China Decode: Inside Xi’s Shocking Military Purge

In this episode of China Decode, Alice Han and James Kynge break down a seismic week in Beijing. China has effectively blown up the top of its military command, sidelining Xi Jinping’s most trusted lieutenant and raising questions about loyalty, readiness, and how secure Xi really is at the apex of power. They explain what this unprecedented purge inside the PLA means—not just for China’s military, but for regional stability and markets. They also unpack the post-China future of TikTok. After years of bans, lawsuits, and security concerns, a last-minute deal keeps the app alive in the U. S.—but does it truly sever Beijing’s influence, or just repackage it? With 180 million American users and a generation getting its news from TikTok, we explain why this deal matters far beyond social media. And finally, Alice sits down with economist Houze Song to cut through the spin on China’s economy—from headline growth numbers and export dependence to the long shadow of the property collapse and what Beijing may (or may not) do next. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 1:16Alice Han?

  Right now, he's gotten rid of his most experienced military commanders and generals. He doesn't have the operational experience or combat readiness now to go in and take Taiwan, let alone do a quarantine or blockade. So I think this probably delays a Taiwan showdown for the next couple of years. Welcome to China Decode. I'm Alice Han.

• 1:40James Kynge?

  And I'm James Kynge.

• 1:41Alice Han?

  In today's episode of China Decode, we're discussing Xi's purge at the top and the shock to China's military command, TikTok after China, plus I'll chat with Sung Ho-je about China's economic reality. That's all coming up, but first, let's do a quick check-in with how the Chinese markets are starting the week. On Monday, the Shanghai A-share index closed down 0.1%. The Hang Seng A-share index rose less than 0.1%, ending the day slightly in the green despite starting the day down nearly a full percentage point. Precious metals mining company Zijin Mining Group closed up more than 4% as investors around the world rushed to buy gold and other safe haven assets.

• 2:24Alice Han?

  And Hong Kong property companies Hongkai Properties, Hang Long Properties and CK Asset Holdings all rose more than 3% after a Morgan Stanley analyst published a bullish outlook on the Hong Kong housing market. But we'll get right into the first topic. China just detonated the top of its military command. Beijing has placed Zhang Yousha, Xi Jinping's longtime confidant and the PLA's second most powerful figure, under investigation alongside another top general. This is unprecedented. For context, Zhang Yousha was vice chair of the Central Military Commission, or CMC, which is both a state and party organ that oversees China's combined military.

• 3:07Alice Han?

  So the near-total decapitation of the Central Military Commission leaves Xi effectively alone at the apex. The move signals extreme insecurity at the top and raises real questions about cohesion, readiness and Xi's grip on power. James, there's so much to discuss, I want to throw it straight to you. What were your takeaways from this incident over the weekend?

• 3:29James Kynge?

  Yeah, well, first of all, my first takeaway was wow. I mean, this really is, I would put it in the category of stunning news coming out of China. I think it's certainly, in terms of shock value, it's certainly the biggest, the most shocking piece of news that I've seen in Xi Jinping's tenure that started way back in 2012, 2013. I'm not saying it's the most consequential piece of news, but I think it is, it did shock me more than any other. But the other important thing to say, I think, is about Chinese elite politics, and that is that it is a complete black box. When things like this happen, when a really big event like this happens, we get all

• 4:10James Kynge?

  kinds of interpretations and rumors flooding across social media and in the media all over the world. And I think, therefore, the important thing at times like this is to not exceed what we know. For sure. I can honestly say in more than thirty five years of China journalism and eighteen of those years were in China itself. I think I only knew one Western journalist who could count on regular sources at the very top echelon of the Chinese Communist Party. I'm not saying that there weren't others that I didn't know that had that kind of access, but that kind of access really is extremely rare.

• 4:50James Kynge?

  So what I would say at this moment is these are the bare facts of what we know according to the official Chinese media, that Zhang Xia, who was vice chairman of the Central Military Commission, which as you've just said, Alice, is the premium premier body in charge of China's army, navy and air force. And this guy Zhang Xia was China's most senior uniformed officer. He has now been placed under investigation. And when an investigation is announced like this in China, you can be pretty much sure that your fate is sealed. It's not a case of you're going to be found not guilty by the legal system. You are going to be taken down. We can say that pretty much for sure.

• 5:35James Kynge?

  Now, uh, part of what he is charged with was corruption. But that's not so interesting because frankly, there have been hundreds, if not thousands of cases of corruption in China's military going back over the last decade. The really fascinating line or phrase was that he had, quote, severely trampled on and damaged the chairman responsibility system. Now, I will explain the chairman responsibility system in a minute. But effectively what that meant is that he had gone against Xi Jinping politically in some way.

• 6:16James Kynge?

  It could have been anything from disobedience to treason to plotting or something else. We just don't know exactly what that means. The chairman responsibility system, though, is absolutely clear. That is that the chairman of the Central Military Commission, which We've just been talking about is the top military body commands all of the navy, the army and the air force. And this person has exclusive and supreme authority over the whole of the People's Liberation Army. In other words, whatever Xi Jinping says goes in the Chinese military.

• 6:55James Kynge?

  He has the final say, and it was this that General Jiang trampled on and damaged. Just as a little follow up, there was another senior military official called General Liu Junli, who was also put under investigation, and he was also a member of the Central Military Commission, which previously had seven members and now only has two, Xi Jinping and another man called Jiang Shengming. But Jiang Shengming is merely an anti-corruption officer. He really has no say over military matters. So this means, as you said, Alice, that really we have Xi Jinping in charge, in sole charge, of the world's largest military.

• 7:41James Kynge?

  Let me just give a few metrics on the People's Liberation Army, because it really is huge. The PLA has over two million soldiers and four million if you include paramilitary and reserves. The PLA Navy has the world's largest navy with over seven hundred and eighty ships and vessels. And the Chinese military has around six hundred nuclear missiles, including those that are launched by land, sea and air. And some of these missiles are powerful enough to reach the entire territory of the United States. So, like I say, I don't want to exceed what we know.

• 8:21James Kynge?

  But what it seems to be the case here is that we have one man in charge of the world's largest military. And this military is obviously a rival to the US and to other countries in the West. So I'd leave it at there, Alice, and throw it back to you for your, your take on this. I mean, you know, it is complex, obviously, and it's delicate as well. What would you say?

• 8:45Alice Han?

  Extremely delicate. I definitely agree with you on that front, James. And it's funny, I highlighted the same section because I think the wording of it is so precise and so idiosyncratic. The wording of, you know, trampling on the responsibility system of the chairman of the CMC, that is wording that I haven't seen in previous investigations of other generals that have been purged. We've had a total of seventeen generals purged in the PLA since Xi Jinping came to power in 2012. That is the largest purging at the general level since Chairman Mao. And that is a significant indication of his not just anti-corruption drive through the military, but his unhappiness potentially with the loyalty and unity of his generals. Now, I suspect, as you do, James, that this is a personal matter and

• 9:30Alice Han?

  we haven't dove into it. But what is interesting to me is that Zhang Yuxia, he is a brother, I would, not in a literal sense, but a brother in the sense of coming from the same hometown, Shanxi, their fa- to Xi Jinping. Their fathers were comrades who fought in the civil war in the 1940s in China and were also Shanxi natives. This is a guy, General Zhang, who has been a longtime childhood friend and close ally to Xi Jinping. Xi Jinping kept him around after 2022, even although General Zhang had already reached the retirement age. He was seventy-two at the time, because he believed he needed a close, confident ally

• 10:11Alice Han?

  in the military. And so Zhang was effectively the second in command at the CMC. The CMC is a central military commission. Just for context, it is both a state and a party organ that oversees both the PLA, as well as the police, the People's Armed Police and the militia. So this is an extremely important decision-making body that has the powers to decide the military operations, procurement, campaigns, and would be completely germane in a Taiwan context, which I'll get to in just a bit. My reading of this, James, and I wonder if you had similar theories, is a factional reading, which is, when I look at the configuration of the seven members of the CMC.

• 10:55Alice Han?

  Five of them have been purged. The only two remaining are Xi, who is the chairman. Xi Jinping remains as the chairman, as well as his number two now, who was the anti-graft guy at the CMC. And this guy, Zhang Shengming, he's still around. The other five have been eliminated. And the other five were largely, I think, evenly divided between two factions. There was, on the one hand, the Fujian faction of generals who largely came from the Fujian region. So He Weidong, who was ousted a couple of months ago, back in October, from the party, as well as the PLA. He was also a vice chairman of the CMC. He was in a rival faction to Zhang Yousha, who was the Shanxi faction leader and potentially led the Shanxi faction

• 11:40Alice Han?

  within the CMC and the PLA. All this is to suggest, I think, there was a balance of power. Xi Jinping decided to get rid of one of these rival factions, the Fujian faction, by getting rid of a lot of these generals. He then realized that his longtime friend Zhang was way too powerful because he was effectively the only general left standing of weight and standing in the CMC and decided to take him down as well after he must have crossed him personally. Hence, the wording of the PLA party readout as well as the People's Daily readout about the investigation. So we don't know the details, but I'm very skeptical that the Wall Street Journal is correct in their line that speculating, for instance,

• 12:23Alice Han?

  that it could be secrets leaked to the US, nuclear secrets. I'm skeptical of that. The Chinese PLA and government don't have a habit of leaking high-level nuclear secrets in this regard. I think it's much more personal. And I think it was a decision to have a clean, complete clean slate of the CMC going into the 21st Party Congress, which is in 2027, when Xi will have to bring in more people to replace the empty chairs. That materially, and this takes me to my conclusion, which is materially, it matters for the timeline and probabilities of Taiwan. Because right now, that he's gotten rid of his most experienced military commanders and generals. He doesn't have the operational experience

• 13:05Alice Han?

  or combat readiness now to go in and take Taiwan, let alone do a quarantine or a blockade. So I think this probably delays a Taiwan showdown for the next couple of years. But my concern, if we look to beyond 2027... And the new generation that you've got, so to speak, of generals, might we end up with an outcome in which we have wolf warriors in the CMC and the PLA that are going to be much more bellicose and ready for a Taiwan showdown? That is my concern, but I think, you know, markets shrugged it off. You know, the CSI 300 was in the green today. It's not an economic, I think, issue, but it certainly is a military geopolitical issue.

• 13:47Alice Han?

  And at its heart, a political issue about Xi Jinping's security and longevity as the president. One thing that I'll end on is that I certainly think that this further reinforces his power and it delays any talk about a succession because he's effectively wiped out any contenders for that role.

• 14:05James Kynge?

  Yes, I would agree with that last point. And just coming back to the Taiwan question, I mean, I have also read the idea that this could make China less likely to launch some kind of military adventure against Taiwan, you know, in the near term horizon. And yeah, I mean, you know, that that seems to be fair as an analysis. But I just feel that we know so little about how decisions are really made in the Central Military Commission and at the top levels of the Chinese Communist Party, that it's a bit of a leap even to to have an interpretation like that. I mean, it could equally well be, it seems to me, that if Xi Jinping is the only man in charge,

• 14:49James Kynge?

  then, and he wants to launch a military adventure against Taiwan, then maybe he gets his way. You know, so, so I think you could read that both ways. I think the only takeaway that I have from this whole thing that I'm sure of is that the opacity of the system is the risk. The opacity of China's political system and particularly the military decision making system, you know, it being a complete black box is a great risk for us in the West because we just have no way of tapping into it. I don't think any government around the world, including the US, has regular

• 15:30James Kynge?

  High level contacts with the People's Liberation Army or any other military body in China. And so to me, that is the key risk here. And it's just so hard to know how to call it. I also saw that the price of gold, I think, today went above $5,000 an ounce. I'm not sure if that's connected to this either, but that may be a bit of a stretch. But I I must say, you know, we so rarely focus on military issues. This one came out of left field, as it were. But I'm I'm glad that we're focusing on it today because it is one of those sort of lurking risks in the Chinese system that now that it's come to the fore, I think it at least deserves a good look at.

• 16:14Alice Han?

  Yeah, certainly. I think the gold story might be more associated with American waning influence and and dollar weakness. Maybe it's a risk-off attitude that people have to to US assets. But to sort of add to what we were discussing about power and the military, I think it can't be overstated how important this is and how, I hate using this word, but I have to use it, unprecedented this is in modern Chinese history. I don't think, I was looking back into previous episodes of this, going as far back into the 1940s. And the only other real analog is what happened during the Great Leap Forward,

• 16:54Alice Han?

  as well as the Cultural Revolution with two key generals, Peng Dehua and Lin Biao, who were both really close to Molotov, but were effectively purged and killed. And this was again succeeded by a massive purging of the PLA by Chairman Mao. So I think history is repeating in certain respects. And and my big takeaway is that this suggests that she feels insecure about the combat readiness and about the loyalty of of the military advisers and guys around him. And this should be seen as a sign of weakness, at least from my perspective. But it certainly, to your point, James, is going to be really, really crucial

• 17:37Alice Han?

  in terms of the Taiwan probabilities and Taiwan scenarios. I think we may disagree there. I think it probably gets delayed by a couple of years. But certainly, we need to keep our ears to the ground in terms of seeing who comes in as the new god.

• 17:50James Kynge?

  Yeah, absolutely. I was also thinking about Lim Biao. I mean, you know, he was purged after he attempted to assassinate Chairman Mao by sabotaging the train that Chairman Mao was riding on in the early 1970s. So, you know, this type of thing does happen in China. I think most of these stories we simply never hear about. So, you know, that's my kind of payoff line in this. The system is so opaque that it really is so hard for anyone to find out what the true situation is and what the true stories are behind, in this case, the downfall of Jiang Yousia, Xi Jinping's old friend and comrade in arms, as they say.

• 18:31Alice Han?

  Yeah, exactly. Okay, we'll be back with more after a quick break. Stay with us.

• 18:44Scott Galloway?

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• 19:44Scott Galloway?

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• 20:51Scott Galloway?

  Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits, and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls, and playing catch-up when audit season comes around again. Vanta works differently. The Regentic Trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400-plus integrations, Vanta collects evidence and monitors your controls year-round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude or Cursor. Want proof?

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• 21:58Alice Han?

  Welcome back. After six years of bans, court fights and superpower brinkmanship, TikTok finally has a deal. ByteDance is spinning off a new US TikTok controlled by American and non-Chinese investors led by Oracle and Silverlake, just in time to avoid a congressionally mandated ban. The agreement is meant to sever Beijing's influence, safeguard user data and settle national security fears. Well, James, this is a big victory for ByteDance and TikTok. And I would say Trump, who was definitely in support of this deal, effectively it creates a joint venture structure, which is funny because you often hear about this in the Chinese

• 22:39Alice Han?

  context. But here we are in the new age where the US is mimicking aspects of Chinese industrial policy. So effectively, this joint venture allows TikTok USA to subsist in accordance with American rules. This is a big victory, I think, for both sides. What is your takeaway from this?

• 22:59James Kynge?

  I would say it's certainly a big victory for ByteDance. And as you said, probably for Trump. But to me, the really key issue here is have the risks to the American people been truly expunged? I mean, it does this really mean that ByteDance's control, especially over the TikTok algorithm, has been severed or not? And I think, you know, obviously, it's a crucial topic. I mean, TikTok has more than 170 million users in the US, and it's no longer, you know, just young people who are looking at TikTok. Even oldies like me, I think,

• 23:42James Kynge?

  according to the latest statistics, are all on TikTok, glued to TikTok.

• 23:46Alice Han?

  Are you using TikTok, James?

• 23:48James Kynge?

  Yeah, you betcha.

• 23:50Alice Han?

  What are you using it for?

• 23:51James Kynge?

  I have a bit of an addictive personality, it turns out. I'm finding out rather late in life. I just scroll doom scroll through TikTok the whole time, you know. There's all kinds of things, food, animals, pets, all kinds of stuff that I'm looking at. So, so back to the, back to the key issue. So the question to me is, has ByteDance's control over TikTok been reduced or severed? And I would say it's been reduced. In fact, I would go a little bit further than that. I would say that this deal effectively means that the ownership of the car that is TikTok in the US has been given to a US company, this joint venture

• 24:35James Kynge?

  that we'll get into in a minute. But the engine of that car remains in the hands of a Chinese company called ByteDance. When I say the engine, of course, I'm talking about the algorithm. So just a few bare bones of the deal. So ByteDance transferred the majority of its US operations to a new entity. That entity is called TikTok U S D S Joint Venture LLC. And that company, the joint venture, is led by Oracle, Silver Lake, MGX. All of those are American companies. They hold over eighty percent of the ownership of the equity in that joint venture. But ByteDance owns nineteen point nine percent.

• 25:19James Kynge?

  So the Chinese company remains a pretty, pretty significant shareholder. Now, the really important thing I think about these companies, and in the case of the TikTok US joint venture, it is also the most important thing, is the algorithm. The TikTok business is nothing without the algorithm that underlies it. And although Oracle is now responsible for securing the data of American users and overseeing the retraining of the recommendation algorithm using American sources, you know, so American data will be used to retrain the algorithm, the control. Of the algorithm will remain in the hands of ByteDance.

• 26:04James Kynge?

  And it will lease the algorithm to the American joint venture, TikTok joint venture. And it will get payments for that of around twenty percent of the American entity's revenue. Now, so this to me means it is ByteDance that remains in control of the algorithm. And that to me is, you know, that's the key point. Because it means that presumably ByteDance can tweak the algorithm anytime it wants without informing the US entity. And it gives ByteDance an operational relationship with the the company in the US. Do you see it like that, Alice?

• 26:46James Kynge?

  Or am I being too kind of reds under the bed about this?

• 26:50Alice Han?

  No, I have a similar view, but I I would delineate it this way. I would say that Trump and his coterie of billionaires have put economic interest above the interest of everyday American state of security and privacy. The reason that PAFAKA, the act, was put into place was in because people in Congress were scared that this tool, ByteDance, could be used to spy on everyday Americans, it could be part of a political interference or surveillance campaign. Now, we don't have evidence, I think, to fully corroborate those views. But if you're an American congressman, I think you're looking at this deal and thinking it solves none of

• 27:36Alice Han?

  the issues, the national security, data security, privacy issues that we have conveyed and voiced. And ultimately, it rewards the billionaires who now have a seat at the table and can milk this cow for all it's worth. That is my view. And this is why I think ultimately the Chinese and ByteDance see this as a victory because they've been able to keep the algorithm, which from day one was a key national security priority as per their data transfer laws. But at the same time, it benefits Trump because it's a great political platform for him. It benefits the billionaire donors around him who now have a seat at the table, have equity in this joint venture.

• 28:19Alice Han?

  So I I agree with you, James, but I would frame it somewhat differently. And I think it then begs the question, what happens to these other Chinese apps that are not considered? The political golden goose for Donald Trump. You know, when we think about Xiao Hongshu, which is Red Note in the West, or we think about Te Mu or Xin, some of these other platforms, Chinese platforms in the US context, are they up for a similar kind of regulation? And what is interesting is that this creates this TikTok USA joint venture framework, I think, creates a template for future deals potentially.

• 28:59Alice Han?

  That is somewhat similar to what we saw historically with Western companies going into China and signing joint ventures. They can, if you recall, James, back in the day, they could never own more than 50%. That was the whole point of a joint venture and they had to partner with a local Chinese company. That is happening now in the reverse. But still, the Chinese have all the cards because to your point, James, all they're really sacrificing is the data security, which is going to be stored locally. But there, I mean, I talked to any, all kinds of data experts or national security experts. There were all kinds of backdoors that they really wanted that data. And secondly, it's the algorithm that is the most of interest to the Chinese government.

• 29:41Alice Han?

  One thing that I will end on is Project Clover in the EU and what the EU is going to do. I think the EU is watching this. I'm not sure, maybe you have a better view, James, what the EU is going to do to regulate ByteDance. But the EU has the same concerns, I think the Americans have had towards ByteDance from a national security, data security perspective. I'm not sure if they're going to get that act together and enforce that in the way that the Americans have done, but that remains to be seen.

• 30:11James Kynge?

  No, I think, I think that's such a good point. I think this opens a Pandora's box for virtually any Chinese tech company that's collecting data in foreign markets. This sets a template, or at least an example of what might be done, what should be done, what could be done in order to increase data security that these Chinese companies are collecting, either in the US market or the UK or European market. Or anywhere else in the world. And and I think it's so right of you, Alice, to point to what Western companies had to do in China. And for me, the main example was the way Apple in two thousand and eighteen had to transfer

• 30:55James Kynge?

  its mainland Chinese iCloud user data to a joint venture called Guizhou Cloud Big Data that was that situated in the southwestern province of Guizhou. And at the time, I think, you know, we all wondered why that was happening, why that had to happen. And it was purely because the Chinese state wanted to be sure that Chinese people's user data was not going to be used by Apple and taken abroad. It wanted control over the user data. And it seems to me that if you're a Chinese car company working in Europe, let's say BYD, you're collecting data. If you're a Chinese internet company like Shein or or the other ones, you know,

• 31:37James Kynge?

  even Alibaba and AliExpress, you know, you're collecting data. So many Chinese companies are collecting data around the world. Surely there has to be now some thinking that goes into the security of the data that they're collecting and whether or not they need to set up joint ventures to allow authorities to ensure that, let's say, European data stays in Europe, it doesn't go back to China and vice versa for the US. So I think it's a, I think this is a big moment in the treatment of the data that Chinese companies are collecting abroad. Now, paradoxically, this may be seen as a barrier to entry by Chinese companies into Western markets.

• 32:21James Kynge?

  But maybe it's one of those things that, once it's overcome, actually smooths the entry of those companies into the European, US or or other markets around the world. So it's a, it's a big topic. I think this will run and run for the next few years.

• 32:37Alice Han?

  Definitely. And I mean, we're just scratching the surface. Because if you think about it, with the Internet of Things, with embodied AI, you know, humanoid robots using world models and spatial intelligence, and then we get into the realm of autonomous vehicles collecting real time data on the streets and geolocation data. There are so much more data out there to mine, and Chinese companies are just scratching the surface. We're just seeing one instantiation of it, which is social media. But it's only a matter of time where we see Chinese companies come in and do autonomous vehicles, humanoid robots in Western markets. And I sense that there's going to be a bigger public debate in Western economies about how you regulate that the data associated with those companies.

• 33:22Alice Han?

  So I think we're just in the first innings of a global reframing of Chinese companies, you know, going global in terms of collecting data and using data. Okay, let's take one last quick break. Stay with us.

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• 35:51Alice Han?

  Welcome back. As the US openly turns its back on globalization and leads harder into tariffs, China is pitching itself, at least rhetorically, as the grown up defender of global multilateral trade, even as its own economy shows real signs of strain. Joining us now to talk with us about this is Hulze Song, China economist and director of China Research at 22V Research. Hulze, thank you so much for joining us today and welcome to China Decode.

• 36:18Speaker 08

  Thank you for inviting me, Alice.

• 36:20Alice Han?

  Great. I wanted to start with something that is topical this week, which is Davos. I think a lot of attention was paid to both the Trump and Carney speeches, but the day before Trump came to speak at Davos, we had He Li Feng, Vice Premier He Li Feng, who is the Trade and Economy Chair, talking about China's position in all of this. He was critical of the quote unquote tariff style law of the jungle and seemed to defend the WTO liberal trade order and multilateral institutions like the WTO and IMF. This is coming at a time where we're seeing record Chinese trade surplus, around 1.2 trillion last year, and it seems like China will not be escaping this manufacturing led growth. So how did

• 37:04Alice Han?

  you interpret that speech and China's trade and economic policy going into 2026?

• 37:11Speaker 08

  I would say in terms of what they have been saying, the message has been pretty consistent. For example, if you compare West Premier He's speech with the speech President Xi gave before the pandemic, 2018, the message, especially the part on the global order and the global free trade systems are basically essentially the same. So the signaling from the Beijing has been pretty consistent. On the other hand, in terms of what they have been approaching and and also the China's trade policy.

• 37:45Speaker 08

  It has been quite different compared to, say, seven years, uh, eight years ago, when President Xi made a his speech during the Davos. But one thing, China was essentially running a balanced trade back in 2018. China's trade surplus was less than 1% of GDP. In contrast, last year, China made a record $1.2 trillion trade surplus. And that part of it reflects Beijing's basically manufacturing-first economic policy, but also a greater part probably has to do with the fact of weak domestic, China's weak domestic demand.

• 38:24Alice Han?

  And do you think going into 2026, we've got the March NPC, the Lianghui, as well as the new 15th Five Year Plan, that that strategy of, as you were alluding to, using trade and manufacturing to drive growth will shift? Or is China still wedded to this strategy in the midst of, I would say, still pretty weak consumption growth? And if you, if you could also describe to us, why has it been so difficult for the Chinese government to try to boost consumption even though it does identify it as a key economic problem?

• 38:57Speaker 08

  I would say, actually, in terms of weakness, Chinese consumption weakness, there's both a cyclical component, there's also a secular component. The secular component being that historically, the share of income in China that goes to the household sector is much lower than other, compared to other major economies. And also on top of that, there's the ongoing cyclical adjustment basically triggered and amplified by the ongoing real estate hard landing. So as to why the Chinese central government not providing more help to the household sector and the economy broadly?

• 39:41Speaker 08

  I would say there are a couple of reasons. The first is is that basically that the China's central government's priority in terms of their priorities, growth is no longer the top priority. Growth is probably at best a secondary. So for example, the China's long term growth targets, uh, growth target uh through the year twenty thirty five basically implies that Beijing is aiming for an average growth rate of four percent point for uh for the next ten years. On top of that, the basically ongoing US-China tension means that Beijing needs to double down on its uh strategy,

• 40:24Speaker 08

  manufacturing a technology-first strategy to pursue uh uh tech independence, to reduce reliance on both US and as well as Western technologies. So I think while that the current that US-China relationship is expected to be broadly stable this year, but probably most people as well as Beijing believes that this more likely to be transitory, meaning that Beijing still needs to aggressively push for its tech independence initiative to prepare uh the longer term uh potential conflict and confrontation with the United States.

• 41:02Alice Han?

  Yeah, I want to touch on that aspect, the tech self-sufficiency in just a bit, because there is an argument that that drives uh some of the uh anti-involusion campaign because it's created uh an oversupply uh in certain goods uh that has led to price deflation. But before I go into that, uh I wanted to touch on the property sector, which you alluded to. Uh, we're probably five years into this slump in the property sector. Now, there's a debate as to whether it's a hard landing or a soft landing. But what is clear, and I think you you've mentioned this in uh multiple instances in the past when we've spoken, is that there is a macro knock-on effect. Of the property sector on on consumers, on household spending. How do you think about it now that we're five years in?

• 41:47Alice Han?

  The impact of the property sector on households and their spending patterns? And number two, uh, do you expect there will be some kind of policy support going into the March NPC in response to continued double-digit negative uh contraction in the property sector?

• 42:02Speaker 08

  A good question. I would say that first, that in terms of interplay between uh real estates and household expenditure, there has been some shift. Being that initially, uh, say, uh, during the like twenty-two to twenty-three period that the you can say basically that the real estate decline was a trigger or was a cause of weak household sentiment as well as expenditure. But in more recently, I would say that the ongoing uh real estate property weakness probably more a reflection and outcome of the broad uh growth weakness rather than the cause.

• 42:46Speaker 08

  The being that I think that currently that the really the root cause of a weak household consumption is really the the weak job market. Both uh both the the that the uh unemployment rate being elevated and also the fact that the job security that, for example, uh, close to a third of Chinese urban workforce are essentially gig workers. So basically, they they're really not very very sure that they will still have a job, say, in two months or three months from now. So this, I would say that right now, this really the labor market weakness, especially this feeling of insecurity probably has a bigger role in terms of limiting Chinese households expenditure.

• 43:30Alice Han?

  And is it the case that we're going to see uh maybe more slackness in the labor market moving forward? If you expect that AI will continue to decrease the demand for some of these gig workers or even graduate students entering the job market, there's a lot, I think. Of apprehension amongst new look grads. We had a record eleven million last year going into the workforce. There's apprehension that they might not be able to find jobs in an economy that is slowing down and where jobs are increasingly getting automated or replaced by AI. How do you see that debate play out in China as being distinct from what we're seeing in the US?

• 44:05Speaker 08

  I would say compared to speaking, the balance is much more in favor of technology and capital compared to labor. When you compare us to, for example, debate and also the public opinion in US and other Western countries. There has really, the Chinese government doesn't seem to really take into the job effect of AI and automation into considerations when they draft those AI and robotics related policies. So, and I would say that actually they are actually much more encouraging about the AI and robotic and its economic impact.

• 44:47Speaker 08

  So that's kind of like understandable because it seemed to me that really that the technology advancement, especially how it helped to China to boost its international standing or also its national security position. Probably at this moment matters more for the Chinese government than really grows our job.

• 45:08Alice Han?

  And to zero in on this more concretely, what are your expectations in the new five year plan for 2026 to 2030? And if you're advising investors or people following China closely, what are these sort of green shoots or hotspots in the economy or even in the financial markets that you think we should be following in the next five years?

• 45:29Speaker 08

  I think the Chinese government is clearly doubled down on its advanced manufacturing and technology initiatives. I think that's fine. I mean, as long as they're also taking care of the broad weakness of the Chinese economy. I don't see there's a fundamental tension between pursuing both initiatives that they are on the one hand just, for example, either through providing more income transfer. To the household or other means to boost the overall economic growth as well as job creation. And on the other hand, they can continue to find those manufacturing initiatives. There's really no fundamental tension between those two initiatives. So the surprise is really not that they are doubling down on manufacturing.

• 46:11Speaker 08

  The surprise seemed to most people, myself included, is that they continue to be very reluctant to really to to stimulate the economy, to reflate the Chinese economy. I would say in terms of investment implications, one is really the, I would say, the most clear implication is the relevance for the Chinese equities. Basically, since late twenty four, that Chinese equities has enjoyed pretty solid rally that the equal weighted, equal weighted A shares has been basically up by close to fifty percent since late twenty four. And in the meantime, the curious thing is that the fundamentals, the corporate earnings has not improved much.

• 46:53Speaker 08

  So as a result, basically what suggests the the much more expensive valuation, the P E ratio of Chinese equity indicate that the investors have taken a categorically more optimistic view about the the outlook of the Chinese economic future. I think, but the the next step question is really that whether the the coming year, the Chinese economic performance can validate or disprove this, the current quite optimistic expectation investors already press in. Here I see really kind of like risk or tensions between the fact that on the one hand, the Chinese government continued to be very reluctant to stimulate the economy.

• 47:37Speaker 08

  And on the other hand, the Chinese equities being at a really historically high valuation level.

• 47:44Alice Han?

  And I think I share your view on this, that there has been a reluctance to do fiscal and monetary stimulus. We saw that in twenty twenty five. Now you could argue that especially in the first half of the year, they did this to reserve the firepower. If tariffs got really bad, but even then they were reluctant to deploy that in the second half of the year. Thank you so much for your time, Hots. This is an increasingly important subject. I know everyone's focused on Davos, but we're in a sprint until March, where key decisions will be made in the second largest economy in the world. So thank you so much for sharing your time and insights.

• 48:17Speaker 08

  My pleasure.

• 48:21Alice Han?

  All right, James, you know what time it is. It is prediction time. As you peer into the future this week, what do you see?

• 48:27James Kynge?

  My prediction this week is in more of a general vein. I don't have any specific numbers or statistics that I'm going to throw at you, Alice. I would just like to say that I think that in relation to our previous conversation about the way in which the US is trying to control data that Chinese companies are collecting in the US, we're going to see a very similar effort in the EU this year. That's the European Union. In fact, I would say that 2026 will be a landmark year for the European Union, led by the European Commission, strengthening resilience

• 49:07James Kynge?

  against foreign cyber threats. And that includes all types of Chinese technology. I think we're going to see this in many different areas, including cars, including cellular modules, including wind farms, maybe, and some of the other areas in which Chinese companies collect data throughout Europe. So that's my, that's my prediction. What about you?

• 49:31Alice Han?

  Well, James, just cheekily, I'd say I do feel very sorry for the Europeans because if you recall back a couple of years ago with the Prism scandal during the Obama administration, where European data were transferred to American authorities without European permission, and that obviously caused a fracture in the transatlantic relationship. Now they're going to have to go through it all again with China, and it's going to be even more complex. So I do feel very sorry for the Europeans. So my prediction is following up on a previous prediction I made about Chinese tech companies moving more to Singapore, to Singapore Wash, or at least Deciendecize, their companies in order to go truly global, get global investors, and have

• 50:13Alice Han?

  more of a global reach in terms of marketplace. I, this is prompted by the Chinese cyber administration now looking into Manus and whether or not the Manus Meta Deal, basically Meta buying Manus, violates Chinese tech transfer laws. And I have a sneaking suspicion, although I'm not entirely confident, that they may try to kill this deal or delay this deal, because this is an AI company. I mean, it does agentic AI, so it's not directly national security dual use related. But I sense that with AI getting even more charged as a topic in China domestically,

• 50:55Alice Han?

  there could be some spanners in the works, so to speak, for Meta. And mainly because I think it'll make Mark Zuckerberg's life a little bit worse. So let's see if that actually happens. All right, that's all for this episode. Thank you for listening to China Decode. This is a production of Prof G Media. Our producers are David Toledo, Eric Janikas, and Ness Smith-Savadoff. Thank you to Catherine Dillon, Drew Burrows, Billy Bennett, Dan Shalan, William Flynn, Jesse Millwood, Gil Espinoza, James Patton, and Isabella Kinsel for production help every week. Make sure to follow us wherever you get your podcasts so you don't miss an episode, and talk to you again next week.

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