growth target.
China's shift toward near-total self-sufficiency in strategic goods and manufacturing, combined with a massive trade surplus that exceeds all other major economies combined, is fundamentally rewiring global trade patterns and hollowing out industrial capacity in Europe, Japan, and other traditional manufacturing powers in ways unprecedented in peacetime history.
- China's trade surplus is larger than the next eight countries combined and will reach $1.2-1.5 trillion in 2024-2026, driven by 40% export growth while imports remain flat
- European and Japanese companies are relocating R&D and manufacturing to China (e.g., Volkswagen making EVs in China at half European costs), creating a mirror-image tech transfer where China gains strategic capabilities
- China's manufacturing surplus as a share of GDP now exceeds Japan's and Germany's historic peaks, with export capacity in autos, chips, and other high-value sectors expanding faster than historical precedents
This asset isn't compiled yet
You're seeing its claims, ranked. Compile it to build the argument threads, weight them, and check each claim against your library — the full view.
Subsidizing tourism services is unlikely to meaningfully lift China's consumption share of GDP (still ~40% vs Japan's 60% and the US's 70%) because the structural problem is household balance sheets; a durable rebalancing requires stronger social security, more reliable pensions, and demographic solutions rather than more school holidays.
“household share of GDP, consumption share of GDP that is it's still around 40%, Japan's at 60%, the US is 70%... it's hard for me to see uh beyond subsidizing these services how we're going to see an uptick in the consumption share of GDP. That probably will require more structural solutions”
The Chinese school year is about 245 days—one of the longest in the world—compared to roughly 180 days in the US and 190 in the UK, meaning Chinese schools have on average 55-60 more days plus extra outside tuition, which historically left little room for tourism during off-seasons.
“the length of a Chinese school year is 245 days. This is the one of the longest academic school years in the world. Uh, just for reference, the US is about 180 days and I think the UK is around 190 days.”
A traditional macroeconomist would expect import substitution and autarky to be bad for China (inefficient investment, higher prices, overcapacity, lack of innovation), but in China the opposite has partly occurred: hyper-competition has driven prices down even while overcapacity exists, because of China's unique scale and competitive structure.
“a traditional macroeconomist would say this is bad for China. It creates inefficient investment. It leads to uh higher prices... Now that I don't think is universally true in China. I think the opposite is true in a way where we've seen hyper competition driving down prices.”
China's trade surplus is bigger than the trade surpluses of the next eight countries combined, and is by far the largest trade surplus seen by any country in peacetime history.
“China's trade surplus is bigger than the trade surpluses of the next eight countries combined. So that just gives a sense of how of how enormous this is.”
Germany and Japan export the majority (roughly 80-90%) of the cars they make, whereas China domestically consumes most of its cars—but this is changing, with China's car exports surging past 6 million (a tenth of the global auto market outside China) and projected to reach 8 million by 2026 driven by overcapacity needing to move out.
“Germany and Japan export the majority of their cars. I think somewhere like 80 to 90% of the cars they make, they export. China, it's the flip side is true. They actually uh domestically consume most of the cars they make.”
Made in China 2025, launched a decade ago, identified ten areas (electric vehicles, robotics, biotech, etc.) for boosting self-sufficiency, and China has been spectacularly successful in all ten.
“the so-called made in China 2025 plan which started 10 years ago and identified 10 areas in which China wanted to boost self-sufficiency, things like electric vehicles, robotics, biotech, etc. And in all of those 10 areas, uh, China's been spectacularly successful.”
China is pursuing a strategy of import substitution—deliberately reducing dependence on foreign imports by developing domestic substitutes for strategic goods—across most economic sectors, as exemplified by the 'Made in China 2025' initiative which has been spectacularly successful in all 10 target areas including electric vehicles, robotics, and biotech
“China wants to institute import substitution pretty much wherever it can um everybody is already familiar I think with the so-called made in China 2025 plan which started 10 years ago and identified 10 areas in which China wanted to boost self-sufficiency, things like electric vehicles, robotics, biotech, etc. And in all of those 10 areas, uh, China's been spectacularly successful.”
Chinese companies like CATL (the Chinese battery giant) are setting up plants in Europe (Spain), creating a mirror image of the historical pattern where Western companies did tech transfers and joint ventures in China
“you're hearing China building more plants in Europe. I think that is going to be the modality moving forward whereas in the '90s 2000s a lot of you know plants Volkswagen BMW were you know doing tech transfers quote unquote in in China or setting up JVS. Now we're seeing the flip side which is you know CL the Chinese battery giant setting up lots of plants in in Spain.”
Chinese exports have cumulatively grown 40% in volume terms since end of 2019 while Chinese imports have grown only 1%, representing a dramatic divergence that shows China is not buying from the rest of the world
“Chinese exports cumulatively are up 40% uh since end of 2019 in volume terms. Their imports are only up 1%. So basically flat and again the flip side of this trade export machine is that China is just not buying from the rest of the world.”
Volkswagen has announced it can make an electric vehicle entirely in China for half the cost of making it elsewhere and is developing 30 electric vehicle models in China over the next 5 years using localized R&D, representing a reversal of the historic pattern where R&D and innovation stayed in Germany while manufacturing moved offshore
“Volkswagen um obviously one of Germany's biggest car makers has just said that it can make an electric vehicle entirely in China for half the cost of doing it elsewhere. Now, you've got to consider that Volkswagen employs hundreds of thousands of people back in Germany. And now it's saying it can make a car, an electric vehicle, at half the cost of uh making it uh back in Germany. And this is the first time that it's developing cars outside Germany. And it's also announced that it's going to release about 30 electric vehicle models in China over the next 5 years as it bets on localized research and development.”
Global multinationals now view China not as a cash cow market to extract profits from but as a hypercompetitive test lab where they must slash prices and redesign products just to survive
“global multinationals now say China isn't a cash cow anymore. It's hypercompetitive test lab where foreign brands must slash prices and redesign products just to survive.”
China's trade surplus is bigger than the trade surpluses of the next eight countries combined, making it the largest trade surplus in peacetime history
“China's trade surplus is bigger than the trade surpluses of the next eight countries combined. So that just gives a sense of how of how enormous this is. I was also going back and looking into history to see if this is the biggest trade surplus we've ever seen by any country in history. And this is certainly by far the largest trade surplus that we've seen in peace time.”
China is shifting toward a model where it barely imports anything strategic; beyond raw materials, commodities, and a few consumer goods, it does not want to buy from the world, which means its economy no longer lifts other countries as it once did—it increasingly replaces them.
“China's economy no longer lifts other countries as it once did. It increasingly replaces them.”
China's manufacturing surplus as a share of GDP now exceeds 2% and is higher than Japan's and Germany's were at their historic peaks, with faster growth and larger scale than either ever achieved—using economies of scale, a federated system of competing local governments, and a large flexible labor force to out-compete traditional manufacturing giants.
“China's manufacturing surplus as a share of GDP is now exceeding 2%. uh it is basically higher now than Japan's and Germany's were at their historic peaks.”
Per IMF global goods trade volume data, Chinese exports are cumulatively up 40% since end-2019 in volume terms while imports are up only 1% (essentially flat), demonstrating that China's export machine is not matched by buying from the rest of the world.
“Chinese exports cumulatively are up 40% uh since end of 2019 in volume terms. Their imports are only up 1%. So basically flat”
China is using school-holiday policy as an unconventional economic stimulus to revive its slowing services economy, with early results showing strong travel increases (Foshan travel up over 50%, flights from cities like Urumqi up 45-50%, warm-weather destinations more than doubling year-on-year).
“China is testing a very different kind of economic stimulus program, school holidays. More than two dozen cities have rolled out new autumn breaks to nudge families into traveling. And early numbers show it's working.”
Japanese PM Sanae Takaichi's statement that a Chinese attack on Taiwan could trigger a military response from Tokyo has plunged Japan-China relations into their worst crisis in a decade, prompting strong blowback in Beijing.
“comments recently by the Japanese Prime Minister Sai Takayichi who said that a Chinese attack on Taiwan could trigger a military response from Tokyo... this statement by Takayichi uh the Japanese prime minister has plunged relations between Japan and China into their worst crisis in a decade.”
The Europe-China manufacturing relationship has reversed into a mirror image: where in the 1990s-2000s Western firms like Volkswagen and BMW did tech transfers and joint ventures inside China, now Chinese firms like CATL are building plants in Europe (e.g. Spain).
“in the '90s 2000s a lot of you know plants Volkswagen BMW were you know doing tech transfers quote unquote in in China or setting up JVS. Now we're seeing the flip side which is you know CL the Chinese battery giant setting up lots of plants in in Spain.”
Taiwan plans to raise defense spending to 3.3% of GDP by next year and 5% by 2030, but money isn't everything: China holds overwhelming conventional superiority even excluding the US—four times more personnel, ~200 more tanks, more than double the artillery, 10x the submarines, and double the military aircraft.
“It planned recently to increase its defense spending to 3.3% of GDP by next year and is committed to 5% of GDP by 2030. But as we know, James, money isn't everything.”
China is expanding its use of AI-driven censorship and surveillance, deploying new tools across its justice system and outsourcing enforcement to private tech companies
“China expands its use of AIdriven censorship and surveillance, deploying new tools across its justice system, and outsourcing enforcement to private tech companies.”
China's export of cars has surged to well over 6 million cars, representing a tenth of the global auto market outside of China, with projections that this could reach 8 million cars by 2026, driven by overcapacity and the need to move exports outside China
“China's exports of cars has surged to well over 6 million cars. That's a tenth of the global auto market outside of China. And by 2026, there's a projection that this could be 8 million car exports. Uh given what we're seeing in the economy, the over capacity, the need to move out, it's inevitable that this number increases.”
Xi Jinping scolded President Trump over the phone for Japan's tough talk on Taiwan, and Trump quietly urged Tokyo to cool its rhetoric, indicating that US support for regional allies is being downgraded in favor of preserving trade negotiations with China
“Last week, Xi Jinping scolded President Trump over the phone for Japan's tough talk on Taiwan. Trump, eager to preserve a fragile trade day, quietly urged Tokyo to cool its rhetoric.”
European countries, especially Germany, are concerned that China is eating their lunch and increasingly replacing them in key supply chain areas from chemicals to cars
“more and more European countries have voiced conststonation concern. I'm thinking especially about Germany in this case that China is eating its lunch and increasingly replacing it in key supply chain areas from chemicals to cars.”
US implicit support for Taiwan appears to be ebbing, with both hosts reading Xi's confrontational pressure on Japan and Trump as evidence the US pledge of support is taking a step back—an inference reinforced by the administration's near-term priority to reduce trade tensions.
“I think that in some way behind the scenes the US implicit support for Taiwan is taking a couple of steps back.”
There is essentially nothing China wants to import that it does not believe it can make better and cheaper itself, capturing a mood that China seeks to institute import substitution wherever it can—though the claim is not literal, since China imported $2.6 trillion of goods last year.
“there is nothing that China wants to import, nothing that it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigners a single day longer than it has to”
The Taiwanese public, especially the younger generation, is far less willing to go to war or use war to resolve tensions with China than Ukrainians were, who showed greater civilian and military battle readiness—raising doubt about Taiwan's defensive resolve.
“the Taiwanese public especially the young generation were far less willing to go to war uh or use war as a means uh to solve any tensions with China. Unlike the Ukrainians where I think there was a lot more civilian and military battle readiness and appetite for conflict.”
In the phone call, Xi Jinping chose to focus on Taiwan, invoking the postwar international order and the WWII victory over fascism/militarism, in order to pressure Trump not to become emboldened about Taiwan and to reassure that the US and China will not drift further apart on the issue.
“Cinping clearly decided to focus on Taiwan... He said that it would be an integral part of the postwar international order uh that the US and China would together fight fascism and militarism.”
Volkswagen has stated it can make an electric vehicle entirely in China for half the cost of doing it elsewhere, and plans to release about 30 EV models in China over five years betting on localized R&D—representing a broader 'innovate in China for China' model in which European companies move their smartest work to China and hollow out their home economies.
“Volkswagen... has just said that it can make an electric vehicle entirely in China for half the cost of doing it elsewhere.”
If Trump downgrades the US relationship with Japan in favor of China ahead of the April summit, it would be a tectonic shift in the Asian security arrangements that have held since World War II.
“if uh Trump really does downgrade the US relationship with Japan in favor of China in the run-up to to this uh summit... That will be a huge shift that will be a a shift in the tectonic plates that have really kept Asian security together since the second world war.”
China's holiday entitlements (13 official public holidays plus seniority-based leave totaling up to 28 paid days for long-tenured workers, often more at private/foreign firms) are more generous than in the US or UK, supporting the case that China can boost tourism spending by ramping up holidays and offering culturally immersive, adventurous experiences cheaply.
“there are 13 official uh public holidays... if you've worked in China for 20 years, you you would get um the 13 days national holiday and then you would get an allocation... in total, that would be 28 paid days of holiday a year. That's not bad.”
This industrial relocation dynamic is quite different from any period in history since the Second World War and represents a fundamental challenge to the world trading system that may break the logic of global trade entirely
“I must say I I I I I think this is quite different from any period in history that I can think of since the Second World War. We're facing really big headwinds and and I just sort of returned to uh uh Robin Harding's question, you know, is this simply going to break the world of trade? I don't think there's an answer to the question yet, but I I do think the question is justified, and that's a a big statement in itself.”
A Trump administration move to downgrade the US relationship with Japan in favor of China would be a huge shift representing a change in the tectonic plates that have kept Asian security together since WWII
“That must say if uh Trump really does downgrade the US relationship with Japan in favor of China in the run-up to to this uh summit with uh between Trump and Cining in April. That will be a huge shift that will be a a shift in the tectonic plates that have really kept Asian security together since the second world war.”
China is testing school holidays as an economic stimulus to boost consumption in the services sector, with more than two dozen cities rolling out new autumn breaks that have driven travel increases of more than 50%
“China is testing a very different kind of economic stimulus program, school holidays. More than two dozen cities have rolled out new autumn breaks to nudge families into traveling. And early numbers show it's working. Foran saw travel jump more than 50%.”
Traditional macroeconomic theory suggests that import substitution creates inefficient investment, higher prices, overcapacity, and lack of innovation, but this may not be universally true in China where hyper competition is driving down prices and the scale of the country and federated system of competing local governments may make China unique
“Now a traditional macroeconomist would say this is bad for China. It creates inefficient investment. It leads to uh higher prices. Uh it leads to overcapacity and lack of innovation. Now that I don't think is universally true in China. I think the opposite is true in a way where we've seen hyper competition driving down prices. Certainly we do have the over capacity element but I think what makes China so so regenerous or unique is just the scale of the country. Uh if you think about the federated system of many competing local governments huge labor force a flexible labor force I think that makes China slightly different when when you look at it from a macroeconomic theory lens.”
The US Taiwan Relations Act commits the US to maintaining Taiwan's capacity to resist force that would jeopardize its security, though it does not explicitly pledge direct military intervention in the event of a Chinese attack on Taiwan.
“The US uh has the Taiwan Relations Act, which doesn't explicitly pledge direct US military support for Taiwan or intervention in the event of an attack on Taiwan, but it does commit the US to maintaining the capacity for Taiwan to resist force that would jeopardize Taiwan's security.”
China's factory activity has been in contraction mode for eight consecutive months and services are softening as holiday spending fades, yet the trade surplus continues to grow, indicating that trade surplus growth is driven by export expansion rather than demand from within China
“Factory activity coming out of China is still in contraction mode for an eighth consecutive month. Services are softening as holiday spending fades. And global multinationals now say China isn't a cash cow anymore. It's hypercompetitive test lab where foreign brands must slash prices and redesign products just to survive.”
China's trade surplus will reach approximately 1.2 trillion US dollars in 2024, up from $600 billion in the first half of the year, and is projected to rise to close to $1.5 trillion in 2026
“By the end of the year, we could see China's trade surplus uh reach a record level surpassing 1 trillion for sure, maybe even 1.2 trillion. We're already close to $600 billion in trade surplus in the first half of the year.”
Taiwan has unveiled a massive new $40 billion defense package to harden itself against a potential Chinese attack
“Taiwan, caught in the middle, unveiled a massive new $40 billion defense package to harden itself against a potential Chinese attack.”
Japanese Prime Minister Takayichi has pro-Taiwan members in her party and parliament and met with Taiwanese President William Lai before her election, giving her political incentive to remain strong on Taiwan despite potential US pressure
“And right now, uh, we have an administration in Japan that is looking more like ABS was a decade ago. And I think that there again will probably be more volatility in the Japan China relationship because it's hard for me to see Taki seriously walk back some of her statements without uh really undermining her position. It was interesting to me that she met with Taiwanese President William Lai back in April before she was elected and she's got a lot of pro- Taiwanese members in her parliament as well in her party in the LDP.”
Trump is planning to go to Beijing in April and will have the red carpet rolled out, making Taiwan a chief topic of discussion
“Uh and certainly after this call as we should have mentioned at the top they it seems that Trump is going to go to Beijing in April. Uh he's going to have the red carpet rolled out for him in in China and we'll have to see what comes up in the discussions. I'm sure Taiwan will be chief among them.”
Hong Kong apartment complex fire that killed at least 151 people triggered anger over safety failures, but Beijing immediately moved to stifle criticism by warning residents not to protest and arresting people who called for an independent inquiry
“Hong Kong is reeling from a devastating apartment complex fire that's killed at least 151 people. The tragedy has triggered anger over safety failures, but Beijing immediately moved to stifle criticism, warning residents not to protest, and arresting people who called for an independent inquiry.”
Foreign multinationals now experience China not as a profitable market but as a hyper-competitive test lab where foreign brands must slash prices and redesign products just to survive.
“global multinationals now say China isn't a cash cow anymore. It's hyperco competitive test lab where foreign brands must slash prices and redesign products just to survive.”
Japanese Prime Minister Takayashi's statement that a Chinese attack on Taiwan could trigger a military response from Tokyo represents a major escalation and has plunged Japan-China relations into their worst crisis in a decade
“he was referring to comments recently by the Japanese Prime Minister Sai Takayichi who said that a Chinese attack on Taiwan could trigger a military response from Tokyo. And to me that sounds like the impetus behind Cining either agreeing to this call or or asking Trump to talk about this topic because this issue this statement by Takayichi uh the Japanese prime minister has plunged relations between Japan and China into their worst crisis in a decade.”
Taiwan's increased military defense spending is 'too little too late' given China's overwhelming military superiority, and Taiwan cannot compensate for this imbalance even with regional support from Japan, South Korea, and the US
“Taiwan can, I think, rely somewhat on some of these regional players like Japan, South Korea, and obviously the US. Uh but certainly I think that to my mind these the Taiwanese uh increased support of the military is a little too little too late.”
China's school year is 245 days long, one of the longest in the world—55 to 60 more days than the US (180 days) and UK (around 190 days), meaning Chinese students have less vacation time than Western peers
“the length of a Chinese school year is 245 days. This is the one of the longest academic school years in the world. Uh, just for reference, the US is about 180 days and I think the UK is around 190 days. these schools in China have on average about 55 to 60 more days uh than those in the west”
China's household consumption share of GDP is still around 40%, while Japan is at 60% and the US is at 70%, meaning China still has significant structural distance to travel to reach developed country consumption levels
“You know, household share of GDP, consumption share of GDP that is it's still around 40%, Japan's at 60%, the US is 70%, China is still has a lot of way to go to get to the Japan US level for sure.”
Despite the current anti-involution and rebalancing drive, China will return to leaning heavily on manufacturing and infrastructure investment: expect a ramp-up in Q1-Q2 2026 and possibly a fiscal deficit target raised slightly above 4% at the March National People's Congress, in order to hit a ~5% growth target for 2026.
“by call it March of next year we'll start to see more fiscal support for the economy and a return to manufacturing investment growth. I think this anti-involution drive and rebalancing drive will be somewhat temporary”
By the end of the year China's trade surplus could surpass $1 trillion, possibly $1.2 trillion, with roughly $600 billion already in the first half of the year.
“By the end of the year, we could see China's trade surplus uh reach a record level surpassing 1 trillion for sure, maybe even 1.2 trillion. We're already close to $600 billion in trade surplus in the first half of the year.”
A 'tourism substitution' effect is occurring whereby Chinese consumers increasingly choose to travel domestically (e.g., Xinjiang, Yunnan) rather than overseas, enabled by new local tourism infrastructure and a social media environment highly conducive to discovering and cheaply reaching these destinations.
“we're seeing a tourism substitution effect happen whereby everyday Chinese are deciding to stay in China and do tourism locally as as opposed to going overseas”
Chinese families are engaging in tourism substitution, choosing to do domestic travel in China rather than travel overseas like to Paris or America, instead going to Xinjiang, Yunnan, and other local tourism hubs that have been developed with infrastructure and enabled by social media content
“we're seeing a tourism substitution effect happen whereby everyday Chinese are deciding to stay in China and do tourism locally as as opposed to going overseas and seeing Paris or seeing America, they're choosing to go to Shing Jang, they're choosing to go to Yunan, places where there in the last few years there's been a lot of infrastructure to develop those local tourism hubs and ecosystems and now there's a social media environment that is highly conducive to people seeing that content and then easily as you say and cheaply going there.”
The region's security tensions aren't just about armies and alliances but are increasingly about information control and political stability at home
“It's another reminder that the region's security tensions aren't just about armies and alliances. They're increasingly about information control and political stability at home.”
China's attempt to boost consumption through school holidays will not meaningfully increase the consumption share of GDP without more structural solutions like increasing social security safety net payments, more reliable pension schemes, and addressing demographic challenges around fertility
“My my conststonation skepticism is really about whether or not this can meaningfully boost consumption. A lot of the sort of fears that I have is that structurally while we do have a push to subsidize uh and offer more services, we're not necessarily empowering the bank accounts of households. You know, household share of GDP, consumption share of GDP that is it's still around 40%, Japan's at 60%, the US is 70%, China is still has a lot of way to go to get to the Japan US level for sure. But it's hard for me to see uh beyond subsidizing these services how we're going to see an uptick in the consumption share of GDP. That probably will require more structural solutions, you know, try increasing the social security safety net payments for people, pension schemes that are more reliable and stable. Uh and then beyond that, demographically, how are we going to get people to continue to have more children?”
China's trade surplus, around $1.2 trillion this year, will rise to close to $1.5 trillion in 2026 because the outside world will be unable to erect enough protectionist barriers or manufacture goods cheaply enough to displace Chinese exports—keeping 'imbalances' the dominant theme of China coverage.
“I'm going to predict that China's trade surplus, which this year will hit around 1.2 2 trillion US will next year in 2026 rise to close to $1.5 trillion US.”
Xi Jinping's rhetoric about jointly safeguarding the victory of World War II and fighting fascism and militarism is an attempt to invoke great power relations dynamics where both the US and China united against Japan during WWII, and he believes Trump, who values great power relations, will be receptive to this appeal
“He said that it would be an integral part of the postwar international order uh that the US and China would together fight fascism and militarism. And then he said, and this is a quote, given what is going on, it's even more important for us to jointly safeguard the victory of the Second World War.”
Polling data from Taiwan shows that the Taiwanese public, especially the young generation, are far less willing to go to war or use war as a means to solve tensions with China compared to Ukrainians who showed much greater civilian and military battle readiness
“I remember reading uh several years ago when Russia Ukraine broke out as a conflict. Uh a study that was looking at polling uh in Ukraine and Taiwan and what was clear was the Taiwanese public especially the young generation were far less willing to go to war uh or use war as a means uh to solve any tensions with China. Unlike the Ukrainians where I think there was a lot more civilian and military battle readiness and appetite for conflict.”
Chinese export growth will become a major political issue in other countries due to the outsized influence of labor unions and the impact on country-level economies
“I think is going to be a huge political issue and is a and in general historically a major political issue uh because of labor unions because of the outsized influence on the economies of different countries. This is going to get political very quickly I think in other countries.”
Despite crash in fixed asset investment, by March 2026 China will start to see more fiscal support for the economy and a return to manufacturing investment growth as the anti-involution drive is temporary and China targets around 5% growth
“Well I and not too dissimilar from yours, James, it's also in the land of macro. I would say that in spite of the crash that we're starting to see in fixed asset investment that by call it March of next year we'll start to see more fiscal support for the economy and a return to manufacturing investment growth. I think this anti-involution drive and rebalancing drive will be somewhat temporary and that ultimately if they are according to my previous prediction going to target around 5% growth for 2026 they're going to have to again lean heavily on manufacturing investment and to some extent infrastructure investment.”
Beijing is not interested in seriously lowering the heat on Taiwan and probably wants to send a message, as evidenced by continued tensions despite Japanese officials trying to improve relations
“And even although they've since the Japanese officials have tried to I think improve relations, uh right now it doesn't look like Beijing is interested in seriously lowering the heat. In fact, they probably want to send a message.”
Beijing moved to stifle criticism of the Hong Kong apartment fire that killed at least 151 people—warning residents not to protest and arresting those calling for an independent inquiry—while expanding AI-driven censorship and surveillance across its justice system and outsourcing enforcement to private tech companies.
“Beijing immediately moved to stifle criticism, warning residents not to protest, and arresting people who called for an independent inquiry. And all of this is happening as China expands its use of AIdriven censorship and surveillance”
China now has 748 ski resorts, up from one when James first visited, illustrating the rapid expansion of domestic tourism supply.
“China now has 748 ski resorts. I remember going to the first ski resort in China. Now it's got 748.”
The fiscal deficit target could be increased above 4% at the March National People's Congress when the government work report is announced
“We'll potentially even see at the March National People's Congress when they announced the government work report that the fiscal deficit target could be increased slightly above 4% which was the target for this year.”
James predicts that China's unbelievable runaway trade surplus will dominate media coverage in 2026 as the main story about China's rise and the imbalances it creates
“So I think next year uh will be another year in which the word imbalances dominates a lot of the media coverage with regard to China's rise and the particular imbalance that everybody will be talking about is the unbelievable runaway Chinese trade surplus.”
European countries, especially Germany, increasingly complain that China is 'eating their lunch' and replacing them in key supply chain areas from chemicals to cars.
“more and more European countries have voiced conststonation concern. I'm thinking especially about Germany in this case that China is eating its lunch and increasingly replacing it in key supply chain areas from chemicals to cars.”
China now has 748 ski resorts, expanding dramatically from having only one ski resort when James first visited China
“China now has 748 ski resorts. I remember going to the first ski resort in China. Now it's got 748.”
Chinese consumers increasingly prefer domestic travel because going overseas is more expensive, less safe, and they perceive discrimination abroad—making home travel the rational choice.
“my family and friends in China regularly say to me, "Why would I want to go overseas and travel when it's more expensive, less safe, people discriminate against us, why not do it at home um on your doorstep?"”
There are 13 official public holidays in China including New Year's Day, Spring Festival, Ching Ming, Labor Day, Dragon Boat, Mid-Autumn, and National Day, and people creatively elongate these into longer breaks by adding adjacent days
“after last year when public holidays were increased by two days a year, there are 13 official uh public holidays. There's New Year's Day, Spring Festival, Ching Ming, Labor, Dragon Boat, Mid-Autumn, National Day, etc. And um I think that quite a lot of people in China um use their holiday creatively and they sort of elomerate days on uh before and after the national holiday to get a a decent bit of time off.”
China's factory activity remains in contraction for an eighth consecutive month while services soften as holiday spending fades.
“Factory activity coming out of China is still in contraction mode for an eighth consecutive month. Services are softening as holiday spending fades.”
James's friendship group of middle-class Chinese friends take amazing holidays both domestically and abroad, and holiday experiences have become a major topic of conversation as in the UK, motivating people to take interesting, adventurous, or luxurious trips
“And I must say the other thing I've noticed among my Chinese friends is that they do go on amazing holidays, whether they're in China or or abroad. I mean, I'm I i suppose my friendship group would be, you know, kind of middle class Chinese, so they have the financial wherewithal to do that. But then I think it's become quite a topic of conversation. I mean, just as it is in the UK, if you've been somewhere uh kind of interesting or offbeat or or luxurious for holiday, you make sure to tell your co-workers”
Chinese travelers are adventurous when it comes to holidays, taking trips that involve experiences like staying in tents in the middle of the desert with stars at night or sub-zero temperatures on the Mongolian step
“and I'm not always talking about luxury. I'm talking about adventure, you know, staying in a tent in the middle of the desert with the stars at night or sub-zero temperatures on the Mongolian uh step or uh you know, all kinds of things. Chinese are are quite adventurous when it comes to holidays, I I always think.”
Chinese private and foreign companies in China often provide more holiday benefits than the minimum state requirement to incentivize people to join them, allowing workers to get more than 28 days of paid time off
“all of the statistics that China gives on the amount of holiday that you're entitled to, those are minimum and that's for state uh employees. So if you work for a private company or a foreign company in China uh that often try to incentivize people to join them by giving by allocating more holiday you can get quite a bit more than that.”
PopMart International, creator of the famous Labubu, closed down over 4% due to growing investor fears that the Labubu craze may be fading.
“PopMart International, creator of the famous Labu, closed down over 4% due to growing fears from investors that the Labu craze may be fading.”
Both the Shanghai A-share and Hong Kong H-share indices rose 0.7% on Monday, boosted by a tech rebound and growing confidence that the US will cut rates later this month.
“both their Shanghai Asshare index and Hangang's Hshare index rose 0.7% boosted by a tech rebound and growing confidence that the US will choose to cut rates later this month.”