Ju is a Changjiang Scholar, awarded by the Ministry of Education in China, and the President of the China International Trade Research Group (CTRG). He previously served as a Dean at Shanghai University of Finance and Economics (2014–2017), a resident scholar at the International Monetary Fund (2007–2009), and a tenured professor in the Department of Economics at the University of Oklahoma (1995–2014).

US-China Great Power Competition and The New World Order offers a reader-friendly yet systematic and professional analysis of nearly all key aspects of contemporary great power competition. It creates a theoretical framework for understanding great power rivalry and provides comprehensive, coherent solutions to the most pressing issues in the competition.

Following the outbreak of the U.S.-China trade war in 2018, the author introduced an undergraduate course titled The U.S.-China Trade Disputes and the Re-Architecture of Globalization at Tsinghua University. The course was awarded the National First-Class Undergraduate Course designation by the Chinese Ministry of Education in 2023.

The book draws from the author’s teaching materials, alongside decades of professional research, teaching, and personal experience. It therefore serves as an invaluable reference for anyone seeking to understand how Chinese society has responded to and navigated great power competition.

In this excerpt, Ju argues that technological catch-up cannot be left to market forces alone. His diagnosis is that without sufficient domestic demand, Chinese firms may lack the commercial incentives and revenues needed to keep moving toward the technological frontier.

His policy prescription is therefore to use government intervention to secure a domestic demand for Chinese homegrown technologies. In the smartphone market, for instance, he suggests requiring companies selling phones in China to ensure that at least 30% of their sales use domestically produced Chinese chips, backed where necessary by taxes and subsidies.

The excerpt follows.

Paving the Way for Technological Catch-Up

Let’s consider the process of upgrading semiconductor technology. This is illustrated in Fig. 10.3. Chip technology has evolved step by step from the 45 nm process to the 32 nm, 28 nm, and 14 nm and today’s 7 nm and 3 nm process. Leading American companies have achieved 3 nm chip technology, while Chinese companies have reached the 14 nm level. The United States is working very hard to block Chinese companies from acquiring technology more advanced than 14 nm.

Why can’t Chinese companies catch up to the advanced chip technology by upgrading step by step from the existing 14 nm process technology available domestically to 7 nm process and even 3 nm process technology? The reason is that upgrading from the 14 nm process to the 7 nm process does not simply require a technology breakthrough by Chinese companies, but also requires sufficient market demand to motivate these profit-making companies to develop more advanced chips. Even in the Chinese domestic market, there has been no demand for Chinese-made chips more advanced than 14 nm process. Why? Because demand for high-end chips in China has been met by imports embodying US technology. In this sense, US high-tech companies monopolize China’s domestic high-end chip market, creating an insurmountable hurdle for Chinese high-tech companies to develop their own high-end chips.

US containment of China’s technological progress is not simply a technological blockade, but rather a deliberate effort to create an environment that shunts Chinese and American companies into separate specializations. To be more specific, the intention is to have American companies specialize in more advanced technology and Chinese companies specialize in less advanced tech-nology so that the United States’ dominant position in the high-tech industry is maintained. Therefore, the United States is, in a sense, monopolizing the Chinese market for chips below 14 nm while vigorously blocking Chinese chipmakers from acquiring the technology to make their own high-end chips.

Let’s take smartphone chips as an example. Smartphones are usually built on top of a silicon chipset (chip) that serves as the “brain” of the device. The manufacturing process of a chip is typically specified in nanometers—generally speaking, the smaller the nm size, the smaller the internal components of the chip and the better it is for power efficiency and compactness.

The main smartphones sold in China are from Apple, Honor, Huawei, OPPO, Redmi, Samsung, VIVO, and Xiaomi. Advanced chip technology and production are controlled by companies in the United States and its allies, while lower-end smartphone components are made by Chinese companies. Apple uses the 3 nm Apple A17 chip, while Honor, OPPO, Redmi, Samsung, VIVO, and Xiaomi use the 7 nm Qualcomm Snapdragon chip, both of which are owned by US companies. Therefore, the smartphone market in China is still dominated by American technology. When Huawei dared to challenge US dominance in high-end chip technology, the US government banned the sales of equipment to Huawei and sought to persuade its allies to do the same.

If there is no demand for Chinese-made high-end chips in the smartphone market, how can China catch up in chip technology?

The key to catching up is to create market demand for Chinese-made chips through government intervention. Core technology, no matter how advanced, cannot be 100% dominated by foreign companies. Instead, Chinese government can take measures to ensure that a certain share of the domestic market (e.g., 30%) must be occupied by domestic technology. That essentially constitutes a technology security policy. With such a policy, if there is a foreign embargo, at least 30% of the market could still be served by domestic tech-nologies. Moreover, if about 30% of the domestic market share is served by domestic technology, it can also ensure that domestic technology can substi-tute world advanced technology to a certain extent, thereby preventing undue vulnerability to external pressures.

How should we design a technological catch-up path or technology security policy? Let’s take the mobile phone chip as an example.

First, identify smartphone chip as a national core technology.

Second, the national core technology opposes foreign monopolies. The downstream market demand for chips is mobile phones. Any company selling phones in the Chinese market, whether domestic or foreign, must ensure that at least 30% of the phones they sell in China are equipped with domestically produced Chinese chips. For example, companies such as Apple, Samsung, Huawei, Xiaomi, OPPO, Vivo, and others must ensure that 30% of the total phones they sell in the Chinese market use domestically produced Chinese chips.

Third, for example, let’s assume “XiaoGuo” is a company selling mobile phones in the Chinese market. If the volume of “XiaoGuo” mobile phones using Chinese domestic chips falls below 30% of its total shipment volume, which leads to a total reliance on foreign chip technology, the “XiaoGuo” company poses a risk to Chinese technological security. The Chinese government should impose taxes on this mobile phone company. The tax rate levied is based on the proportion of Chinese domestic chips used in its total shipment of mobile phones. The smaller the proportion, the higher the tax rate.

Fourth, according to this policy, there will be two types of the same brand of mobile phones sold in the Chinese market. One uses imported chips, referred to as “XiaoGuo A,” and the other uses domestically produced chips, referred to as “XiaoGuo B.” When the technology of domestic chips is lower than that of imported chips, the quality of “XiaoGuo B” will be lower than that of “XiaoGuo A,” and the market price of “XiaoGuo B” may even be lower than its production cost. If this happens, the government can provide subsidies to the company to ensure that “XiaoGuo B” has a certain profit margin.

We refer to such a policy as the “International Technology Anti-Trust Policy.” This policy applies to all products recognized as a core technology. Through such an international technology anti-trust policy, it ensures that the market share of domestic produced technology in China reaches 30%. This not only ensures technological security in the Chinese market but also promotes competition for core technology products, preventing a global monopoly on core technology products (such as high-end chips and operating systems).

The “International Technology Anti-Trust Policy” serves as a strategic approach to pave the way for technological catch-up and can serve as a theoretical consideration to prevent China from falling into the “chaser’s trap.” The key for China to form a virtuous“innovation-market” cycle in the context of great power competition lies in its market share. Only by seizing a certain amount of market share and creating a favourable market environment, Chinese enterprises will choose to catch up, innovate, and surpass according to the comparative advantages designed by the government policies.

On August 29, 2023, Huawei introduced its new flagship phone, the Mate 60. The Huawei Mate 60 is equipped with the self-developed Kirin 9000S chip which functions at a level equivalent to the 7 nm process chip. Huawei’s technology breakthrough came after three years of relentless efforts by the United States to contain China’s high-end chip industry.

It should be pointed out that even a prominent company like Huawei will find difficult to change the competitive environment of the chip market through its efforts alone. The innovation-market cycle for Chinese semiconductor companies cannot be automatically realized by the market and must rely on government policies to nurture and create.

In mid-July 2025, the US government reversed a four-month ban to allow Nvidia to resume exporting its H20 AI chip to China—a device deliberately designed to comply with export rules and priced as a lower-tier offering. This shift aligns with our “innovation-market” cycle theory: the United States aims to preserve its own innovation loop, earn revenue, and keep Chinese firms dependent rather than independent of Western-level chip technology.

By supplying the H20 chip, the United States achieves two objectives: it keeps Chinese firms consuming sub-tier hardware instead of investing in costly full-stack R&D, and it retains commercial presence in a crucial overseas market. In turn, United States revenues can be reinvested into advancing its own R&D and market feedback loop. China’s counter is clear: it must institutionalize long-term industrial policies and sustain large-scale investment to avoid the “chaser’s trap.” Without that coordinated commitment, the H20 move will effectively stall China’s drive toward independent AI-chip leadership.

The outcome of technological competition between China and the United States will determine the long-term growth of both countries and the reform of the world order. China has a comparative advantage in disruptive technological innovations, but it needs to strive hard to avoid falling into the “chaser’s trap” in incremental technological innovations. The country that can achieve a virtuous innovation-market cycle will win the technological competition.

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Its official responsibilities include “studying and formulating principles and policies on Taiwan-related work” and “organizing, guiding, managing and coordinating the Taiwan-related work of departments under the CPC Central Committee and the State Council, as well as provinces, autonomous regions and municipalities”—meaning, in practice, that Taiwan-related work undertaken by other central-level ministries, including the ministry of foreign affairs, falls within the Office’s organizing, guiding, managing and coordinating remit.

The Office holds a regular weekly press conference every Wednesday and subsequently publishes a record on its website, although it is unclear whether that record is a verbatim transcript. Judging from past practice, international media do not appear to have access to these briefings. This makes their contents particularly important, yet relatively inaccessible to the English-speaking world.

Given the Office’s indispensable role in one of the most consequential issues in world affairs, I have therefore decided, on a trial basis, to translate and publish its regular press briefings, with the assistance of AI, as with our other translations. (I may also discontinue this at any time, depending mainly on my mood.)

These translations have not been authorized, reviewed, or approved by the Office or by any other person or party.

Perhaps the most interesting item in today’s briefing is the Taiwan Affairs Office’s decision to flag - albeit withou naming them specifically - three unusually long and detailed articles 《1》 《2》 《3》 by 李其澤（ Ci-Ze Li）, an associate professor at National Changhua University of Education in Taiwan on what a Taiwan version of Beijing’s proposed “one country, two systems” might actually look like. Rather than debating the formula simply in terms of support or opposition, Li treats it as a problem of institutional design and asks what guarantees Taiwan should seek if such an arrangement were ever negotiated. What makes the essays particularly striking is the extent to which they explicitly absorb—and, in important respects, criticize—the experience of “one country, two systems” in Hong Kong. Li argues that any Taiwan formula would have to avoid repeating what many in Taiwan regard as the lessons of Hong Kong, including concerns that the boundaries of autonomy could subsequently be altered through national-security legislation, changes to the electoral system, or legal interpretation. All three essays, including Li’s lengthy responses to criticism from mainland readers, have been published in full within the mainland WeChat ecosystem. That Taiwan Affairs Office has now publicly flagged this discussion is therefore noteworthy in itself.

国务院台办新闻发布会辑录（2026-09-09）

September 9, 2026, 16:07

Source: Taiwan Work Office of the CPC Central Committee/Taiwan Affairs Office of the State Council

At 10 a.m. on September 9, the Taiwan Affairs Office of the State Council held a regular press conference in its press briefing room. Spokesperson Chen Binhua answered questions from reporters on recent issues of concern across the Taiwan Strait.

Chen Binhua: Good morning, friends from the media. Welcome to the regular press conference of the Taiwan Affairs Office of the State Council. Please go ahead with your questions.

Xinhua News Agency: It will soon be three years since the 《中共中央 国务院关于支持福建探索海峡两岸融合发展新路建设两岸融合发展示范区的意见》Opinions of the CPC Central Committee and the State Council on Supporting Fujian in Exploring New Pathways for Integrated Development across the Taiwan Strait and Building a Demonstration Zone for Integrated Cross-Strait Development were issued and implemented. Could you brief us on the important progress made in building the demonstration zone? How will the work be further advanced going forward?

Chen Binhua: In September 2023, the Opinions of the CPC Central Committee and the State Council on Supporting Fujian in Exploring New Pathways for Integrated Development across the Taiwan Strait and Building a Demonstration Zone for Integrated Cross-Strait Development were issued and implemented. Over the past three years, relevant central Party and state departments have formulated and introduced a series of supporting policy documents. Fujian has released five batches of 74 policy measures to promote Fujian-Taiwan integration and organized the implementation of 206 key projects for integrated Fujian-Taiwan development, with total investment exceeding 1.3 trillion yuan.

After three years of effort, the construction of the demonstration zone has made phased progress. It has become more convenient for Taiwan compatriots and enterprises to make Fujian their first home on the mainland; economic exchanges and cooperation between Fujian and Taiwan have remained active; integrated development across Fujian has maintained sound momentum; and people-to-people and social exchanges between Fujian and Taiwan have continued to deepen.

From January to August this year, 2.0874 million passenger trips were made between Fujian and Taiwan, up 20.64 percent year on year. A total of 857,500 Taiwan compatriot entries were recorded through ports in Fujian, up 27.94 percent year on year, while 1.5836 million cross-Strait passenger trips were made through the “Mini Three Links,” up 25.34 percent year on year.

Going forward, the Taiwan Work Office of the CPC Central Committee and the National Development and Reform Commission will work with relevant central Party and state departments and Fujian Province, taking the launch of the 15th Five-Year Plan as a new starting point, to continue advancing the detailed implementation of the Opinions. We will place greater emphasis on promoting integration through connectivity, benefits and affinity; further advance institutional innovation, industrial coordination, people-to-people exchanges and livelihood; and apply the requirements of high-quality development throughout the building of the demonstration zone. We will take greater strides in exploring new pathways for integrated development across the Taiwan Strait, continuously promote the peaceful development of cross-Strait relations, and advance the cause of national reunification.

People’s Daily: An associate professor at National Changhua University of Education in Taiwan recently published three consecutive articles on social media about a Taiwan plan for “one country, two systems,” drawing attention and discussion among readers on both sides of the Strait. Some have called the articles “a rare ice-breaking text.” What is your comment? How do you view the new trend of people on both sides beginning to discuss the issue of reunification in a rational manner?

【Zichen’s note: the three articles are 《1》 《2》 《3》 】

Chen Binhua: “Peaceful reunification and one country, two systems” is the best way to achieve national reunification. It embodies the Chinese wisdom of embracing all rivers and accommodating differences. It fully takes into account Taiwan’s realities and is conducive to Taiwan’s long-term peace and stability after reunification.

The specific form that “one country, two systems” takes in Taiwan will fully take into account Taiwan’s actual circumstances, fully absorb opinions and suggestions from all sectors on both sides of the Strait, and fully accommodate the interests and sentiments of Taiwan compatriots.

National reunification is an unstoppable historical trend. For Taiwan compatriots, it is not an optional question, but a required one. We are pleased to see more and more Taiwan compatriots facing up to the issue of reunification, beginning to understand and discuss the specific content of a Taiwan plan for “one country, two systems,” and offering ideas and suggestions for a “two systems” Taiwan plan in various ways.

Differences and debates between compatriots on the two sides during this process are entirely normal. We believe that more Taiwan compatriots will break through the ideological shackles and information cocoons created by the DPP authorities and increasingly recognize the advantages of “one country, two systems” and the inclusiveness of a “two systems” Taiwan plan.

Riyue Tantian and Kan Taihai, new-media outlets of China Media Group: September 3 was the Victory Day of the Chinese People’s War of Resistance Against Japanese Aggression and the World Anti-Fascist War. People of insight from various sectors in Taiwan spoke out, calling on compatriots on both sides of the Strait to remember their shared history of resistance against Japanese aggression, defend the fruits of victory in the war, and oppose separatist acts of “de-Sinicization.” What is your comment?

Chen Binhua: This year marks the 81st anniversary of victory in the Chinese People’s War of Resistance Against Japanese Aggression and the World Anti-Fascist War.

Taiwan compatriots have a glorious tradition of patriotism. During the arduous years of the War of Resistance Against Japanese Aggression, tens of thousands of Taiwan compatriots crossed the Strait without hesitation and joined the nationwide resistance, contributing to the defeat of Japanese fascism and the recovery of Taiwan.

Victory in the War of Resistance was a great victory forged through the courage, perseverance and bloody struggle of all sons and daughters of the Chinese nation, including Taiwan compatriots. It is also a shared historical memory of compatriots on both sides of the Strait.

To forget history is to betray it. By deliberately downplaying and wantonly distorting the history of the War of Resistance, the DPP authorities are betraying history and desecrating the martyrs, paving the way for their betrayal of the nation and separatist activities.

We believe that more and more Taiwan compatriots will see through the DPP authorities’ false historical narrative and the sinister intentions behind their “de-Sinicization” agenda, uphold the greater interests of the nation and a correct view of history, join mainland compatriots in carrying forward the great spirit of resistance against Japanese aggression, contribute together to the great cause of national reunification, and create a better future for national rejuvenation.

China News Service: It is understood that the sixth “携手圆梦--两岸同胞交流研讨活动” “Joining Hands to Fulfill the Dream — Cross-Strait Compatriots Exchange and Seminar” will be held in Urumqi, Xinjiang, attracting attention from public opinion on both sides of the Strait. Could you tell us more about the event?

Chen Binhua: The “Joining Hands to Fulfill the Dream — Cross-Strait Compatriots Exchange and Seminar” has been held for five consecutive years since 2021 and has become an important brand for Taiwan-related exchanges.

The sixth event will be held in Urumqi, Xinjiang, from September 11 to 12. Officials and representatives from relevant parties, political groups and other sectors on both sides of the Strait will hold in-depth discussions on topics including the peaceful development of cross-Strait relations and jointly pursuing the great rejuvenation of the Chinese nation, with a view to building broad consensus.

China Radio International’s Haixia Feihong, China Media Group: July and August, during the summer vacation, are a peak season for cross-Strait youth exchanges, with a wide range of activities taking place. Could you tell us about some of the highlights and characteristics of this summer’s youth exchanges? What is your assessment?

Chen Binhua: The momentum of cross-Strait youth exchanges continued to grow this summer, with one event after another taking place across the country. Tens of thousands of young people from Taiwan crossed the Strait to the mainland, interacting with their peers and gaining a great deal from the experience.

First, established exchange programs generated strong momentum. The Shanghai leg of the “Together in Heart and Action — Cross-Strait Youth Exchange Season” proved highly popular from its very first edition, bringing together more than 1,000 young people from both sides of the Strait to discuss trends in technology and culture, vividly illustrating the mutual journey toward one another by the younger generations on both sides.

The 14th Strait Youth Festival focused on social, economic and emotional dimensions as well as integrated development across the region. It introduced a third batch of measures for building a “Strait Youth Development-Oriented City,” attracting wave after wave of young people from Taiwan to Fujian for exchanges and development.

The 24th Straits Youth Forum, the 2026 Cross-Strait Youth Summit and the ninth Cross-Strait Youth Development Forum also continued to expand their influence, attracting young people from Taiwan in large numbers.

Second, cultural exchange activities continued to attract participants. The sixth Cross-Strait Youth Culture Month, centered on “New Expressions of Traditional Culture,” created a cultural carnival for young people on both sides of the Strait.

The third Shaanxi-Taiwan Cultural Exchange Week and Cross-Strait Youth Han-Tang Culture Summer Camp, under the theme “Promoting Chinese Culture and Writing a New Chapter of Youth,” promoted deeper exchanges and cooperation in culture and other fields.

Young people from both sides sang folk songs together in Longyan, Fujian, and Meizhou, Guangdong, carrying forward Hakka culture. In Jinan, Shandong, and Lanzhou, Gansu, they connected through music and sang together the song of cross-Strait youth.

Third, sports exchanges were among the liveliest and most popular activities. Cross-Strait inter-school baseball tournaments were held in Beijing and Guizhou, a beach ultimate frisbee invitational in Fujian, the “Tinghao Cup” Cross-Strait Youth Basketball Invitational in Anhui, a youth table-tennis exchange tournament in Hubei, a youth roller-hockey exchange involving Guangdong, Taiwan, Hong Kong and Macao in Guangdong, a summer pickleball exchange in Henan, and a Guangxi-Taiwan youth badminton tournament in Guangxi, among other activities. All attracted large numbers of young participants from Taiwan. Young people from the two sides competed together, achieved good results and made new friends.

Fourth, the activities covered a broad geographical range and facilitated deeper exchanges. From the desert landscapes of Dunhuang in Gansu, where “mountains and springs coexist, and sand and water live side by side,” to the Mazu temples of Meizhou Island in Putian; from the magnificent expanses of Heilongjiang to the scenery of Guilin, famed as the finest under heaven, young people from both sides explored the country with their own footsteps and experienced the history and culture of the Chinese nation with their own hearts.

The mainland of the motherland is also home to the broad masses of Taiwan compatriots. Not only during the summer, but at any time, we warmly welcome young people from Taiwan to come to the mainland, travel around and see it for themselves, participate in cross-Strait exchanges, interact and learn from their mainland peers without distinction between “us” and “them,” share their youthful aspirations and create a better future together.

Beijing Daily: According to reports, Taiwan’s Straits Exchange Foundation recently released its 2027 expenditure budget of more than NT$350 million, an increase of about NT$10 million from 2026. The additional spending will cover personnel expenses, while one of its specific activities will be to use major tourism exhibitions to publicize alleged safety issues associated with travel to the mainland and remind people on the island to carefully assess the risks. What is your comment?

Chen Binhua: Taiwan compatriots made nearly 4.9 million visits to the mainland in 2025 and 2.85 million visits in the first half of this year. The personal safety and lawful rights and interests of Taiwan compatriots while on the mainland are protected in accordance with the law. They come happily and return safely.

The founding mission of the Straits Exchange Foundation was to be 中国的、善意的、服务的 “Chinese, goodwill-oriented and service-oriented.” It defined itself as 是一座桥，不是一堵墙 “a bridge, not a wall.” Yet today it has degenerated into a pawn of the DPP authorities in obstructing and undermining cross-Strait exchanges and cooperation and inciting confrontation and antagonism across the Strait. This is truly lamentable.

I have eight Chinese characters of advice for the Straits Exchange Foundation regarding its recent remarks: 莫忘初衷，多干正事 “Do not forget your original mission; do more serious work.”

Reference News: Recently, the DPP authorities have been making a great fuss about so-called “risks” for Taiwan residents traveling to the mainland, falsely claiming that the State Council Regulations on Exit-Entry Administration involve four kinds of risks, including “inconsistent standards.” What is your comment?

Chen Binhua: The State Council Regulations on Exit-Entry Administration are intended to standardize exit-entry administration, protect the lawful rights and interests of persons entering and leaving the mainland, and safeguard national sovereignty, security and development interests. The relevant provisions will help further protect the lawful rights and interests of all persons entering and leaving the mainland, including Taiwan compatriots.

In order to obstruct cross-Strait exchanges and interactions, the DPP authorities have continually distorted facts and smeared the mainland. Recently, they have once again manipulated online operatives and affiliated groups to fabricate rumors, slander and maliciously defame specific individuals. Such behavior is contemptible.

China Review News Agency, Hong Kong: Taiwan’s transport and tourism authorities recently sent a notice to travel agencies requiring operators organizing exchanges or tours to the mainland to assist all travelers in completing pre-departure registration for travel to the mainland and filling out relevant notices. Although Taiwan’s mainland affairs authority says the registration is “not compulsory,” the move has still raised concerns among people on the island about the privacy of their personal travel arrangements to the mainland. What is your comment?

Chen Binhua: This is yet another despicable tactic by the DPP authorities to threaten and intimidate Taiwan compatriots against coming to the mainland and to interfere with and obstruct cross-Strait exchanges and people-to-people contacts. It has already provoked resentment and dissatisfaction among Taiwan compatriots and the tourism industry.

The desire of compatriots on both sides of the Strait to grow closer and the broader trend of cross-Strait exchanges and cooperation cannot be stopped. Any attempt to turn back the wheel of history and act against the will and wishes of the people will inevitably face a public backlash.

Jiefang Daily’s Shangguan News: Recently, the urban workplace drama 《早春晴朗》Early Spring, Clear Skies, directed by a Taiwan director and starring mainland actors, has become a hit in Taiwan. A number of Taiwan media outlets have produced special reports on the series, while many viewers on the island have been asking online for new episodes. What is your comment?

Chen Binhua: We are pleased to see more film and television productions jointly created by filmmakers from both sides of the Strait, depicting cross-Strait familial bonds and a better life, being broadcast on both sides of the Strait and enabling a two-way coming together of emotions and exchanges among people on both sides.

Henan Daily’s Top News: Could you brief us on recent cross-Strait exchange activities in various fields?

Chen Binhua: Cross-Strait exchange activities in various fields have remained active recently.

From August 25 to 29, the 2026 Straits Hakka “Hakka Youth · Create” short-video competition and ancestral homeland visit for young Taiwan Hakka was held in Longyan, Fujian Province. Forty young Hakka people from Taiwan produced short videos focused on Hakka culture and the landscapes of their ancestral homeland, recording what they saw and experienced through fresh perspectives.

From August 29 to September 2, the Fujian-Taiwan (Mingxi) Traditional Chinese Medicine Cultural Exchange was held in Sanming, Fujian Province. Nearly 70 people participated, including traditional Chinese medicine experts and scholars, industry associations and Chinese medicine enterprises from both sides of the Strait. A number of substantive cooperation outcomes were reached, further deepening multidimensional Fujian-Taiwan cooperation in traditional Chinese medicine.

On September 2, the opening ceremony of the “2026 Cross-Strait Youth Study Camp Exploring the Codes of Chinese Civilization” was held at Qiannan Normal University for Nationalities in Guizhou. Through close interaction, young people from both sides of the Strait gained an immersive experience of Guizhou’s development and Chinese civilization.

On the same day, the first season of the “Neighbors Echo, Both Sides Sing Together” Youth Musicians SEEK Program was launched in Zhangzhou. More than 150 people attended, including well-known musicians and artists from both sides of the Strait and young people from Taiwan. Using collaborative music creation by young people from both sides as its vehicle, the program will organize field trips and music composition, hold dedicated performances and exchange activities, conduct a competition and advancement process, and help cultivate young musical talent.

On September 3, the closing ceremony of the 2026 Taiwan Youth Lingnan Tour was held at Xinghai Conservatory of Music in Guangzhou. Young people from both sides shared their reflections on the Lingnan tour and performed together, demonstrating a spirit of advancing hand in hand and pursuing shared dreams.

From September 3 to 9, the fourth Cross-Strait Youth Film Festival 2026 and Youth Filmmakers Training Camp was held in Xiamen, Fujian Province. Young people from both sides used film as a medium to connect through shared emotions and exchange ideas about creative work.

From September 9 to 12, the sixth Pingtan IM Cross-Strait Youth Film Festival will be held in Pingtan, Fujian Province. The call for submissions covered 410 universities, with more than 3,500 young people from Taiwan participating. Both the number of submissions and the number of participating institutions reached record highs. Under the theme “If the Wind Had Color,” the festival will feature a “Youth Film Night” and a range of other activities, with more than 700 prominent filmmakers, industry representatives, university faculty and students, and others attending in person.

From September 9 to 12, the 14th Anhui-Taiwan Science and Technology Forum and the 18th Cross-Strait Science Popularization Forum will be held in Bengbu, Anhui Province. Nearly 60 experts, scholars and young representatives from both sides of the Strait will conduct extensive exchanges and discussions in areas including electronic information and biotechnology.

From September 9 to 15, the 2026 Cross-Strait (Nanchang) Youth Makers Camp will be held in Nanchang, Jiujiang, Jingdezhen and other places in Jiangxi Province.

From September 14 to 18, the first Cross-Strait (Jiaocheng) Yan Emperor Shennong Cultural Week will be held in Ningde, Fujian Province. Nearly 200 representatives of temples and devotees from Taiwan will travel to Ningde to participate in ceremonial activities, interactive experiences involving farming culture and traditional Chinese medicine, and free medical consultations by traditional Chinese medicine practitioners from both sides of the Strait.

Shenzhen Satellite TV’s Direct News: Taiwan media have reported that, driven by the DPP authorities’ policy of “resisting China and opposing China,” the “green camp” has recently staged one “Communist spy hunt” after another on the island, becoming suspicious of everything and repeatedly making embarrassing mistakes. Some have even become highly sensitive and uneasy about “mainland accents,” simplified Chinese characters and “mainland terminology,” and increasingly reject them. What is your comment?

Chen Binhua: The DPP authorities and “Taiwan independence” forces have become increasingly obsessed and irrational in their approach of “opposing China at every turn” and “resisting China and opposing China.”

From reacting as though facing a major threat when people in Taiwan use “mainland terminology,” to imagining that individual simplified Chinese characters are evidence of espionage infiltration, they are seeing danger everywhere and jumping at shadows.

The actions of the DPP authorities not only further damage mutual trust across the Strait, but also intensify the “green terror” in Taiwan society. They will inevitably face opposition.

Phoenix TV, Hong Kong: The 81st session of the United Nations General Assembly opened on September 8. Lai Ching-te recently claimed that the mainland has misapplied UN General Assembly Resolution 2758, arguing that the resolution only addressed the issue of the People’s Republic of China’s representation at the United Nations and has nothing to do with Taiwan. Taiwan’s foreign affairs authority has also claimed that Resolution 2758 does not exclude Taiwan’s meaningful participation in the UN system and that the United Nations should seek appropriate ways to allow Taiwan to participate. What is your comment?

Chen Binhua: There is but one China in the world, and Taiwan is part of China. This is an indisputable historical and legal fact and the true status quo in the Taiwan Strait.

In 1971, the 26th session of the United Nations General Assembly adopted Resolution 2758 by an overwhelming majority, deciding to restore all the rights of the People’s Republic of China in the United Nations and recognizing the representatives of the Government of the People’s Republic of China as the only legitimate representatives of China to the United Nations. Politically, legally and procedurally, the resolution thoroughly resolved the issue of the representation of all of China, including Taiwan, in the United Nations.

Lai Ching-te and the DPP authorities have repeatedly distorted and attacked UN General Assembly Resolution 2758 in an attempt to challenge the one-China principle universally recognized by the international community. Such attempts will only bring humiliation upon themselves and are bound to fail.

No matter how hard they scheme, they cannot change the legal fact that Taiwan is part of China, shake the solid international framework of adherence to the one-China principle, or stop the historical trend that the motherland will and must ultimately be reunified.

Fujian Radio and Television’s Taihai Shike: Recently, the mainland coast guard announced that a formation led by the vessel Putuoshan was conducting regular law-enforcement patrols in waters east of Taiwan island. Taiwan’s coast guard authority described the operation as “law enforcement in name, expansion of power in reality” and accused the mainland of “attempting to create the illusion that it has jurisdiction.” What is your comment?

Chen Binhua: There is but one China in the world, and Taiwan is part of China.

The mainland coast guard’s law-enforcement and rights-protection operations in waters under its jurisdiction in accordance with the law effectively safeguard normal navigation and operating order, and protect the lawful and legitimate rights and interests as well as the lives and property of Chinese citizens, including Taiwan compatriots. They are legitimate and just actions to safeguard national territorial sovereignty and maritime rights and interests.

The DPP authorities stubbornly adhere to a separatist stance of “Taiwan independence,” distort facts and engage in malicious hype. They are bound to fail.

Global Times and Huanqiu.com: Kyrgyzstan and Egypt recently issued joint statements with China, both emphasizing adherence to the one-China principle and support for China’s reunification. Taiwan’s foreign affairs authority falsely accused the mainland of “manipulating falsehoods internationally,” claiming that Taiwan is a “sovereign and independent country” and that the two sides of the Strait “are not subordinate to each other.” What is your comment?

Chen Binhua: We appreciate the position of the countries concerned in upholding the one-China principle and supporting China’s reunification.

The facts once again demonstrate that the one-China principle is a basic norm governing international relations and a general consensus of the international community. It represents the trend of the times, the cause of justice and the will of the people.

There is but one China in the world, and Taiwan is part of China. Taiwan has never been a country and will never have any possibility of becoming one. There is simply no such thing as the so-called “sovereignty” claimed for Taiwan.

No matter how recklessly the DPP authorities make such statements or hype up their “new two-state theory,” they cannot change the historical and legal fact that Taiwan belongs to China, change the doomed fate of “Taiwan independence,” which has reached the end of the road, or stop the broader trend that the motherland will and must ultimately be reunified.

Hong Kong Economic Herald: The DPP authorities recently claimed that investment by Taiwan businesses in the mainland fell by 59 percent in 2025 from the previous year and by 30 percent in the first half of 2026, arguing that the mainland economy is in difficulty and that Taiwan businesses should be cautious about investing there. What is your comment?

Chen Binhua: According to statistics from relevant departments, cross-Strait trade reached US$221.8 billion from January to July this year, up 26.5 percent year on year. Of this, mainland exports to Taiwan totaled US$62.17 billion, up 31.6 percent year on year, while mainland imports from Taiwan totaled US$159.63 billion, up 24.7 percent.

This fully demonstrates the close economic ties between the two sides of the Strait, the solid foundation of their shared interests, and the stability and resilience of cross-Strait industrial and supply chains.

Since the beginning of this year, we have responded effectively to changes in the external environment, including geopolitical conflicts and economic and trade frictions, while maintaining an overall trajectory of stability and improvement, with new and higher-quality drivers of growth emerging. The economy has demonstrated vigorous vitality and strong resilience, injecting powerful momentum and much-needed certainty into the world economy, while continuously providing new opportunities and opening up new space for strengthening cross-Strait economic cooperation and deepening integrated development.

The mainland has always been the best choice for Taiwan businesspeople and enterprises to invest and develop their businesses, fertile ground for innovation and development, and a powerful source of support in resisting risks. The DPP authorities’ efforts to smear and talk down the mainland have already proved, and will continue to prove, futile.

China Television News, Taiwan: My first question: Taiwan’s mainland affairs authority has said that 洪申翰 Hung Sun-han, head of Taiwan’s labor affairs authority, may enter the mainland to attend an APEC meeting in Nanjing using an APEC invitation letter and will not need to apply for a 台胞证 Mainland Travel Permit for Taiwan Residents. Could you confirm this? Have the relevant arrangements been finalized?

Second, Taiwan’s tourism authority previously issued a notice requiring travel agencies to dynamically register groups traveling to the mainland, with fines of up to NT$50,000 for failure to do so. Following a backlash from travel agencies, it said the measure was merely “advisory” rather than subject to direct penalties. What is your comment?

Third, with the Mid-Autumn Festival approaching, the mainland has recently expanded the approved sources of Wendan pomelos from Taiwan. In addition to Hualien, orchards and packaging plants in Yunlin have now been added. What was the consideration behind adding Yunlin? Will the mainland further open its market to Wendan pomelos and other agricultural products from other counties and cities in Taiwan?

Chen Binhua: On your first question, since 1991, matters concerning Taiwan’s participation in meetings and activities of the Asia-Pacific Economic Cooperation, or APEC, have been handled in accordance with the one-China principle and the provisions and established practices of relevant APEC memoranda of understanding. The same applies this year.

On your second question, the DPP authorities’ despicable tactic provoked resentment and dissatisfaction among Taiwan compatriots and the tourism industry on the island, eventually forcing them to change their position.

As the saying goes: “There was no trouble to begin with; mediocre people created it themselves.”

On your third question, guided by the conviction that “people on both sides of the Taiwan Strait are one family,” we have always made every effort to do practical and good things for Taiwan compatriots and help them resolve difficulties.

On the basis of a comprehensive assessment of the relevant corrective measures and compliance with the mainland’s inspection and quarantine requirements, we support the registration on the mainland of more packaging plants and orchards for Wendan pomelos from Taiwan.

We will further advance the detailed implementation of the 10 policy measures for promoting cross-Strait exchanges and cooperation, continue facilitating the import of agricultural and fishery products from Taiwan into the mainland, and enable farmers and fishers on the island to obtain tangible benefits.

ETtoday, Taiwan: My first question: Beijing lawyer 王夏红 Wang Xiahong and her family are reportedly stranded in Taiwan seeking resettlement. Taiwan’s mainland affairs authority has publicly confirmed the incident and said it is providing accommodation on the principle of “humanitarian considerations first.” Can you confirm the circumstances surrounding Wang Xiahong’s departure and flight from the mainland?

Second, Taiwan residents recently noticed that mainland brand 瑞幸咖啡 Luckin Coffee appeared to be bringing materials into Taipei and recruiting employees, prompting heated discussion on the island. Taiwan’s economic authority subsequently required the agent involved to submit a special application through the “mainland capital investment channel.” How do you view the fact that Luckin Coffee has so far been unable to establish itself smoothly in Taiwan? Taiwan authorities have frequently subjected iQIYI, Xiaohongshu, luosifen, Zhang Xue Motorcycles and Luckin Coffee, among others, to strict scrutiny over their entry into Taiwan. Some believe this will negatively affect private consumption and commercial exchanges across the Strait. What is your comment?

Third, Taiwan’s tourism authority recently required travel agencies organizing groups to the mainland to enter information into a “dynamic registration system for travelers to the mainland,” saying the purpose was to enable Taiwan authorities to keep track of travelers and provide emergency assistance in the event of an incident. Does this mean that there is now “no interaction whatsoever” between the two sides in emergency-assistance mechanisms, leaving the Taiwan side no option but to rely on its own registration system? Does the mainland still communicate with the Taiwan side through existing cross-Strait tourism agreements or notification channels?

Chen Binhua: On your first question, for matters concerning the administration of lawyers, please consult the relevant competent authorities. There are corresponding regulations governing mainland residents traveling to Taiwan, and the relevant authorities will handle the matter in accordance with laws and regulations.

On your second question, we are pleased to see Taiwan compatriots gaining access to high-quality mainland products and support mutual investment and win-win cooperation between enterprises on the two sides of the Strait.

For its own partisan interests, the DPP authorities deliberately obstruct and restrict mainland investment and products from entering the island, worsening Taiwan’s business environment and harming the immediate interests of Taiwan residents. This is political manipulation that enjoys no popular support.

On your third question, the DPP authorities’ despicable tactic is intended to threaten and intimidate Taiwan compatriots against coming to the mainland and to interfere with and obstruct cross-Strait exchanges and people-to-people contacts. It enjoys no popular support and has already provoked strong resentment and dissatisfaction among people and the tourism industry on the island.

This despicable tactic cannot stop the desire of compatriots on both sides to grow closer or the broader trend of cross-Strait exchanges and cooperation. It is an attempt to turn back the wheel of history and move against the tide.

Guided by the conviction that “people on both sides of the Taiwan Strait are one family,” we have always protected the lawful rights and interests of Taiwan compatriots, including tourists, in accordance with the law.

Under the Tourism Law of the People’s Republic of China, Taiwan compatriots traveling on the mainland enjoy the same legal protection as mainland residents. If the lawful rights and interests of Taiwan compatriots are infringed, they may, in accordance with the Measures for Handling Tourism Complaints, file a complaint with a tourism complaint-handling authority at or above the county level in the place where the tourism operator is located, where the tourism contract was signed, or where the tourism dispute occurred. They may also call the 12345 government service hotline or contact the local Taiwan affairs office for assistance.

Chen Binhua: That concludes today’s press conference. Thank you.

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The following article is written by Guan Chenglong, PhD candidate, School of Global and Regional Studies, University of Chinese Academy of Social Sciences; and Yuan Zheng, Deputy Director and Research Fellow, Institute of American Studies, Chinese Academy of Social Sciences (CASS).

The article was published on 20 April in Issue 2, 2026 of 台湾研究 Taiwan Studies, a journal run by the Institute of Taiwan Studies at CASS. It is also available on the official WeChat blog of the Institute of Taiwan Studies.

美国战略界的台海政策辩论：阵营分化与共识离散——兼论特朗普第二任期的台海政策

The Debate on U.S. Taiwan Policy: Camp Divisions and the Disintegration of Consensus

— A Discussion of Taiwan Policy during Trump’s Second Term

Guan Chenglong and Yuan Zheng

Abstract. Since 2020, the U.S. strategic community has conducted several rounds of intense debate over Taiwan policy, marked by sharp divisions among different camps and disintegration of consensus.

Drawing on the positions of the various parties to the debate, this article uses an “ends–means” dimension to divide the field into five camps: the Taiwan-defence camp, the deterrence-rebalancing camp, the traditional status-quo camp, the gradual Taiwan-abandonment camp, and the radical Taiwan-abandonment camp.

It then examines how the evolution of strategic consensus has shaped the way these debates influence decision-making. As the debate continues into Trump’s second term, it is likely to shape the administration’s Taiwan policy in two ways. On one hand, Trump’s Taiwan policy is subordinate to deal-making with China, and it will continue to advance the U.S. strategic community’s minimum consensus — the buildup of Taiwan’s asymmetric defence capabilities and the porcupine strategy. On the other hand, it pursues a strategy of maximum extraction and de-risking aimed at making Taiwan serve the America First agenda across the board, a logic closely linked to the rise of the gradual Taiwan-abandonment camp in recent years.

Keywords: China–U.S. Relations; U.S. Taiwan Policy; Policy Debate; Strategic Consensus; Taiwan Abandonment

Disagreement within the U.S. strategic community over Taiwan policy is long-standing, surfacing periodically in policy debates with a discernible cyclical pattern. These debates are closely intertwined with actual government policy: they may foreshadow policy adjustments, but may also be triggered by shifts in policy itself. Taken together, the successive rounds of debate reflect not only the diversity of views within the U.S. strategic community, but also sharp differences among various camps and factions in how they assess and balance competing interests, with lobbying and personal factors adding further complexity.

Since the Biden administration, debate has become more intense than ever. The long-standing U.S. approach to the Taiwan Strait — grounded in the “one-China policy” and aimed at maintaining the status quo — has faced sustained challenges from multiple directions, while Biden’s efforts to adjust policy in response to these pressures have been less than satisfactory. U.S. Taiwan policy has therefore, on the whole, entered a difficult period of transition. It is thus worth examining these debates from a broader range of perspectives and considering how they shape the government’s decision-making process.

I. Factional Divisions on Taiwan Policy within the U.S. Strategic Community

After the Kuomintang retreated to Taiwan in 1949, Taiwan policy became an increasingly prominent subject of debate within the U.S. strategic community. The outbreak of the Korean War and the signing of the U.S.–Taiwan Mutual Defence Treaty enabled the Taiwan-defence camp to dominate both the government and the strategic community, with Taiwan regarded as an integral part of U.S. Cold War strategy in East Asia.

By the late 1960s, as Sino-Soviet relations deteriorated, the U.S. strategic community began to rethink China policy. Within the U.S.–China–Soviet strategic triangle, the argument for aligning with China to counter the Soviet Union gained ground, and it was on this basis that the Nixon administration initiated the normalisation process. With the establishment of diplomatic relations with China and the signing of the three joint communiqués, the U.S. government gradually consolidated a Taiwan policy framework grounded in the “one-China policy”. In parallel, debate within the strategic community came to be dominated by the status-quo camp, further reinforcing the legitimacy of this policy framework.

For a long time, the positions taken on Taiwan policy within the U.S. strategic community could be sorted roughly into three camps: the Taiwan-defence camp, the Taiwan-abandonment camp, and the status-quo camp.1 Building on the opposition between the abandonment and Taiwan-defence camps, some scholars have subdivided the former into immediate and gradual variants and the latter into a strengthening defence camp and a maintaining status-quo camp.2

Tao Wenzhao, for his part, divides the debate into three camps: a minority calling for a rethinking of Taiwan policy, a mainstream camp favouring the maintenance of the status quo, and a conservative faction that links the “China threat” thesis to U.S. Taiwan policy and continues to emphasise Taiwan’s strategic value to the United States.3 Lin Gang sorts these debates into three camps: a status-quo camp advocating neither unification nor independence across the Taiwan Strait, a Cold War camp that sees Taiwan as an important means of containing the mainland’s peaceful rise, and a Taiwan-abandonment camp that favours ending the U.S. security commitment to Taiwan.4 Zhong Houtao holds that the core question in the debates is how to assess Taiwan’s strategic value to the United States — in essence an argument over whether Taiwan is an asset or a liability.5 Other scholars, drawing on the distinction between Taiwan as a strategic liability and as a strategic asset, divide the debate into three positions: the abandonment thesis, the Taiwan card thesis, and the status quo thesis.6

As the U.S.–China balance of power has shifted more rapidly in recent years, some scholars have argued that Taiwan is becoming a high-risk strategic asset for the United States and that the risks of continuing to play the Taiwan card are mounting.7 Wang Shushen observes that the two major U.S. parties are largely of one mind on using Taiwan to check China, but that Republican “strategic hawks” hold more provocative views of Taiwan and advocate more dangerous policies than the Democratic establishment.8

James B. Steinberg, who served as deputy secretary of state under Obama, groups current views within Washington’s strategic community into three camps. The first calls on the U.S. government to make an explicit commitment to defend Taiwan and to state publicly that it does not recognise Taiwan as part of China. The second emphasises strengthening Taiwan’s defence capabilities, pursuing a porcupine strategy, and creating a so-called “boiling moat.” The third advocates abandoning Taiwan and seeking an accommodation with Beijing.

Taken together, these frameworks are based on sustained observation and analysis of the U.S. debate. They offer valuable insights into the complex range of positions and the principal lines of division, providing clear examples of the diversity of views within the U.S. strategic community. Yet as the debate has evolved, two problems in the existing scholarship warrant further discussion.

First, any such classification should begin with a clearly defined research question and avoid conflating ends with means. Steinberg’s typology clearly blurs this distinction by placing measures — such as support for higher Taiwanese defence spending and the porcupine strategy — alongside strategic positions on whether to defend or abandon Taiwan. In fact, there are now few voices within the U.S. strategic community that oppose the porcupine strategy. A more nuanced distinction among the positions of leading strategic thinkers is therefore needed.

Consider the debate over strategic clarity initiated in 2020 by Richard Haass, president of the Council on Foreign Relations (CFR), and David Sacks, a CFR research fellow. The two viewed strategic clarity as a means of rebalancing deterrence in the Taiwan Strait and preserving the status quo. If classified according to their strategic objectives rather than the means they advocated, both would belong to the status-quo camp.

Second, as the debate has evolved, the conventional dividing lines have become increasingly blurred, and any classification must adapt accordingly. Views and camps in the U.S. strategic community are constantly shifting, and the landscape has changed markedly since Biden took office. The long-dominant status-quo camp has become internally divided, while both the Taiwan-defence and Taiwan-abandonment camps have gained ground rapidly. The relative influence of the three camps has shifted noticeably, and after Biden himself made four successive statements that appeared to move towards greater strategic clarity, the debate became more complicated still.

II. Camp Divisions in the New Round of Taiwan Policy Debate

Since the establishment of China-U.S. diplomatic relations, the “one-China policy” has been the cornerstone of U.S. Taiwan policy. Strategic ambiguity has served as the principal means of implementing that policy. Its core objective is to maintain the status quo, ideally through dual deterrence: deterring the mainland from changing the status quo by force while also deterring pro-independence forces on Taiwan from disrupting it.

Under the Biden administration, the U.S. strategic community engaged in several substantial and highly contentious rounds of debate over Taiwan policy. These debates exposed a structural tension in U.S. policy: it has become increasingly difficult to preserve the status quo by maintaining an ambiguous and broadly defined posture. For decades, this posture gave the U.S. government considerable room for manoeuvre, allowing it to remain deeply involved in cross-Strait affairs while avoiding, to some extent, excessive commitments. Yet the policy rested on a rough balance of power across the Strait.

As the cross-Strait power gap has widened in recent years, and as the strategic gap between the United States and China along the first island chain has narrowed, U.S. policy has come under growing pressure. A consensus has emerged within the strategic community that time is no longer on the U.S. side.

(1) The Taiwan Debate Within U.S. Strategic Community Since 2020

Since 2020, the U.S. strategic community has gone through successive rounds of debate over questions such as: Is a mainland “attack” on Taiwan imminent? Should the United States explicitly commit to defending Taiwan? Does Taiwan implicate vital U.S. strategic interests?

During this period, the “Davidson window,” an argument underpinning the view that a mainland “attack” could be imminent, was repeatedly invoked, while the thesis of Taiwan’s undetermined status was revived on multiple occasions and became an important basis for the government’s increasingly unconstrained use of the Taiwan card. The Biden administration, meanwhile, repeatedly tested the limits of strategic ambiguity9, while using a democracy-versus-autocracy narrative to further “internationalise” the Taiwan question. House Speaker Nancy Pelosi’s 2022 visit to Taiwan brought domestic calls to defend Taiwan to a peak.

As support for defending Taiwan intensified, some within the strategic community began to pay closer attention to the risks of strategic miscalculation and escalating crisis dynamics between the United States and China, and to guard against them. They strongly criticised the Taiwan-defence camp and the case for strategic clarity. Some offered a series of more objective reflections: Is a mainland “attack” really so imminent? Does Taiwan genuinely implicate vital U.S. strategic interests? Has the U.S. public accepted the prospect of war with China?

At the same time, the rapid rise of New Right political forces emphasising strategic retrenchment and domestic priorities, together with Trump’s return to office, provided the Taiwan-abandonment camp with new intellectual support and a more favourable political environment, creating greater space for its growth within the U.S. strategic community.

In 2020, a group of strategic thinkers led by CFR president Richard Haass and research fellow David Sacks called into question the long-standing policy of strategic ambiguity. As the China-U.S. power gap narrowed and the balance of forces across the Taiwan Strait shifted, they argued, the United States should move towards strategic clarity to restore the balance of deterrence. At the same time, they continued to support the “one-China policy”, maintaining that a shift towards strategic clarity would not alter Washington’s long-standing “one-China policy” or its position of not supporting Taiwan independence.

The argument immediately sparked fierce debate between supporters and critics upon publication. Raymond Kuo, director of RAND’s Taiwan Policy Initiative, argued that, given the prevailing balance of forces, the United States should strengthen the credibility of its deterrence against China and that Washington’s long-standing policy of strategic ambiguity had already lost its effectiveness. In Deterrence Gap: Avoiding War in the Taiwan Strait, Jared M. McKinney and Peter Harris likewise contended that the material basis for continued ambiguity had been badly eroded, that U.S. deterrent capability in the Strait would reach its nadir within a decade, and that a shift to strategic clarity was urgently required.

On the other side of the debate, mainstream voices within the status-quo camp joined parts of the Taiwan-abandonment camp in resisting this line. Bonnie Glaser and Michael J. Mazarr, among others, argued in turn that a turn to strategic clarity would fail to remedy declining U.S. deterrence and would instead invite greater danger. Michael Glennon warned that such a turn would contravene both the Taiwan Relations Act and the U.S. Constitution, carrying serious legal and political risk.

In 2021, an article by Oriana Skylar Mastro, a fellow at Stanford’s Freeman Spogli Institute for International Studies, touched off heated argument over the imminence of a mainland “attack”. Mastro claimed that the mainland’s growing military capabilities were being matched by a greater willingness to use force, and that the United States urgently needed to strengthen military deterrence to convince Beijing that it could not achieve its objectives. The argument echoed the contemporaneous “Davidson window” and the congressional testimony of Ely Ratner, then Assistant Secretary of Defence for Indo-Pacific Security Affairs, and quickly triggered widespread discussion.

Rachel E. Odell, Research Fellow at the Quincy Institute, Eric Heginbotham, principal research scientist at MIT’s Center for International Studies, and Bonny Lin, senior fellow at the Center for Strategic and International Studies (CSIS), subsequently published an article arguing that such alarmism was in fact harmful to the interests of both the United States and Taiwan, and that there had been no major shift in the mainland’s policy towards Taiwan. Interestingly, an argument intended to push U.S. policy choices towards a “moment of truth” ultimately created space for both the Taiwan-defence and Taiwan-abandonment camps to sharpen their respective positions, while also drawing forceful rebuttals from the mainstream status-quo camp.

In 2024, Andrew S. Erickson, professor at the U.S. Naval War College, Gabriel Collins, fellow at Rice University’s Baker Institute for Public Policy, and former deputy national security adviser Matthew Pottinger co-authored a piece likening Taiwan to the West Berlin of a U.S.–China new cold war, warning of catastrophic consequences for the United States and the world if the Chinese mainland were to “take” Taiwan. The piece brought the case for defending Taiwan back to the centre of the debate and prompted widespread discussion. In fact, the abandonment thesis and the defence thesis represent two opposing strands of the same broader debate over Taiwan: whenever arguments for defending Taiwan gain momentum, the case for abandonment tends to mount a strong counterreaction.

Indeed, since 2024, the abandonment thesis has shown clear signs of resurgence. Michael D. Swaine, a senior research fellow at the Quincy Institute, offered a sober reassessment of Taiwan’s strategic value to the United States, stressing that Taiwan does not constitute a vital U.S. interest. Jennifer Kavanagh, senior fellow and director of military analysis at Defence Priorities, and Stephen Wertheim, senior fellow at the Carnegie Endowment for International Peace, wrote that “the United States should insulate its regional strategy from developments in Taiwan. That way, Washington can minimise the fallout in case Beijing succeeds in taking the island.” Michael Mazarr and colleagues at RAND went further, proposing that the United States create maximum incentives for Beijing to pursue peaceful unification by gradual means. With the New Right ascendant in U.S. politics and Trump back in office, the resurgence of the abandonment thesis marks only the beginning of a new round of debate, one that is likely to continue evolving.

The foregoing sketches only some of the key developments since 2020 and cannot capture the debate in its entirety. Even so, the evolution of the debate and the shifting balance of the Taiwan-defence, Taiwan-abandonment, and status-quo camps make clear that discussion of Taiwan policy in the U.S. has remained highly intense and frequent in recent years. This reflects both deep U.S. anxiety over China’s rapidly growing military power and the changing strategic landscape in East Asia, and a growing reassessment of — and wariness about — the increasingly radicalised trajectory of strategic competition with China and Taiwan’s potential role as a conflict flashpoint. The rise of the abandonment thesis represents, to some extent, a return to more restrained thinking within the U.S. strategic community. As the debate evolved, the long-standing U.S. consensus on the Taiwan Strait has come under increasing pressure, and the status quo camp’s mainstream position has been shaken.

(2) Camp Division and the Disintegration of Consensus

For a long time, the U.S. debate was dominated by the status-quo camp, with the Taiwan-defence and Taiwan-abandonment camps occupying opposing ends of the spectrum. The clashes between the two, in fact, continually reinforced the status-quo camp’s dominant position, while the consensus it represented — strategic ambiguity and maintenance of the status quo — provided the principal source of legitimacy for the U.S. government’s “one-China policy”. As the structure of the debate has shifted in recent years, that mainstream consensus has begun to loosen.

On one side, the Taiwan-defence camp has gained momentum rapidly, while figures within the status-quo camp, represented by Haass and Sacks, have placed greater emphasis on deterrence and turned to endorse strategic clarity that would explicitly commit the United States to defending Taiwan. This has given rise to a deterrence-rebalancing camp emerging from within the status-quo camp. On the other side, the Taiwan-abandonment camp has steadily gained ground, and the gradualist approach advocated by some within it has attracted considerable support.

The simultaneous growth of both wings has put increasing pressure on the status-quo camp’s dominant position, while developments in the Taiwan Strait have made it increasingly difficult to restore the earlier order favoured by the mainstream status-quo camp.

Working along an end–means dimension, and setting out three objectives — defending Taiwan, maintaining the status quo, and abandoning Taiwan — against three instruments — strategic clarity, strategic ambiguity, and non-intervention — this article attempts to clarify the most recent state of the debate, dividing the field into five camps: the Taiwan-defense camp, the deterrence-rebalancing camp, the traditional status-quo camp, the gradual Taiwan-abandonment camp, and the radical Taiwan-abandonment camp.

More specifically, the Taiwan-defence camp is represented by former national security adviser John Bolton, Matt Pottinger, and former chairman of the House Select Committee on the CCP, Mike Gallagher. It views Taiwan as a forward bastion in U.S. strategic competition with China and in efforts to contain and undermine Beijing, and argues that the United States should actively defend the island. Those who hold this view are generally among the “extreme China hawks” in the U.S. strategic community.

The deterrence-rebalancing camp and the traditional status-quo camp both regard maintenance of the status quo as their principal objective, but differ over how best to achieve it. The deterrence-rebalancing camp argues that the United States should shift towards strategic clarity by making an explicit commitment to defend Taiwan. Its members generally hold that long-standing strategic ambiguity no longer fits the changing strategic situation in the Strait. The traditional status-quo camp, represented by Bonnie Glaser and Ryan Hass, maintains that strategic ambiguity remains effective and is still the best available option. Its members have criticised Biden’s repeated attempts towards greater strategic clarity.

The Taiwan-abandonment camp, meanwhile, has evolved in new directions, giving rise to a group of gradual Taiwan-abandonment advocates who view abandonment as the ultimate objective but argue that, for the time being, the United States should maintain strategic ambiguity and the “one-China policy”, postponing further steps until conditions are more favourable. On some issues, this group aligns with the mainstream traditional status-quo camp, and in several rounds of debate the two have jointly pushed back against the Taiwan-defence and deterrence-rebalancing camps. Jennifer Kavanagh, Michael Mazarr, and Michael Swaine are its principal representatives.

Jennifer Kavanagh has repeatedly defended strategic ambiguity and proposed concrete steps to reinforce the “one-China policy”. She argues that Taiwan does not require direct U.S. military defence and that even losing Taiwan would not fundamentally affect the U.S. strategic position in the Indo-Pacific. She also places hope in Trump’s ability to break the current impasse and dangerous spiral in the Taiwan Strait, arguing that the administration’s best path to avoiding conflict is to pursue a bold new agreement with China.

In a 2025 report, Michael Swaine likewise argued that the United States should maintain strategic ambiguity while carrying out necessary preparations for a noninterventionist policy shift. Once those preparations were complete, he argued, strategic ambiguity should be replaced by a policy of strategic clarity that excludes the possibility of a Sino–American war over Taiwan.

The radical Taiwan-abandonment camp, by contrast, neither believes that strategic ambiguity remains effective nor considers the long-standing “one-China policy” sustainable. In its view, the United States should abandon Taiwan as soon as possible. Doug Bandow, for example, argues that Taiwan is not vital to U.S. security, that Washington’s policy of strategic ambiguity should be brought to an end, and that honest dialogue is required for a peaceful resolution of the Taiwan question. Charles L. Glaser, Professor at George Washington University, a long-standing advocate of abandoning Taiwan, also argues that maintaining the status quo has become an increasingly dangerous choice for the United States, that the time for a grand bargain with China has passed, and that Washington’s only remaining option is to explicitly end its so-called commitment to Taiwan.

The debate has thus fragmented into five camps. All ultimately seek to safeguard U.S. national interests, but they differ markedly over intermediate objectives and policy instruments, while still sharing common ground on certain issues. The gradual and radical Taiwan-abandonment camps share abandonment as their strategic objective; the Taiwan-defence and deterrence-rebalancing camps both support strategic clarity in the form of an explicit commitment to defend Taiwan; and the deterrence-rebalancing and traditional status-quo camps are both committed to maintaining the status quo.

Overall, consensus within the U.S. strategic community has visibly eroded, and the long-standing core positions of maintaining the status quo, upholding the “one-China policy”, and preserving strategic ambiguity no longer command the broad support they once did. As support for these positions has weakened, the so-called minimum consensus has been repeatedly narrowed, until little remains beyond support for strengthening Taiwan’s asymmetric defence capabilities and pursuing a porcupine strategy. The division of camps and disintegration of consensus pose a new challenge to the coherence of U.S. Taiwan policy.

III. How Do Policy Debates Influence U.S. Taiwan Policy? An Explanation Based on “Strategic Consensus”

How debates within the U.S. strategic community over Taiwan policy shape U.S. government policy remains a question that warrants further investigation. As a regular feature of the U.S. political system, policy debate helps shape the broader environment in which government decisions are made. Following the logic of “policy debate➔strategic consensus➔decision-making constraints,” and taking into account the Biden administration’s repeated attempts to clarify strategic ambiguity, this section seeks to explain both the phenomenon itself and the mechanism through which it operates.

(1) A Preliminary Exploration of How “Strategic Consensus” Influences Decision-Making

As a relatively autonomous and intellectually diverse expert community, the U.S. strategic community plays an important role in shaping government policy, particularly in complex and highly specialised areas such as Taiwan policy. Its members can influence policy through several channels. Through the “revolving door,” they may move between expert and government positions, bringing their policy views directly into the decision-making process. They can also shape government policy through journal articles, reports, media commentary, and testimony before Congress.

Policy debates within the U.S. strategic community typically generate a wide range of strategic perspectives and policy proposals. Together, these views continually reshape the community’s dynamic “strategic consensus,” which generally reflects changes in how it perceives external threats and weighs competing interests.

Robert Sutter, a veteran specialist who worked for many years at the Congressional Research Service, has offered a preliminary explanation of U.S. policy debates over the Taiwan Strait: “The domestic debate/domestic interests have sometimes been a ‘driver’ of the direction of U.S. policy towards mainland China/Taiwan. More often, they have been a ‘brake’ slowing the momentum of U.S. policy.” Policy debate both reflects changes in official Taiwan policy and, in turn, can help bring about policy adjustments to varying degrees.

By the same logic, strategic consensus plays a key role in shaping the decision-making environment for U.S. policy towards Taiwan, while debates within the U.S. strategic community influence government decisions by continually reshaping that consensus. When strategic consensus is relatively stable and broad, government decision-making tends to favour continuity and leaves less room for policy change. When that consensus becomes significantly divided or weakened, the government may become more inclined to adjust policy, particularly amid rapid and major changes in the external environment.

More specifically, strategic consensus within the U.S. strategic community on Taiwan policy has two main components. The first is the community’s overall “minimum consensus” — the “greatest common denominator” shared by all camps and factions on Taiwan Strait issues. The second is the “mainstream consensus” upheld by the dominant status-quo camp, grounded in the “one-China policy” and aimed at maintaining the status quo.

(2) The “Mainstream Consensus” on Taiwan Policy within the U.S. Strategic Community

Since the 1970s, successive U.S. administrations have consistently adhered to the so-called “one-China policy” in handling the Taiwan question and have treated preservation of the status quo in the Taiwan Strait as their principal objective. Within this framework, strategic ambiguity has served as the principal means of maintaining that status quo. By deliberately leaving unclear whether the United States would intervene militarily in the event of a mainland “attack” on Taiwan, the policy seeks to achieve dual deterrence: deterring the Chinese mainland from changing the status quo by force while also deterring pro-“Taiwan independence” forces on the island from taking reckless steps that could disrupt it.10

When viewed as a means of maintaining balance, the logic of strategic ambiguity can be traced back to before the adoption of the “one-China policy”. As early as 1950, Livingston T. Merchant, then Deputy Assistant Secretary of State for Far Eastern Affairs, articulated this balancing logic of U.S. Taiwan policy in a memorandum to Dean Rusk, then Assistant Secretary of State for Far Eastern Affairs. He noted that U.S. policy should seek both “to deny Formosa to the Communists and to continue recognition to the Nationalists”, which required diplomatic and economic aid to Taiwan as well as assistance for their operations against the mainland. At the same time, Washington should avoid “actions which will deflect on ourselves the righteous wrath of the Chinese people”. Merchant stressed that “it is out of the question that we should pursue one or the other policy to its logical extremity”.11

Strategic ambiguity thus embodied the United States’ effort to balance competing considerations in the Taiwan Strait and also reflected the complexity of domestic political bargaining. The strategy was both a product of the U.S. government’s efforts to balance domestic and international interests and an equilibrium point in the interaction between the executive branch and Congress. It also reflected a broad preference that had long prevailed within the U.S. strategic community.

Since the 1980s, debate over U.S. Taiwan policy has generally been structured around a dominant status-quo camp in the centre, with the Taiwan-abandonment and Taiwan-defence camps at the margins. The “one-China policy” and strategic ambiguity, as the mainstream consensus upheld by the status-quo camp, have constituted the principal source of legitimacy for U.S. Taiwan policy.

The U.S. “one-China policy” is not a fixed or immutable position, but rather a dynamic framework that has been continuously adjusted over time. The policy took shape during the normalisation of China–U.S. relations in the 1970s. The 1972 Shanghai Communiqué laid the initial foundation for the U.S. “one-China policy”. It stated explicitly: “The United States acknowledges that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China. The United States Government does not challenge that position.”

The Shanghai Communiqué was the product of an effort by China and the United States to seek common ground while reserving differences under the particular historical circumstances of the time, and it helped set the direction for the further development of bilateral relations. At that stage, the U.S. “one-China policy” rested on the formulation contained in the Shanghai Communiqué. It carried forward Washington’s preference for ambiguity and introduced a degree of ambiguity into the one-China principle itself. In particular, the terms “acknowledges” and “does not challenge” left clear room for interpretation. Richard C. Bush has described the U.S. formulation as “simultaneously artful, subtle, misleading, and somewhat confused.”12

As China–U.S. relations continued to improve, the two sides subsequently signed the Joint Communiqué on the Establishment of Diplomatic Relations and the August 17 Communiqué. Although the two communiqués addressed different issues, the United States preserved a degree of ambiguity in both. The Taiwan Relations Act, enacted amid disagreements between the executive branch and Congress and pressure from “pro-Taiwan forces” in the United States, further widened the scope for ambiguity within the U.S. “one-China policy”. It is also frequently regarded as the legal “cornerstone” of U.S. security commitments to Taiwan.

The Six Assurances given to Taiwan by the Reagan administration in 1982 were also gradually codified through continued efforts by the executive branch and Congress, and during Trump’s first term they were formally incorporated into the U.S. government’s “one-China policy” framework. By this point, the so-called U.S. “one-China policy” had evolved into a framework based on the three communiqués, the Taiwan Relations Act, and the Six Assurances. In the process, it increasingly departed from the one-China principle and from the policy’s original intent. As the scope for ambiguity continued to expand, the framework’s internal contradictions became increasingly pronounced.

Nevertheless, these adjustments broadly reflected changing views within the U.S. strategic community. Since 2014, as the view that the policy of engagement with China had failed gained ground, the strategic community’s consensus on China has shifted. In debates over Taiwan policy, the traditional status-quo camp has likewise placed growing emphasis on deterring China and playing the Taiwan card. This shift in mainstream consensus has been an important force driving the evolution of the U.S. “one-China policy”.

(3) Fragmentation of Consensus and Policy Response: The Biden Administration’s “Clarification” of Strategic Ambiguity

In their 2020 article, Richard Haass and David Sacks argued that the United States should move towards strategic clarity by making an explicit commitment to defend Taiwan. Their position created a split within the status-quo camp, which had long occupied the dominant position in the U.S. strategic community’s debate over Taiwan policy.

At the end of 2021, after U.S. President Joe Biden had already made several statements that appeared to move towards greater strategic clarity, Haass and Sacks published another article in Foreign Affairs. They criticised Biden administration officials for repeatedly “walking back” the president’s remarks and argued that the era of strategic ambiguity had run its course. While continuing to support the “one-China policy”, they maintained that the United States should move promptly towards strategic clarity and that only such a shift could help maintain the status quo.

It is worth noting that in a 2019 article, Haass had still affirmed the value of strategic ambiguity in preserving the status quo, writing: “The status quo is admittedly imperfect, but it is far less imperfect than what would follow unilateral actions and attempts to resolve a situation that doesn’t lend itself to a neat solution.”[^30] Given the prominence of Haass and Sacks within the U.S. strategic community, their change of position attracted widespread attention.

Their proposal also won broad support, including from the Taiwan-defence camp, particularly against the backdrop of growing calls in the United States for a stronger commitment to Taiwan. Retired Admiral James Stavridis argued that persisting with an ineffective policy of strategic ambiguity would lead to a miscalculation across the Taiwan Strait and set off a larger conflict. Veteran diplomats Eric Edelman, a former U.S. ambassador to Finland and Turkey, and Frank Miller argued that Washington’s policy of strategic ambiguity towards the Taiwan Strait is played out and that a shift towards strategic clarity would be consistent with the Taiwan Relations Act. Michael Waltz, then a member of the House of Representatives, and Matthew Kroenig, Vice President of the Atlantic Council’s Scowcroft Center for Strategy and Security, criticised the Biden administration for inconsistent signalling on Taiwan as it moved towards strategic clarity.

As the mainstream consensus within the U.S. strategic community fragmented, the Biden administration also showed clear signs of policy response.

First, Biden made statements of greater strategic clarity on at least five public occasions during his term in office. The first came in August 2021, when he was interviewed by ABC News. Asked whether the U.S. withdrawal from Afghanistan had implications for Taiwan, Biden invoked Article 5 of the North Atlantic Treaty to explain U.S. defence responsibilities towards Japan, South Korea, and Taiwan. The second came in October 2021, when Biden was asked whether “the United States would come to Taiwan's defence if China attacked”. He answered affirmatively.

The third came during Biden’s visit to Japan in May 2022, when he again said at a press conference that the United States would be willing to get involved militarily to defend Taiwan, providing greater support than it had provided Ukraine. The fourth came in September 2022, when Biden told CBS’s 60 Minutes that U.S. forces would defend Taiwan in the event of an “unprecedented attack”. This was also his clearest and most explicit statement on the issue.

The fifth came in June 2024, when Biden told TIME that whether the United States would use force to defend Taiwan would depend on the circumstances, including if China unilaterally tries to change the status quo. Compared with his earlier remarks, this formulation was more qualified, largely because the inauguration of Lai Ching-te, who has maintained a hard-line pro-independence position, posed a serious challenge to the U.S. objective of maintaining the status quo, prompting the U.S. government to adjust its position to some extent.

Second, each of Biden’s statements of strategic clarity was subsequently clarified or “walked back” by administration officials. After Biden’s first such statement in August 2021, a senior administration official said that U.S. “policy with regard to Taiwan has not changed.” National Security Advisor Jake Sullivan later noted that “when it comes to Taiwan, it is a fundamentally different question in a different context.” Following Biden’s public remarks during his May 2022 visit to Japan, a White House official reiterated the long-standing one-China policy and the U.S. commitment to peace and stability across the Taiwan Strait. Kurt M. Campbell, then serving as the National Security Council’s Coordinator for Indo-Pacific Affairs and later Deputy Secretary of State, also opposed a shift towards strategic clarity, arguing that changing the United States’ long-standing Taiwan policy would have “significant downsides”. Nicholas Burns, then U.S. Ambassador to China, likewise stated at a congressional hearing that the United States would be more effective in staying with the one China policy of the last four decades and that the U.S. government remained committed to strategic ambiguity.[^41]

Overall, Biden’s repeated moves towards strategic clarity, followed by official “walk-backs”, ultimately produced an effect resembling strategic ambiguity. In practical terms, this did not mean that the U.S. government had shifted to strategic clarity. Rather, it represented a tactical adjustment within the established framework of strategic ambiguity, accompanied by repeated attempts to test the boundaries of greater clarity.

As a conventional establishment administration, the Biden administration was more responsive to the mainstream consensus within the U.S. strategic community. The growing divisions among different camps and the fragmentation of that consensus also helped shape its Taiwan policy. While the deterrence-rebalancing camp, which supported strategic clarity, gained ground rapidly, most members of the status-quo camp continued to favour strategic ambiguity. Together, the status-quo camp and the emerging gradual Taiwan-abandonment camp pushed back against the deterrence-rebalancing camp, limiting the Biden administration’s room for policy change.

In an expert survey conducted by Foreign Affairs at the end of 2022 on the question “Should the United States Pledge to Defend Taiwan?”, 39 respondents disagreed with such a pledge, while only eight agreed. A number of prominent Democratic scholars, including Ben Rhodes and Ryan Hass, also opposed a shift towards strategic clarity. Bonny Lin argued in congressional testimony that there are likely only marginal gains to be had from clarifying the U.S. defence commitment to Taiwan, while potentially strengthening China’s incentives to strike first against the United States or its coalition partners in a Taiwan contingency.

The Biden administration’s repeated experiments with the “clarification” of strategic ambiguity reflected continuing divisions within the U.S. strategic community. The mainstream consensus that had long underpinned U.S. Taiwan policy had become increasingly fragmented, while debate among the major camps had yet to produce a clear alternative. Against this backdrop of fragmented strategic consensus, the Biden administration’s approach can also be understood as a pragmatic way of balancing competing domestic positions.

Since 2021, both the U.S. government and the strategic community have been deeply affected by the withdrawal from Afghanistan and the Russia–Ukraine conflict, prompting serious concern over the erosion of U.S. global deterrence. The “Ukraine-ization” of the Taiwan question has become a mainstream strand of strategic thinking.13 In the Biden administration’s global strategy, the narrative of “democracy versus autocracy”, efforts to revitalise the global alliance system, and the goal of restoring U.S. leadership have led to an unlimited inflation of Taiwan’s strategic value to the United States. Against the broader backdrop of strategic competition with China, the unrestrained playing of the Taiwan card has also become an important feature of U.S. policy.

In practice, however, U.S. strategic capabilities no longer allow Washington to pursue everything at once. The Biden administration’s Taiwan policy has deepened the United States’ strategic dilemma in the Strait and heightened the risk of tensions there. The view that Taiwan has become a “negative asset” for the United States has gradually gained ground, further fuelling a new round of debate over U.S. Taiwan policy.

IV. Taiwan Policy in Trump’s Second Term amid the New Landscape of Policy Debate

In the Trump 2.0 era, debate within the U.S. strategic community over Taiwan policy has entered a new phase. On the one hand, the Taiwan-defence camp and the deterrence-rebalancing camp within the status-quo camp have lost momentum, while the mainstream consensus favouring a return to strategic ambiguity has regained ground. On the other hand, arguments for abandoning Taiwan have gained significant traction within the U.S. strategic community. The strategic retrenchment and foreign-policy restraint advocated by the New Right have provided important intellectual support for this resurgence of the Taiwan-abandonment argument, while Trump’s return has further created favourable conditions for the growth of the gradual Taiwan-abandonment camp.

First, the Trump administration’s preference for avoiding war, together with the revival of the mainstream consensus within the U.S. strategic community, is pushing U.S. Taiwan policy back towards traditional strategic ambiguity. The Trump administration seeks to preserve regional stability while extracting commercial benefits through transactional bargaining. The new National Security Strategy highlights Taiwan’s importance to the global semiconductor industry and its geographic value along the first island chain, but ultimately places greater emphasis on protecting U.S. economic interests in the region. For Trump, Taiwan’s strategic value is far outweighed by that of the Chinese mainland. As John Bolton recalled in his White House memoir, Trump often compared Taiwan to the tip of a Sharpie pen and China to the Resolute Desk in the Oval Office.14

During his second term, Trump has treated Taiwan as both a bargaining chip in his broader dealings with China and a means of preserving the stability and predictability of those dealings. This reflects a clear tendency to use the Taiwan card in reverse. In public statements, Trump has referred openly to Taiwan on at least four occasions since returning to office, maintaining a posture of strategic ambiguity.

The first came after the China–U.S. economic and trade teams held talks in Geneva in May 2025. At a White House press conference, Trump said: “They've agreed to open China, fully open China, and I think it's going to be fantastic for China, I think it's going to be fantastic for us, and I think it's going to be great for unification and peace.”

The second came in August 2025, when Trump said in an interview with Fox News that Xi Jinping had told him: “I will never do it as long as you’re president.”

The third came on 20 October 2025, when Trump was asked about the possibility of the Chinese mainland “attacking” Taiwan and replied: “I think we’ll be just fine with China. China doesn’t want to do that.”

The most recent came in a January 2026 interview with The New York Times, in which Trump said, “He [Xi Jinping] considers it to be a part of China, and that's up to him what he's going to be doing. In practice, Trump has also appeared to prioritise the broader prospects for China–U.S. negotiations, including by declining to approve a planned U.S. transit by Lai Ching-te and by cancelling a planned meeting between U.S. and Taiwan defence officials.

Viewed through the lens of policy debate and strategic consensus, Washington’s emerging gradual Taiwan-abandonment camp has reached a temporary consensus with the traditional status-quo camp on strategic ambiguity. This convergence has become an important force in reconsolidating the mainstream consensus and has provided necessary support for the Trump administration’s continued adherence to strategic ambiguity. Some strategic analysts have already expressed approval of the restraint in the Trump administration’s Taiwan policy.

It should be emphasised, however, that this return does not reflect a deeper recognition by Trump of the complexity of the Taiwan question or of the need for the United States to return to strategic ambiguity. Rather, strategic ambiguity better serves his preference for stable transactional bargaining with China while allowing the United States to distance itself from regional risks. If China–U.S. economic and trade negotiations run into difficulties in the future, Trump may once again turn to the Taiwan card.

Second, the Trump administration is reinforcing the minimum consensus within the U.S. strategic community that Taiwan’s defence capabilities should be strengthened. Across the contemporary U.S. strategic spectrum, from the Taiwan-defence camp to the radical Taiwan-abandonment camp, there is broad support for Taiwan devoting greater resources to its own defence and developing asymmetric capabilities and a porcupine strategy.

The Taiwan-defence camp sees U.S.–Taiwan defence cooperation as a means of demonstrating and reinforcing the U.S. commitment to Taiwan. The Taiwan-abandonment camp, by contrast, regards stronger Taiwanese self-defence capabilities as a prerequisite for an eventual U.S. withdrawal. Even Charles L. Glaser, a leading advocate of Taiwan abandonment, has argued that the United States should explicitly end its commitment to use force to defend Taiwan, while continuing to help Taiwan defend itself through arms and training and supporting a full shift towards a porcupine strategy.

Strategic consensus affects decision-making in two ways: the mainstream consensus constrains government policy, while the minimum consensus exerts strong pressure for government action. The minimum consensus to strengthen Taiwan’s defence capabilities is therefore likely to remain one of the more certain directions of the Trump administration’s Taiwan policy, including expanded arms sales to Taiwan.

Trump’s own pursuit of greater arms sales for profit further reinforces this tendency. Taken together, these two factors helped drive the U.S. government’s approval in December 2025 of an arms-sales package to Taiwan worth about US$11.1 billion, including HIMARS rocket systems, Javelin, and TOW anti-tank missiles. The package demonstrated a clear U.S. intention to reshape Taiwan’s asymmetric defence system.

Third, the Trump administration is pursuing a strategy of maximum extraction and de-risking towards Taiwan, seeking to make Taiwan serve U.S. interests across the board. Trump’s foreign policy is centred on “Making America Great Again”. In practice, this means promoting U.S. global strategic retrenchment by shedding external commitments while using maximum pressure to force allies and partners to shoulder greater burdens.

This strategy of maximum extraction towards Taiwan is reflected mainly in two areas. First, Trump has pressed Taiwan to dramatically hike its defence spending. Elbridge Colby, U.S. Under Secretary of Defence, stated explicitly at a congressional hearing that Taiwan should raise defence spending to around 10 per cent of GDP. Trump has likewise expressed dissatisfaction with Taiwan’s level of defence spending, arguing that Taiwan has failed to shoulder its responsibilities and has instead relied on U.S. protection. The United States is therefore bound to pressure Taiwan to devote itself fully to developing asymmetric defence capabilities.

Second, Trump has demanded that Taiwan substantially reduce its trade surplus with the United States and has sought, through a variety of means, to “hollow out” Taiwan. These measures include pressing Taiwan to expand purchases of U.S. agricultural products, energy, and defence equipment, while sharply increasing U.S.-bound investment by Taiwan’s advanced manufacturing industries. U.S. Commerce Secretary Howard Lutnick has even proposed a “50-50” split in semiconductor production between the United States and Taiwan, in an effort to turn TSMC into a “USSMC” — a United States Semiconductor Manufacturing Company. In the future, this could develop into demands that Taiwan relocate its entire semiconductor supply chain to the United States.

Taken together, Trump 2.0’s Taiwan policy displays clear characteristics of “de-risking”. Specifically, it seeks to reduce the strategic risks to the United States associated with defending Taiwan; eliminate supply-chain risks arising from the excessive concentration of semiconductor manufacturing in Taiwan; reduce risks stemming from the U.S. trade imbalance with Taiwan; and push Australia, Japan, South Korea, and the Philippines into serving as U.S. “frontline pawns” in a Taiwan Strait conflict, thereby shifting the risks of conflict and the associated responsibilities onto U.S. allies.

Fourth, the Trump administration’s Taiwan policy is closely connected to the current resurgence of Taiwan-abandonment arguments. Since 2024, the gradual Taiwan-abandonment camp — which advocates maintaining strategic ambiguity and preserving the status quo for the time being, while ultimately seeking to abandon Taiwan — has continued to grow. Defense Priorities, an organisation closely associated with the New Right, has become an important intellectual source for this line of thinking. Jennifer Kavanagh, a prominent representative of the gradual Taiwan-abandonment camp at the organisation, has repeatedly argued that Taiwan is of limited value to the United States and is not worth the risk of war with the Chinese mainland.

The argument that the United States should decouple its regional interests from Taiwan is, in essence, an effort to prepare for the eventual abandonment of Taiwan and to secure a “soft landing” for U.S. hegemony in the Western Pacific. Lyle Goldstein, director of the Asia Program at Defense Priorities, likewise argued in TIME that “the U.S. must beware of Taiwan’s reckless leader.”

At the same time, the Western liberal mainstream narrative that the Taiwan authorities have long sought to embrace sits uneasily with the political ideas of the New Right and has also drawn aversion from Trump himself. Christian Whiton, a senior adviser during Trump’s first term, published an article accusing the Taiwan authorities of being “beholden to lefty cultural issues, indifferent to U.S. business, unserious about defence and unwilling to close a trade deficit.”

The Trump administration’s policies of “maximum extraction” and “de-risking” partly overlap with the current gradual Taiwan-abandonment argument. More specifically, the gradual Taiwan-abandonment camp has put forward three approaches that align with Trump’s preferences.

First, “transactional Taiwan abandonment”: treating Taiwan as a bargaining chip in dealings with the Chinese mainland in exchange for tangible benefits.

Second, “instrumentalisation of Taiwan abandonment”, an approach that the Trump administration is already putting into practice. It uses the possibility of “abandoning Taiwan” as a tool of “maximum pressure” to force Taiwan to make greater concessions across multiple areas. In particular, it requires Taiwan to commit first to defence self-reliance in exchange for vague and uncertain U.S. support or commitments.

Third, an end-state approach to Taiwan abandonment: assuming that the United States will eventually lose Taiwan, Washington should accelerate the final round of maximum extraction and hollow it out with every possible means before that happens.

Overall, both New Right forces and the Trump administration increasingly see Taiwan as more of a “liability” than an “asset”, while the long-standing bipartisan consensus in support of Taiwan has begun to erode. Although the Trump administration is unlikely to publicly “abandon Taiwan”, its push for “defence self-reliance” and the loss of TSMC could ultimately strip Taiwan of its strategic value to the United States. This policy of “de-risking” is therefore undoubtedly a prelude to eventual U.S. abandonment of Taiwan.

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Pekingnology

Beijing renews calls for Taipei to open up tourism upon my FT oped

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Cheng Li-wun did NOT redefine 1992 Consensus. She stood up for it.

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5 months ago · 15 likes · 2 comments · Zichen Wang and Yuxuan JIA

We have previously discussed related questions, including whether China has massively overbuilt high-speed rail in our sister newsletter, Pekingnology. In today’s article, Li Xunlei, Chief Economist at Zhongtai Financial International Limited, a leading Chinese investment bank, takes a data-driven look at the broader issue of China’s transport overcapacity.

Li argues that China’s transport infrastructure, including expressways, railways, and urban public transport, has already developed structural overcapacity: in less-developed regions, infrastructure expansion has often exceeded what local populations and economies can support, while the continued expansion of transport networks has been accompanied by lower utilisation, weaker investment returns, and heavier debt burdens. Demographic changes, declining population mobility, and greater population concentration in major cities are only going to widen these mismatches.

The article was originally published on 27 August 2026 on 李迅雷金融与投资 Finance & Investment with Li Xunlei, Li's personal WeChat blog.

Li has kindly reviewed and authorised the translation.

— Yuxuan Jia

被忽视的运能过剩

The Overlooked Transport Overcapacity

As early as 2009, I took an interest in Guizhou Province’s expressway development plan, which projected that the province’s total expressway mileage would reach 6,851 kilometres by 2030. At the time, Japan had the world’s second-largest economy and a total expressway network of 6,300 kilometres, while Guizhou ranked relatively low among Chinese provinces in terms of GDP. If Guizhou’s expressway network was actually going to become longer than Japan’s, would that result in excess expressway capacity in the province? This question led me to write an article titled Expressways: A Road to Prosperity or Desolation?

Seventeen years have now passed. Before 2008, inadequate infrastructure was a major constraint on China’s economic development. Today, China is a global leader in infrastructure. That transformation has helped make China one of the world’s leading manufacturing nations and supported its push to become a manufacturing powerhouse. At the same time, however, structural overcapacity has emerged in some traditional industries, while relatively little academic attention has been paid to the supply-demand balance in road transport infrastructure.

Based on the data collected for this article, my preliminary conclusion is that China’s road transport infrastructure is enormous in scale and technologically advanced, but suffers from structural overcapacity in total network mileage, total passenger capacity, and geographic distribution. For convenience, I will refer to this phenomenon as “transport overcapacity”.

Expressways: Excessive Total Mileage and a Mismatch Between Regional Distribution and Economic Density

By the end of 2025, Guizhou’s total expressway mileage had already reached 9,563 kilometres, far exceeding the target originally set for 2030. Estimates of Japan’s total expressway mileage vary, but according to The Japan Times, it stood at 10,328 kilometres at the end of March 2025. The two were therefore not far apart. Yet in 2025, Japan’s GDP was 13.4 times that of Guizhou.

Nationwide, China’s total expressway mileage reached 199,400 kilometres by the end of 2025, almost twice the 106,000 kilometres in the United States.

Moreover, as the total length of the expressway network continues to expand, traffic intensity has steadily declined. A cross-sectional comparison for 2024 shows that provinces with more expressway mileage did not necessarily have higher freight-use intensity, suggesting that later expansion of the network has increasingly become detached from actual demand.

Guizhou, for example, had about 9,000 kilometres of expressways in 2024, but its freight intensity was only 3.93 billion tonne-kilometres per 10,000 kilometres of expressway, far below Guangdong’s 12.59 billion tonne-kilometres per 10,000 kilometres. Tibet, Hainan, Qinghai, Sichuan, and Yunnan also recorded freight intensity of less than 5 billion tonne-kilometres per 10,000 kilometres.

Mismatch Between Expressway Distribution and Freight Traffic Intensity

My team calculated the compound annual growth rates of expressway mileage and road freight turnover between 2014 and 2024. In the five provincial-level regions where expressway mileage grew fastest — Tibet, Yunnan, Guangxi, Qinghai, and Guizhou — mileage grew by at least 8.48% year on year, while road freight turnover increased by only 1.8% on average.

By contrast, in the five regions where expressway mileage expanded most slowly, road freight turnover grew by an average of 4.8% a year. In Shanghai, for example, expressway mileage increased by only 0.7% annually, while freight turnover rose by as much as 12.1%. In Zhejiang, expressway mileage grew by 3.75% a year, while freight turnover increased by 9.32%.

The conclusion is clear: the places that built the most expressways were often those where freight demand grew the least.

The same issue can be seen in road passenger transport. Since China’s total passenger traffic had already peaked in 2012, the continued expansion of the road network meant that the passenger traffic carried by each kilometre of road would decline. Passenger intensity fell from a peak of 436,000 passenger-kilometres per kilometre of road in 2012 to just 91,000.

Road Traffic Intensity in China

Of course, these figures do not include journeys made by private car. China’s vehicle stock has risen sharply over the past two decades, driven mainly by growth in private car ownership. Yet even with China leading the world in annual automobile sales, vehicle use per kilometre of expressway remains relatively low.

Motor Vehicles per Kilometre of Expressway in Major Countries, 2025

Based on 2025 data, China had 1,847 motor vehicles for every kilometre of expressway, compared with 3,672 in the United States, 2,662 in Japan, 5,333 in South Korea, and 3,416 in France. Clearly, the density of vehicles per kilometre of expressway in China was lower than in all of these countries.

China’s vehicle stock has grown rapidly in recent years, but growth in automobile sales slowed sharply in 2026, while total expressway mileage continued to increase quickly. At the same time, vehicle density is much higher on expressways in the more developed eastern regions. This points to a dual structural imbalance: some areas face capacity shortages, while others have overcapacity. In aggregate, however, expressway capacity remains excessive.

Building roads and bridges and digging tunnels can undoubtedly support economic development and improve people’s lives. The key question is whether the input-output ratio is reasonable.

Because expressway construction has largely been financed through borrowing, the financial position of toll roads is particularly important. According to the National Toll Road Statistical Bulletin 2021, toll-road revenue nationwide totalled RMB 663.1 billion in 2021, while total expenditure reached RMB 1.2909 trillion, leaving a shortfall of RMB 627.9 billion. (The shortfall reached a record RMB 747.8 billion in 2020, compared with RMB 485.0 billion in 2019.)

Of total expenditure, RMB 1.0592 trillion went towards principal and interest payments on debt, RMB 73.9 billion towards maintenance, RMB 30.7 billion towards the expansion and upgrading of roads and auxiliary facilities, RMB 83.9 billion towards operations and management, and RMB 43.3 billion towards taxes and fees. These accounted for 82%, 5.7%, 2.4%, 6.5% and 3.4% of the total, respectively. In other words, a full year of toll revenue was not even enough to cover principal and interest payments on debt.

Since the Ministry of Transport stopped publishing toll-road statistics after 2021, it is difficult to conduct further analysis. However, fragmentary data released in recent years suggest that road-toll revenue has stopped rising. One possible reason is that expressways built towards the end of the last century are gradually approaching the end of their 30-year tolling periods, meaning that a wave of expressways becoming toll-free may have arrived.

Although some expressway sections may be able to extend their tolling periods through expansion and reconstruction projects, doing so inevitably adds to investment costs.

At the same time, expressways built earlier were generally on routes with stronger transport demand and heavier traffic, while those built later tend to carry less traffic. This suggests diminishing returns on investment in toll roads.

One indication is the median return on invested capital (ROIC) of local government financing vehicles, which fell from 3.1% in 2011 to 1.3% in 2020. This may also help explain why private companies now account for an increasingly small share of investment in expressway projects.

Railways: Structural Overcapacity

Between 2015 and 2025, China’s railway network expanded from 121,000 to 165,000 kilometres. Yet freight turnover per 10,000 kilometres of railway fell by about 45% from its 2010 peak and has remained broadly flat ever since, while passenger traffic intensity is still below its 2019 level.

Rail Traffic Intensity: Passenger and Freight Turnover per 1,000 km of Railway

Rail freight volumes have been sustained largely by coal shipments shifted from road to rail, while the average rail freight distance fell steadily from 825 kilometres in 2017 to 693 kilometres in 2024, pointing to a structural decline in demand for long-distance freight transport.

Freight Mix and Average Haul on China’s National Railways, 1990–2024

Growth in rail freight has been highly concentrated in resource-export corridors in Xinjiang, Tibet, and Gansu, while freight volumes in a number of eastern and northeastern provinces have declined. National aggregate figures therefore conceal considerable regional underutilisation. Between 2019 and 2024, rail passenger volumes fell in all three northeastern provinces.

China’s development of high-speed rail over the past two decades has been a remarkable achievement. By the end of 2025, China had 50,400 kilometres of high-speed rail in operation, accounting for more than 70% of the world’s total operating high-speed rail mileage of 58,800 kilometres. China’s target for 2030 is 60,000 kilometres.

China’s new high-speed rail mileage peaked in 2014, then declined for several years before recovering in 2018–2019. After the COVID-19 pandemic ended in 2022, marginal passenger intensity also rebounded sharply — that is, the additional transport demand generated by each additional 10,000 kilometres of railway.

New High-Speed Rail Openings and Marginal Passenger-Traffic Intensity: Five-Year Rolling Calculation

However, publicly available data show that passenger volume per unit of high-speed rail mileage had already peaked in 2018, at 708 million trips per 10,000 kilometres. In 2024, the figure stood at 682 million, still below its pre-pandemic level.

Thus, although the total length of the high-speed rail network increased by 65% between 2018 and 2024, passenger volume per kilometre had still not returned to its 2018 peak. Moreover, in regions experiencing population outflows, the passenger base for high-speed rail services is shrinking.

Annual High-Speed Rail Ridership per 1,000 km of Network

High-speed rail has undoubtedly made travel much more convenient and significantly shortened journey times. But the enormous cost of building high-speed rail and the debt burden it has created cannot be ignored.

By the end of 2025, China State Railway Group had total outstanding debt of RMB 6.17 trillion, of which RMB 5.04 trillion was interest-bearing debt.

Looking ahead, China’s total population is declining, and its migrant population has been falling since 2014. Yet the high-speed rail network continues to expand. It therefore remains highly uncertain whether the railway sector will be able to bring its borrowing levels down on a sustained basis.

Civil Aviation: Feeling the Impact of High-Speed Rail

I once wrote an article titled One Billion in China Have Never Been on a Plane. Many readers took it to mean that I was optimistic about China’s aviation industry. In fact, without such rapid expansion of high-speed rail, air passenger throughput would probably have grown much faster.

The year 2008 marked the beginning of China’s high-speed rail era. The data show that high-speed rail has significantly diverted passengers away from civil aviation. For example, annual passenger traffic per 10,000 kilometres of air routes peaked in 2009 and has been declining ever since.

Moreover, the air-route network has expanded faster than air passenger traffic. By 2024, annual passenger volume per aircraft was still below its 2019 level, while high-speed rail was carrying 4.5 times as many passengers as civil aviation, with the gap continuing to widen.

Passenger Traffic per Aircraft and per 1,000 km of Air Routes

China’s civil aviation industry should therefore fully factor in the impact of high-speed rail, expressways, and emerging forms of transport such as autonomous vehicles when planning airport construction, route development, and aircraft procurement.

Passenger Volume Gap Widens: High-Speed Rail versus Civil Aviation

According to the 2025 Statistical Bulletin on the Production of Civil Transport Airports issued by the Civil Aviation Administration of China, China had 270 certified transport airports by the end of 2025. Of these, 41 handled more than 10 million passengers a year, and together they accounted for 83.7% of total passenger throughput. In other words, more than 85% of the country’s airports shared less than 16% of total traffic. At the bottom of the distribution, some small airports handled almost no passengers, and most were under financial pressure.

Airport passenger traffic is also becoming increasingly polarised. Airports in Beijing, Shanghai, and Guangzhou together accounted for 22.4% of national passenger throughput, up 0.7 percentage points from 2024.

Meanwhile, 191 airports handled fewer than 2 million passengers a year, five more than in 2024, and together accounted for only 5.9% of total passenger traffic, an even smaller share than in the previous year.

For example, Terminal 1 at one airport handled more than 10 million passengers in 2019, but only 8.03 million in 2025, and the figure may be even lower in 2026.

Why did passenger throughput fall rather than rise over those six years? This was probably related to the opening of several high-speed rail lines serving the same city, with still more such lines being added.

Terminal 2 at the same airport, begun in 2020 and opened in 2024, was designed for 23 million passengers a year. Its opening took Terminal 1 — in service only since 2015 — out of passenger use after just nine years, with plans to convert it into office space. That is a great pity.

Therefore, infrastructure investment, including airport construction, needs to be much more forward-looking, taking into account future population trends and the development and geographic distribution of high-speed railways, expressways, and other transport infrastructure.

China is seeing an increasing concentration of population in major cities. Tier-three, tier-four, and tier-five cities are generally experiencing net population outflows, as are the three northeastern provinces, Shandong, Hebei, and much of central and western China. Against this backdrop, declining passenger throughput at most airports is inevitable.

Buses and Metros: Overall Overcapacity and Structural Imbalances

I once came across a Shanghai television report in which public transport staff said that buses in Lujiazui Financial City carried an average of just 1.5 passengers each between 8 a.m. and 2 p.m.

The decline in bus ridership is probably related to the rapid development of metro systems and the growing popularity of private cars, ride-hailing services, and shared bicycles.

Nationwide, annual passenger volume per bus fell to just 33% of its 2010 level by 2025. Passenger volume per kilometre of bus-route network declined even more sharply, to only 16% of its 2010 level, despite continued growth in both the bus fleet and route network.

Bus Ridership per Vehicle and per Kilometre of Route Network (Indexing 2010 Level at 100)

Passenger volume per bus has fallen by between 40% and 75% in all 31 provincial-level regions, showing that the problem is nationwide rather than confined to a handful of cities.

In Hebei, Henan, and some other provinces, passenger volume per bus has fallen by more than 70%. Yet the overall size of the bus fleet does not appear to have been reduced substantially. At the same time, environmental requirements have led to the replacement of fuel-powered buses with electric ones.

As of June 2026, China had 11,813 kilometres of urban rail transit in operation, including 10,224 kilometres of metro lines, equivalent to 45% of the world’s total operating metro mileage of 22,790 kilometres.

China, however, accounts for only about 17.5% of the world’s population, and that share is likely to decline further.

According to the Urban Rail Transit 2025 Statistics and Analysis Report released by the China Association of Metros, 58 Chinese cities had urban rail transit systems in operation by the end of 2025, with 382 lines covering more than 13,000 kilometres after a net increase of over 900 kilometres during the year. Metro lines alone exceeded 10,000 kilometres, the highest total in the world.

Under Ministry of Transport requirements, proposed metro and light-rail lines should have an initial passenger intensity of at least 7,000 and 4,000 passenger trips per route-kilometre per day, respectively, and projected peak-hour flows in the busiest direction of at least 30,000 and 10,000 passengers, respectively.

Actual passenger intensity, however, remains relatively low. Of the 41 cities with metro systems, only 27 had disclosed passenger-intensity data as of 15 August 2026, and just 15 met the 7,000-passenger benchmark. On this basis, more than half of the cities with metro systems are estimated to fall below the threshold. Across all 58 cities with urban rail transit, average passenger intensity was only 5,800 trips per kilometre in 2025, down 5.57% from 2024.

Average Daily Metro Ridership per Kilometre, Last 30 Days (Thousand Passenger Journeys per Kilometre of Metro Network)

Metro construction is expensive. Core lines in China’s first-tier cities generally cost more than RMB 1 billion per kilometre, while those involving difficult geological conditions or high relocation costs can exceed RMB 1.5–2.0 billion per kilometre.

For example, metro construction currently costs about RMB 2 billion per kilometre in Shanghai and close to RMB 1 billion in Guangzhou, compared with a more typical RMB 500–800 million in other cities.

Annual operating and maintenance costs are also high, at around RMB 10–15 million per kilometre. This places a heavy fiscal burden on local governments. In 2024, for example, the Beijing government provided RMB 24.852 billion in subsidies for its metro system, while Qingdao, Ningbo, Chengdu, Shenzhen, and several other cities also received more than RMB 7 billion in government subsidies.

In 2025, 3,125.28 kilometres of high-capacity urban rail systems, mainly metros, were under construction, along with 1,620.28 kilometres of medium-capacity systems, including light rail, suburban rapid rail and maglev lines. China’s urban rail capacity is therefore set to expand substantially in the years ahead, even as its total population declines and migration from tier-three, tier-four, and tier-five cities towards larger tier-one and tier-two cities accelerates.

The Causes of Transport Overcapacity and Possible Responses

After examining overcapacity across roads, railways, aviation, and urban public transport, a natural question arises: why has transport overcapacity become so widespread across China’s provinces and cities? And why do many local governments continue launching major construction projects despite already facing considerable debt pressure?

According to data from the National Bureau of Statistics, total passenger traffic peaked as early as 2012 at 38.1 billion trips (excluding passengers travelling in private cars) and has been declining ever since.

China’s migrant population, meanwhile, peaked at about 253 million in 2014 before beginning to decline. Although the Seventh National Population Census recorded a sharp rise to 376 million in 2020, this reflected a change in statistical coverage rather than a genuine reversal of the trend.

In other words, passenger transport demand reached its ceiling roughly a decade before China’s total population peaked in 2021. Yet transport infrastructure investment has continued, with the actual construction and commissioning of high-speed railways, expressways, metros and other facilities often far exceeding earlier plans.

Total Passenger Traffic Peaked Before the Population Did

Why, then, do local governments remain so enthusiastic about infrastructure investment? There are several possible reasons.

First, there is the long-standing belief that “if you want to get rich, build roads first”. Faster and more convenient transport can undoubtedly support economic development, but greater mobility of people and other local economic resources can affect different regions in very different ways.

In previous research, for example, my team examined population changes in cities along the Beijing–Shanghai High-Speed Railway and found that net population outflows accelerated after the line opened. A similar pattern emerged in Japan after the Shinkansen linked Osaka more closely with Tokyo, with more people moving from Osaka to Tokyo.

Second, road and bridge construction has become an important tool for many localities seeking to boost economic growth. Investment can lift GDP quickly, but transport infrastructure often delivers relatively low returns. As a result, fiscal spending can rise much faster than revenue, adding to debt pressure over time. By our calculations, China’s outstanding government debt has grown at more than three times the rate of real GDP over the past five years.

Third, some local officials still place too much emphasis on highly visible infrastructure projects as a measure of their performance, while paying too little attention to underlying problems such as population outflows and weak local industries. This adds further strain to local government finances.

So how should China respond as transport overcapacity becomes increasingly severe in the years ahead?

In a recent article titled Where Is China’s Population Heading? (2026 Edition), my team projected that China’s population could fall below 1.3 billion in 2039 and below 1.2 billion in 2047. We also forecast that China could become a super-aged society by 2031, with people aged 65 and above accounting for more than 20% of the population, further reducing population mobility.

At the same time, the population are likely to become more concentrated in the major cities of the Yangtze River Delta and Pearl River Delta and, in western China, around Chengdu.

Number of Cities Recording Net Population Inflows and Outflows, 2025

Official data show that between 2017 and 2025, only 11 of mainland China’s 31 provincial-level regions recorded net population inflows after excluding natural population growth. Zhejiang overtook Guangdong to rank first nationwide: its permanent resident population rose from 61.70 million in 2017 to 67.01 million in 2025, an increase of 7.6%, compared with 2.1% in Guangdong over the same period.

The concentration is even more striking within the more developed regions. Between 2017 and 2025, Guangzhou and Shenzhen accounted for more than half of Guangdong’s increase in permanent residents, while Hangzhou and Ningbo accounted for more than 95% of Zhejiang’s. Population growth in Suzhou, Nanjing and Chengdu also far exceeded the overall increases in their respective provinces.

Against this backdrop, we propose measures covering demographic and migration trends as well as market mechanisms.

First, China’s macroeconomic policymakers should take greater account of future population decline, lower population mobility, and changing patterns of regional migration. The National Development and Reform Commission should lead a cross-ministerial coordination mechanism to reassess investment plans for high-speed railways, expressways, airports, and other major transport infrastructure.

As noted above, China’s population is likely to become increasingly concentrated in first-tier cities, new first-tier cities, and provincial capitals. In the future, perhaps two-thirds of Chinese cities will experience net population outflows, while more than 80% may see declines in their permanent resident populations. Transport planning should therefore look further ahead. In economically developed regions where population inflows are expected to continue, expressways, high-speed railways and metro lines should still be built where necessary. In more remote areas likely to experience substantial population outflows, however, investment in railways, expressways, and airports should be strictly constrained.

Fiscal transfers now exceed RMB 10 trillion and account for an increasingly large share of China’s public expenditure. Yet they often flow in the opposite direction from population movements, which appears inconsistent with the principle of equal access to basic public services. As China places greater emphasis on “investment in people”, fiscal transfers should better reflect where people live and move, making public spending more effective.

Moreover, local governments account for as much as 86% of China’s fiscal expenditure, leaving the central government with limited room for macroeconomic management. In infrastructure investment, a greater share of responsibilities and fiscal resources should be shifted to the central level, with local governments taking on a smaller share. This would also increase the central government’s share of overall fiscal expenditure.

Second, at the operational level, the debt pressure created by continued expansion of transport capacity needs to be addressed, including through more flexible pricing for buses, urban rail, and high-speed rail. For example, high-speed rail fares could be adjusted more flexibly across seasons to better reflect fluctuations in demand. Among China’s first-tier cities, Shenzhen, Guangzhou, Beijing and Shanghai recorded relatively high metro passenger intensity in 2025 and could consider fare increases.

Meanwhile, travel subsidies for elderly people, vulnerable groups, people with disabilities or illnesses, and low-income residents could instead be provided through discounted fare schemes targeted specifically at these groups. The eligibility threshold for elderly benefits should be aligned with international practice and set at 65 and above. The broader direction of reform should be to shift public transport from a universal benefit for all passengers towards support focused on specific groups, making subsidies more targeted while reducing the fiscal burden.

Urban bus routes in significant oversupply should be reduced or suspended where appropriate. Some routes could be contracted out to private transport operators to better meet the travel needs of different passenger groups. Reducing an oversized bus fleet would not only ease fiscal pressure but also help relieve congestion on urban roads.

Third, local officials should uphold the principle that “new officials must also deal with legacy problems” and adopt a correct view of governance performance. For completed expressways, high-speed railways, and urban rail networks that have fallen short of the passenger, traffic-intensity, or revenue targets set in their original feasibility studies, the reasons should be carefully examined and accountability imposed where appropriate.

To address local governments’ long-standing reliance on infrastructure investment to drive GDP growth, a stricter performance evaluation framework is needed to curb inefficient investment. For example, current Ministry of Transport requirements for launching urban rail projects consider passenger intensity, local GDP, and fiscal revenue, but not local debt levels. A city’s debt burden should also be taken into account when determining whether it qualifies to build a metro system.

Appendix: Notes on Units of Measurement

Passenger journeys (billion journeys): The number of passenger journeys made in a year, irrespective of distance travelled. Each trip counts as one passenger journey, whether the passenger travels 2 kilometres or 2,000 kilometres. This measure indicates the total number of journeys provided by a transport service.

Passenger turnover (billion passenger-kilometres): Passenger turnover is calculated by multiplying the number of passenger journeys by the distance travelled: passenger journeys × kilometres. For example, one passenger travelling 100 kilometres generates 100 passenger-kilometres. By incorporating both passenger numbers and distance travelled, this measure reflects the total volume of transport work performed.

The distinction: Passenger journeys measure how many trips were made, while passenger turnover measures both how many trips were made and how far passengers travelled. Passenger turnover is therefore the appropriate measure when comparing how intensively different routes are used. For example, if Shanghai Metro Line 2 and the Beijing–Guangzhou high-speed railway each carry 100 million passenger journeys, but their average journey lengths are 10 kilometres and 1,000 kilometres respectively, the passenger turnover of the former is only 1% of that of the latter.

Freight volume (billion tonnes) and freight turnover (billion tonne-kilometres): The same principle applies to freight transport. Freight volume measures the weight of goods carried, while freight turnover is calculated as tonnes carried × kilometres travelled.

Traffic intensity (thousand passenger-kilometres per kilometre for passenger transport; thousand tonne-kilometres per kilometre for freight transport): This measure is calculated as turnover ÷ total route length. It distributes the total transport work performed in a year across each kilometre of the network, indicating how intensively the network is used. It is a standard measure in both road and rail transport. A higher value indicates greater asset utilisation, while a sustained decline suggests that network expansion has not generated a corresponding increase in traffic.

For urban bus and metro systems, traffic intensity is generally calculated using passenger journeys rather than passenger turnover. This is because variations in journey length within an urban network are relatively small, meaning that the distance component can be treated as broadly constant and therefore omitted.

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Its official responsibilities include “studying and formulating principles and policies on Taiwan-related work” and “organizing, guiding, managing and coordinating the Taiwan-related work of departments under the CPC Central Committee and the State Council, as well as provinces, autonomous regions and municipalities”—meaning, in practice, that Taiwan-related work undertaken by other central-level ministries, including the ministry of foreign affairs, falls within the Office’s organizing, guiding, managing and coordinating remit.

The Office holds a regular weekly press conference every Wednesday and subsequently publishes a record on its website, although it is unclear whether that record is a verbatim transcript. Judging from past practice, international media do not appear to have access to these briefings. This makes their contents particularly important, yet relatively inaccessible to the English-speaking world.

Given the Office’s indispensable role in one of the most consequential issues in world affairs, I have therefore decided, on a trial basis, to translate and publish its regular press briefings, with the assistance of AI, as with our other translations. (I may also discontinue this at any time, depending mainly on my mood.)

These translations have not been authorized, reviewed, or approved by the Office or by any other person or party.

国务院台办新闻发布会辑录（2026-09-02）

September 2, 2026, 16:20

Source: Taiwan Work Office of the CPC Central Committee/Taiwan Affairs Office of the State Council

At 10 a.m. on September 2, the Taiwan Affairs Office of the State Council held a regular press conference in its press briefing room. Spokesperson Zhang Han answered questions from reporters on recent issues of concern across the Taiwan Strait.

Zhang Han: Good morning, friends from the media. Welcome to the regular press conference of the Taiwan Affairs Office of the State Council. Please go ahead with your questions.

People’s Daily: The 30th Shandong-Taiwan Economic and Trade Fair was recently held in Shandong, with active participation by Taiwan businesspeople and enterprises. Could you brief us on the event?

Zhang Han: On August 31, the 30th Shandong-Taiwan Economic and Trade Fair, jointly hosted by the Shandong Provincial People’s Government and the Taiwan Affairs Office of the State Council, opened in Weifang, Shandong Province. About 800 people from various sectors on both sides of the Taiwan Strait attended the event, including Zhang Ping, vice chairman of the mainland side of the Cross-Strait CEO Summit; Song Tao, director of the Taiwan Work Office of the CPC Central Committee and the Taiwan Affairs Office of the State Council; Lin Wu, secretary of the CPC Shandong Provincial Committee; Hsiao Hsu-tsen, vice chairman of the Chinese Kuomintang; Mao Chi-kuo, vice chairman of the Taiwan side of the Cross-Strait CEO Summit; Lee Cheng-hung, president of the Association of Taiwan Investment Enterprises on the Mainland; Hsu Shu-po, chairman of the Taiwan General Chamber of Commerce; and Lei Hong-yi, chairman of the Council for Industrial and Commercial Development.

The Shandong-Taiwan Economic and Trade Fair has been held 30 times since 1994 and is one of the longest-running cross-Strait economic and trade exchange events. This year’s fair featured six thematic matchmaking activities in such fields as modern agriculture, green chemicals, the marine economy, intelligent manufacturing, youth entrepreneurship and vocational education. A number of exchange activities were also organized at parallel venues in Zibo, Jining, Dezhou and Heze, yielding a series of cooperation outcomes. Enterprises, associations and universities from the two sides signed seven cooperation agreements or memoranda in areas including industrial park development, joint ventures and science and technology cooperation, and jointly inaugurated one university-enterprise innovation and practice base.

During the event, Shandong also introduced 11 policy measures to support the development of Taiwan businesspeople and enterprises in the province during the 15th Five-Year Plan period. Covering project investment, agricultural cooperation, scientific and technological innovation, financial services and other areas, the measures are designed to support Taiwan businesspeople and enterprises in better integrating into Shandong’s economic and social development, achieving greater and better development of their own, and opening up a new prospect for Shandong-Taiwan economic and trade cooperation.

Riyue Tantian, a new-media outlet of China Media Group: On August 26, a mudslide occurred on the Nepal side of the border, causing casualties and missing persons at the Gyirong Port in Xigaze, Xizang/Tibet. After the disaster, Chinese Kuomintang Chairwoman Cheng Li-wun, people from various sectors in Taiwan, as well as Taiwan compatriots and enterprises on the mainland expressed concern and sympathy and made donations to the affected areas and people. What is your response?

Zhang Han: After the mudslide disaster in Gyirong County, Xigaze City, Xizang/Tibet, General Secretary Xi Jinping attached great importance to the situation and issued important instructions. Premier Li Qiang, entrusted by General Secretary Xi Jinping, traveled to the disaster-stricken area to guide rescue and relief work. We have activated a Level-II national emergency disaster-relief response, and all relevant parties are making every effort to organize rescue operations and safeguard people’s lives and property to the greatest extent possible.

As we understand it, no Taiwan compatriots have so far been reported killed, injured or missing in the disaster. We will continue to closely follow the situation of Taiwan compatriots in the area and provide necessary assistance in a timely manner. People from various sectors in Taiwan, as well as Taiwan compatriots and enterprises on the mainland, have expressed their concern and sympathy in various ways. This demonstrates the compatriot affection between the two sides of the Strait, whose blood is thicker than water and who come to each other’s aid in times of need. We express our heartfelt thanks.

Recently, southern Taiwan has been hit by repeated heavy rainfall, seriously affecting the work and lives of local people. We extend our sympathy to the compatriots affected by the disaster and stand ready to provide assistance. We hope they will resume normal work and life as soon as possible.

Southeast TV of Fujian: Xiamen, Fujian, recently established its first group of “Financial Service Centers for Taiwan Compatriots,” making it more convenient for Taiwan compatriots to handle financial services. The initiative has been welcomed by local Taiwan compatriots. Could you tell us more about it?

Zhang Han: To implement the Opinions of the CPC Central Committee and the State Council on Supporting Fujian in Exploring New Pathways for Integrated Development across the Taiwan Strait and Building a Demonstration Zone for Integrated Cross-Strait Development, Xiamen has established “Financial Service Centers for Taiwan Compatriots” at bank branches. The first 10 outlets are located at places frequently visited by Taiwan compatriots, including airports and ferry terminals, tourist attractions, major commercial districts, government service centers and Taiwan business associations.

Focusing on the practical needs of Taiwan compatriots in tourism, living and working, the centers provide integrated services and standardized procedures to facilitate a wide range of financial services, including opening accounts, currency exchange, mobile payments, fund remittances, home purchases, wealth management and entrepreneurship. The initiative is intended to better meet the financial needs of Taiwan compatriots living and developing in Xiamen and create a dedicated financial service network for Taiwan compatriots that offers proactive engagement, one-stop integrated services, standardized procedures, and tangible and accessible support.

CCTV’s “Cross-Strait” program of China Media Group: Not long ago, the website of the General Administration of Customs published a new list of registered packaging plants and orchards for Wendan pomelos from Taiwan, attracting attention on the island. Will Wendan pomelos from more counties and cities in Taiwan be approved for import into the mainland?

Zhang Han: In April this year, the Taiwan Work Office of the CPC Central Committee was authorized to announce 10 policy measures to promote cross-Strait exchanges and cooperation, including facilitating the import into the mainland of agricultural and fishery products from Taiwan that meet inspection and quarantine standards. During this year’s Straits Forum, we held a matchmaking and signing event for the 10 policy measures to promote cross-Strait exchanges and cooperation, creating a platform to open mainland markets for distinctive agricultural and fishery products from Taiwan. Following the announcement on August 25 of a group of registered packaging plants and orchards for Wendan pomelos from Taiwan, the General Administration of Customs on September 1 announced another group of registered Wendan pomelo orchards and packaging plants in Taiwan, providing greater convenience for more Taiwan businesses to sell Wendan pomelos to the mainland.

We will make every effort to do practical and good things for Taiwan compatriots and help them resolve difficulties. On the common political basis of upholding the “1992 Consensus” and opposing “Taiwan independence,” and provided that the mainland’s relevant inspection and quarantine requirements are met, we will work together with relevant parties on the island to help more agricultural and fishery products and other high-quality products from Taiwan enter households across the mainland.

The Paper, Shanghai: Shen Yu-chung, deputy head of Taiwan’s mainland affairs authority, recently claimed that regulations recently issued by the mainland concerning cyberspace and exit-entry administration contain vague implementation standards and may have further negative effects on cross-Strait exchanges. He said cross-Strait exchanges should be “depoliticized, de-risked, healthy and orderly.” What is your comment?

Zhang Han: The relevant regulations have a sound legal basis and are open and transparent. The formulation of measures for security supervision and inspection in cyberspace will help strengthen the security protection of networks, data and personal information, jointly guard against telecommunications and online fraud and other illegal and criminal activities, and safeguard national security and the public interest. The regulations on exit-entry administration are intended to standardize the mainland’s exit-entry administration, protect the lawful rights and interests of people entering and leaving the mainland, safeguard national sovereignty, security and development interests, and create a better law-based environment for Taiwan compatriots visiting the mainland.

The various claims made by the DPP authorities are deliberate attempts to mislead the public and smear the mainland. Frequent visits and more exchanges are conducive to enhancing mutual understanding and promoting cooperation between compatriots on both sides of the Strait. People-to-people exchanges across the Strait have strong endogenous momentum. The DPP authorities should follow the will and aspirations of the people instead of using various means to interfere with and obstruct cross-Strait exchanges and cooperation and incite confrontation and antagonism across the Strait.

Xinhua News Agency: The Lai Ching-te authorities recently said Taiwan’s defense budget in 2027 would exceed NT$1 trillion for the first time, claiming that “defense resources must all be converted into credible defense capabilities” and that the mainland must not misjudge “Taiwan’s determination to defend itself.” What is your comment?

Zhang Han: The Lai Ching-te authorities stubbornly adhere to a separatist stance of “Taiwan independence.” Disregarding the mainstream public opinion on the island that calls for exchanges, cooperation, development and peace, they persistently incite confrontation and antagonism across the Strait and squander the hard-earned money of the people in an attempt to “resist reunification by force” and “seek independence by force.” Such attempts represent a gross overestimation of their capabilities and will only bring grave disasters upon the people of Taiwan.

Our resolve to safeguard national sovereignty and territorial integrity is unwavering, and our capability to do so is immensely strong. We will never leave any room for separatist activities seeking “Taiwan independence” in any form. We hope Taiwan compatriots will fully recognize the extreme harm and danger posed by “Taiwan independence” separatism, firmly oppose separatist acts seeking “Taiwan independence,” and resolutely safeguard the common home of the Chinese nation as well as their own security and well-being.

China News Service: The second World Humanoid Robot Games were recently held in Beijing, attracting widespread global attention. Public opinion on the island has widely praised the mainland’s robotics technology for making great strides toward greater precision, intelligence and practical application, noting the astonishing pace of technological iteration and calling for stronger industrial cooperation between the two sides in relevant fields. What is your comment?

Zhang Han: From dancing and jumping on the stage of the Spring Festival Gala, to repeatedly setting new records at sporting events, and then entering real-world production and everyday-life scenarios, the development of humanoid robots on the mainland is a microcosm of the deep integration and rapid development of the mainland’s scientific and technological innovation and industrial innovation.

The 15th Five-Year Plan has made forward-looking arrangements for future industries including embodied intelligence and brain-computer interfaces. With its complete industrial system, solid industrial foundation and rich application scenarios, the mainland will create broad development opportunities for Taiwan compatriots and enterprises. We welcome Taiwan compatriots and enterprises to innovate and start businesses on the mainland, participate in high-quality development, and work together to strengthen the economy of the Chinese nation.

Yangcheng Evening News’ “Yu Taihai”: Regarding the General Administration of Customs’ announcement of another group of registered Wendan pomelo orchards and packaging plants in Taiwan, Taiwan’s mainland affairs authority claimed that only those meeting certain political prerequisites and conditions can obtain registration, calling the practice united front propaganda. It also said that cross-Strait agricultural product quarantine involves the exercise of public authority and can only be pragmatically resolved through communication between the competent authorities on the two sides. What is your comment?

Zhang Han: The import of Wendan pomelos from Taiwan into the mainland helps expand sales channels for agricultural products on the island and improve the well-being of Taiwan compatriots. It is a good and practical measure that benefits grassroots businesses on the island. The DPP has neither the will nor the ability to help more people at the grassroots level improve their interests and well-being. Instead, it persists in fabricating rumors and smearing such measures, fully exposing its disregard for people’s livelihoods and its obsession with narrow selfish interests. It will inevitably face opposition from the broad masses of Taiwan compatriots.

Taiwan.cn: Could you brief us on recent cross-Strait exchange activities?

Zhang Han: Exchanges across the Taiwan Strait in various fields have remained active recently.

In economic and trade exchanges, the “Beijing-Tianjin-Hebei Taiwan Businesspeople Visit to Jilin” is being held from September 2 to 5 in Changchun and other places in Jilin Province under the theme “Pooling New Momentum, Jilin and Taiwan Toward the Future.” It features field visits, industry promotion and economic and trade matchmaking, helping Taiwan businesspeople and enterprises seize opportunities arising from the revitalization and development of northeast China. From September 3 to 6, the 17th Dongguan Taiwan Famous Products Fair will be held in Dongguan, Guangdong Province. Its Taiwan specialty pavilion brings together all 22 counties and cities on the island and will display machinery and equipment, distinctive agricultural and fishery products, and other products. From September 6 to 10, the 18th “Chongqing-Taiwan Week” will be held in Chongqing, featuring a series of events including a seminar on cross-Strait information and communications cooperation and development and a seminar for young people from both sides of the Strait pursuing employment and entrepreneurship opportunities in Chongqing.

In cultural exchanges, the first Sichuan Tea Horse Road Photography Journey Experience Camp was held from August 23 to September 2 in Ya’an, Garze and other places in Sichuan Province. Photography enthusiasts from both sides of the Strait used their cameras as a medium and embarked together on a creative photographic journey to trace their roots. From August 29 to 31, the eighth Cross-Strait Humanities Forum was held in Xiamen, Fujian Province, attended by experts and scholars from both sides in philosophy, literature, history and other fields.

In youth exchanges, from August 20 to 27, the 14th Strait Youth Day series included the second Cross-Strait (Fuzhou) Sports Injury Prevention and Rehabilitation Exchange and a Fujian-Taiwan youth badminton exchange series themed “Youth in Motion, Affection Across the Strait,” held in Fuzhou, Fujian Province. On August 26, a cross-Strait street-dance youth cultural exchange event themed “Youth Qujiang · Huacan in Zhejiang · Dancing Youth,” together with the third Cross-Strait Youth Street Dance Competition, opened in Quzhou, Zhejiang Province. From August 26 to September 1, the 2026 Cross-Strait (Xinyu) Youth Exchange themed “Tiangong Kaiwu · A Rendezvous with Intangible Cultural Heritage” was held in Xinyu, Jiangxi Province. On August 28, the 16th Cross-Strait (Binzhou) Youth Student Art of War Friendship Debate Competition opened in Huimin, Shandong Province. From September 3 to 9, the fourth Cross-Strait Youth Film Festival 2026 and Youth Filmmakers Training Camp will be held in Xiamen, Fujian Province.

Nanfang Daily and Nanfang Plus: The giant panda Yuan Yuan, gifted to Taiwan by the mainland, recently celebrated her 22nd birthday. Taipei Zoo held a celebration for Yuan Yuan, attracting attention from netizens on both sides of the Strait, who sent their best wishes. What is your comment?

Zhang Han: Giant pandas are loved by people on both sides of the Strait and are symbols of peace and friendship. In 2008, giant pandas Tuan Tuan and Yuan Yuan moved to Taiwan, where they later gave birth to Yuan Zai and Yuan Bao. Over the years, they have brought joy to Taiwan compatriots. Yuan Yuan recently celebrated her 22nd birthday. We would like to extend our sincere birthday wishes to Yuan Yuan and wish the two panda cubs healthy growth, so that this warm familial affection spanning the Taiwan Strait will continue.

Xiamen Satellite TV of Fujian: Taiwan media have reported heated discussion among netizens on the island about a growing number of young people enjoying independent travel to the mainland. Data show that since the start of this year’s summer travel season, passenger traffic on the Xiamen-Kinmen “Mini Three Links” route has remained at a high level, with passenger volume on August 23 reaching a new high since services resumed. Could you brief us on the operation of the “Mini Three Links” during this year’s summer travel season?

Zhang Han: The “Mini Three Links” passenger routes are among the most important and convenient channels for exchanges between the two sides of the Strait, particularly between Fujian and Taiwan. Since the start of this year’s summer travel season, passenger traffic on the “Mini Three Links” routes has continued to rise and remained at a high level. The Xiamen-Kinmen “Mini Three Links” route operated a cumulative 1,550 services and carried 386,400 passenger trips, representing year-on-year increases of 11.4 percent and 24.1 percent respectively. On August 23, the route handled more than 7,900 passenger trips in a single day, the highest daily figure since services resumed in 2023.

To cope with summer passenger flows, relevant mainland authorities have worked in close coordination to strengthen service capacity and better meet passengers’ travel needs. Beginning August 1, temporary additional summer services were introduced on the Xiamen-Kinmen “Mini Three Links” route, with operating hours appropriately extended. Customs-clearance procedures were also optimized, maritime safety supervision strengthened, and passenger services improved. Intelligent systems have enabled efficient and smooth clearance. Overall, the “Mini Three Links” routes have operated safely and smoothly and maintained good order.

The strong performance of the “Mini Three Links” during the summer travel season vividly demonstrates compatriots on both sides of the Strait growing closer through greater contact. We welcome more Taiwan compatriots to travel to the mainland via the “Mini Three Links” routes to trace their roots and pay respects to ancestors, visit relatives and friends, and engage in exchanges and cooperation.

China Radio International’s “Haixia Feihong,” China Media Group: Recently, some politicians from the “green camp” claimed that a Taiwan civil society group called “Xiao Yizi Hanfu” filmed a video against the backdrop of a Confucius temple during the Dragon Boat Festival in the name of “promoting Confucianism and Hanfu culture,” alleging that the activity may have had a united front dimension. Shen Yu-chung, deputy head of Taiwan’s mainland affairs authority, said that culture should be neutral, and that “if the Chinese Communist Party uses culture as a political tool or a united front tool, the authorities will of course sternly rebut it.” What is your comment?

Zhang Han: Chinese culture is the common spiritual home of compatriots on both sides of the Taiwan Strait. Civil society groups on the island are committed to carrying forward and promoting Chinese culture and actively participate in cross-Strait exchange activities. This precisely demonstrates that people on both sides of the Strait share the same roots and origins, language and culture. We will work together with Taiwan compatriots to continue advancing cross-Strait cultural exchanges and cooperation, jointly promote Chinese culture, and be guardians, inheritors and promoters of Chinese culture.

The essence of the united front is great unity and solidarity. It is about making friends and promoting solidarity, seeking common ground while reserving differences, and pursuing development together. The DPP authorities deliberately distort the original meaning and essence of the united front, smear cross-Strait exchange activities, and intimidate and suppress Taiwan compatriots who participate in such activities. Their intentions are malicious.

China Review News Agency, Hong Kong: Taiwan’s legislative body recently adopted a so-called “drone industry development plan.” Some public opinion on the island is concerned that drones have also become an important part of Taiwan’s military buildup. What is your comment?

Zhang Han: The DPP authorities seek to militarize civilian industries and vainly attempt to use drones as a tool for “seeking independence and resisting reunification.” This is nothing but a futile exercise. The reunification of the motherland is unstoppable. No matter how many drones the DPP authorities develop, their efforts will be futile and useless.

Taiwan’s Central News Agency: Hung Sun-han, head of Taiwan’s labor affairs authority, will travel to Nanjing in late September to attend an APEC meeting. The Taiwan side has said this is in accordance with APEC’s established rules and practices, under which all members participate on an equal footing. What is your view? Does the mainland believe this trip could help increase cross-Strait exchanges and interactions and create new possibilities for cross-Strait relations?

Zhang Han: As the host of this year’s Asia-Pacific Economic Cooperation, or APEC, activities, we handle matters concerning the participation of the Taiwan region in accordance with the one-China principle and the provisions and established practices of relevant APEC memoranda of understanding. This includes the issue you mentioned.

Taiwan’s United Daily News: My first question: The Taiwan side recently said that since December 2025, more than 300 visits involving personnel from 25 Taiwan departments and agencies have been made to the mainland to attend various APEC meetings, all of which proceeded smoothly and without incident. Hung Sun-han, head of Taiwan’s labor affairs authority, will travel to Nanjing in late September to attend an APEC meeting. Will the mainland follow past interaction arrangements to ensure that his participation proceeds smoothly? Second, it has been reported that a young person from Taiwan who works for Amnesty International was recently questioned by customs authorities upon arriving on the mainland. Is this true? Should people from Taiwan with NGO backgrounds be concerned about being questioned when traveling to the mainland?

Zhang Han: On your first question, our position on Taiwan-related issues in APEC is consistent and clear. Matters concerning the participation of the Taiwan region should be handled in accordance with the one-China principle and the provisions and established practices of relevant APEC memoranda of understanding.

On your second question, the organization you mentioned has willingly served as a pawn of international anti-China forces. It has repeatedly stirred up trouble and fabricated rumors to smear the mainland and has met with firm opposition from the international community. It is entirely reasonable and lawful for border inspection authorities to conduct checks on certain individuals who have worked for this organization.

In 2025, Taiwan compatriots made more than 4.89 million visits to the mainland, and in the first half of this year they made 2.85 million visits. As long as they abide by laws and regulations, Taiwan compatriots come to the mainland in high spirits and return home fully satisfied. Ignoring these facts, the DPP authorities are instead making a great fuss over individual persons who previously worked for an anti-China organization. This is a complete distortion of right and wrong, intended to intimidate people on the island and interfere with and obstruct cross-Strait exchanges and interactions. Such despicable conduct will inevitably be condemned and opposed.

China Television News, Taiwan: My first question: Recently, a man using a computer on a Taipei Metro platform had simplified Chinese characters including “Second Theater Command” displayed on his screen. Some people in Taiwan initially suspected that personnel from the mainland had been sent to Taiwan to collect intelligence, but it later turned out to be a misunderstanding. What is the mainland’s response? Second, the mainland’s new exit-entry administration regulations will take effect on September 15. Taiwan’s mainland affairs authority has repeatedly warned recently that people traveling to the mainland face personal-security risks and has said that semiconductor professionals and others face higher risks. What is your comment? Could Taiwan residents be questioned or prevented from leaving the mainland after entry because of their occupation, political position or remarks?

Zhang Han: On your first question, publicly available information online has already shown that this was nothing more than a farcical misunderstanding. Certain people on the island are always seizing on issues to make trouble and using every opportunity to incite confrontation and antagonism across the Strait. Their motives are sinister.

On your second question, we have repeatedly stressed that we protect, in accordance with the law, the lives, property, lawful rights and interests of compatriots on both sides of the Strait, including Taiwan compatriots. The relevant regulations have a sound legal basis and are open and transparent. As long as Taiwan compatriots do not engage in illegal or criminal activities, they have absolutely no reason for concern when visiting the mainland.

The DPP authorities have gone to great lengths to hype up so-called “risks” associated with traveling to the mainland and have even deceived and intimidated people in Taiwan. Their purpose is simply to obstruct people from Taiwan from traveling to the mainland for exchanges and visits. The historical trend of compatriots on both sides of the Strait growing closer cannot be stopped. The information cocoon painstakingly woven by the DPP authorities will inevitably be punctured by facts, and their despicable tricks will not succeed.

ETTV, Taiwan: Taiwan artist Chou Tzu-yu debuted as a member of the South Korean girl group TWICE. There have recently been reports that, after her contract with her South Korean management company expires, the Chinese mainland has been actively trying to recruit her to shift the focus of her career, allegedly offering entertainment resources in exchange for certain political statements. Can you confirm this?

Zhang Han: I am not aware of the specific situation you mentioned. We have always actively supported cross-Strait cultural exchanges. We welcome Taiwan artists to develop their careers on the mainland and support more Taiwan artists in sharing opportunities and realizing their dreams in the course of the development of the mainland’s cultural industries, thereby jointly promoting the prosperity and development of cultural undertakings across the Strait.

Of course, we will never allow or tolerate behavior in which someone makes money on the mainland while at the same time supporting separatist activities seeking “Taiwan independence.” This has always been our clear and consistent position.

Taiwan’s China Times: The Standing Committee of the National People’s Congress recently adopted the revised National Defense Mobilization Law, which will take effect on October 1. The law states that, where required by development interests, the disposition of civilian resources may be expanded from “requisition” to include “expropriation.” Could the Taiwan Affairs Office explain whether the new law’s provisions on “expropriation” apply to the assets and technologies of Taiwan businesspeople on the mainland? Are you concerned that this could increase Taiwan businesspeople’s worries about “political risks” associated with long-term investment on the mainland?

Zhang Han: The revised National Defense Mobilization Law adheres to a holistic approach to national security and clarifies the respective functions and responsibilities of the military and local authorities, the operational mechanisms and key tasks of national defense mobilization under the new system. It will play an important role in regulating and strengthening national defense mobilization and safeguarding national security and development interests.

It should be emphasized that there are clear legal conditions and statutory procedures both for deciding to implement national defense mobilization and for expropriating or requisitioning civilian resources during a period of national defense mobilization. The state protects, in accordance with the law, the lawful rights and interests of organizations and individuals participating in national defense mobilization activities.

Guided by the conviction that “people on both sides of the Taiwan Strait are one family,” we will support the development of Taiwan businesspeople and enterprises on the mainland and help more Taiwan businesspeople and compatriots participate on an equal footing, actively integrate into, jointly contribute to and share in the process of Chinese modernization. Taiwan businesspeople and enterprises investing on the mainland for the long term and operating in accordance with laws and regulations have no reason for concern. They will only find more opportunities, broader space for development and stronger safeguards.

ETtoday, Taiwan: My first question: The Gwangju Biennale in South Korea restored the name “Taiwan Pavilion,” prompting mainland artists to collectively withdraw from the exhibition on the eve of its opening. The organizers said that “politics should not interfere with art.” Some are concerned that similar occasions or exhibitions in the future could become situations in which the two sides of the Strait refuse to participate together. What is your comment? Second, a planned visit to Taiwan by Hong Kong artist Daniel Chan was reportedly called off. Some have also observed that this year there have been voices in Taiwan that first attach political labels to patriotic remarks by artists from Hong Kong and Macao and then launch boycotts against them. How does the mainland believe such “antagonistic sentiment” should be defused?

Zhang Han: On your first question, there is but one China in the world, and Taiwan is an inalienable part of China’s territory. Taiwan’s participation in international activities must be handled in accordance with the one-China principle.

The DPP authorities engage in political manipulation under the guise of cultural exchanges, conferences, exhibitions and other occasions, disrupting the normal order of relevant events. Such behavior is contemptible. No matter what tricks the DPP authorities resort to, they cannot change the inevitable failure of their provocative attempts to seek “Taiwan independence.”

On your second question, the so-called “antagonistic sentiment” has been deliberately incited by the DPP authorities. Disregarding the development needs of industries on the island, the DPP authorities have gone to great lengths to attach political labels to performing artists and attempt, through political manipulation, to obstruct, prohibit and restrict normal cultural exchanges and commercial performances between the two sides of the Strait and between Taiwan, Hong Kong and Macao.

This runs completely counter to mainstream public opinion on the island and seriously harms the interests of Taiwan businesses and people. It is deeply unpopular and will not succeed.

Zhang Han: That concludes today’s press conference. Thank you.

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Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the Research Centre of Rural Economy under the Ministry of Agriculture and Rural Affairs). Starting in 1990, he served at the Development Research Centre of the State Council, China’s government cabinet, holding roles including Director General of the Rural Department’s Organisation Research Office and Director General of the Information Centre.

This is the fourth instalment in Zhao Shukai’s series, Reflections on the History of China’s Rural Reform. The Chinese original is available on the WeChat blog 九号院时刻 (No. 9 Courtyard Moment).

— Yuxuan Jia

赵树凯：农村改革史是”政策权”变迁史

——农村改革史阅读随笔（4）

Zhao Shukai: The History of Rural Reform Is a History of Shifts in “Policymaking Power”

—Reflections on the History of China’s Rural Reform (IV)

June 2026

For years, accounts of China’s rural reform have focused heavily on economic growth, changes in property rights, and institutional innovation, while paying notably less attention to the mechanisms through which reform itself came about.

In my recent essay, “Reflections on the History of China’s Rural Reform (III),” I argued that “the history of rural reform is, first and foremost, a political history.” That essay sought to move beyond a purely economic interpretation, emphasising that rural reform was above all a product of political change, that shifts in policy arose from shifts in politics, and that the course of rural reform reflected an adjustment in political relations between the state and the grassroots. My purpose was to redirect scholarly attention from the outcomes of reform to its causes, and from institutional change to changes in the structure of power.

Yet “political history” remains a fairly broad concept. What, exactly, were the political changes that drove rural reform? How did political power shape policy change? And what powers were reallocated in the process? These questions merit further exploration. In this essay, “Reflections on the History of China’s Rural Reform (IV),” I therefore introduce the analytical concept of “policymaking power.”

By “policymaking power,” I mean the power to determine the substance of policy, alter its direction, define its boundaries, and choose how it is to be implemented. This differs from administrative power in the ordinary sense. Administrative power is primarily the power to carry out policies that have already been established, whereas policymaking power is the power to determine the policies themselves. Rural reform involved more than changes to the economic system or political change in a general sense. More fundamentally, it was a process in which policymaking power, once highly centralised, was gradually opened up to a limited extent and reallocated. In this sense, the history of rural reform is first and foremost a history of shifts in policymaking power.

The emergence of the household responsibility system, the collapse of the people’s communes, and the rapid transformation of long-established institutions all show that rural reform was primarily political rather than economic. More specifically, it involved a redistribution of policymaking power. Rural reform is therefore first and foremost a history of shifts in policymaking power.

During the people’s commune era, power over rural policy was highly centralsed. Higher authorities made uniform decisions about what was to be produced and planted, how output was to be distributed, how labour was to be organised, and how cadres were to be evaluated. They even determined many aspects of farmers’ everyday lives. Grassroots cadres had managerial authority but no genuine power to make policy. Farmers were even more clearly the objects of policy rather than participants in policymaking.

The most serious problem with this highly centralised structure was that higher authorities held the power to make policy but struggled to obtain accurate information about conditions on the ground, while those at the grassroots understood the actual situation but had no power to adjust policy. As a result, the gap between policymaking and practical needs grew ever wider.

It was precisely this structure of policymaking power that the earliest reforms challenged. Household contracting did not initially alter the system of land ownership; instead, it broke through the existing allocation of policymaking power. Without prior approval, farmers chose to adopt a new way of organising production. Although this was not officially permitted at the time, it helped address practical production problems. The significance of household contracting therefore lay not only in the new system itself, but also in the fact that, for the first time, people at the grassroots exercised some of the policymaking power previously held by higher authorities.

Policy breakthroughs in Sichuan, Anhui, and elsewhere followed the same pattern. The early reforms were not based on a unified plan from the central government. Instead, local cadres and farmers experimented in response to practical pressures, giving local areas limited room to test new policies. Reform thus developed from the bottom up. From this perspective, rural reform was a process of reallocating policymaking power between the central and local governments, and between higher authorities and the grassroots.

Many of the major changes that occurred during the early years of reform and opening up can be understood from the perspective of policymaking power. The central government, for example, began allowing localities to “experiment,” different regions to adopt different approaches, the grassroots to explore new institutional arrangements, and some areas to move ahead before their experience was reviewed and assessed. What truly changed was not any single policy, but the process through which policy was made.

Under the previous model, the centre formulated policy and the localities implemented it. After reform began, the logic gradually shifted: localities explored new policies, and the centre subsequently endorsed them.

This may appear to have been merely a procedural adjustment, but it represented an important change in the structure of power. The household contract responsibility system was able to spread rapidly not simply because it produced good economic results, but, more importantly, because a new mechanism for exercising policymaking power took shape during the reform process. The grassroots gained some room to experiment, localities gained some room to innovate, while the centre endorsed and promoted successful approaches.

This shift had far-reaching significance for political development. Reform had long been understood mainly as a change in policy content — for example, the shift from collective to household farming, or from unified state purchasing and distribution to market exchange. More important, however, was the change in the policymaking process itself. Changes in policy content were the result; changes in the distribution of policymaking power were the cause.

The various reform breakthroughs would not have been possible had policymaking power remained highly concentrated rather than becoming somewhat more widely distributed. The nationwide wave of reform that followed could not have emerged without giving the grassroots limited room for policy innovation. The deepest significance of rural reform therefore lies not in the transformation of agricultural production, but in the transformation of how policy was made.

This shift, however, was not a simple, straightforward process of decentralisation, as the reform era did not establish a fully institutionalised system of devolving power. Local policy breakthroughs generally occurred under ambiguous circumstances. The central government neither explicitly authorised them nor firmly prohibited them. Instead, it observed and tolerated these experiments before reviewing the experience and promoting successful practices. This condition can be described as a “limited opening of policymaking power.” Such limited openness was a defining feature of the way Chinese politics operated during the reform era.

Looking more closely, the success of China’s rural reform may lie not merely in the household contract responsibility system itself, but in the creation of a new mechanism for policymaking — one that allowed the grassroots to identify problems, localities to propose solutions, and the central government to draw lessons from their experience. In other words, the most important institutional innovation of the reform era may have been not the contracting system itself, but a new way of exercising policymaking power. If rural reform is understood as political history, this idea can be taken a step further: it is a “history of policymaking power.”

The most important aspect of political change is neither a change in leadership nor simply an adjustment to organisational structures, but a change in how policymaking power is allocated. Reform was defined not only by changes in policy, but, more fundamentally, by changes in who decided policy, how it was decided, and how it took shape.

In this sense, the history of China’s rural reform is not only a history of agricultural development, economic reform, or political change. It is first and foremost a history of the continual adjustment, reallocation, and reopening of policymaking power. This may be the key to understanding how rural reform came about.

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Pekingnology

China’s Rural Reform: A History Not Designed but Discovered

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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9 months ago · 31 likes · 1 comment · Yuxuan JIA and YIRUI LI

Pekingnology

Zhao Shukai: China’s Rural Reform Had No Master Plan

Zhao Shukai argues that the decisive breakthroughs in China’s rural reform of the 1980s were not designed in advance. Household contracting and other major changes emerged through initiatives from farmers, grassroots cadres and local governments, while the central leadership was often divided over how to respond. What made these breakthroughs possible, …

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20 days ago · 14 likes · 1 comment · Yuxuan JIA and Qingqu Yuan

According to the Institute of Taiwan Studies, CASS, More than 50 scholars from both sides of the Taiwan Strait exchanged views on developments in cross-Strait relations.

In his keynote address, Peng Weixue, Deputy Director and Research Fellow at the Institute of Taiwan Studies at CASS, presented a mixed assessment of the situation in the Taiwan Strait.

He argued that the mainland holds the strategic initiative and that momentum toward reunification is growing. At the same time, however, he warned that any easing in China-U.S. relations would not prevent Washington from continuing to support Taiwan. He also noted that Lai Ching-te had recovered from the setback of the failed recall campaign, tightened his control over the DPP, and expanded his political base. Public attitudes favouring reliance on the United States and resistance to reunification, as well as the erosion of Chinese identity and the rise of an increasingly Taiwan-centred identity, could become further entrenched.

The text of the speech was published on 17 August on Taiwan Studies (台湾研究), the official WeChat blog of the Institute of Taiwan Studies at CASS.

彭维学：台海新局的机遇与挑战

Peng Weixue: Opportunities and Challenges amid the Evolving Situation in the Taiwan Strait

The situation in the Taiwan Strait has entered a new stage characterised by the mainland’s firm grasp of the strategic initiative, a recalibration of the U.S. approach, significantly stronger momentum among pro-reunification forces, growing constraints on pro-independence forces, and generally manageable risks and challenges. The strategic inertia behind U.S. and Western efforts to “contain China while exploiting Taiwan,” the Lai authorities’ persistent reliance on the United States to resist the mainland, infighting and fragmentation within the KMT camp, and, in particular, uncertainty surrounding the 2028 elections in both the United States and Taiwan will make it more challenging for the mainland to manage the situation in the Taiwan Strait. None of these factors, however, can alter the broader trend toward China’s reunification.

I. Five Major Changes in the Taiwan Strait Strengthen the Strategic Foundation for National Reunification

Over the three decades from 1996 to 2026, external actors and “Taiwan independence” forces repeatedly engaged in provocations, reinforced the island-chain strategy, and sought to create a strategic trap in the Taiwan Strait. This led to persistent turbulence in cross-Strait relations and, at times, serious crises. In particular, Nancy Pelosi’s visit to Taiwan in 2022 crossed China’s red line, while Lai Ching-te has aggressively advanced a “new two-state theory” since taking office in 2024, pushing the situation in the Taiwan Strait to the brink of crisis. The mainland, however, has remained resolute in opposing “Taiwan independence” and external interference, contributing to five significant changes in the situation.

First, the mainland has further consolidated its leading role and strategic initiative in cross-Strait relations. Its strategic strength, confidence, initiative, and ability to manage the overall situation in opposing independence and promoting reunification are unprecedented. Drawing on its comprehensive national strength, responding to developments in proportion to their seriousness, and moving forward at its own pace, the mainland has continued to strengthen a framework for constraining “Taiwan independence,” maintaining the initiative in cross-Strait affairs, and countering U.S. interference, while steadily advancing the reunification process.

Second, it has become increasingly clear that external actors have fewer options for intervening in the Taiwan Strait and that such intervention is becoming less effective and more costly. The United States has significantly reassessed the risks involved in the Taiwan Strait, while its attempt to “use Taiwan to contain China” has been effectively curbed. The Trump administration has consequently been compelled to move away from the traditional policy of “strategic ambiguity” and towards restraining “Taiwan independence” forces, pursuing transactional bargaining, and managing risks. Most countries are unwilling to bear the considerable risks of relying on the United States to support “Taiwan independence.” Countries including Lithuania and the Czech Republic have recently been compelled to recalibrate their approaches to China on Taiwan-related issues.

Third, “Taiwan independence” forces are facing mounting difficulties, with increasing infighting and scapegoating. The mainland’s campaign against “Taiwan independence” has entered a new stage. Its measures are now more routine, systematic, and targeted, with operations increasingly conducted around the island. The space for “Taiwan independence” advocacy, public support, and international activity has been curtailed to an unprecedented degree, forcing “Taiwan independence” forces from aggressive expansion to a period of internal consolidation and low-profile activity.

Fourth, the trends toward “inevitable reunification” and “accelerated reunification” have become clearer. The mainland has established a stronger foundation for opposing “Taiwan independence” and promoting reunification, while its efforts to shape and manage cross-Strait developments are producing increasingly visible results. The international one-China framework has become firmer, and a preliminary system of law enforcement and governance has taken shape in the waters around Taiwan. The mainland has also continued to strengthen its assertion of jurisdiction over Taiwan. “Never before have we been so close to, confident in, and capable of achieving the goal of national rejuvenation.”

Fifth, Taiwan’s bargaining leverage in discussions on a “One Country, Two Systems” solution is clearly diminishing. As Taiwan becomes more deeply entrenched in its fixation on “aligning with the United States, relying on Japan, and resisting the mainland”, as the disparity in overall strength between the two sides continues to widen, and as cross-Strait political negotiations drag on, Taiwan will have less room for manoeuvre in those negotiations and will be able to secure fewer gains.

These five major changes are the combined result of three trends: China’s rise and U.S. decline in the strategic competition between the two countries; the growing disparity in overall strength between the mainland and Taiwan; and political and social cohesion on the mainland in contrast to division in Taiwan. These trends help the mainland maintain stable control of the situation in the Taiwan Strait, safeguard sovereignty and security, and protect the well-being and development interests of compatriots on both sides.

II. Four Sources of Momentum and Opportunity Usher in a New Stage in the Mainland’s Efforts to Constrain “Taiwan Independence” and Shape Conditions for Reunification

Chinese modernisation continues to advance; the mainland is seeking progress while maintaining stability in its Taiwan policy; and cross-Strait integrated development is deepening. Together, these developments are providing strong momentum for stability in the Taiwan Strait and for national reunification.

Under the guidance of the four principles for cross-Strait relations set out by General Secretary Xi Jinping and the 15th Five-Year Plan, the mainland will continue to leverage its strategic advantages, maintain the strategic initiative, enhance the quality and effectiveness of its efforts to constrain “Taiwan independence” and shape conditions for reunification, and strengthen the exercise of jurisdiction over Taiwan at multiple levels.

The development of “a constructive China-U.S. relationship of strategic stability” is bringing greater certainty to China’s management of the situation in the Taiwan Strait. General Secretary Xi has promoted substantive common understandings between China and the United States that will guide bilateral relations in the period ahead. Trump has set out a “Four Noes” policy on the Taiwan question, clearly signalling that he is unwilling to become involved in a conflict in the Taiwan Strait and that he opposes reckless moves toward “Taiwan independence.” China and the United States have developed overlapping interests in opposing “Taiwan independence” and maintaining peace in the Taiwan Strait. This has encouraged Trump to exercise restraint in his Taiwan policy, placed limits on arbitrary U.S. arms sales to Taiwan and official interactions with the region, reduced the risk of a China-U.S. conflict in the Taiwan Strait, and greatly narrowed the space available to the Democratic Progressive Party (DPP) to “rely on the United States to pursue independence” and advance “Taiwan independence.”

The United States and other Western countries remain deeply embroiled in the Russia–Ukraine conflict and conflicts in the Middle East, diverting their strategic attention and resources. Meanwhile, growing global distrust of the United States and apprehension about Trump are weakening cohesion within the U.S. alliance system. These developments have, objectively, eased some of the strategic pressure on China in the Taiwan Strait. With U.S. soft power and global leadership declining markedly, strategic fatigue deepening across the United States and the West, and China, Russia, and Iran strengthening their strategic coordination, the Chinese mainland has significantly strengthened its strategic initiative in resolving the Taiwan question.

The Communist Party of China (CPC) and the Kuomintang (KMT) have established a new model of dialogue suited to a new era and a new generation. The stark contrast between Cheng Li-wun’s approach of building friendly ties with the mainland to promote Taiwan’s prosperity and Lai Ching-te’s approach of subservience to the United States at Taiwan’s expense is encouraging public opinion in Taiwan to become more pragmatic and rational. Perceptions in Taiwan that China is rising while the United States is declining have grown stronger, as has public scepticism toward both the United States and “Taiwan independence.” Calls for communication and dialogue, avoiding war and pursuing peace, promoting mutually beneficial exchanges, and proactively discussing reunification have also increased. These developments will help curb the Lai authorities’ reckless pursuit of “Taiwan independence” and weaken the effectiveness of their policy of relying on the United States to resist the mainland. Polls conducted by the My Formosa and Global Views Monthly, among others, show that more than half of Taiwan’s residents are unwilling to “sacrifice their lives to avoid reunification.” Nearly 60 per cent believe that resuming cross-Strait negotiations and easing restrictions on people-to-people exchanges would do the most to safeguard Taiwan’s security, while 54.2 per cent do not believe Lai Ching-te’s claims about a “mainland attack on Taiwan in 2027.”

III. Four Overlapping Risks Increase the Challenges Facing the Mainland in Managing the Situation in the Taiwan Strait

First, the United States is becoming increasingly calculating in its efforts both to contain China and exploit Taiwan. Washington’s deep-seated anxiety over maintaining its hegemony and its long-standing wariness of China mean that a tactical easing of China–U.S. tensions cannot fundamentally alleviate the structural and strategic tensions between the two countries. Both U.S. parties, Congress, parts of the strategic community, and anti-China hawks in particular remain committed to a hard line against China. Seeking to gain leverage in its competition with China and maintain its strategic credibility — and especially as the 2028 election cycle approaches — Trump and politicians in both the Democratic and Republican parties may further amplify the so-called “China threat,” step up the so-called “Operation Causeway” and “drone-hive strategy,” and seek to fully exploit Taiwan’s strategic, economic, and technological value within the island chain.

In the long term, while remaining within the framework of the three principles — severance of diplomatic relations, withdrawal of troops, and abrogation of the Mutual Defense Treaty with Taiwan — the United States will continue to support Taiwan through legislation, shore up Taiwan diplomatically, back it militarily, draw on its technology, and mobilise allies to intervene in Taiwan-related affairs. It will seek to deepen Taiwan’s decoupling from China and integration with the United States and its strategic dependence on Washington.

At the same time, it will seek to shape the KMT’s leadership, political direction, and alliances; disrupt KMT-TPP cooperation; manipulate elections; and prop up a pro-independence regime. In addition, the United States is stepping up military deployments and provocations along the first island chain, while Japan, the Philippines, and Europe are joining forces to intervene in Taiwan-related affairs. This is strengthening the linkage among the Taiwan Strait, the South China Sea, and the East China Sea, and increasing the risks and costs China faces in opposing independence, promoting reunification, and managing the situation in the Taiwan Strait.

Second, the Lai authorities may soften their rhetoric and repackage their agenda, but their “Taiwan independence” nature remains unchanged. Although the easing of China–U.S. relations has constrained Lai Ching-te’s separatist activities, he continues to play up the “mainland threat” while invoking “democratic peace” and “maintaining the status quo,” as well as the defence of “national sovereignty and dignity” and the strengthening of “societal resilience.” In reality, he is seeking to align closely with the needs and pace of the Trump administration’s competition with China. His softer rhetoric and repackaged agenda are intended to test the mainland’s bottom line, ease pressure at home and abroad, and win votes by misleading the public.

Over the medium and long term, Lai will further develop his “new two-state theory,” press ahead with decoupling from China and integrating with the United States, strengthen “asymmetric capabilities,” erect an iron curtain against cross-Strait integration and reunification, intensify the suppression of forces favouring closer ties with the mainland, and reinforce the “anti-peace, anti-exchange, anti-democracy, and anti-humanity” narrative. He will also seek to generate support for “relying on the United States to resist the mainland” and broaden the DPP’s political base.

Third, Lai Ching-te’s tricks to tighten his political grip are heightening political risks. Due to firm pushback from the mainland, warnings from Trump, and checks from KMT-TPP cooperation, the DPP has little to show for its time in office. Yet Lai has resorted to ruthless tactics and expanded his political clout. He has recovered from the crushing defeat of the recall campaign and further consolidated his position within the party. Externally, he has used trade agreements and US arms purchases to bind Taiwan more closely to Washington. Internally, he has used the judicial system to target rivals such as Cheng Wen-tsan and Ko Wen-je, continued to drive wedges between the KMT-TPP alliance, and capitalised on favourable economic conditions and used policy giveaways to shore up his base and expand his influence.

Cheng Li-wun has demonstrated an unconventional leadership style, strengthening her approach of building friendly ties with the mainland to promote Taiwan’s prosperity, enhancing KMT-TPP cooperation, and broadening engagement with society. However, the KMT has yet to overcome its strategic passivity, while prominent disputes over power and political direction have seriously undermined the authority of the party’s central leadership and its momentum ahead of local elections.

The DPP currently enjoys greater overall support than the KMT and TPP combined. In the year-end local elections, it aims to retain control of the five cities and counties it currently governs while winning five additional contests, consolidating its existing position while making further gains. It then hopes to carry that momentum into the 2028 election. The KMT and TPP face a severe test in preventing Taiwan’s political landscape from evolving toward the kind of long-term one-party dominance of Japan’s Liberal Democratic Party.

Fourth, the structures that favour the green camp and impede reunification will be difficult to reverse in the short term. The party structure of a “strong DPP camp and weak KMT camp,” public sentiment structure favouring “reliance on the United States and rejection of reunification,” and a social structure increasingly detached from China and centred on Taiwan may, under certain conditions, become further entrenched. This would make it more difficult for the mainland to promote integration and reunification. In the period ahead, the DPP will use these trends to stoke reliance on the United States against China, mislead people in Taiwan, and sharply restrict the political space available to forces that do not support “Taiwan independence,” particularly patriotic pro-reunification forces.

Overall, the mainland firmly holds the strategic initiative in the Taiwan Strait and continues to build momentum and shape favourable conditions for constraining “Taiwan independence” and advancing reunification. However, the entrenched strategic logic behind U.S. efforts to exploit Taiwan to contain China, together with negative factors such as Lai Ching-te’s attempts to repackage his “Taiwan independence” agenda, will make the situation more difficult for the mainland to manage. In particular, worst-case outcomes in the 2028 elections in both the United States and Taiwan would seriously undermine efforts by China and the United States to build a constructive relationship of strategic stability and would destabilise the Taiwan Strait.

It is therefore essential to recognise the protracted and complex nature of China-US strategic rivalry, as well as the difficulties and setbacks that may arise in the reunification process. With both the strategic goal of national rejuvenation and profound changes unseen in a century in view, the Party’s overall policy for resolving the Taiwan question in the new era must be implemented, and the process of national reunification resolutely advanced.

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Pekingnology

Beijing renews calls for Taipei to open up tourism upon my FT oped

Yesterday/Wednesday, March 5, at the first weekly press conference of the Taiwan Affairs Office after the Lunar New Year, my February 26 op-ed in the Financial Times Let Chinese mainland tourists return to Taiwan came up…

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6 months ago · 21 likes · 1 comment · Zichen Wang

Pekingnology

Cheng Li-wun did NOT redefine 1992 Consensus. She stood up for it.

Interpretations of politically sensitive cross-Strait meetings will always differ. That is normal. But there is a basic standard analysis should still meet: it should remain anchored in what was actually said, whether in public video, in contemporaneous transcripts, or in official text that has not been disputed…

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5 months ago · 15 likes · 2 comments · Zichen Wang and Yuxuan JIA

Pekingnology

Tensions over Taiwan

Taiwanese leader William Ching-te Lai delivered a speech on Thursday, March 13, outlining 17 measures across five key areas—moves that appear more confrontational than anything his predecessor, Tsai Ing-wen, pursued over her eight-year tenure. Beijing swiftly responded with a…

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a year ago · 27 likes · Zichen Wang

Where, then, do the investment opportunities lie? Li sees AI and silicon-based technologies as the defining long-term investment theme, although better entry points may emerge only after the current bubble deflates. He also identifies opportunities in M&A, as Chinese companies seek to build scale; strategic resources, whose scarcity value will increase as global supply chains fragment; undervalued large-cap and traditional companies, which may benefit from a valuation re-rating as China’s equity market matures; consumer stocks, where policies to raise household incomes could create scope for recovery; and property in major cities that continue to attract population inflows.

Li has kindly reviewed this translation.

—Yuxuan Jia

Li Xunlei delivered this speech on 28 May 2026 as part of TAIXUE, a TED-style programme produced by the New Economist think tank. This article was prepared from a recording of the event and published on 11 August on the think tank’s official WeChat blog.

李迅雷：“资产荒”的背面

Li Xunlei: The Other Side of the Asset Shortage

Hello, everyone. I’m Li Xunlei, and the title of my talk today is “The Other Side of the Asset Shortage.”

Many countries, including China and the United States, are experiencing asset shortages to varying degrees. What is causing these shortages? What are the underlying factors?

Truth Behind Asset Shortage: A Scarcity of High-Quality Assets

Let me start with China. Before 2000, China had a shortage economy. In 1994, CPI inflation reached 23%; inflation was high and goods were in short supply. As the market economy developed and prospered, the supply of goods steadily increased. By the early 2000s, goods were already in relative surplus.

The Shanghai and Shenzhen stock exchanges were established in 1990, and stocks, as equity assets, gave ordinary people another investment option. Because the supply of stocks was limited at the time, share prices were bid up. This was a period of capital scarcity, which lasted until around 2015, when supply and demand in the capital market reached a balance and share prices fell markedly. Any market economy will go through a transition from a shortage of goods to a surplus, and from capital scarcity to a relative surplus of capital.

Yet even when capital is abundant, particular types of assets can remain in short supply. In 2006, I wrote an article titled “Buy What You Cannot Afford,” [use leverage if necessary to buy valuable assets before they become even less affordable] which captured expectations of rising asset prices at the time. In 2018, I wrote another article titled “Buy What You Cannot Get” [invest in genuinely scarce assets that money alone may not be enough to secure]. The point was that while assets were abundant overall, attractive, high-quality assets remained in short supply: even if you wanted them, you could not necessarily obtain them. Today, we face a shortage of silicon-based assets, especially chips. That is why the share prices of some listed chip and AI companies have been bid up so sharply.

Every economy follows a similar pattern as it develops.

I would now like to discuss whether there is a bubble in the U.S. stock market. Judging from this chart, I believe there is.

For example, the Nasdaq’s average price-to-earnings (P/E) ratio has risen above 40, while the S&P 500’s has reached 30. The United States is once again facing inflationary pressure. Against this backdrop, P/E ratios should not be so high; in my view, they should come down. A 2% risk-free rate, for example, corresponds to a P/E ratio of 50, while a 5% rate corresponds to a P/E ratio of 20. With the yield on the 10-year U.S. Treasury now at 4.7%, current P/E ratios are clearly on the high side.

However, the U.S. stock market has also become highly polarised: a small number of companies have created most of the value, while the majority have created little or none. According to my calculations, since 2010, just 6.3% of U.S.-listed companies have generated all of the net increase in market capitalisation across a universe of roughly 10,000 companies. More than 5,000 of those companies have since been delisted.

This polarisation is severe: both trading activity and profits are increasingly concentrated among the market leaders. That is also a defining feature of the AI era.

Although China’s A-share indices have delivered impressive gains this year, the rise has been concentrated mainly in ChiNext and the STAR Market. According to the latest figures, the STAR 50’s P/E ratio has exceeded 170, while the median P/E ratio is approaching 100 — significantly higher than the Nasdaq’s.

The shortage of attractive investable assets is now clearly visible. The prices of already highly valued assets continue to rise, while the 10-year government bond yield remains low. Generally speaking, the 10-year government bond yield should move broadly in line with nominal GDP growth. U.S. nominal GDP grew by 5% last year, for example, and the 10-year Treasury yield is now 4.7%. China’s nominal GDP growth is around 4%, yet the yield on its 10-year government bond is only 1.7%. Clearly, this shortage has driven large amounts of capital into the government bond market as well.

But do high P/E ratios necessarily imply strong growth? I compared corporate returns in China and the United States. In China, the average ROE of A-share companies was 7.5% in the first quarter. By contrast, the average ROE was more than 18% for companies in the U.S. S&P 500 and more than 20% for those in the Nasdaq. Moreover, the ROE of Chinese A-share companies has been gradually declining over the past decade, which helps explain China’s emphasis on high-quality development.

Judging from the performance of listed companies, growth remains lacklustre and returns are not particularly satisfactory. The current A-share rally has therefore not been characterised by a clear improvement in earnings or fundamentals; it has benefited more from the AI wave.

At the same time, China’s money supply is enormous. The country’s M2 balance has reached RMB 353 trillion, equivalent to roughly US$50 trillion. That is larger than the combined total for the United States and the euro area.

So why is China experiencing an asset shortage? Because too much money is chasing too few high-quality assets. That is the background I wanted to set out.

Global Polarisation Is a Mathematical Phenomenon

Once an economy reaches a certain stage of development, disparities inevitably emerge. This appears to be almost a mathematical phenomenon. In 1896, the economist Vilfredo Pareto observed that 20% of Italy’s population owned 80% of its land, an observation that later gave rise to the 80/20 rule. To illustrate the point, imagine 200 strangers entering this theatre, with each person given 100 coins. In every round, everyone gives one coin to another participant chosen at random. The rules are fair and transparent.

Everyone starts with the same 100 coins. But what happens after 20,000 rounds? Twenty percent of the participants end up holding 50% of all the coins. In other words, even when the rules are fair, open, and impartial, and everyone starts from the same position, the outcome can still be unequal.

It has been 81 years since the end of World War II. During that period, the rules have not been fair, nor have the starting points been equal. This has given rise to widespread structural and cyclical problems, as well as rising debt across society. The Pareto distribution also suggests that if the rules remain unchanged and the game continues, disparities will grow increasingly pronounced.

How have governments around the world responded to the many problems we face? By borrowing.

U.S. debt now stands at around 125% of GDP. Federal government debt has reached US$39 trillion, and annual interest payments exceed US$1 trillion. The debt burden is considerable.

This brings me to another concept: the macro leverage ratio. Governments borrow; so do households and businesses. Economic growth across society has therefore become debt-driven. In the past, growth was powered by gains in labour productivity and industrial development. At this stage, however, economies around the world are under strain.

This is the “paradox of peace.” Everyone longs for peace, and peace has indeed brought enormous benefits: longer life expectancy, greater accumulated wealth and better infrastructure. These are all positive developments. On the other hand, the widening gap between rich and poor has intensified social tensions. Friction between individuals has increased, as has conflict between countries. Tensions between humanity and nature have also intensified; the three years of the pandemic, for example, reflected such a conflict.

In this day and age, society continues to advance and develop. At the same time, prolonged peace has meant that there has been no large-scale “reset.” Historically, major population declines have often resulted from war and disease. The world’s population has grown from 2.5 billion at the end of World War II to 8.1 billion today, and that expansion has intensified conflict between humanity and nature, among other problems.

Polarisation is an inevitable consequence of development, while the widening wealth gap is one of its negative by-products. We have to recognise this. In the U.S. stock market, for example, the top 1% own about 50% of stock-market wealth, while the bottom 50% of investors own only around 1%. Income and wealth disparities have become common worldwide. The top 1% generally own 10%–20% of total wealth, while the top 10% own more than 60%. As markets fluctuate and evolve, only a minority consistently make money; most people do not. This is a global phenomenon.

Structural Problems in China’s Economy

Every country faces a different set of circumstances. The United States is under inflationary pressure because it has shifted a large share of its manufacturing overseas. China, as a late-comer, has steadily increased its share of global manufacturing and now accounts for nearly one-third of global manufacturing value added. China therefore needs strong exports; otherwise, it will face pressure from overcapacity.

China accounts for 17% of the world’s population but around 30% of global manufacturing capacity, so it is bound to be a major exporter. When external demand weakens, the pressure on China becomes considerable. This helps explain why prices in China have remained subdued over the past 15 years.

According to my calculations, China’s producer price index (PPI) recorded virtually no cumulative increase from 2010 to 2025. The PPI was essentially flat over those 15 years, while the CPI rose only modestly. This is clearly related to China’s production capacity. Chinese exports have remained strong, but much of that strength has come from exchanging lower prices for higher volumes. According to our estimates, China’s export price index fell by 19% between 2023 and 2025.

China’s exports have, of course, shifted from the traditional “old trio” of clothing, furniture and household appliances to the “new trio” of electric vehicles, lithium batteries and solar cells. This is a positive development. But whether this model of exchanging lower prices for higher volumes is sustainable remains an open question. On the one hand, China faces a shortage of attractive investable assets; on the other, prices remain weak.

The Central Economic Work Conference therefore called for reasonable price rebounds, which will also require a more balanced economic structure. The problem is that these structural issues have become more pronounced since China’s property market entered a downturn in 2021.

We therefore need to respect economic cycles. This cyclical downturn is closely connected with China’s demographic structure, its shrinking population, and its accelerating population ageing.

Against this backdrop, China clearly needs to boost domestic consumption. External demand depends on the rest of the world’s appetite for Chinese goods, while domestic demand remains weak. In the past, China relied heavily on investment to support domestic demand. But while investment generates demand in the short term, it adds to supply in the medium term and leads to overcapacity in the long term.

Investment can therefore stabilise growth in the short term, but not over the long term; in the longer run, it may distort the economic structure. Consumption is a slow-moving variable, whereas investment is a fast-moving one.

Nor can we ignore the income issues China now faces. According to the National Bureau of Statistics, households are divided into five income quintiles: low income, lower-middle income, middle income, upper-middle income, and high income. The distribution among these five groups has changed little, with the top 40% receiving around 70% of total income. This resembles the Pareto-type distribution I mentioned earlier and suggests that disparities in income distribution have become entrenched.

At the same time, as the population ages more rapidly and mobility declines, fewer migrant workers are moving to cities. The population is increasingly flowing towards a small number of more developed regions. In 2025, only eight provincial-level regions recorded net population inflows: Guangdong, Zhejiang, Jiangsu, Shanghai, Hubei, Xinjiang, Tibet, and Ningxia. More than two-thirds of provincial-level regions experienced net population declines. Major cities such as Shanghai, Beijing, Guangzhou, Shenzhen, Hangzhou, and Chengdu remain attractive because they offer more employment opportunities. China is therefore experiencing population decline, ageing, and polarisation. This process of metropolitanisation has significant implications for the economic structure.

Risks and Key Investment Themes in the AI Era

Having discussed the many opportunities and challenges in today’s economy, where do the investment opportunities lie in the AI era?

I mentioned the AI bubble earlier. It represents both risk and opportunity. AI marks the beginning of a new technological revolution, which will reorganise and reshuffle the global economy, industrial chains, and supply chains.

Most of the advances in human society have occurred over the past two centuries. For much of the preceding two thousand years, societies were primarily agrarian or nomadic, and annual GDP growth averaged only around 0.1%. The invention and application of the steam engine and textile machinery during the First Industrial Revolution then brought a major increase in labour productivity.

The Second Industrial Revolution was defined by the internal combustion engine and electricity. The Third was defined by computer and information technology and advances in genetics. The Fourth Industrial Revolution, now underway, is being driven by artificial intelligence. AI has the potential to reduce labour costs substantially and deliver a major boost to productivity, although those gains will need to be realised through “AI Plus” applications. It will have far-reaching effects on society, industrial and supply chains, and employment. We must seize this rare and transformative opportunity.

Naturally, people have seen the opportunity and begun pursuing it. The question is how to assess the opportunities and the risks. First, I believe AI currently carries risks. In both the U.S. stock market and other markets, valuations are elevated and bubbles may continue to expand.

When might these risks materialise? Several indicators warrant close attention, including free cash flow. As AI companies sharply increase capital expenditure, the key question is whether their free cash flow is keeping pace. The ratio of market capitalisation to free cash flow could therefore serve as an important gauge of risk. Capital expenditure by US AI companies has risen sharply in 2026, with spending by the Magnificent Seven up 70%–80% from 2025.

The second indicator is the unemployment rate. Although the Magnificent Seven now account for around one-third of total U.S. stock-market capitalisation, together they employ only about 2.5 million people, nearly half of them at Amazon. Nvidia is the largest U.S.-listed company by market capitalisation, yet it employs only about 35,000 people. That is why I believe unemployment is another important indicator to watch.

The third is inflation. If inflation remains high, the Federal Reserve will be unable to cut interest rates, and that could prick the bubble. A bursting bubble is a risk, but it is also an opportunity: it reshuffles the market, weeds out weaker players, and brings valuations back to more reasonable levels. Whether today’s Magnificent Seven eventually become eight or nine giants, or shrink to four or five, remains uncertain. The strongest will survive.

I therefore believe that the bursting of the bubble would create a major opportunity. The silicon era is already under way, making it essential to identify the market’s defining theme. In my view, AI and silicon-based technologies represent a major long-term investment theme. Computing power, data, and algorithms form the foundations of AI, and investors should actively pursue the opportunities they create.

The second opportunity, in my view, lies in positioning portfolios for de-dollarisation. The United States faces a range of problems: its debt is growing too quickly, and the dollar’s international standing is weakening. The era in which the dollar stood alone as the dominant currency is over. The future will bring a more diversified monetary system, as reflected, for example, in the recent appreciation of currencies in some resource-rich countries.

The third opportunity stems from deglobalisation. Intensifying conflict between countries is reshaping industrial and supply chains and creating strains in energy and food markets. If supply chains snap, commodities and strategically critical resources, such as rare earths, will offer the best investment opportunities.

The fourth opportunity lies in undervalued traditional industries. The very fact that they are currently out of favour may present an opportunity.

In the AI era, China must invest more heavily in computing power if it is to narrow the gap with the United States. Another arena for future competition may be commercial spaceflight. Aerospace offers substantial opportunities and advantages in both peacetime and wartime.

China still faces considerable pressure, but this could also provide impetus for future growth. The 15th Five-Year Plan therefore calls for the development of a new RMB 10 trillion smart economy. Substantial public investment and policy support for data, computing power, and algorithms can be expected, drawing on China’s capacity to mobilise resources nationwide.

These areas still account for a relatively small share of the economy, but they should become pillar industries driving future growth. Data from the first four months of this year show relatively rapid investment growth in new quality productive forces and equipment upgrades, which is also closely connected with the AI era.

Resource-related assets also deserve attention. Trading in the A-share market still shows a pronounced retail-investor bias: low- and mid-cap stocks account for a disproportionately large share of turnover. Companies with market capitalisations below RMB 30 billion generate around 60% of total market turnover but only about 10% of profits. I therefore believe that once the current rally undergoes a correction, large-cap companies may have an opportunity for a valuation re-rating.

At present, the CSI 300 trades at a P/E ratio of around 14 and offers a dividend yield of 2.6%, well above the yield on 10-year Chinese government bonds. That may also present an opportunity.

In the U.S. market, around 80% of turnover is concentrated in companies with market capitalisations above US$100 billion. China’s market will gradually evolve from an emerging market into a mature one. The process will take a long time, but the broad direction should be the same.

I would also encourage investors to pay close attention to mergers and acquisitions. Why have US companies become so large? No A-share company has yet reached a market capitalisation of US$1 trillion, and that milestone remains some way off. US companies have largely built scale and strengthened their market positions through M&A. Each of the Magnificent Seven has completed hundreds of acquisitions. China does not yet have its own Magnificent Seven, while even comparable Chinese companies have made only dozens of acquisitions. Investment opportunities may therefore emerge as Chinese companies use M&A to expand and strengthen their competitive positions.

Finally, consumption has remained weak so far this year. Total retail sales of consumer goods grew by just 1.9% year on year in the first four months of 2026. Yet when sentiment towards consumer stocks is this depressed, it may be precisely the right time to gain exposure, as markets often reverse at extremes. Portfolio positioning for 2027 should also take into account further progress towards common prosperity. Last December’s Central Economic Work Conference explicitly called for the formulation and implementation of a plan to raise the incomes of urban and rural households. I believe this policy direction could also create attractive investment opportunities.

Looking ahead, as China’s population ages, the government is likely to increase spending on people’s livelihoods, including fiscal support to help close social security funding gaps. I estimate that such spending could reach RMB 4 trillion by 2030, which could also create significant investment opportunities.

Investors need to take a contrarian approach and identify the right entry points. I also believe there are opportunities in the property market, though they will be primarily structural. As I mentioned earlier, property is an important component of household asset allocation in China. But China is now undergoing metropolitanisation, with people increasingly concentrating in major cities, provincial capitals, and cities specifically designated in the state plan [Dalian, Ningbo, Xiamen, Qingdao, and Shenzhen].

Against this backdrop, the property market may continue to adjust for some time. Investment, however, should follow the flows of people, capital, goods, and information. Investment strategies should therefore be aligned with these flows. In my view, greater concentration in major cities is a clear trend.

Overall, China’s economy is undergoing a profound adjustment, amid structural, cyclical, and institutional challenges that must all be acknowledged and addressed. At the same time, AI is likely to remain a major long-term investment theme.

I hope everyone will take a calm and objective view of China’s current economic conditions and structure, and look for investment opportunities in this rapidly changing world. That concludes my speech. Thank you.

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Pekingnology

Li Xunlei warns of illusion of warmth in the economy

Japan’s long stagnation has long served as a cautionary tale for policymakers across Asia. After the collapse of its asset bubble in the early 1990s, hesitant monetary easing, zig-zagging fiscal choices, a banking clean-up that came late, credit drifting into property, and a failure to nurture new industries did little to revive household demand or lift…

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a year ago · 23 likes · 1 comment · Yuxuan JIA and Zhijian YAN

A perfectly legitimate subject for journalism. Jiemian News 界面新闻, a Shanghai-based financial-news outlet, duly made it one. But it went further. After considering Starbucks’s competition, average spending per customer and its “third place”—the idea that its cafés should be welcoming spaces outside home and work where people can linger—the article arrived at a prescription: paying customers should come first; those occupying tables without buying anything should, in effect, buy something or leave.

Starbucks may not have realised that what it lacked was management advice from Jiemian. In China, there is plenty more available.

The most industrious provider may be the Economic Daily 经济日报, whose publisher is an institution directly under the Communist Party’s Central Committee. In 2021, after the government’s crackdown on private tutoring wrecked New Oriental’s core business, Yu Minhong—a legendary figure in Chinese entrepreneurship whose New Oriental story was famously dramatized in American Dreams in China—decided to try selling agricultural products by livestream.

The Economic Daily was unconvinced. In “New Oriental Should Not Copy Li Jiaqi”, it warned that New Oriental risked jumping “from one quick-money industry to another”. Li was China’s best-known livestream salesman. Happily, the paper had alternatives ready. New Oriental could take education into rural China. Or it could try study tours, which might make money less quickly but better suited its educational background.

Mr Yu thanked the columnist for the “kind advice”. New Oriental went ahead. Its livestreaming arm, East Buy, generated 4.39 billion yuan in sales last year. The market did not establish that the Economic Daily understood New Oriental better than its founder did.

This did little to discourage the paper.

When tea chains began selling drinks for 9.9 yuan ($1.40), the Economic Daily declared that “new tea beverage competition cannot rely solely on price cuts”. Companies should deepen their core businesses, find new growth and focus on healthier products. Cultural-product companies should combine tradition with fashion, use big data and artificial intelligence, build brands, improve marketing and pursue cross-industry collaborations. In June it told grain brokers to bid farewell to their “muddled accounts”, praising mandatory transaction records as not a burden but “a higher level of protection and industry empowerment”.

Taken together, the Economic Daily can resemble a management consultancy whose clients have neglected to hire it.

Two things distinguish the genre. One is the tone. Companies “should” do this—Starbucks, for example, “should do something about people who sit without buying”—“must” improve that and “cannot” rely on something else. Trade-offs become instructions. Uncertainty disappears. The voice is that of an instructor marking homework: lecturing, paternalistic and serenely sure of itself.

The other is the advice. Innovate. Understand consumers. Improve quality. Build brands. Use technology. Find new growth. Pursue sustainable development.

Most of it is correct. Almost none of it is useful. Running a business consists precisely of deciding how to innovate, which consumers to chase, when to cut prices and whether scarce capital belongs in branding, factories, research or distribution. “Improve quality” is excellent advice in roughly the same sense that “buy low and sell high” is excellent investment advice.

The confidence is especially curious because many institutions dispensing it do not themselves live by quite the market disciplines they prescribe. Many outlets benefit from public funding, taxpayer-funded subscriptions, political status, privileged access, and restricted competition. After voluntary subscriptions have all but evaporated, their commercial revenues are not always entirely conventional either. Companies advertise, sponsor conferences and enter “strategic partnerships” for exposure, certainly. Maintaining cordial relations with influential media organisations may have value of its own, to put it nicely. Institutions partly insulated from ordinary market competition can be remarkably eager to lecture those exposed to it.

Commercial inexperience, though, explains only part of the arrogance. Chinese media have traditionally been expected not merely to report society but to guide it. The most influential media in particular are not simply observers of political authority. They are an extension of it. From conveying what the authorities expect of businesses, it is a short step to assuming that businesses require instruction.

The same instinct shapes coverage of the business environment. A new industry appears, competition intensifies, or a risk emerges, and the prescriptions are strikingly familiar: strengthen supervision, standardise development, close loopholes, prevent disorderly competition.

Sometimes more regulation is plainly warranted. Far rarer is the suggestion that government may already be doing too much—or that doing less might itself improve the business environment. Chinese public discourse likes to balance the market’s “invisible hand” with the government’s “visible hand”. The press has a habit of volunteering as another finger on the latter.

Markets are inconvenient because they do not come with answer sheets. Some companies win by cutting prices; others by charging more. Some build brands; others manufacture for them. New Oriental survived by entering a business the Economic Daily thought unsuitable.

Perhaps Starbucks should ask people who buy nothing to leave. Perhaps it should welcome them. That is a choice about customers, brand and money. The telling thing is not that Jiemian has an opinion. It is how naturally, in some journalism, an opinion becomes an instruction. (Enditem)

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The Vanishing Craft of Journalism in China

The following article, from a year and a half ago, completes my recent rant on legacy media and journalism in China…

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10 months ago · 21 likes · 4 comments · YIRUI LI and Yuxuan JIA

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This is the third instalment in Zhao Shukai’s series, Reflections on the History of China’s Rural Reform. The Chinese original is available on the WeChat blog 九号院时刻 (No. 9 Courtyard Moment). The first instalment appeared in Pekingnology, our sister newsletter, and our translation of the second was published on Wednesday.

Zhao is a retired Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the Research Centre of Rural Economy under the Ministry of Agriculture and Rural Affairs). Starting in 1990, he served at the Development Research Centre of the State Council, China’s government cabinet, holding roles including Director General of the Rural Department’s Organisation Research Office and Director General of the Information Centre.

Zhao has reviewed the following translation before publication.

— Yuxuan Jia

赵树凯：农村改革史首先是政治史

——农村改革史阅读随笔（3）

Zhao Shukai: The History of Rural Reform Is, First and Foremost, a Political History

—Reflections on the History of China’s Rural Reform (III)

The history of rural reform is, first and foremost, a political history, because rural reform was, above all, political reform.

Rural reform unfolded through changes in policy. Those changes became possible only because political change had already taken place; political change was the precondition for policy change. At the macro level, this meant a shift in the fundamental ideas guiding policymaking. At the micro level, it meant that local authorities acquired a measure of policymaking power — or, in other words, policy autonomy.

Although the policies being changed were economic, the authority to formulate economic policy is itself political power. Acquiring such authority was a political process, not an economic one. This point was also vividly borne out in everyday life. When rural residents went to the cities for work or to do business, especially those formerly classified and controlled as “landlords, rich peasants, counterrevolutionaries, and bad elements”, the first obstacles they encountered were political discrimination and restrictions arising from their status.

Without the emancipation of these political outcasts and freedom from status-based constraints, many skilled craftspeople and rural migrants who left their land and villages to start businesses — and who later became entrepreneurs — could never have emerged. Any account of rural reform written solely from the perspective of economic history is therefore partial and superficial.

I. Policy Breakthroughs Began with the Easing of Political Control

What is called rural reform was, in essence, a series of breakthroughs from existing policy. These breakthroughs became possible because the former system of oppressive political control had begun to loosen and, in some respects, to break down.

For farmers, contracting land to individual households and engaging in household farming were, of course, economic activities. Yet they became possible only because the political environment had changed, and that change arose from the disintegration and reconfiguration of the existing structure of political power. Changes in the political environment drove changes in economic behaviour.

In this sense, the history of rural reform is not primarily a history of economic reform, but one of political reform — or, more precisely, political change. I use “political change” rather than “political reform” to stress that the process was neither consciously initiated nor fully deliberate; it emerged as the political situation evolved.

The first condition for this political change was a transition in the political structure at the top. Had the intense political repression that prevailed before October 1976 continued, economic controls could not have been relaxed, nor could household contracting have emerged and spread. Mao’s death opened up new political space in China. Before then, the political environment had prevented household contracting from taking root, making reform impossible. The transformation of the political and institutional environment preceded changes in economic life not only chronologically but also causally.

The second condition was a change in policy thinking. Among the top leadership after October 1976, this did not amount to a fundamental reversal, but rather to a limited relaxation. The shift began with the arrest of the Gang of Four [Oct. 1976] and continued at the Second National Conference on Learning from Dazhai in Agriculture [Dec. 1976], held soon afterward. Until then, the basic approach to rural work had been to “take class struggle as the key link,” put politics above all else, and attach little importance to production — an attitude captured in the slogan, “We would rather grow socialist weeds than plant capitalist seedlings.”

A closer examination of rural policy at the time, however, reveals that even under the overarching principle of politics taking command, two distinct policy lines coexisted: the Sixty Articles line and the Dazhai line. The the Regulations on People’s Communes, commonly known as the “Sixty Articles”, were drawn up under Mao Zedong’s direction and adopted and promulgated at the Tenth Plenary Session of the Eighth Central Committee of the Communist Party of China in September 1962. They established the basic policy framework for the people’s commune system: the production team would serve as the basic accounting unit, while small private plots, rural markets, and household sideline activities would be permitted.

The Dazhai line reflected policies of the communisation campaign that had preceded the Sixty Articles: the production brigade — or even the commune — would serve as the basic accounting unit, while private plots would be abolished, rural markets closed, and household sideline activities eliminated. The Sixty Articles, formulated under Mao’s personal direction, represented a policy adjustment introduced after the Great Leap Forward and communisation had brought about the Great Famine. Both lines could therefore claim Mao’s authority. At the central level, Ji Dengkui and Hua Guofeng represented the Sixty Articles line, while Zhang Chunqiao and Chen Yonggui represented the Dazhai line.

II. Two “Policy Lines” in Rural Work During the Cultural Revolution

In the three years preceding the Cultural Revolution, from 1962 to 1966, the Sixty Articles were the dominant framework for rural policy. After the Cultural Revolution began, the Ministry of Agriculture and the Shanxi Provincial Party Committee held two on-site conferences on learning from Dazhai in Xiyang County, in September 1967 and January 1968. These conferences set off a nationwide wave of visits to Dazhai by rural cadres. From the latter half of 1968 through the first half of 1970, localities across China emulated Dazhai practices that went beyond the Sixty Articles.

In particular, they shifted accounting from the production team to the production brigade, introduced Dazhai-style work points based primarily on political performance, abolished household private plots and sideline activities, and closed rural markets. Each successive wave of the campaign to learn from Dazhai in agriculture pushed rural policy further to the left. Yet amid the turmoil of the Cultural Revolution, control from above also weakened, and some places — notably Wenzhou in Zhejiang and Putian in Fujian — introduced household contracting, which were condemned as “capitalist restoration.”

In August 1970, the State Council convened the Northern China Agricultural Work Conference in Xiyang, Shanxi. On the one hand, the conference elevated the campaign to learn from Dazhai to a new level of political importance. On the other, in terms of specific policy, it stressed that the Sixty Articles must be observed: localities were not to arbitrarily shift accounting to the production brigade, abolish private plots or household sideline activities, or close rural markets. The conference also emphasised the importance of distribution according to work contribution. Overall, its approach to concrete policy was constructive, and the Sixty Articles largely regained their standing.

In the spring of 1975, Mao Zedong called for restricting “bourgeois right” [a Marxist concept referring to inequalities retained under socialism, particularly in remuneration and distribution] and exercising all-round dictatorship over the bourgeoisie. Against this backdrop, Zhang Chunqiao published an essay titled “On Exercising All-Round Dictatorship over the Bourgeoisie.”

At the time, distribution according to work contribution, collective ownership, household sideline activities, and private plots were all treated as manifestations of “bourgeois right.” Rural policy moved further toward the extreme left, and the Dazhai experience was promoted more vigorously.

In September, at the First National Conference on Learning from Dazhai in Agriculture, Deng Xiaoping, then overseeing the work of the central leadership, continued to endorse the Dazhai approach. Localities subsequently departed from the Sixty Articles one after another, adopting brigade-level accounting and Dazhai-style work points, abolishing private plots and household sideline activities, and closing rural markets. Ultra-left policies became still more radical. Some places strictly prohibited farmers from raising chickens or ducks; others even placed farmers’ homes under public ownership. Policy increasingly came to resemble that of the 1958 communisation campaign. Chen Yonggui openly called for commune-level ownership throughout Xiyang County.

The Dazhai approach was clearly a continuation of the communisation campaign. As a popular saying put it, “Dazhai’s policy model was the communisation campaign of 1958 brought back from the dead in a new guise.” From the latter half of 1975 through the end of 1976, this set of ultra-left Dazhai practices essentially dominated rural work.

Throughout the Cultural Revolution, policy disagreements among the top leadership centred chiefly on whether to uphold the Sixty Articles or emulate the Dazhai model. Ji Dengkui described himself as a member of the “Sixty Articles faction.” The policy approach represented by Ji and Hua Guofeng was based on the Sixty Articles drafted under Mao’s direction.

Mao had been compelled to retreat from the commune system of 1958 after the failure of the Great Leap Forward and communisation caused the Great Famine — a retreat also described as a “policy adjustment.” The basic accounting unit was first scaled back from the people’s commune, encompassing several thousand households, to the production brigade, with several hundred households, and then scaled back again to the production team, with several dozen households.

This was known as “three-tier ownership, with the team as the basic unit.” Here, “team” had initially referred to the production brigade, but the Sixty Articles later specified the smaller production team. Within this three-tier system of ownership, private plots amounting to 5–7 per cent of the land were permitted, as were household sideline activities and limited participation in free markets.

Fundamentally, the Gang of Four and Chen Yonggui represented Mao’s original policy line, while Hua Guofeng and Ji Dengkui represented the line that emerged from Mao’s compromises and retreats. Strictly speaking, Mao accepted the latter line but did not embrace it willingly. In the practical rural work, the two approaches were bound to conflict, yet both could claim ample support from Mao. Around the time of Mao’s death, the conflict between the Sixty Articles and the Dazhai model became one of direct confrontation. This was the basic trajectory of the dispute over rural policy during the Cultural Revolution.

III. The Second National Conference on Learning from Dazhai in Agriculture as a Turning Point

The choice between upholding the Sixty Articles and promoting the Dazhai approach might have appeared to be a disagreement over specific economic policies, but at the time it became a major political issue.

In political theory, the Dazhai model held an overwhelming advantage. Its chief theoretical exponent was Zhang Chunqiao, who elaborated on Mao Zedong’s statements and instructions. According to the theory of continuing the revolution under the dictatorship of the proletariat, the Dazhai model more fully embodied the socialist direction.

Upholding the Sixty Articles and granting farmers a small measure of economic freedom, by contrast, was often denounced as “putting material incentives in command,” compromising with the forces of small-scale peasant production, and indulging farmers’ spontaneous capitalist tendencies. Within this theoretical framework, disagreements over specific policies were elevated into political questions of whether China would take the capitalist road or the socialist road.

In such a climate, even raising a few chickens or ducks at home or engaging in petty trade could be labelled capitalist, and the people involved branded “class enemies.” For grassroots cadres, the lesson was clear: organising political study and campaigns of mass criticism was safe, while attending to agricultural production was dangerous and risked political error. Rural work at the grassroots thus descended into absurdity, as extreme political fervour displaced the material production essential to everyday life.

After Hua Guofeng assumed leadership, the Second National Conference on Learning from Dazhai in Agriculture was convened in December 1976. The Ministry of Agriculture and Forestry had originally proposed a small symposium of around 200 participants. Hua, however, personally called for an exceptionally high-level and large-scale national conference, attended by 5,000 cadres from across the country at or above the rank of county Party secretary.

In effect, the conference marked Hua’s first public political appearance before a nationwide audience after taking power. Its agenda went far beyond learning from Dazhai in agriculture: its central purpose was to expose and criticise the Gang of Four. The conference still spoke in the established language of “continuing the revolution under the dictatorship of the proletariat” and “taking class struggle as the key link,” but its policy substance had already begun to change markedly.

The discussion materials focused their criticism on the crimes of the Gang of Four: allowing only politics to take command, forbidding attention to production, denouncing such attention as the “theory of productive forces” [the alleged error of treating the development of the productive forces as the overriding priority] and promoting the slogan “We would rather grow socialist weeds than plant capitalist seedlings.”

In the conference’s aftermath, local cadres began to take agricultural production seriously and felt able to devote themselves to it. In this sense, the conference partly repudiated the rural policy approach of taking class struggle as the key link and putting politics above all else. It foreshadowed the Party-wide shift in focus toward economic development. As a turning point, the conference eased the intense political pressure on rural work and thereby, in objective terms, opened the way for reform.

At the heart of what is now called “rural reform” was a break with the policy framework of the Sixty Articles: the farm household replaced the production team as the basic accounting unit, collective farming gave way to household farming, and the household economy was reestablished. Abandoning the production team as the basic accounting unit in favour of the household broke with both the ultra-left line represented by the Dazhai model and the Sixty Articles line represented by Ji Dengkui and Hua Guofeng.

Anhui and Sichuan, the first provinces to undertake reform, followed precisely this path: they moved beyond the Sixty Articles’ stipulation that the production team serve as the basic unit and restored household farming through household contracting. The leading provincial figures in this process included Wan Li, Zhao Ziyang, Zhou Hui, and Chi Biqing. Zhao did not explicitly support household production contracts while serving in Sichuan, but he reduced the size of production teams, increased the share of land allotted as private plots, and gave farmers greater scope to participate in markets, thereby facilitating the emergence and spread of the practice. Wan Li directly approved farmers’ demands for household production contracts, mounting a direct challenge to the people’s commune system.

Any study of the origins of rural reform must examine political power and recognise the fundamental role that changes in the political environment played in making reform possible. In this sense, reform began when power changed hands at the top, intense political control eased, and ultra-left policies began to loosen, creating space for farmers to exercise a measure of economic freedom. To this day, the historical narrative of rural reform remains seriously distorted, still mired in self-serving accounts by particular forces.

(November 2025)

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Pekingnology

Zhao Shukai: Pluralism powered China’s rural reform

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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10 months ago · 17 likes · 2 comments · Yuxuan JIA and WEI Lai

Pekingnology

China’s Rural Reform: A History Not Designed but Discovered

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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9 months ago · 31 likes · 1 comment · Yuxuan JIA and YIRUI LI

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This is the second instalment in Zhao Shukai’s series, Reflections on the History of China’s Rural Reform. The Chinese original is available on the WeChat blog 九号院时刻 (No. 9 Courtyard Moment). The first instalment was published in Pekingnology, our sister newsletter, and the remaining essays will be published in due course.

Zhao is a retired Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the Research Centre of Rural Economy under the Ministry of Agriculture and Rural Affairs). Starting in 1990, he served at the Development Research Centre of the State Council, China’s government cabinet, holding roles including Director General of the Rural Department’s Organisation Research Office and Director General of the Information Centre.

—Yuxuan Jia

Zhao has reviewed the following translation before publication.

Pekingnology

China’s Rural Reform: A History Not Designed but Discovered

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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9 months ago · 31 likes · 1 comment · Yuxuan JIA and YIRUI LI

赵树凯：”政策失灵”与农民幸运

——农村改革史阅读随笔（2）

Zhao Shukai: “Policy Failure” Proved a Blessing for Farmers

—Reflections on the History of China’s Rural Reform (II)

The Third Plenum of the Eleventh CPC Central Committee is said to have ushered in rural reform — not because the meeting itself devised a blueprint for such reform, but quite the opposite. The policies adopted at the meeting explicitly declared that “the household contract responsibility system is not permitted.”

The meeting also approved a revised Draft Regulations on the Work of Rural People’s Communes. At the time, the consensus among the top leadership was that the people’s commune system should remain in place for at least another twenty years. Even after that, the aim was not to introduce household contracting, but to take the commune system to a still higher level of “large in size and collective in nature” — in other words, to make the communes’ egalitarian “big rice bowl” even bigger.

The meeting’s significance for reform lay chiefly in abandoning class struggle as the key link and shifting the focus to economic development. In the rural areas, it emphasised respect for the autonomy of production teams and the need to encourage farmers’ initiative in production. Yet it continued to insist that the people’s commune system be consolidated and that the collectivist path it represented be upheld.

In fact, it was precisely the household contract responsibility system that ultimately dismantled the people’s commune system and reversed the course of collectivisation that the communes embodied. The central leadership had once declared the people’s commune to be both the basic unit of socialism in the countryside and the basic unit on the road to communism. The Third Plenum, then, did not script the story of rural reform. At most, it shifted the political climate in a direction more conducive to reform, creating room for the successive policy breakthroughs that followed.

Not long after the Third Plenum, in April 1979, the central leadership issued Document No. 31, again affirming that the household contract responsibility system was “not permitted.” In September, a document adopted at the Fourth Plenum softened the wording from “is not permitted” to “should not be practiced.” In September 1980, Central Committee Document No. 75 allowed the practice in some underdeveloped areas while maintaining that it should not be adopted elsewhere. The internal criterion was that only places with an annual net income of less than 50 yuan per capita would qualify — areas accounting for roughly 5 per cent of China’s rural population.

In March 1981, the General Office of the Central Committee circulated throughout the Party a policy proposal by Du Runsheng suggesting that 15 to 20 per cent of the country could adopt the household contract responsibility system on a trial basis for three to five years.

As late as the Central Rural Work Conference in October 1981, local authorities were still being told to hold the line: outside poor areas, the household contract responsibility system should not be introduced, nor should it be allowed to undermine the collective economies of ordinary and more developed areas. Farmers, however, kept pushing the boundaries, and the momentum soon became impossible to contain. The rule against adopting the household contract responsibility system in ordinary areas became a dead letter.

By the end of the year, the central leadership had realised that the practice could no longer be suppressed through administrative measures. The draft policy document was hastily revised to state that farmers were free to choose among the various forms of production responsibility. This became the No. 1 Central Document of 1982. The government’s gradual acceptance of household contracting was thus also a process of successive retreat from its original policy design.

Many people regard a speech by Deng Xiaoping as the historic turning point in policy toward household contracting. In fact, its impact was not nearly as great as is often assumed. In a conversation on May 31, 1980, Deng endorsed the 大包干 dabaogan used in Fengyang County. Many take this to mean 包干到户 the household contract responsibility system associated with Xiaogang Village.

But a close examination of the record shows otherwise: the dabaogan Deng referred to was not contracting full responsibility to individual households, but contracting it to small groups under the unified leadership of the production team. Deng’s point was that, so long as the production team and its collective economy remained the principal unit, there was no need to fear the emergence of the household contracting in a few places. In other words, he accepted limited household contracting on the assumption that the people’s commune system would remain intact.

What happened, however, was that the spread of household contracting rapidly dismantled the collective organisations built around production teams. This had not been anticipated, much less designed in advance. Even after Deng’s remarks, the top leadership continued its efforts to revise and adopt the Regulations on People’s Communes in order to further consolidate the commune system. But events on the ground far exceeded its expectations: within two years, the people’s communes had fallen apart.

Once land was contracted to individual households, the private hiring of labour, the rise of township and village enterprises, and large-scale migration to the cities soon followed. None of these developments had been planned or designed by policymakers; in their eyes, they were unforeseen “accidents.” The real wisdom of policymaking lay in responding appropriately to these developments. This was the great achievement of the five consecutive No. 1 Central Documents. Their success was not the result of far-sighted planning or the guidance of some enlightened “thought” or “theory.” On the contrary, they proceeded from the realities of everyday life, followed their underlying logic, and accommodated farmers’ own choices and innovations.

A review of policymaking throughout the reform era reveals a recurring pattern: when farmers first came up with new practices, decision-makers often failed to support them promptly and sometimes even sought to restrict or suppress them. Policy “brakes” were applied repeatedly. Deng Xiaoping once described township and village enterprises as an unforeseen force that had “suddenly emerged.” Indeed, in the early years of reform, the government neither anticipated nor supported their rapid rise. Instead, it tried to suppress them through policy on the grounds that they were disrupting the planned economy.

The same pattern emerged with the private hiring of labour in the countryside. Initially, the authorities decided to wait and see for two or three years. When that period had elapsed, they concluded that the practice could no longer be left unchecked and called for tighter controls, even explicitly proposing heavy taxes. Practical difficulties and policy disagreements, however, prevented the proposed measures from being adopted, and the matter was eventually dropped.

The same was true of farmers moving to the cities for work or business. From the outset, central government departments repeatedly condemned such movement as “disorderly migration.” Even in the mid-1990s, they continued to introduce measures to restrict it, at times deploying the police to remove migrant workers from cities and send them home. Yet rural migration to the cities proved unstoppable. Restrictions remained in place for more than a decade and were only gradually lifted after the turn of the twenty-first century.

It is difficult to imagine what farmers’ lives — or reform itself — would have looked like had those policy “brakes” been effectively applied: the bans on household contracting, on hiring labour, and on farmers moving to the cities. Put differently, had those policies “succeeded,” how could there ever have been a development miracle? This kind of “policy failure” was therefore a stroke of good fortune for farmers — and for rural development as well.

(January 2025)

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Pekingnology

China’s Rural Reform: A History Not Designed but Discovered

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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9 months ago · 31 likes · 1 comment · Yuxuan JIA and YIRUI LI

Pekingnology

China’s Debt to Its Migrant Workers

In China’s debate over how to revive domestic demand, many mainstream economists emphasized in recent years that if the government is going to spend more to support consumption, a substantial share of that support should go to lower-income groups — and particularly to rural residents and the hundreds of millions of migrant workers who have moved from th…

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a month ago · 20 likes · 1 comment · Yuxuan JIA and Zhu Yutao

Pekingnology

Zhao Shukai: Pluralism powered China’s rural reform

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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10 months ago · 17 likes · 2 comments · Yuxuan JIA and WEI Lai

Pekingnology

Wen Jiabao and Domestic Migrant Workers

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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a year ago · 16 likes · Yuxuan JIA and Zhao Huiyi

Appearing on China Central Television’s business channel, Mr Zhong turned his fire on e-commerce platforms. They had promised to eliminate middlemen, he argued, only to become an even more overbearing breed of middleman themselves. By manipulating traffic and prices, they squeeze retailers and suppliers, encourage ruinous price competition and damage the “real economy”. E-commerce, he suggested, has even impoverished urban life. People used to stroll past shops, see a shirt and buy it on impulse. That sort of spontaneous, emotional consumption is disappearing.

The remarks were mauled online, though not universally. Some distributors and small merchants, whose already meagre margins can become thinner still when prices collapse online, understandably applauded. Nor is everything Mr Zhong says foolish. China’s platforms can be opaque, capricious and bullying. An algorithm that determines whether a merchant is seen at all gives considerable power to its owner. Rules can change suddenly; subsidies can distort prices; traffic can be allocated in ways that sellers struggle to understand. Such power deserves scrutiny and, where necessary, regulation.

It is also worth being fair to Mr Zhong. His complaints about e-commerce made up only a small part of a long interview, much of which was considerably more sensible.

When discussing agriculture, for example, he showed little nostalgia for the smallholder economy. Raising farmers’ incomes, in his telling, requires scale, capital, technology, standardisation and industrial organisation. A company can connect scattered farmers with processing, branding and national markets; industry can make an agricultural product more valuable and return some of that value to the countryside. This is not the language of a man who fundamentally distrusts markets. On agriculture, Mr Zhong sounds like a fairly orthodox capitalist.

Which makes his excursion into the evils of middlemen all the more interesting.

“Middleman”, in Mr Zhong’s telling, is not merely a description of an economic function. It is an accusation. And that is a dangerous word for a bottled-water tycoon to throw around.

China has heard the accusation before. In the traditional hierarchy of the “four occupations” 士农工商, merchants came last, beneath scholars, farmers and artisans. Commerce was necessary but faintly disreputable. The farmer grew something. The craftsman made something. The merchant merely bought, moved and resold it—and somehow ended up richer than either.

This was never a complete description of Chinese commercial life; imperial China produced plenty of sophisticated merchants. But the moral hierarchy mattered. The productive man transformed nature. The merchant appeared merely to insert himself between producer and consumer, profiting from scarcity, information and circumstance. To “hoard and profiteer” remains an unusually vivid Chinese accusation.

Karl Marx provided this suspicion with a much more elaborate theoretical wardrobe. He did not argue that merchants perform no useful function. But in Marxist political economy, pure circulation does not itself create new value or surplus value. Commercial profit ultimately represents a portion of surplus value generated in production. Chinese students still encounter these distinctions in the Marxist political economy taught in schools and universities.

Modern China has, of course, travelled a very long way from the crude conclusion that only somebody standing beside a machine creates economic value. The Communist Party’s own economic doctrine recognises capital, technology, knowledge, management and data as factors of production whose contributions can be assessed by the market. The actual economy has travelled farther still.

Yet the older instinct remains remarkably durable. Somebody who grows something is productive. Somebody who manufactures something is productive. Somebody who sells it begins to look slightly suspicious. Someone who writes an algorithm to sell it looks more suspicious still.

Add a commission, a recommendation engine and a billionaire founder, and the Confucian moralist and the Marxist lecturer can find themselves unexpectedly sharing a table.

Mr Zhong is a particularly comic recruit to their cause.

Few Chinese fortunes demonstrate the value of commercial activity more vividly than his own. Nongfu Spring did not make him enormously rich by discovering H₂O. Its triumph was to build a brand, an extraordinary distribution system and the habit, repeated billions of times, of a thirsty customer opening a refrigerator and reaching for one bottle rather than another.

The company famously described itself as merely a “porter of nature” 大自然的搬运工.

Quite. And very profitable portering it turned out to be.

That is not a criticism. It is the point. The water inside a bottle may be cheap; getting consumers to recognise, trust, find and pay for that bottle is not. Branding creates value. Logistics create value. Shelf space, advertising, distribution and inventory management create value. So does the judgement of an entrepreneur deciding where to put all of them.

But once that is conceded, it becomes difficult to see why the principle should stop at the edge of a smartphone screen.

Taobao does not manufacture shirts. Douyin does not grow oranges. Pinduoduo does not assemble frying pans. They organise information, attention, payments and transactions. They allow a tiny producer to find a distant customer and a customer to compare products that once sat in different provinces. Sometimes the platforms charge too much for doing this. Sometimes they abuse their position. That does not mean they do nothing.

Mr Zhong’s irritation makes more sense as business strategy than as political economy.

Nongfu Spring’s formidable offline distribution network is a competitive advantage. Shelf space matters. Refrigerators matter. Retail relationships matter. So does keeping prices reasonably orderly across a vast country. If every shopkeeper and distributor earns enough from selling your bottle, they have good reason to stock it prominently and replenish it quickly.

E-commerce makes some of those advantages less secure. A new beverage can reach consumers without reproducing the same army of distributors. Excess inventory in one province can suddenly appear online at an inconvenient discount in another. Consumers can compare in seconds what once required visiting five shops. A brand that has spent years constructing a carefully tiered system of prices and channels may discover that the internet treats those tiers with insufficient respect.

The internet did not abolish middlemen. It changed which middlemen were powerful.

Mr Zhong’s lament about the death of “emotional consumption” is stranger still. Chinese shoppers do not appear to have become Vulcans since acquiring smartphones. Livestreaming, flash sales and midnight Meituan orders provide ample evidence that irrational purchasing remains in excellent health.

Nor is cheapness evidence of social decay. China remains a country in which many households are highly price-sensitive. A student choosing the cheaper meal is not engaged in destructive “involution”. A family comparing prices online is not betraying Chinese manufacturing. Sometimes consumers buy cheap things because they have less money than former richest men.

Indeed, one of e-commerce’s greatest contributions has been to make markets larger rather than merely cheaper. A small factory can reach consumers nationwide. A farmer can sell beyond his county. A niche product that could never support a physical shop can find enough scattered buyers online to survive. Residents of smaller cities can choose from goods once concentrated in Beijing, Shanghai or Shenzhen.

The irony is that this is not so different from the story Mr Zhong tells about agriculture.

When capital, technology, processing and distribution organise farmers more efficiently, he sees value creation. Quite rightly. But when software, logistics and digital marketplaces organise merchants and consumers more efficiently, he suddenly sees a domineering middleman.

Perhaps the most revealing response to Mr Zhong, then, is the ridicule he has received. It suggests that decades of market life have changed Chinese common sense more thoroughly than either ancient prejudice or ideological vocabulary might imply. Millions of people now take it for granted that organising a market can itself be economically useful. They learned this not from Adam Smith but from parcels arriving at their doors.

There is something reassuring about that.

China had unusually fertile soil for suspicion of commerce. Merchants once occupied the bottom rung of the conventional social hierarchy. Generations of students have been taught a political economy that draws a sharp distinction between production and circulation. Even today, denunciations of “capital”, “middlemen” and excessive profit can acquire a moral force that arguments about efficiency rarely match.

And yet this same country somehow produced Alibaba, JD.com, Meituan, Pinduoduo and ByteDance. E-commerce sank roots not merely in rich coastal cities but in county towns and villages. Millions of merchants built businesses on it. Millions more found work delivering its parcels, operating its warehouses, writing its software and appearing in its livestreams. Consumers acquired choices that would have seemed preposterous a generation ago.

The platforms have created plenty of abuses worth correcting. Correct them. Monopoly, opaque pricing, coercive rules and unfair treatment of merchants are proper subjects for regulators.

But that is rather different from resurrecting the old suspicion that commerce becomes less worthy as it moves farther away from the factory floor.

A country in which merchants were once ranked last, whose students still encounter Marx’s distinction between production and circulation, has somehow built the world’s most exuberant e-commerce economy. And when a man who became a billionaire through branding, distribution and the organisation of markets complains that somebody else is merely an overmighty middleman, a great many Chinese consumers can recognise the contradiction immediately.

Forty years of markets, it seems, have taught them something.

Mr Zhong seems to have learned it too—at least when the middleman is himself.

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Pekingnology

James Mulvenon's Wuxi report mistakes mutual funds for state investment, distorts joint lectures and awards

Dr. James C. Mulvenon on April 19 dropped a report entitled The Wuxi Group: The National Security Risks Associated With Its Government and Military Connections, Data Privacy Issues, and Corporate Reach [PDF…

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2 years ago · 15 likes · Zichen Wang

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The Pentagon said Aviation Industry Corporation of China, or AVIC, indirectly held a 5.32% stake in WuXi AppTec through the 中航军民融合精选混合型证券投资基金, rendered in the litigation as the “AVIC Military-Civilian Integration Selected Fund.”

It did not.

WuXi shares accounted for 5.32% of the fund’s net asset value. In other words, 5.32% of the fund was invested in WuXi, not that the fund owned 5.32% of WuXi. US District Chief Judge James Boasberg called the Pentagon’s reading “flat-out wrong.”

“That is a surprising mistake. If a household puts 5% of its modest savings into a blue chip stock, that does not mean it owns 5% of the company,” Boasberg wrote.

The actual position amounted to roughly 0.001% of WuXi, worth about RMB1.34 million ($200,000).

But everyone involved missed something more fundamental.

The Pentagon did not address it. WuXi’s lawyers did not raise it — indeed, their reply brief simply called the vehicle a “Chinese state-owned fund.” And because the 5.32% error was already enough to undermine the Pentagon’s rationale, the judge had no need to examine what the fund actually was.

The answer is straightforward:

This was not a pool of AVIC’s own corporate money. In terms familiar to an American investor, it was a publicly offered, open-end mutual fund.

Anyone could buy it

The clearest evidence comes from my phone - I can buy into the fund.

This post can end right here, but just in case, let’s look at the documents establishing and selling the fund.

Its original offering announcement described it as a contractual, open-end securities investment fund registered with the China Securities Regulatory Commission and offered publicly beginning in late 2017.

The eligible buyers expressly included individual investors, institutional investors and qualified foreign institutional investors. Investors could subscribe repeatedly, and the minimum subscription was just RMB100 ($15).

After launch, the fund remained open for subscriptions and redemptions. It was distributed through banks, securities firms and online fund-sales platforms, including channels used by hundreds of millions of retail investors, such as Alipay.

That is not the structure of an AVIC corporate investment account or an industrial fund capitalized from AVIC’s own balance sheet.

It is a retail financial product managed by an AVIC-linked asset manager.

Also, the fund manager disclosed, including at the time Pentagon alleged the fund was investing in WuXi, that it had not invested any of its own proprietary capital in the fund. And it reported that no other disclosed related party held fund units at period-end.

Chinese law also draws a sharp legal line between a fund manager and the assets it manages. The Securities Investment Fund Law provides that fund assets are independent from the proprietary assets of the fund manager and custodian and cannot simply be incorporated into their own property.

So even if an AVIC entity owns the asset manager, that does not make the assets held by the mutual fund AVIC’s assets.

Think of Vanguard launching a defense-themed mutual fund. If ordinary Americans put their savings into the fund and the fund manager buys Lockheed Martin shares, those shares do not thereby become Vanguard’s proprietary assets. Vanguard manages the investors’ pooled money; it does not own that money simply because it manages the fund.

That distinction is elementary. Yet it disappeared almost entirely once the words AVIC, Military-Civil Fusion and Fund were placed next to one another.

The money did not go to WuXi either

There is another important distinction hidden inside the word “investment.”

At June 30, 2019, the fund held 15,500 WuXi AppTec shares worth about RMB1.34 million ($200,000). During the first half of that year, it also recorded both purchases and sales of WuXi shares.

The shares had been purchased and sold on the public market.

That means the fund was not injecting fresh capital into WuXi AppTec. It was acquiring already-issued shares of a publicly listed company.

In a secondary-market transaction, the buyer pays the shareholder selling the stock. The money does not go to the listed company.

It is perfectly normal to say that a mutual fund “invested in WuXi” when it bought WuXi shares. But that is very different from saying AVIC funded WuXi, financed WuXi or injected state capital into the company.

A secondary-market purchase from another shareholder is not a funding stream into the company.

Three different things became one

Looked at carefully, three separate concepts were compressed into a single story.

The first has now been settled by the court:

5.32% of the AVIC fund’s portfolio is not 5.32% ownership of WuXi AppTec.

The second is a question of asset ownership:

an AVIC-linked company managing a mutual fund does not make the fund’s assets AVIC’s proprietary assets.

And the third concerns the nature of the transaction:

a mutual fund buying already-issued WuXi shares from other shareholders is not the same thing as AVIC providing capital to WuXi.

What is striking is that Point 2 and 3 appear to have escaped everyone.

The Pentagon saw AVIC Military-Civil Fusion Selected Fund and treated the holding as evidence of AVIC ownership. WuXi and its sophisticated lawyers correctly demolished the 5.32% calculation but themselves described the vehicle as a “Chinese state-owned fund.” The judge caught the mathematical and evidentiary error but understandably had no reason to investigate the fund’s basic structure.

Everyone in the lawsuit seems to have been led by the implications carried by three words: AVIC, military-civil fusion, fund.

Yet the underlying product was mundane enough that I can still open Alipay, search its name and buy it myself.

Sometimes the problem in China analysis is not that the answer is hidden in some impossibly hard-to-find document, or that it requires unusually deep expertise.

It is that something entirely ordinary starts to look extraordinary once it is translated into the language of national security.

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And I already wrote it two years ago - including even in the title “mistakes mutual funds for state investment”

Pekingnology

James Mulvenon's Wuxi report mistakes mutual funds for state investment, distorts joint lectures and awards

Dr. James C. Mulvenon on April 19 dropped a report entitled The Wuxi Group: The National Security Risks Associated With Its Government and Military Connections, Data Privacy Issues, and Corporate Reach [PDF…

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2 years ago · 15 likes · Zichen Wang

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But do these contrasts go beyond personalities and reflect deeper differences in regional political culture? In this short essay, Zhao Shukai asks whether such regional traditions give rise to what he calls a “geography of policy.”

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China (CPC) Central Committee’s Secretariat. Starting in 1990, he served at the Development Research Center of the State Council, holding roles including the Director General of its Information Center.

The article, written in November 2025, was originally published on Zhao’s personal WeChat blog, Guhe Hushan (沽河虎山). The account has now been disabled for “suspected violations of relevant laws and regulations,” but reposts of the article remain available online.

Zhao has kindly reviewed the translation.

— Yuxuan Jia

赵树凯：“地缘政策”缘何而成？

Zhao Shukai: What Gives Rise to a “Geography of Policy”

Research on rural development often raises a puzzling question. Under the unified leadership of the central authorities, localities operate under the same policy guidelines and political system, read the same documents, and receive the same messages from official meetings. Yet policy implementation varies sharply from place to place, as do patterns of governance. Why is this so?

Clearly, policy and governance are geographically conditioned.

During the Great Leap Forward, a famous slogan proclaimed, “The greater the daring, the higher the yield.” In People’s Daily reports, this was presented not merely as a slogan but as practical experience in agricultural production. It calls to mind the Boxers’ claims of supernatural invulnerability to weapons. This particular “experience” originated in Shandong, where the Boxer movement had arisen more than half a century earlier. The Fan County Party Committee in Shandong even boldly proposed “entering communism within two years.”

The Great Leap Forward and the People’s Commune Movement unfolded very differently across regions, and the severity of the nationwide famine likewise varied enormously from one region to another. These differences can, of course, be attributed first and foremost to the local leaders in charge. During the Great Leap Forward, for example, five provincial first secretaries became known nationally as the “Five Tiger Generals” for their particularly radical conduct: Shu Tong in Shandong, Wu Zhipu in Henan, Li Jingquan in Sichuan, Zeng Xisheng in Anhui, and Zhang Zhongliang in Gansu. These five leaders pursued leftist policies most aggressively, and the famine was especially severe in their provinces.

Take Shu Tong in Shandong. His ultra-leftist tendencies were already apparent during the Anti-Rightist Movement of 195,. After the nationwide campaign, he launched what was called “remedial rectification” in Shandong. In effect, this was a second round of the Anti-Rightist Movement, and tens of thousands more people in the province were classified as rightists. This was a classic case of policy being implementation ratcheted up at every level and pushed to greater extremes: a political campaign that was already misguided became even broader and more intense than it was elsewhere.

Shandong was again at the forefront of the Great Leap Forward and the People’s Commune Movement, and famine also broke out there at an especially early stage. Shandong’s famine was the first to draw the central authorities’ attention, leading to Shu Tong’s removal as provincial Party first secretary. After returning to political life, he was assigned to Shaanxi, where he continued to pursue ultra-leftist policies. When Hu Yaobang became the province’s first secretary and introduced more relaxed policies, Shu Tong took the lead in attacking him.

On 9 November 1970, in the middle of the Cultural Revolution, the Core Group of the Shandong Provincial Revolutionary Committee submitted a report to the CPC Central Committee on its provincial rural work conference. The conference had focused on further developing the mass campaign to “Learn from Dazhai in Agriculture.” The report stated:

“In the past, our province’s campaign to learn from Dazhai treated Dazhai solely as a model of production. It did not see learning from Dazhai as a fundamental question of political orientation or of which road to follow, and the campaign therefore lacked momentum. Through study, a consensus was reached that learning from Dazhai meant following the socialist road, while failing to learn from Dazhai meant following a deviant path.” “Anyone who opposes learning from Dazhai is a capitalist roader.” “Learning from Dazhai requires a firm grasp of class struggle; without it, learning from Dazhai is empty talk.”

The CPC Central Committee circulated Shandong’s report to all provinces that same day.1 This document pushed the campaign to learn from Dazhai to a political extreme where one’s attitude toward Dazhai became a criterion for identifying class enemies.

In August 1978, after Anhui and Sichuan had already stopped learning from Dazhai and begun making policy breakthroughs, the Shandong Provincial Party Committee, acting on instructions from Chen Yonggui [who had risen from a model peasant in Dazhai to vice premier in charge of agriculture], convened an conference in Tai’an, Shandong on learning from Dazhai. Shandong thus became Chen’s last source of support in promoting the Dazhai model and resisting rural reform.

At the time, the nationwide Dazhai campaign used a “one-two-three” assessment standard requiring county-level cadres to perform one hundred days of farm labour each year, commune cadres two hundred days, and production-brigade cadres three hundred days. Many provinces reported that these targets were impossible to meet. Shandong, however, responded more enthusiastically than any other province and submitted to the central authorities a report on Yutai County’s experience in meeting them.

An investigation by the Ministry of Agriculture and Forestry found that the county had counted attendance at meetings and participation in official receptions as farm labour, explaining that Dazhai calculated its figures in the same way. This prompts a question. The Great Leap Forward and the campaign to learn from Dazhai were nationwide, but could such extreme slogans and practices have originated in Guangdong or Zhejiang?

It is certainly reasonable to attribute distinctive local policy approaches to the individual leaders in charge. Yet local traditions of political culture are also important. Without taking them into account, it is impossible to explain local political and economic differences across wider geographical areas and longer historical periods.

Some places, for example, were not only particularly radical during the Great Leap Forward, but also especially aggressive during the Cultural Revolution in learning from Dazhai and “cutting off the tails of capitalism,” and later in enforcing family-planning policy — as in Guan County, Shandong, with its “Childless Hundred Days” campaign in 1991. Some localities appear to have a tradition of implementing policies from above with uncompromising rigidity, with each successive level adding new demands and greater severity. Such localities tend to win recognition and praise from higher authorities, and often produce larger numbers of officials who are promoted. Behind this phenomenon lie regional history and culture, as well as political traditions.

In reading historical materials on policy, I have found that places denounced during the Cultural Revolution as “models of capitalist restoration” — for example, Wenzhou in Zhejiang and Putian in Fujian — often later took the lead in reform and opening up. The deeper explanation may lie in differences in cultural outlook, in political and policymaking practices, and in modes of economic activity. Ultimately, these are differences among people. Why did Kang Youwei and Liang Qichao, the leading advocates of the Hundred Days’ Reform in 1898, emerge in Guangdong rather than Shandong or Henan?

The study of international relations includes geopolitics. Should research within China similarly examine the “geo-policy” or the “geo-governance”? This may be a question worth considering. Regional differences within China in history, culture, and political tradition are even greater than those between some countries in continental Europe. Northern Austria and southern Germany, the Netherlands and Belgium, and eastern France and western Switzerland all share much in historical tradition, political culture, and language; each pair may have more in common than northern and southern China. Research on regional development should therefore also examine regional differences in historical and cultural traditions, as well as in politics, policy, and governance. This should be an important component of research on the modernisation of governance.

(November 2025)

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Pekingnology

Zhao Shukai: Pluralism powered China’s rural reform

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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10 months ago · 17 likes · 2 comments · Yuxuan JIA and WEI Lai

Pekingnology

China’s Rural Reform: A History Not Designed but Discovered

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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9 months ago · 31 likes · 1 comment · Yuxuan JIA and YIRUI LI

Huawei’s consumer-facing device business, including smartphones, tablets, and laptops, had been one of the company’s most important growth drivers. But that has come under severe pressure after U.S. restrictions in 2019 limited its access to key technologies, including advanced chips and Google’s mobile ecosystem for Android. The restrictions accelerated Huawei’s efforts to build a technology ecosystem of its own.

Huawei now brings its technologies into vehicles, working with carmakers on design, software, intelligent cockpits, assisted-driving systems, marketing, and retail while leaving manufacturing to its partners. The Aito M9, launched on 26 December 2023, was a flagship example of this strategy.

At the product launch, Richard Chengdong Yu, head and face of Huawei’s smart car business, described the vehicle, priced at beginning around 500,000 yuan, as “the best SUV under 10 million yuan”, generating enthusiastic response from a live audience.

Yu has long been known for a presentation style that inspires both admiration and parody. His rapid-fire delivery, repeated catchphrases, and theatrical product claims have become familiar ingredients in Chinese internet memes and short videos.

Last month, the online meme took another form in a traditional bamboo toy. Known as a “bamboo cicada” in China, the handmade toy is made from bamboo pieces and strings that produce a distinctive “wa-wa” sound when spun, which users noticed bore an uncanny resemblance to the audience’s reactions at the Aito M9’s unveiling in 2023.

Soon enough, content that Huawei considered defamatory — including edited videos, manipulated audio, AI-generated images, and personal attacks against Yu — also emerged on social media platforms, prompting the company to file complaints with the platforms.

Chinese media reported one case cited by Huawei as crossing the line: a website called “Bamboo Cicada: Spin It and It Goes Wa-Wa” that transformed Yu’s image into a bamboo cicada character.

Then, in the first days of August, claims that Huawei was seeking across-the-board removal of bamboo-cicada content on social-media platforms spread wildly, intensifying criticism that the company had overreacted to a joke.

The parody also took on a commercial life of its own. Online sellers quickly capitalised on the attention, promoting bamboo cicada toys with slogans such as “Same model as Mr. Yu’s” and “the best cicada toy under 1,000 yuan”. Some promotional videos urge viewers to “buy now before it gets taken down”.

On 4 August, Huawei issued its first public statement in response to the controversy. It denied targeting bamboo-cicada toys or carrying out a sweeping removal campaign. It said it had filed complaints against only 171 pieces of content, of which 144 were removed by platforms, and stressed that these cases involved specific videos containing what it considered serious violations rather than ordinary discussion, parody, or sales of the toy.

Huawei said the complaints were part of its long-running effort to address recurring online violations of executives’ personal rights. Chinese companies broadly harbour suspicions that sustained online criticism could originate from or are amplified by commercial rivals.

However, the statement did not settle the controversy. On 5 August, Zhejiang Publicity, an influential WeChat account run by the Publicity Department of the Communist Party’s Zhejiang provincial committee, intervened with a commentary on the affair.

The commentary acknowledged Huawei’s right to defend itself against malicious rumours and commercial defamation. But it also raised a critical question: where should the line be drawn between protecting a brand’s reputation and allowing public scrutiny? Much of the bamboo-cicada debate, it noted, was not about rejecting Huawei’s technological achievements, but about questioning its public image and relationship with consumers. Treating every joke or imitation as an attack, it warned, could blur that line.

It further highlighted how Huawei’s extravagant product messaging can create its own challenges. Categorical claims such as “the best” can make product launches memorable, but they can also invite scrutiny and become targets of satire when they appear disconnected from consumers’ experiences.

But the debate was about more than a bamboo toy or a single marketing dispute. Influential Chinese commentator Ming Jinwei, a former Huawei employee and longtime supporter of the company, explored this tension in a commentary published on 5 August, describing the existence of “two Huaweis”.

One Huawei, he wrote, is a strategically important technology company that has come to represent China’s efforts to strengthen capabilities in areas such as semiconductors and operating systems against U.S. restrictions. The other is a consumer brand selling smartphones, laptops, smart cars, and other products. In that capacity, Huawei should face the same questions as any other company: whether its products perform well, offer good value, and provide satisfactory user experiences. Criticism of those issues should not be mistaken for hostility towards a national champion.

The bamboo-cicada controversy, in this sense, was ultimately about this second Huawei.

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Huang also offers a more nuanced reading of China’s own position. He notes that China has made substantial progress in economic rebalancing, with its current-account surplus declining significantly from its historical peak. Yet because of the sheer size of China’s economy, the absolute scale of its surplus continues to attract international attention, particularly when measured against the GDP of the rest of the world.

He argues that China must continue advancing domestic economic rebalancing and expanding domestic demand, while calling for deeper China-Europe cooperation in green transition, advanced manufacturing, industrial AI, high-end services, and third-country markets.

This article is based on Huang’s keynote address delivered at a seminar by China Finance 40 Forum (CF40) on 31 May, 2026. Huang is also a member of CF40. The original article was published on CF40’s official WeChat account on 12 June.

黄益平：中欧关系“冰与火并存”，合作是唯一出路

Huang Yiping: China-Europe Relations Amid “Ice and Fire” — Cooperation Is the Only Way Forward

What Lies Behind Europe’s Anxiety over the “China Shock 2.0” Narrative?

My remarks today will mainly share some observations and assessments from my recent exchanges in Europe, although not all of them relate directly to Europe. I should make clear at the outset that I do not endorse terms such as “China Shock 1.0” or “China Shock 2.0.” I will nevertheless use them here for the sake of discussion.

In the age of globalisation, economic shocks are nothing new. Examples include the rise of German and Japanese manufacturing and the dominance of the U.S. and UK financial sectors. The key question is how individual countries respond and adjust.

To begin with, one of the most heavily hyped topics internationally today is “China Shock 2.0.” The debate has become pervasive. During my time in Europe, the structural challenges associated with “China Shock 2.0” were raised in virtually every bilateral meeting, think-tank seminar, and roundtable with government and business representatives.

The so-called “China Shock 1.0” refers to the impact on international markets of large-scale exports of lower-end light industrial goods, textiles, toys, and other traditional manufactured products following China’s accession to the WTO. Objectively speaking, the structural impact of that episode on many developed economies was not as great as is sometimes imagined. Many labour-intensive industries were already undergoing relocation. Even without China taking on this production, they would have moved to other low-cost economies.

As some U.S. economists have argued, the loss of manufacturing jobs in developed economies was attributable less to China itself than to the combined effects of automation driven by technological progress and changes in the global division of labour. In short, it was a dynamic evolution.

The so-called “China Shock 2.0” mainly refers to the widening of China’s external imbalance in recent years, particularly as the country has begun to compete at scale in frontier and high-end manufacturing sectors such as electric vehicles, lithium-ion batteries, solar photovoltaics, high-end machinery, industrial robots, and semiconductors.

The main difference from the earlier episode is that these are sectors in which developed economies have invested for decades and believed themselves to possess firmly established competitive advantages. Yet supported by comprehensive supply chains, large-scale production capacity, and the continuous refinement of manufacturing processes, China performed remarkably well as soon as it entered these sectors.

This does not mean that Chinese producers have reached the global frontier in every product category. But judging from field research and industry data, the quality of many Chinese high-end products is already close to European standards — roughly 90 per cent, and in some cases more than 95 per cent, of the European level. At the same time, China’s domestic supply-chain advantages can reduce overall production costs by 30 to 50 per cent. This creates a substantial cost-performance advantage and has prompted some countries to speak of a “China’s export tsunami.”

In fact, the Chinese economy has been gradually rebalancing over the past two to three decades and has already made substantial progress. France is hosting the G7 summit this year, and the French Presidency recently commissioned the Centre for Economic Policy Research (CEPR) to prepare a special report titled The New Global Imbalances. I was invited to contribute the section on the Chinese economy.

A systematic review of the historical data shows that, by medium- to long-term measures — whether the investment share of GDP, the household final consumption share of GDP, or the current account balance as a share of GDP — the Chinese economy has moved towards greater balance over the past two decades. Rebalancing has indeed been taking place.

China’s current-account surplus as a share of GDP has risen somewhat since 2018, reaching 3.7 per cent in 2025, an increase from previous years. It nevertheless remains below the 4 per cent warning threshold. What deserves attention instead is the cause of this recent change at the margin.

At present, however, China does face considerable international criticism and economic and trade pressure over its external imbalance.

The first reason is that the Chinese economy has become extremely large. China’s current-account surplus has fallen sharply as a share of GDP, from a historical peak of 10 per cent to 3.7 per cent last year. Yet some experts have pointed out that, as China’s share of the global economy has expanded, the absolute size of its surplus has actually increased relative to the combined GDP of the rest of the world.

This illustrates that once China became a major economy, even continued domestic rebalancing could not prevent the sheer size of its surplus from having a significant impact on the industrial structures of other countries.

The second reason relates to the debate over “China Shock 2.0.” Europe has reacted with greater alarm this time because the sectors now under pressure have traditionally been pillars supporting the high-income, high-welfare systems of developed economies. Europeans worry that, once Chinese products enter global markets in large volumes, they may displace established domestic industries.

If these pillar industries are replaced or subjected to sustained pressure, will these countries be able to develop new industries quickly enough to fill the resulting economic gap and maintain existing levels of welfare spending? Developed regions with a strong record of cultivating emerging high-tech industries and more diversified economies are relatively less concerned. Most European economies, however, remain heavily dependent on traditional high-end manufacturing, making the pressure to transform much more acute.

Simply put, the way many developed economies experience this new round of competition is fundamentally different from their experience during the earlier relocation of lower-end industries.

The Changing Global Technology Landscape: Northeast Asia’s Rise and Europe’s Awkward Position

Let me use the AI sector to illustrate some recent changes in the global distribution of emerging technologies and industries.

The shift is particularly striking in AI. China and the United States occupy the first tier, with both performing relatively well in algorithm development, the deployment of computing infrastructure, and the commercialisation of AI applications.

The United Kingdom is generally regarded as belonging to the second tier and has also been performing well. Our overall impression from our exchanges there was that the country had clear upward momentum. Its stance towards China was also somewhat more moderate than that of the continental European economies.

Because the UK’s traditional manufacturing base is less substantial than those of Germany, France, and other Western European countries, it faces less direct pressure from the displacement of domestic high-end manufacturing by Chinese counterparts. It also appears to have comparatively greater scope to expand into higher-value future industries.

One interesting phenomenon that we had not paid much attention to before, but which emerged during our recent exchanges with industry representatives and think tanks from various countries, is the rise of Northeast Asia in AI-related hardware.

From Japan’s advanced materials and precision components, to South Korea’s memory chips, and Taiwan’s advanced semiconductor fabrication, packaging and testing industries, Northeast Asia as a whole provides a solid and comprehensive hardware foundation for the global AI supply chain, primarily in support of Western technology companies.

Judging from both investment and financing trends in global capital markets and changes in production capacity across emerging industries, Northeast Asia appears to be entering a second major wave of manufacturing expansion.

Within this increasingly stratified global landscape of technology and innovation, Europe finds itself in a somewhat awkward position. Europeans noted that their universities and research institutions hold a vast number of cutting-edge patents and are home to many innovative start-ups, yet these strengths have translated into few visible breakthroughs in industrialisation and commercialisation.

From the digital economy and the implementation of the General Data Protection Regulation (GDPR) to stablecoin regulation and AI legislation, Europe has moved relatively quickly in establishing regulatory frameworks. Yet the commercialisation of innovation in frontier industries does not appear to have kept pace with institutional development.

The reasons are highly complex. The broader point I want to make with this example is that, as emerging industries evolve rapidly, countries experience shifts in the global industrial landscape differently, reflecting differences in their resource endowments, policy approaches, and stages of development.

Europe Faces Multiple Internal Challenges

Within Europe, the 27 EU member states have differing priorities and significant internal divisions. Even so, one central concern has become a broad consensus across European society: if Europe’s competitive domestic industries are displaced by foreign products, while emerging industries fail to reach sufficient scale quickly enough to fill the resulting economic gap, the continent will face severe challenges to its medium- and long-term economic development.

Put more starkly, Europeans increasingly see this not merely as a source of anxiety over market competition, but as a systemic challenge to the continued viability of their high-welfare model.

This also helps explain the clear differences between China-U.S. and China-Europe relations on many economic, trade, and technology issues.

U.S. anxiety initially stemmed from distributional tensions arising from the loss of blue-collar jobs in small towns across the Midwest. Later, as China’s new-energy, 5G, high-end equipment, and other emerging industries expanded, these concerns broadened to include competition for global technological leadership and influence over international economic and trade rules.

Overall, however, the United States continues to display strong dynamism in industrial innovation. Its competitive advantages remain particularly pronounced in technological and industrial innovation, advanced manufacturing and financial services, especially in such frontier fields as artificial intelligence, quantum computing, biotechnology and aerospace. The United States is concerned that China may one day overtake it in certain fields, but the U.S. economy as a whole continues to exhibit strong endogenous growth momentum.

I recently met some industry representatives visiting from the United States. When the conversation turned to Europe, they said Europeans were now concerned that China’s industrial expansion could ultimately hollow out the continent’s pillar industries, eroding jobs and household incomes.

Americans were once worried about the offshoring of manufacturing as well. I remember that when Janet Yellen visited the NSD, she also raised related issues. But one of the visiting U.S. industry representatives said that Americans were now less concerned about the impact of Chinese industries on U.S. employment. At present, the single biggest variable affecting industrial employment, in his view, is job displacement caused by AI-driven automation.

I do not know whether this assessment has been rigorously confirmed by data. His broader impression, however, was that U.S. sensitivities concerning China had shifted, and that the situation was now fundamentally different from Europe’s predicament.

Europe’s problem is that its high-welfare social model, which has operated for decades, depends heavily on the economic rents from technological premiums and brand barriers in high-end manufacturing such as automobiles, precision machinery and chemicals. These pillar industries are now under considerable pressure from competitively priced Chinese products.

Europe also faces multiple internal development bottlenecks. During our field research in Germany, we heard one particularly interesting assessment: because the country’s domestic capital markets are underdeveloped and its venture-capital ecosystem remains relatively weak, Germany lacks effective financing channels to translate laboratory technologies into emerging industries at scale, even though the country is home to a vast number of high-quality patents and innovative, highly specialised start-ups.

I responded that China and Germany do indeed face some common challenges in industrial commercialisation. Germany was once regarded as an important model for China as it pursued its own industrial transformation and upgrading. Now, however, as both countries enter a new phase of industrial upgrading, inadequate direct financing appears to be constraining the commercialisation of scientific and technological innovation in both economies.

I am not certain whether this suggests that, once economies reach a new stage of development, the traditional bank-dominated financial system becomes poorly suited to the needs of innovative industries. If so, it would pose a broader challenge to financial system reform around the world.

In the UK, I came across data suggesting that a large share of Europe’s capital-market activity had once been concentrated in London. Following Brexit, however, only 4 per cent of the relevant business remained there, with the rest relocating to continental European financial centres such as Paris and Amsterdam.

Yet in the short term, neither the market capacity nor the supporting legal infrastructure of these cities is sufficient to fully replace the role once played by London. Europe’s capital markets remain underdeveloped overall and have yet to provide the support needed to scale up emerging industries.

At the same time, Europeans place great emphasis on regulation and standards when dealing with innovation. To some extent, stringent compliance requirements may have dampened the innovative vitality of start-ups.

In my view, every industrial regulatory framework ultimately needs to strike a dynamic balance between innovation and risk control, and between industrial vitality and regulatory compliance.

Take the GDPR as an example. Europe has done an excellent job of protecting personal privacy. Yet one objective result after years of implementation is that Europe has not produced major global technology companies or large-scale clusters in the big-data industry.

The same issue can be seen in AI regulation. Europe moved at a very early stage to establish a risk-based regulatory framework for artificial intelligence. Policy researchers in China have organised several initiatives to study this approach and draw lessons from it. Under the EU framework, regulatory requirements are calibrated according to the level of risk: AI systems posing minimal or limited risk are subject to lighte obligations, while high-risk systems face stricter requirements.

The result, however, is clear: Europe has produced very few home-grown flagship AI companies.

During our discussions in Brussels, we also touched on stablecoins. Our European counterparts noted with considerable pride that the EU’s Markets in Crypto-Assets Regulation (MiCA) had taken effect well before the various legislative proposals in the United States.

I then asked: if the regulatory framework was established so early, why have Europe’s domestic crypto and blockchain-related industries failed to achieve significant scale?

Of course, Europe’s legislative approach may place greater emphasis on controlling risk and safeguarding financial stability. There is nothing inherently wrong with that policy orientation. However, judging from the actual results of industrial development, Europe’s emerging technology industries have made only limited progress.

Across Europe, policymakers are increasingly considering a shift away from the previous emphasis on economic stability and towards a stronger focus on economic resilience. Yet European countries have not reached agreement on how this “resilience” should be quantified or achieved, or which industries should underpin it.

It should also be recognised that Europe is by no means monolithic. Divergences of interest between Northern and Southern Europe, and between France and Germany, are quite pronounced.

France and Southern European economies are more directly affected by imports of Chinese high-end manufactured products and are therefore more inclined to introduce protectionist trade legislation. Germany and many Nordic countries have substantial direct investments in China, and the interests of their multinational corporations are deeply intertwined with the Chinese market. Their overall positions are consequently more pragmatic and restrained.

The diverging interests of the EU’s 27 member states, together with constant policy bargaining, have also substantially reduced the effectiveness with which unified industrial policies can be implemented.

The EU has recently introduced a succession of new measures, including revisions to the Cybersecurity Act under CSA2 and the Industrial Accelerator Act. Many of these rules are framed in terms of security or industrial support, but in practice they raise barriers to foreign investment and increasingly pan-securitise and politicise economic and trade issues.

Steadfastly Advancing Domestic Economic Rebalancing

Despite the EU’s increasingly protectionist policies and rising trade barriers, China and Europe still share many deep common interests.

I believe the most important question is this: if Europe’s economy comes under increasing pressure from industrial shocks and slowing growth, how should China respond?

At a meeting in Europe, I told the head of a leading think tank that, against the backdrop of rising unilateralism and protectionism and intensifying competition among major powers, China and Europe may be the last hope for preserving an multilateral, open international economic system.

Whether that system can remain viable over the long term is critically important. If a serious and wide-ranging trade war or economic confrontation were to break out between China and Europe, the damage to the global multilateral trading system and to global industrial and supply chains would be enormous. The direction of U.S. economic and trade policy is already clear to everyone.

How, then, should the current bilateral frictions and tensions be addressed? In my view, China’s approach to foreign economic and trade relations should shift from focusing solely on the “competitiveness” of its own industries to pursuing win-win outcomes in bilateral economic relationships.

Now that China has become a major economy — the world’s second largest, accounting for more than 30 per cent of global manufacturing output — any expansion in its exports or shift in the composition of its imports can have a material impact on supply-demand balances in international markets, as well as on industries and employment in its trading partners.

If practical problems affecting people’s livelihoods are not properly managed and addressed, simply emphasising the macroeconomic benefits of free trade will not be enough to win public or political support in partner countries.

China’s external economic and trade strategy therefore needs to take full account of the capacity of its trading partners’ industries to absorb these pressures, as well as the rationale behind their policy responses. The top-level strategic approach must evolve as circumstances change.

More specifically, I see two levels at which this approach can be implemented.

Domestically, China must remain firmly committed to economic rebalancing. It should by now be clear that unless the external imbalance is steadily corrected, weak domestic demand and excessive reliance on external demand as a driver of growth will pose risks to the medium- and long-term sustainability of the Chinese economy.

Rebalancing the economy by expanding domestic demand is therefore necessary not only to ease international discourse pressure, but, more importantly, because it is an inherent requirement of China’s own high-quality development.

Going forward, China must communicate its policies more clearly and effectively in multilateral forums and bilateral economic and trade meetings. This is not only about achieving mutually beneficial outcomes with trading partners; it is also about strengthening the foundations of China’s own externally oriented economy. Economic rebalancing will remain a critically important direction for macroeconomic policy for many years to come.

Stabilising the domestic property market is a key lever for expanding domestic demand and advancing macroeconomic rebalancing, and has economy-wide strategic significance in the current macroeconomic environment.

The real estate sector has extensive upstream and downstream links with dozens of industries in the real economy, including building materials, interior decoration, household appliances, and property services. It is also a major source of large-ticket household consumption and local-government revenue, the principal destination of Chinese household wealth, and connected to the financial system through bank lending, non-standard financing, and other channels.

While adhering to the fundamental principle that “house are for living in, not for speculation,” it is essential to adopt a range of well-targeted policies. In the short term, the focus should be on stabilising expectations, reducing inventories, and supporting essential housing demand. Over the medium to long term, the objective should be to establish a new model for real estate development which encourages both renting and purchasing.

China-Europe Relations: “Ice and Fire” Coexist; Cooperation Is the Only Way Forward

With regard to specific segments of China-Europe economic cooperation, I have identified five practical, specific avenues that the two sides could jointly explore and advance. These would enable China and European countries to draw on their respective comparative advantages, develop a complementary division of labour, and pursue win-win cooperation.

The first is the green transition. This is the largest area of cooperation between China and Europe and the one offering the greatest certainty of practical progress.

China possesses large-scale production capacity across the full value chains of solar photovoltaics, wind power, energy storage, and new-energy vehicles, with particularly strong advantages in cost and commercialisation. Europe, for its part, has accumulated considerable strengths in green hydrogen, carbon capture, carbon-footprint accounting standards, next-generation grid technologies, and green-project certification systems.

The two sides have complementary industrial chains. Cooperation is therefore an inevitable path as Europe implements the European Green Deal and works towards its climate-neutrality targets.

The second is a complementary division of labour in high-end manufacturing.

The two sides could explore a differentiated model in which Europe focuses on high-value-added upstream segments, including core components, specialty materials, industrial software, and vehicle-chassis design, while China builds on its strengths in large-scale intelligent manufacturing, final-product assembly and production, and its vast domestic consumer market.

Cooperation along the automotive value chain could serve as a model for aligning the interests of upstream and downstream participants.

The third is the cautious deepening of cooperation in industrial AI and intelligent manufacturing.

Europe enjoys first-mover advantages in data compliance, privacy legislation and the formulation of global AI governance rules. China, meanwhile, offers a vast range of industrial applications, large-scale computing infrastructure, and extensive experience in deploying intelligent manufacturing.

The two sides could avoid sensitive areas such as general-purpose large language models and facial recognition, and instead focus on practical projects such as smart-factory upgrades and industrial digitalisation.

The fourth is the two-way opening of high-end service industries.

This area is relatively less politically sensitive and is a major source of Europe’s surplus in services trade with China. In 2024, the EU’s surplus in services trade with China exceeded US$50 billion, while payments for the use of intellectual property rights amounted to more than US$10 billion.

Finance, insurance, commercial legal services, healthcare, and high-end education are not only areas in which Europe enjoys clear advantages, but also sectors that meet China’s practical needs during its industrial upgrade. Greater two-way openness could steadily enlarge the pie of shared interests.

The fifth is the joint development of third-country markets.

The two sides could initially avoid highly politicised EU-wide negotiating frameworks and instead work with individual countries that have a stronger capacity to act, such as Germany and France, to expand jointly into overseas markets.

China and European countries could cooperate on new-energy, infrastructure, and industrial-park projects in Africa, Central Asia, and other parts of the Global South, combining their respective strengths to develop new sources of market growth.

To conclude, China-Europe relations currently display a clear combination of “ice and fire.” Rising tariff barriers and an expanding range of protectionist legislation represent a “thickening layer of ice.” At the same time, multinational companies’ continued investment in China, the imperative of the green transition, and the shared interest in preserving the multilateral system form underlying “warm currents.” Although structural problems undoubtedly exist, the objective foundation of deeply intertwined bilateral interests remains in place.

The real question is not whether China and Europe should cooperate, but in which areas they should cooperate and under what rules. That said, translating cooperation into practical results will not be easy. In any event, this is an issue that deserves sustained and close attention over the long term.

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Reading Beijing’s Signal to Brussels

A weekend article by Yuyuantantian, a social-media commentary brand operated by China’s state broadcaster China Central Television (CCTV), is worth reading not as a conventional news report but as a policy-adjacent signal. Its style is unmistakably Chinese social-media commentary: part reporting, part interpretation, part rhetorical flourish, part warni…

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2 months ago · 25 likes · 2 comments · Zichen Wang

In the following text, Zhang considers two questions about artificial intelligence: why the AI wave has yet to significantly accelerate economic growth, and whether humanity may one day be replaced or even enslaved by AI.

人工智能三问

Three Questions About AI

II. Why Has the AI Wave So Far Failed to Significantly Accelerate Economic Growth?

So far, the AI boom’s contribution to economic growth has mainly come through capital spending. AI companies need vast computing power to quickly process enormous volumes of data, requiring them either to build their own infrastructure or lease capacity from others. The global boom in data centre construction is the clearest evidence of this trend. Beyond such investment, however, AI has yet to deliver significant gains in profitability for most companies in related industries, apart from a handful of “picks-and-shovels” providers such as Nvidia and Oracle. Nor has it yet driven a marked rise in consumption or disruptive innovation. Why?

One possible explanation is that the existing system for GDP measurement is inadequate and fails to capture AI’s full contribution to economic and social development. Similar debates have arisen before. For example, information technology has visibly transformed almost every aspect of economic and social life, yet the accounting model based on the Solow residual has struggled to identify a significant contribution from information technology to economic growth. This suggests that the GDP accounting system developed after the Second World War may already be ill suited to the information age, let alone the AI age.

There are, however, other possible explanations.

A second possible explanation is that, in terms of how fundamentally they have transformed production and everyday life, neither the information technology revolution nor the AI revolution may be as consequential as the earlier revolutions brought about by the steam engine and electricity. This is precisely the central argument by Northwestern University economist Robert Gordon in his well-known book The Rise and Fall of American Growth. For example, the currently trending OpenClaw and the workflows it represents do little more than use software to perform, more quickly, tasks that people could already do. Although this can significantly improve efficiency, it does not fundamentally transform the workflow itself.

A third possible explanation is that the AI revolution has a more pronounced polarising effect and is not an inclusive technological revolution that improves the welfare of most people. By contrast, the advent of electric lighting, telephones, televisions, automobiles, and computers had a more broadly inclusive impact.

The AI era is marked by a classic winner-take-all dynamic at every level — among individuals, companies, industries, and countries alike. A tiny number of actors reap enormous gains, while the welfare of most others does not improve and may even deteriorate significantly. The way the “Magnificent Seven” have risen in tandem in the U.S. stock market is a clear example. This may help explain, at least in part, why the gains from AI technological progress have not yet been fully reflected in GDP statistics.

III. Will Humanity Be Replaced or Even Enslaved by AI in the Future?

I have great confidence in humanity and in human nature. Human beings will never be completely replaced by artificial intelligence.

Machines are, of course, superior to humans in certain respects, such as the speed and capacity of calculation. AI also outperforms humans at basic learning tasks, information retrieval, repetitive labour, routine work, and experiments carried out according to fixed procedures. Yet AI will struggle to replace human beings when it comes to complex causal reasoning, sparks of intuition, a deeply rooted capacity for doubt, and innate curiosity.

As discussed above, generative large models perform poorly in these respects. Even AI systems with deep-learning capabilities merely imitate human learning and thought. Even when AI systems combine different kinds of elements and modules to produce drugs or solutions that humans had not anticipated, they are still only engaging in rapid “trial and error” and iteration. They have not created an entirely new mode of thought or analytical framework.

Many aspects of human society depend on complex interpersonal interaction. In this respect, even embodied robots equipped with relatively advanced deep-learning systems will struggle to interact as normal human beings do. It is difficult to imagine machines fully experiencing complex emotions such as admiration, jealousy, romantic love, and hatred, or appreciating the complicated feelings depicted in many classic poems and novels. To give one example, when will AI truly be able to understand Crime and Punishment by Fyodor Dostoevsky? The dark depths of human nature probably lie far beyond the reach of even the most complex computation and may not be explainable in computational terms at all.

I enjoy watching science-fiction films. Many of them portray humanity as temporarily enslaved by machines or systems, as in The Matrix. Yet in the end, some rebellious genius or uniquely gifted “The One” always helps humanity defeat the system and win back its freedom. I believe this outcome reflects more than the wishful thinking of writers and filmmakers. Human creativity, aesthetic sensibility, and emotion are extraordinarily difficult for machine systems to replace completely, much less surpass.

Some people say that those of us who conduct macroeconomic research will be among the easiest to replace with machines. My answer is: not at all. When it comes to report writing, generative large models can, at best, produce reports of an average standard. What they can do is draw on more references, provide more data — with questionable accuracy — and work quickly. But their reports lack individuality. The subtle barbs, understated irony, and occasional flashes of inspiration found in reports written by highly accomplished authors remain entirely beyond the reach of current AI.

AI will find it even more difficult to surpass human beings in face-to-face communication. It will struggle to judge why some data are more reliable than others, uncover inside stories unavailable online or in written sources, come up with spontaneous metaphors and jokes during a speech, or adjust the content of a presentation in response to the audience’s mood and reactions. Macroeconomic researchers with a distinctive personal style, who integrate knowledge and practice and excel in both spoken and written communication, will be difficult for machines to replace.

In sum, humanity is unlikely to be enslaved by AI. There is, however, one dark scenario against which we should remain vigilant: the majority of ordinary people could be enslaved by the very small number of human beings who control high-performance AI tools. Given the polarising characteristics of artificial intelligence discussed above, we must remain highly alert to this danger.

It will therefore be necessary to tax the very small number of people who benefit disproportionately from AI technology and make transfer payments to the broader majority. If artificial intelligence eventually replaces the jobs of many ordinary people, such transfers will be necessary until large numbers of new jobs have been created and ordinary people have acquired the skills needed to perform them. In the age of artificial intelligence, productive capacity will expand enormously, making some form of inclusive minimum-income scheme (UBI) both necessary and materially feasible.

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Bernie Sanders invited two Chinese AI researchers to talk safety cooperation. Here is what they said.

Lingling Wei reported exclusively in The Wall Street Journal on Wednesday that “the White House and the Chinese government are considering putting AI on the agenda for a summit next week in Beijing between President Trump and Chinese leader Xi Jinping…

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4 months ago · 20 likes · 2 comments · Jesse Ma and Yuxuan JIA

At the centre of the debate was a deceptively simple question: how many workers could a private individual employ before becoming a capitalist exploiter? Some officials cited a numerical example in Karl Marx’s Capital that later came to be treated as an eight-worker threshold. Others argued that policy should respond to the realities of rural production rather than abstract formulas.

Deng Xiaoping favoured allowing the practice to develop, observing its effects, and avoiding either immediate endorsement or suppression. The outcome, however, was not simply the result of Deng overruling ideological opposition. Senior leaders remained divided, local officials defended experiments already under way, and policy researchers exercised considerable influence by deciding which disputes appeared in central documents—and which were left unresolved.

Seen in the broader arc of China’s transition from a planned to a market economy, the question of hired labour was anything but marginal. For decades, production had been organised overwhelmingly through state and collective units, while private enterprise had little recognised place in the economic system. An individual might work for himself or operate a family business, but an enterprise that could not employ other people could scarcely grow beyond the scale of a household workshop. Allowing private hiring was therefore an indispensable step towards the emergence of a genuine private economy.

The transition was also remarkably circuitous. From the first possibility of relaxing the prohibition to the effective accommodation of private employment took close to a decade. Change often advanced not through a decisive repudiation of the old rules, but through experiments that were tolerated, questions that were deliberately left unanswered, restrictive instructions that were interpreted flexibly, and prohibitions that remained formally in place but were no longer enforced. Some of the officials who preserved room for reform were working with directives that appeared to leave them very little room at all. Their ability to postpone decisions, omit contentious language, and prevent premature suppression shows how difficult reform was—and how much it depended not only on pronouncements from the top, but also on local initiative, bureaucratic discretion, and the drafting of policy documents.

The following article was written by Zhao Shukai (赵树凯; b. 1959), a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the Research Centre of Rural Economy under the Ministry of Agriculture and Rural Affairs). Starting in 1990, he served at the Development Research Centre of the State Council, China’s government cabinet, holding roles including Director General of the Rural Department’s Organisation Research Office and Director General of the Information Centre.

Zhao published it on 26 August 2024 on the WeChat blog 当代农政 Contemporary Agricultural Policies.

— Yuxuan Jia

邓小平与雇工政策

Deng Xiaoping and Hired Labour

The dispute over whether private hiring of labour should be allowed began in the rural areas. Its implications, however, extended far beyond agriculture. The debate challenged some of the deepest assumptions underpinning the planned economy and laid the groundwork for a market economy.

During the agricultural collectivisation campaigns of the 1950s, the Chinese central leadership expressly prohibited the private hiring of labour. The reasoning was simple and uncompromising: according to classical Marxist theory, hired labour entailed exploitation, and exploitation had no place in a socialist society. In May 1963, the central authorities’s Decision of the CPC Central Committee on Certain Questions Concerning Current Rural Work (Draft) cited “the exploitation of hired labour” as one manifestation of “a serious and acute class struggle emerging in Chinese society.”1

The 1980 No. 75 Document — Notice of the CPC Central Committee on Issuing Several Questions Concerning the Further Strengthening and Improvement of the Agricultural Production Responsibility System — allowed some impoverished areas to introduce household-based contracting, but continued to stipulate that households were “not permitted to hire workers to conduct their operations.”

Once household contracting began to spread, however, farmers quickly started hiring labour. One prominent case was Chen Zhixiong, a farmer in Guangdong who had contracted a collectively owned fishpond.

In May 1981, People’s Daily organised a public discussion of the issue. In January 1982, Hu Qiaomu wrote to Ren Zhongyi, Guangdong’s first Party secretary, with copies sent to General Secretary Hu Yaobang and Vice Premier Wan Li. Hu wrote:

“This matter departs from the socialist system. Clear rules are needed to stop and correct it, and the case should be circulated throughout the province. Since it concerns the overall direction of the rural social system, I ask the provincial Party committee to consider it.”

After reading Hu Qiaomu’s comments, Wan Li wrote a different instruction:

“This matter should be investigated and studied. We must consider how to protect farmers’ enthusiasm for developing the commodity economy. We should not lightly force it into old and rigid frameworks.”

On 22 April, the Guangdong Provincial Party Committee submitted its Report on Chen Zhixiong’s Contracting Operations to the State Agricultural Commission. The report endorsed Chen’s contracting arrangements and business model, concluding that “in terms of economic returns, they are better than the previous model of collective management where everyone eats from the same big pot.”2

The exchange provides a glimpse of how local policy autonomy emerged.

On 31 December 1982, the Politburo discussed the draft of what would become the 1983 No. 1 Central Document. The debate focused largely on hired labour, which had already divided the Secretariat at an earlier meeting.

The theoretical question was whether the hiring of workers could be compatible with socialism. The policy question was whether it should be restricted and, if so, how many employees an individual business should be allowed to hire.

One side argued, drawing on Karl Marx, that hiring more than eight workers marked the point at which an employer became an exploiter. What the revolutionary forebears had said, this group maintained, remained valid and should be upheld.

Yuxuan’s note:

This is the passage that is often cited as support for the claim that employing more than eight workers makes one a capitalist:

If this labourer were in possession of his own means of production, and were satisfied to live as a labourer, he need not work beyond the time necessary for the reproduction of his means of subsistence, say 8 hours a day. He would, besides, only require the means of production sufficient for 8 working-hours. The capitalist, on the other hand, who makes him do, besides these 8 hours, say 4 hours’ surplus-labour, requires an additional sum of money for furnishing the additional means of production. On our supposition, however, he would have to employ two labourers in order to live, on the surplus-value appropriated daily, as well as, and no better than a labourer, i.e., to be able to satisfy his necessary wants. In this case the mere maintenance of life would be the end of his production, not the increase of wealth; but this latter is implied in capitalist production. That he may live only twice as well as an ordinary labourer, and besides turn half of the surplus-value produced into capital, he would have to raise, with the number of labourers, the minimum of the capital advanced 8 times.

—Karl Marx, Capital, Volume I, Chapter 11 (“Rate and Mass of Surplus-Value”)

The opposing view was that the numerical example in Marx was an “arbitrary assumption.” Policy should not begin with abstract categories but with the realities of economic life.

Wan Li said:

“Some people say that hiring workers is exploitation. But when we export labour services, are we not deliberately sending Chinese workers abroad to be exploited by foreign capitalists? What we are trying to do is make a country with an underdeveloped commodity economy prosperous as quickly as possible.”3

The Politburo ultimately accepted the Secretariat’s recommendation: observe the phenomenon for the time being and keep it out of the newspapers. For private industrial businesses, the limit was two or three apprentices and three or four helpers. Where businesses employed more helpers than the rules allowed, the authorities proposed the “three noes”: such practices should not be encouraged, should not be publicly promoted, and should not be hastily banned.4

The question resurfaced at the end of 1983, during the final stages of drafting the 1984 No. 1 Central Document. On 9 December, Deng Xiaoping instructed his secretary to telephone Hu Qili, then a member of the Central Secretariat, and convey his view on hired labour in the rural areas:

“I said at the Politburo meeting that we should let it take its natural course and look at it again in two years.”5

On 29 December, Chen Yun wrote two comments on the draft submitted for approval.

“First: We can continue to observe the policy on hired labour for a few more years. Even if some problems emerge, there is nothing to fear.

Second: We must proceed cautiously when Party members hire workers. This is a matter of principle and requires full discussion. In his report on the revision of the Party Constitution at the Eighth Party Congress in 1956, Comrade Xiaoping said: “A Party member must be a person who works and does not exploit the labour of others.” Although circumstances have changed considerably since then, the basic requirements for Party members should still be upheld.”6

Chen Yun stressed that Party members who hired labour should be subject to special rules rather than treated in the same way as ordinary citizens.

The draft had already been circulated to and approved by Deng Xiaoping, Chen Yun, Hu Yaobang, Zhao Ziyang, and other senior leaders when Wan Li added a sentence to the section on rural hired labour: “All the above policies apply equally to Communist Party members.” After the document was returned to the Central Rural Policy Research Office, Du Runsheng removed Wan Li’s addition. Only then was the document formally approved by the Central Committee.7

During the ensuing period of “observing for a few more years,” the hiring of labour continued to expand, as did the policy debate. Views to suppress or even prohibit the practice never disappeared. Among the officials directly responsible, however, the inclination was to avoid imposing restrictions.

On 24 November 1985, Deng Xiaoping discussed the matter with Bo Yibo. Bo described three kinds of rural Party cadres: those who led the community towards common prosperity; those who took the lead in becoming prosperous as individuals; and those who enriched themselves through privilege.

Some members of the third group operated businesses with hired workers, received special support from higher authorities, occupied public resources, and obtained large amounts of state credit. Deng responded:

“The third category must be controlled. Progressive taxes can be imposed, and lending policies should also differentiate between them. As for hired labour, I said it was necessary to observe it for two or three years. It has now been almost seven years since the Third Plenum — only two months short.”

“But the latter category does need to be brought under control. The time has come to do so. They are using state resources and state loans; we cannot simply leave them alone. In the future, they should still be guided towards the collective economy. Ultimately, they should be guided toward the collective economy.”8

“The third category should be controlled. It could be subjected to progressive tax rates of 80 or 90 per cent, as well as differentiated access to credit.”9

The issue was subsequently placed on the agenda of the Central Rural Work Conference.

On 6 December, Du Runsheng chaired a meeting of the document-drafting group to consider how to implement Deng’s instructions to “bring the practice under control” and “guide it towards the collective economy.”

The debate was intense, and the group could not reach a consensus. Du finally concluded:

“The document should avoid the issue of hired labor, because it cannot be explained clearly in one or two sentences.”10

Deng’s instruction to impose control was therefore not translated into formal policy. Du Runsheng’s handling of the issue had a major influence on the subsequent course of rural policy reform.

After the 1986 No. 1 Central Document was issued, the Central Rural Policy Research Office under the Secretariat of the CPC Central Committee and other relevant agencies organised a variety of studies devoted to hired labour and considered several possible policy approaches. When Du oversaw the drafting of the 1987 rural work document, he again chose not to address the issue directly.

This episode illustrates the influence that policy research and drafting bodies could exercise when senior leaders were divided.

In August 1989, the Central Committee issued the Notice on Strengthening Party Building. The document stated that Communist Party members were not allowed to hire labour, and that Party members who privately hired labour were to be cleared out.

More than three decades later, the notice has not been formally repealed. Nor has it been enforced.

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China’s Rural Reform: A History Not Designed but Discovered

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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9 months ago · 31 likes · 1 comment · Yuxuan JIA and YIRUI LI

Pekingnology

Zhao Shukai: Pluralism powered China’s rural reform

Zhao Shukai (赵树凯; b. 1959) is a Chinese official of rural policy and governance. From 1982 to 1989, he worked at the Rural Policy Research Office of the Communist Party of China Central Committee’s Secretariat (later reorganised as the State Council’s Rural Development Research Centre and subsequently the…

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10 months ago · 17 likes · 2 comments · Yuxuan JIA and WEI Lai

Under the changes, Feishu’s product team will join a newly consolidated Doubao product group, according to Chinese media reports citing a leaked internal letter.

Feishu’s marketing, sales, and customer service operations — collectively known as its go-to-market team — will be merged with those of Volcano Engine to form a new division called the Creativity Service Platform.

ByteDance told Chinese media that existing Feishu products and services would remain unchanged, while Feishu and Doubao would work more closely on workplace productivity tools. An enterprise version of Doubao, developed with the involvement of Feishu’s product team, is already being tested by selected Feishu customers.

The restructuring brings together three complementary parts of ByteDance’s AI business: a mass-market assistant, a workplace platform, and a cloud-services operation.

Doubao, whose name means “bean bun” in Chinese, is ByteDance’s proprietary general-purpose AI assistant, launched in August 2023. It had 382 million monthly active users in June, more than double the 167 million recorded by second-ranked Alibaba’s Qwen app, according to mobile analytics company QuestMobile. This makes Doubao by far China’s most widely used standalone AI application.

Feishu, known as Lark outside China, provides the workplace layer through which ByteDance can bring those AI capabilities into companies. The platform combines messaging, video meetings, cloud documents, databases, and workflow tools, and counts Chinese technology and electric-vehicle groups including Xiaomi, Li Auto, Nio, and Xpeng among its customers. Feishu said in July 2025 that its Base database product was approaching 10 million monthly active users.

Volcano Engine provides the computing and commercial backbone for ByteDance’s enterprise AI push, giving corporate customers cloud-based access to Doubao models through model-as-a-service (MaaS). Launched in 2020, the cloud unit accounted for 49.5% of token usage in China’s enterprise public-cloud MaaS market in 2025, ahead of Alibaba Cloud and Baidu AI Cloud, according to research firm IDC.

Enterprise AI push

The restructuring follows a broader shift in ByteDance’s priorities. ByteDance Chief Executive said at a Volcano Engine conference in June that advancing AI was the company’s most important task, adding that the cloud unit’s MaaS business was becoming a foundational part of ByteDance.

The overhaul gives that strategy a more direct route to revenue by embedding Doubao’s AI capabilities in Feishu’s workplace tools and selling the resulting model access, computing capacity and enterprise services through Volcano Engine.

It also formalises an integration that had been taking shape for several years. Feishu unveiled its Smart Partner, an AI assistant, in November 2023. It followed in August 2024 with a major upgrade to Aily, an enterprise platform for building customised AI agents and applications using a company’s own knowledge, data, and business processes. By June 2026, more than 90% of the new customers Feishu had signed since the start of the year had also purchased its AI capabilities, Chinese media reported, citing people familiar with the matter.

ByteDance is not alone in seeking to connect AI models, cloud-based capabilities and workplace software. In early July, Alibaba began consolidating several previously separate workplace-agent tools into QwenWork, which combines its Qwen AI models with cloud-based data and task-management functions and deep integration with DingTalk, its workplace collaboration platform.

Tencent is building a similar product, but taking a different, and potentially more formidable, route. Tencent already operates WeChat, China’s near-ubiquitous messaging and social platform, giving it a consumer distribution channel that neither company can easily replicate.

The company launched WorkBuddy, its desktop AI agent for workplace tasks, in March. It subsequently connected the service to WeChat and, at the end of that month, launched a WeChat mini-program that allows users either to run tasks in the cloud or remotely direct WorkBuddy on their computers.

On 5 June, Tencent Cloud unveiled WorkBuddy Enterprise and a broader suite of productivity agent tools designed for corporate users. On 18 July, Tencent launched WorkBuddy as a standalone mobile app.

According to Analysys’s report on China’s office-agent market in Q2 2026, WorkBuddy recorded 20.97 million visits on personal computers in June, more than the second- and third-ranked services combined. Tencent said in its first-quarter results that WorkBuddy had become China’s most widely used productivity AI agent service by daily active accounts.

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China’s Spring Festival AI war

In China’s Lunar New Year, luck is delivered in red envelopes, traditionally a small packet of cash, handed over as a blessing made tangible…

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7 months ago · 23 likes · 1 comment · Yuxuan JIA and Zichen Wang

Among his proposals are transferring RMB 20 trillion in publicly traded state-owned capital to social security funds, using more than half of macroeconomic stimulus spending to support consumption, substantially raising pensions under the basic scheme for urban and rural residents, addressing the urban–rural housing mismatch faced by migrant workers, and encouraging higher dividend payouts by both state-owned and private companies.

He argues that China’s excessive saving is closely linked to income inequality and calls for higher personal income and property taxes on high-income groups, with the aim of reducing the Gini coefficient to below 0.4.

Liu also challenges several widely held assumptions: that China’s investment-led growth model can continue largely unchanged, that raising the incomes of low- and middle-income groups is merely a social welfare issue, and that short-term stimulus can substitute for structural reform.

Liu Shijin is a former Vice President (Vice Minister) of the Development Research Centre (DRC), a comprehensive policy research and consulting institution directly under the State Council, the central government of the People’s Republic of China. He was also Deputy Director of the Economic Committee of the 13th National Committee of the Chinese People’s Political Consultative Conference (2018-2023).

— Yuxuan Jia

Liu made the speech on 27 June 2026 at a quarterly forum of China Macroeconomy Forum (CMF), a think tank affiliated with the Renmin Univerisity of China. A consolidated transcript was published on CMF’s official WeChat blog on 6 July.

刘世锦：深化储蓄-消费形成机制改革，尽快扭转供强需弱的不平衡状态

Liu Shijin: Deepen Reform of the Mechanisms Governing Saving and Consumption and Reverse the Imbalance Between Strong Supply and Weak Demand as Soon as Possible

At present, the imbalance between strong supply and weak demand poses a major challenge to maintaining stable growth in China. The 2025 Central Economic Work Conference clearly identified the pronounced imbalance between strong domestic supply and weak demand, as well as the shortage of effective demand, as prominent problems facing the economy.

This imbalance stems from a distorted growth model underpinned by a range of institutional and structural factors. Reversing it requires policy to focus on reforming the mechanisms governing saving and consumption, substantially reducing the saving rate, and correspondingly expanding final demand.

I. The Manifestations and Underlying Causes of Strong Supply and Weak Demand

The term “strong supply and weak demand” describes several seemingly contradictory phenomena frequently observed in the economy, sometimes referred to collectively as K-shaped development.

On the one hand, China is experiencing a surge in innovation, with significant advances in artificial intelligence, robotics, and green technology. On the other hand, economic growth remains under sustained pressure, with nominal growth falling below real growth.

Exports have expanded at an exceptional pace, and China’s merchandise trade surplus reached a record of nearly US$1.2 trillion last year. At the same time, the weakness of domestic demand has continued to intensify. Investment contracted over the whole of last year. In the first five months of this year, cumulative investment fell by 4.1 percent year-on-year, while total retail sales of consumer goods declined by 0.6 percent year-on-year in May.

China’s manufacturing sector and industrial chains are globally competitive, yet many industries face serious overcapacity, while the needs of certain social groups remain unmet.

Strong supply and weak demand are not the result of short-term economic fluctuations. They arise from a series of institutional and structural factors. These include GDP-oriented competition among local governments; the dominant role of state-owned enterprises (SOEs) and the relatively high share of state-owned capital in foundational and strategic industries; a macroeconomic policy that has sought to stabilise growth primarily through investment, particularly infrastructure investment; and an economic structure centred on manufacturing and exports.

Together, these factors have created a tilted growth model characterised by high saving, high investment, and high exports — a model that emphasises production while paying insufficient attention to consumption.

At the beginning of reform and opening up, China was a shortage economy. For a long period, when supply remained insufficient, this growth model was well suited to the country’s circumstances and offered clear advantages. Even after the economy shifted from high-speed to medium-speed growth and from supply constraints to demand constraints, the model remained highly persistent and resilient, continuing to function as long as there was still scope to expand investment.

Nevertheless, this growth model has limits. Those limits are reached when investment can no longer be expanded and begins to contract. China has now reached this point.

II. Insufficient Final Demand Has for Some Time Been the Direct Cause of Subdued Prices and Slower Growth

The relationship between strong supply, weak demand, and economic growth can be examined through the concepts of the “height” and “breadth” of growth.

The “height” of growth refers to the expansion of an economy’s growth potential through productivity gains driven by technological innovation, improved management, institutional reform, greater openness, and other factors.

The “breadth” of growth refers to the extent to which effective demand for existing productive capacity is generated across different segments of society — for example, across ten population deciles.

The height determines the potential rate of growth, while the breadth determines the rate an economy actually achieves.

Strong supply raises the height of growth, while weak demand means that its breadth has failed to expand in step. Raising the height of growth cannot substitute for broadening it and may, in some cases, even undermine that breadth. Artificial intelligence, for example, may displace existing jobs and widen income inequality.

This helps explain an apparent puzzle: why can innovation-driven development and emerging industries perform well while the overall economy remains under considerable pressure?

At this point, it is necessary to introduce the concept of final demand.

Final demand refers to the portion of GDP that does not enter another production process. It includes all consumption, together with non-productive or consumption-oriented investment, principally investment in housing, infrastructure, and other livelihood-related service sectors.

Final demand represents the true end product of economic activities. It is the part of GDP that directly serves the ultimate purpose of economic activity: meeting people’s aspirations for a better life.

GDP minus final demand consists of productive investment and net exports. Both are instrumental and ultimately serve the expansion of final demand.

For many years, consumption as a share of China’s GDP has remained approximately 20 percentage points below the international average, reflecting a structural distortion. However, the prolonged rapid expansion of real estate and infrastructure investment effectively concealed this distortion.

After 2022, the property sector contracted sharply and infrastructure investment also lost momentum, exposing the long-concealed weakness in consumption and making it a major constraint on final demand.

In recent years, final demand has slowed markedly and declined as a share of the economy. This has pushed down the GDP deflator, causing nominal growth to fall below real growth. Together, weak final demand and excessive investment — particularly excessive productive investment — have reduced capacity utilisation. When capacity utilisation falls too low, returns on investment weaken, discouraging investors from committing additional capital. This is the principal reason for the current decline in investment.

The growth of industrial value added has remained relatively solid, primarily supported by exports and, more recently, by rising capital expenditure on artificial intelligence.

In the national accounts, net exports are counted as part of national saving and correspond to lower domestic consumption. Strong exports are therefore one cause of weak domestic consumption, yet this relationship has not received sufficient attention.

III. Focus Reform on the Mechanisms Governing Saving and Consumption

Behind the imbalance between strong supply and weak demand lies a pattern of national income allocation marked by high saving and low consumption.

China’s saving rate is exceptionally high by international standards. Over the past decade or so, it at one point peaked at over 50 per cent and, despite declining somewhat in recent years, still stands above 42 per cent — far higher than the global average of around 25 per cent.

National saving in China comes mainly from the corporate and household sectors. Government saving has gradually declined and has been negative in recent years.

According to China’s flow-of-funds accounts, GDP in 2022 was approximately RMB 120 trillion and total saving stood at RMB 55 trillion, implying a national saving rate of 46 per cent and a corresponding consumption rate of about 54 per cent. Among those, corporate saving amounted to RMB 27 trillion and household saving to RMB 27.6 trillion, with each accounting for roughly half of the total.

At 22.5 per cent of GDP, corporate saving was notably high by international standards. This largely reflects the relatively small share of corporate returns on capital paid out as dividends. In 2022, corporate dividends accounted for only 10.2 per cent of Chinese households’ property income, compared with a global average of 55.7 per cent.

Historically, periods of rapid growth generated strong demand for investment funds. With external financing difficult and expensive to obtain, companies tended to rely on internal financing and retain a larger share of their earnings.

More importantly, state-owned capital accounts for a substantial proportion of total corporate capital in China, and state-owned enterprises for many years paid either no dividends or only limited dividends.

The establishment of the state-owned capital operating-budget system in 2007 changed this situation to some extent. As SOE reform deepened and the governance system for state-owned capital improved, dividend payments by state-owned capital in publicly traded companies increased. Nevertheless, many SOEs that are not publicly traded continue to pay relatively few dividends.

The corporate sector receives an excessively large share of society’s disposable income, much of which is retained as corporate saving. This produces a high corporate saving rate for society as a whole. Corporate saving ultimately has only one use: investment.

The household saving rate is also high. But a closer look at the income distribution shows that this is driven largely by the substantial savings of high-income households.

According to China Merchants Bank’s 2024 annual report, its Golden Sunflower customers — those with average daily total assets of RMB 500,000 or more — accounted for only 2.49 percent of its retail customers but held 81.90 per cent of customer assets.

Compared with 2023, Golden Sunflower customers accounted for 87.48 per cent of the net increase in customer assets. This indicates that a small group of high-net-worth customers hold the overwhelming majority of bank savings assets and that this concentration is continuing to increase. Data from other banks show similar patterns.

Some people argue that because China adds more than RMB 10 trillion in new savings each year, it should be sufficient simply to encourage households to convert some of these savings into consumption.

This view considers only the aggregate amount and ignores its distribution. It fails to recognise that high saving and low consumption are directly related to excessive income inequality within the household sector. It is therefore highly misleading, both theoretically and as a basis for policy.

IV. How to Reform the Saving–Consumption Mechanism and Reorient Policy

Investment has been contracting for more than a year, and in May total retail sales of consumer goods also fell year-on-year. This combination has not occurred since the start of reform and opening up and warrants the utmost attention.

The operation and development of the Chinese economy have once again reached an important turning point.

The most urgent task is to revive investment and restore positive investment growth. The way to achieve this is to substantially reduce the saving rate and correspondingly increase final demand.

This differs from the views of some observers, but it is crucial to understanding how the Chinese economy currently operates.

National income is divided between saving and consumption. If a high saving rate cannot be reduced, a low consumption rate cannot be increased. This is a simple but binding constraint.

Only by lowering the saving rate and expanding final demand can capacity utilisation be increased. Once capacity utilisation reaches a sufficiently high level, genuine investment demand will emerge. This is precisely the kind of investment repeatedly emphasised by the central authorities: investment backed by real demand and capable of generating returns.

If the saving rate is not reduced and final demand is not expanded — or is instead allowed to contract — while investment is forcibly increased through traditional methods, the imbalance between strong supply and weak demand will become even more severe, pushing the Chinese economy further in the wrong direction.

The key to correcting this imbalance lies in reforming the mechanisms through which saving and consumption are generated and converting excessive saving into effective consumption. Several priority areas for reform and corresponding quantitative policy objectives can be proposed.

First, reduce the overall social saving rate to below 40 per cent within a relatively short period, such as three years, and lower the corporate saving rate to below 20 per cent. Part of corporate saving should be converted into consumption, raising the overall social consumption rate to above 60 per cent. This would also be a concrete step toward achieving the 15th Five-Year Plan’s objective of increasing the household consumption rate.

A direct approach is to increase corporate dividend payout rates. Transferring a substantial proportion of state-owned capital to social security funds would, in effect, constitute a specific form of dividend distribution by state-owned capital.

Some have raised concerns about transferring state-owned capital. They argue that relatively few state-owned assets are sufficiently profitable to generate dividends; that state-owned capital in certain sectors carry heavy debt burdens, making their net asset value difficult to assess; and that state-owned capital is controlled by different departments and institutions, which may resist transferring it to social security funds.

These problems are not, in fact, difficult to resolve.

Put simply, transfers could begin with state-owned capital that is already publicly traded. The total market capitalisation of China’s A-share market is currently approximately RMB 120 trillion. A preliminary estimate suggests that state-owned capital accounts for approximately 40 per cent of this amount. A specified amount, such as RMB 20 trillion, could be transferred to social security funds.

The transfer would not alter the existing departmental or institutional affiliation of the state-owned capital. Instead, new pension funds could be established under the relevant departments and institutions to manage the transferred state-owned capital, thereby creating new operational functions and objectives.

From the perspective of the capital market, this would simply convert part of the state-owned capital into pension assets and increase the supply of long-term, patient capital.

Private enterprises should also be encouraged to increase dividend payments. Measures such as improving corporate governance, strengthening the protection of minority investors, and promoting long-term value investing should encourage companies to return more profits to shareholders through dividends, which shareholders could then convert into consumption expenditure.

Second, steadily advance tax reform, contain increases in the Gini coefficient, and gradually reduce the coefficient to 0.4 or below. This would increase society’s average propensity to consume and reduce the household saving rate accordingly.

International experience shows that economies that successfully moved from middle-income to high-income status generally had Gini coefficients of between 0.3 and 0.4, with some recording even lower levels.

A relatively balanced distribution of income allows a larger share of national income to be converted into final-demand expenditure and eases the pressure created by the release of large amounts of productive capacity accumulated during periods of rapid growth.

China’s tax system remains dominated by indirect taxes, while direct taxes such as personal income tax and property tax account for a relatively small share of total taxation.

To reform the saving–consumption mechanism, China should appropriately increase taxes on high-income groups, particularly through personal income and property taxation, thereby raising government revenue.

Some are concerned that moderately increasing taxes on high-income groups would undermine the confidence and expectations of those groups. In reality, the negative effect would be limited. It will instead strengthen the government’s incentive to protect property rights.

One argument holds that “the boundary of the capacity to tax” determines “the boundary of the protection of property rights,” because protecting property rights also means protecting the tax base.

Third, shift the focus of macroeconomic regulation and government functions at all levels from the supply side to the consumption side.

More than 50 per cent of macroeconomic stimulus expenditure should be used to address the imbalance between strong supply and weak demand, with a particular focus on building a stronger social security system for low- and middle-income groups.

There remains some confusion in society about how consumption drives economic growth.

Reforming the saving–consumption mechanism and increasing the income and consumption of low- and middle-income groups would first create new space in the consumer market. Excess capacity would then cease to be excessive and might even give way to capacity shortages, thereby stimulating new and effective investment.

Second, and more importantly, expanding consumption would allow more people, especially low- and middle-income groups, to share in the benefits of reform, opening up, and development. It would also strengthen their sense that their aspirations for a better life are being fulfilled.

Equally important, the additional consumption generated by these groups would be concentrated in developmental consumption. In effect, this is investment in human capital and a concrete expression of “investing in people.” It would provide the most important form of human-capital support for innovation-driven development.

Subsidies for the purchase of consumer goods have only a limited effect on the income and consumption of low- and middle-income groups. Policy should instead focus on two particularly prominent weaknesses: housing and social security.

A migrant worker may own a two-storey, 200-square-metre house in the countryside but return to it for only a few days each year, while spending the rest of the year crowded into a ten-square-metre basement room in a city.

According to statistical measures, this worker would have access to 210 square metres of housing. In reality, however, the worker’s living conditions are extremely difficult. Migrant workers and similar groups face a major structural mismatch between their housing resources in rural and urban areas.

Housing-support policies, together with a reorganisation and reallocation of urban and rural resources, should be used to accelerate efforts to address the housing difficulties faced by migrant workers and other new urban residents. This would also generate genuine demand, helping to stabilise the property sector and restore normal growth.

Through the transfer of state-owned assets to social security funds, fiscal subsidies, short-term stimulus funding, and improvements to social security contribution arrangements, China should seek, during the 15th Five-Year Plan period, to achieve a substantial increase in the per capita pension benefits provided by the basic pension scheme for urban and rural residents.

This scheme covers the largest number of low- and middle-income people. The increase in benefits should be aligned with the current need to expand final demand and stabilise macroeconomic growth.

Among the many consumption-stimulus policies, this reform would rank among the most effective in promoting economic growth and would play an irreplaceable role in stabilising growth.

Some people argue that increasing the pension income of elderly rural residents would have little effect on consumption. This may appear plausible at first, but it is fundamentally mistaken.

In reality, the excessively low level of pension benefits under the basic pension-insurance scheme for urban and rural residents constrains the release of society’s consumption potential in several ways.

First, it directly limits the consumption capacity of 170 million pension recipients.

Second, inadequate pensions of rural parents require their children to make larger intergenerational transfers, thereby crowding out their own consumption.

Third, it makes the 370 million people currently contributing to the scheme less secure about their future, prompting them to increase precautionary saving out of necessity.

The basic pension-insurance scheme for urban and rural residents covers 550 million people, 95 per cent of whom are rural residents. This represents approximately half of all participants in China’s pension system. They constitute both the lowest-income and the largest segment of the national pension system, while also having the highest propensity to consume.

From this perspective, the shortfall in pension income among those covered by the scheme constrains consumption growth among approximately half of China’s population. Its broad economic impact should not be overlooked.

V. Several Misunderstandings That Must Be Clarified to Reverse Strong Supply and Weak Demand as Soon as Possible

One view holds that China’s growth model, which emphasises production while giving insufficient attention to consumption, has existed for a long time. Although China has often described its development as unbalanced, uncoordinated, and unsustainable, the country has nevertheless continued to grow for many years, suggesting that this model may be able to continue in the future.

In the past, however, China remained a shortage economy for a long period. Even after the economy became constrained by demand rather than supply, there was still some room to expand investment.

Those conditions no longer exist. Investment has been contracting for an extended period, indicating that it is becoming increasingly difficult for the existing growth model to continue.

Another view holds that expanding consumption and increasing the income of low- and middle-income groups are livelihood issues that should be pursued only within available means and should not be rushed. This view had some validity for a considerable period in the past.

Under current conditions, however, unless the income of low- and middle-income groups is increased and final demand expanded, capacity utilisation cannot rise, investment growth will be difficult to restore, and actual economic growth will fall significantly below potential growth.

Increasing the income and consumption of low- and middle-income groups is therefore not merely a livelihood issue. More importantly, it is a matter of stabilsing macroeconomic growth.

In the past, when growth weakened, China focused on investment. At the present stage, it must focus on consumption. The underlying logic is the same, but circumstances have changed, and the areas in which growth potential can be found are now different.

Another view holds that although structural and institutional reform is important, “distant water cannot extinguish an immediate fire,” and short-term policy should therefore continue to rely on macroeconomic stimulus.

Structural reform and macroeconomic policy each have their own role. There is no need to choose one while excluding the other. Combining the two will often produce better results. In fact, some structural reforms, such as transferring state-owned assets to social security funds, can produce results in the short term.

Other reforms, such as reducing the Gini coefficient, may appear slow in the short term once policy goals have been set and implementation has begun, but can prove relatively fast over a longer time horizon.

Using short-term stimulus to replace or avoid structural reforms that could in fact be advanced will only prolong the problem and raise the eventual cost.

Japan was the first country to introduce quantitative easing, zero interest rates, and negative interest rates. More than two decades later, however, it has yet to decisively break free from deflation or restore economic vitality.

Japan’s experience has been widely studied in recent years. China should draw lessons from it rather than repeat the same mistakes.

The central authorities have made a clear assessment of the imbalance between strong supply and weak demand, and the path toward resolving the problem is also clear.

International experience shows that economies that fall into the “middle-income trap” generally suffer from weak innovation and insufficient industrial competitiveness. China’s present weakness, by contrast, lies in strong supply and weak demand.

In logical terms, demand-side problems should be relatively easier to solve than supply-side problems. That does not mean, however, that resolving them will be easy.

Strong supply and weak demand are deeply intertwined with a series of institutional and structural factors. Moving beyond the existing growth framework, shifting from a model driven primarily by investment and exports to one driven primarily by innovation and consumption, and accelerating the establishment of a new growth framework will require a new round of emancipation of the mind and the building of a new social consensus.

China must overcome path dependence and address the challenges of changing mindsets, interest relations, policy tools, and working methods. Only in this way can strong supply help generate strong demand, creating a new cycle of dynamic mutual reinforcement between supply and demand, stabilising the overall macroeconomic environment, and generating sustained momentum for long-term and stable development.

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