China Decode: How China Is Breaking the World of Trade

In this episode of China Decode, hosts Alice Han and James Kynge break down China’s accelerating push for self-sufficiency — from tech to industrial goods — and what that means for a global trading system that once relied on Chinese demands. They unpack a tense week in Asia, with Washington, Beijing, and Tokyo navigating security warnings, diplomatic pressure, and Taiwan’s massive new $40 billion defense buildup. And they look at Beijing's latest experiment to revive spending: using school holidays to turbocharge travel and jump-start the services sector. 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.

• 0:00Speaker 00

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• 0:31Speaker 01

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• 1:00Speaker 02

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• 1:15James Kynge?

  China's trade surplus is bigger than the trade surpluses of the next eight countries combined. So that just gives a sense of how enormous this is. I was also going back and looking into history to see if this is the biggest trade surplus we've ever seen by any country in history. And this is certainly by far the largest trade surplus that we've seen in peacetime.

• 1:48Alice Han?

  Welcome to China Decode. I'm Allison.

• 1:50James Kynge?

  And I'm James Kynge.

• 1:51Alice Han?

  Well, in today's episode of China Decode, we're discussing China's push for near total self-sufficiency in technology and industrial goods and how that rewires global trade. A tense week in Asia where the US, China, Japan and Taiwan are navigating trade security warnings and a massive new Taiwanese defense buildup. And Beijing's newest experiment to spark consumer spending using school holidays to jumpstart travel and revive a slowing services economy. That's all coming up, but first let's do a quick check in with how the Chinese markets are starting off the week. On Monday, both the Shanghai A-share index and Hang Seng's H-share index rose 0.7%, boosted by a tech rebound and growing confidence

• 2:35Alice Han?

  that the US will choose to cut rates later this month. Internet giants such as Alibaba, Tencent and Trip.com all closed higher, benefiting from the tech rally. And Popmart International, creator of the famous Labubu, closed down over 4% due to growing fears from investors that the Labubu craze may be fading. A lot to discuss, James. We're almost at the end of the year, but I think there's still a lot coming out of China in the new cycle on multiple fronts.

• 3:02James Kynge?

  Well, I mean, we did an episode on the Labubu craze at the very start of this podcast. It's interesting that that appears to be fading already.

• 3:11Alice Han?

  Yeah, but let's get straight into it. China's shifting toward a model where it barely imports anything strategic. James, we've talked about this on many episodes in the past. And that trade surplus is blowing up the old logic of global trade. Beijing still wants to sell to the world, but beyond raw materials, commodities and a few consumer goods, it doesn't want to buy much. That imbalance is already reshaping growth. China's economy no longer lifts other countries as it once did. It increasingly replaces them. And you can see this transition in the latest data. Factory activity coming out of China is still in contraction mode for an eighth consecutive month. Services are softening as holiday spending fades.

• 3:53Alice Han?

  And global multinationals now say China isn't a cash cow anymore. It's hypercompetitive test lab where foreign brands must slash prices and redesign products just to survive. All of this points to the same reality. China is doubling down on self-reliance while squeezing already limited space for foreign companies and high-value imports. James, there's so much to talk about on this subject alone. By the end of the year, we could see China's trade surplus reach a record level, surpassing 1 trillion for sure, maybe even 1.2 trillion. We're already close to 600 billion dollars in trade surplus in the first half of the year. Certainly, what has been interesting in the news cycle that I've seen is the fact

• 4:35Alice Han?

  that more and more European countries have voiced consternation and concern. I'm thinking especially about Germany in this case, that China is eating its lunch and increasingly replacing it in key supply chain areas, from chemicals to cars. I think that this is going to be an ongoing story for sure. But what is interesting, and hopefully we can dwell on this in this segment, is how other countries in East Asia and Europe are going to deal with China increasingly replacing them as they go up higher in the supply chain. So James, having spent a lot of time in Europe and in the UK, how are people in those countries reacting to this increasing China threat?

• 5:14James Kynge?

  Absolutely, Alice. I mean, you know, the thing that really sparked my interest was an article last week by a former colleague of mine, Robin Harding at the Financial Times. And the article was entitled very starkly, quote, "China is Making Trade Impossible." And that really made me think. He basically was travelling around China, asking normal people what they thought China might want to buy from the rest of the world. And a few people said, you know, "We would buy soya beans," or "We would buy iron ore," or a few more would say maybe Louis Vuitton handbags, and some said higher education. But in general, the response was really desultory, uninspired.

• 5:58James Kynge?

  And Robin Harding's conclusion was, and this is a quote again, "There is nothing that China wants to import, nothing that it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigners a single day longer than it has to." And this has caused a lot of readers' comments. It's been a very widely read article. And of course, it's not meant literally. I mean, we need to say- At the top that China last year imported two point six trillion US dollars of goods. So obviously China is importing. But I think that nevertheless, this article really does capture a mood.

• 6:43James Kynge?

  And that is the fact that China wants to institute import substitution pretty much wherever it can. Everybody is already familiar, I think, with the so-called made in China twenty twenty five plan, which started ten years ago and identified ten areas in which China wanted to boost self sufficiency. Things like electric vehicles, robotics, biotech, etc. And in all of those ten areas, China's been spectacularly successful. So it really does raise the question of how big is China's trade surplus going to get? You've just mentioned that this year it'll be well over a trillion US dollars in trade surplus.

• 7:28James Kynge?

  It could be as much as one point two trillion. And I just did some calculations before and I calculated that China's trade surplus is bigger than the trade surpluses of the next eight countries combined. So that just gives a sense of how enormous this is. I was also going back and looking into history to see if this is the biggest trade surplus we've ever seen by any country in history. And there seems to be a little bit of a question as to whether or not the US, straight after the Second World War, had trade surpluses that were larger as a percentage of global GDP. But that was wartime.

• 8:11James Kynge?

  I mean, that was the aftermath of a war in which many economies in the world were shattered. This is certainly by far the largest trade surplus that we've seen in peacetime. So I think it raises a couple of really basic questions. The first is, can the world absorb these surpluses? Or are we going to face a big backlash? Is there going to be a big backlash from Europe or there has already been from the US? Or even countries in Asia? And the next question is, you know. Is there going to be some empathy from China as to what other countries are going through as their industrial base is progressively hollowed out?

• 8:55James Kynge?

  I don't know whether you're picking up any signals on that or what aspect of this issue you're finding interesting, Alice.

• 9:02Alice Han?

  Well, James, I'm glad that you led with the micro story, the anecdotal story, and then ended with the macro outlook because it's all signs point to the fact that China is using its economies of scale to effectively outcompete the traditional trade surplus manufacturing giant countries like Japan. I was reading an article that I highly recommend by Brad Sedz, who I think is preeminent in the realm of looking at balance of payments, trade balances as well across countries. And he looked specifically at the IMF data of manufacturing surplus. So he looked at the manufacturing goods across countries, calculated them, and found that China's manufacturing surplus as a share of GDP is now exceeding 2%.

• 9:45Alice Han?

  It is definitely higher now than Japan's and Germany's were at their historic peaks. And his point in that piece, again, published in the CFR Council of Foreign Relations that I highly recommend, his point is that China's manufacturing surplus growth is faster than Japan's and Germany's ever were, and its scale has now outpaced both countries. So we're seeing a country that, to your point, James, is using import substitution and Oritaki and basically outcompeting a lot of these countries. Now, a traditional macroeconomist would say this is bad for China. It creates inefficient investment. It leads to higher prices. It leads to overcapacity and a lack of innovation. Now, that I don't think is universally true in China.

• 10:28Alice Han?

  I think the opposite is true in a way where we've seen hypercompetition driving down prices. Certainly, we do have the overcapacity element. But I think what makes China so so generous or unique is just the scale of the country. Uh, if you think about the federated system of many competing local governments, a huge labor force, a flexible labor force, I think that makes China slightly different when you look at it from a macroeconomic theory lens. Uh, but certainly, I I don't think that the Europeans are listening to Draghi, Draghi's report about how to revive industry in Europe. And similarly, and we'll get to this in the the next segment, Japan and Korea, although they are still, I would say, competitive in certain areas, especially when it pertains to chips, semiconductor equipment, some software.

• 11:12Alice Han?

  You know, increasingly, you're seeing China outcompete them as well in electronics and cars. I find the the autos example particularly interesting. So Germany and Japan export the majority of their cars. I think somewhere like eighty to ninety percent of the cars they make, they export. China, it's the flip side is true. They actually domestically consume most of the cars they make. But this is again, we're starting to see a change here, where it's uh projected that China's exports of cars has surged to well over six million cars. That's a tenth of the global auto market outside of China. And by twenty twenty six, there's a projection that this could be eight million car exports. Uh, given what we're seeing in the economy, the overcapacity, the need to move out, the it's inevitable that this number increases.

• 11:56Alice Han?

  And again, of firsthand evidence, looking at these cars, they're pretty competitive and and user friendly. So, you know, watch this space for sure. I think autos is going to be a huge political issue and is in general historically, a major political issue because of labor unions, because of the outsized influence on the economies of different countries. This is going to get political very quickly, I think, in other countries.

• 12:18James Kynge?

  Yeah, absolutely. I mean, it's very interesting that you chose autos. I also have a car example, um, not because it's special, but because it's really representative. I mean, the number of different components that go into making a car, I think the car basically represents a country's manufacturing prowess. The example I have is really scary for Europe. And that is that Volkswagen, um, obviously one of Germany's biggest carmakers has Just said that it can make an electric vehicle entirely in China for half the cost of doing it elsewhere. You've got to consider that Volkswagen employs hundreds of thousands of people back in Germany.

• 13:00James Kynge?

  And now it's saying it can make a car, an electric vehicle, at half the cost of making it back in Germany.

• 13:08Alice Han?

  Yeah.

• 13:08James Kynge?

  Uh, and this is the first time that it's developing cars outside Germany. And it's also announced that it's going to release about thirty electric vehicle models in China over the next five years as it bets on localized research and development. So this is the kind of innovate in China for China and for the outside world model. It basically means that all of the smart stuff that Volkswagen used to do back in Germany, it is now going to be doing in China. And um, as I said, I chose this example because I think it's representative, not because I think it's an outlier of what different companies, very well-known companies in Europe in all kinds of different sectors are going to be doing.

• 13:53James Kynge?

  So it basically means that we're hollowing ourselves out with our biggest companies moving all of their smart stuff to China or moving a lot of their smart stuff to China. I must say, I, I think this is quite different from any period in history that I can think of since the Second World War. Uh, we're, we're, we're facing really big headwinds. And I just sort of returned to uh, Robin Harding's question, you know, is this simply going to break the world of trade? I don't think there's an answer to the question yet, but I, I do think the question is justified and that's a, a big statement in itself.

• 14:32Alice Han?

  Yeah, and now I know we're hearing China building more plants in Europe. I think that is going to be the modality moving forward. Whereas in the nineties, two thousands, a lot of plants Volkswagen, BMW were, you know, doing tech transfers, quote unquote, in China. Or was setting up JVs. Now we're seeing the flip side, which is, you know, CATL, the Chinese battery giant, setting up lots of plants in, in Spain. Uh, so we're seeing a bit of a, a mirror image in, in this relationship between Europe and China moving forward. One data point that I want to end on, which I found very startling, but really sums up the enormity of this China problem. Is the IMF Global Goods Trade Volume Data. Chinese exports cumulatively are up 40% since end of 2019 in volume terms.

• 15:16Alice Han?

  Their imports are only up 1%, so basically flat. And again, the flip side of this trade export machine is that China is just not buying from the rest of the world. Okay, we'll be back with more after a quick break, so stay with us.

• 15:35Scott Galloway?

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• 18:05Alice Han?

  Welcome back. Asia just delivered a real-time snapshot of how tightly trade, security, and politics are now intermeshed. Last week, Xi Jinping scolded President Trump over the phone for Japan's tough talk on Taiwan. Trump, eager to preserve a fragile trade détente, quietly urged Tokyo to cool its rhetoric. And Taiwan, caught in the middle, unveiled a massive new $40 billion defense package to harden itself against a potential Chinese attack. Meanwhile, Hong Kong is reeling from a devastating apartment complex fire that's killed at least 151 people. The tragedy has triggered anger over safety failures, but Beijing immediately moved to stifle criticism, warning residents not to protest, and arresting people who called

• 18:50Alice Han?

  for an independent inquiry. And all of this is happening as China expands its use of AI-driven censorship and surveillance, deploying new tools across its justice system and outsourcing enforcement to private tech companies. It's another reminder that the region's security tensions aren't just about armies and alliances. They're increasingly about information control and political stability at home. James, I had a lot of questions from my clients about this phone call. There was one side from Ling Ling Way, the Wall Street Journal, saying that Xi Jinping initiated it. Besen and co. said that Trump and the US team initiated it. I had heard from somebody close to the Trump team that it was actually Trump himself that had initiated it.

• 19:32Alice Han?

  A lot of the discussion was about Taiwan from the Chinese side, but Trump wanted to make it clear that he was worried about Ukraine and wanted Chinese collaboration. So we're getting two sides of the same phone call. What did you hear about it yourself, James?

• 19:46James Kynge?

  I think that really the most important aspect of this phone call from our perspective is that Xi Jinping clearly decided to focus on Taiwan. We all know what a big issue Taiwan is in China. It is China's geostrategic priority. And what I'm talking about, of course, is at some point in the future, regaining control or recovering control over Taiwan. And of course, on the other side, the US has the Taiwan Relations Act, which doesn't explicitly pledge direct US military support for Taiwan or intervention in the event of an attack

• 20:27James Kynge?

  on Taiwan, but it does commit the US to maintaining the capacity for Taiwan to resist force that would jeopardize Taiwan's security. So Taiwan is obviously one of the biggest issues, if not the biggest geostrategic issue between the US and China. And so I think it was interesting that Xi Jinping chose to highlight this in a way that was quite interesting to me. He said that it would be an integral part of the post-war international order that the US and China would together fight fascism and militarism.

• 21:08James Kynge?

  And then he said, and this is a quote, "Given what is going on, it's even more important for us to jointly safeguard the victory of the Second World War." And I think what he was referring to when he said, "Given what is going on," he was referring to comments recently by the Japanese Prime Minister, Sanai Takayichi, who said that a Chinese attack on Taiwan could trigger a milit- Military response from Tokyo. And to me, that sounds like the impetus behind Xi Jinping either agreeing to this call or asking Trump to talk about this topic. Because this statement by Takeuchi, the Japanese prime minister, has plunged relations

• 21:51James Kynge?

  between Japan and China into their worst crisis in a decade. And it's clear that it's had big blowback in Beijing. And I think if I was to summarize what Xi Jinping is trying to do, he's trying to get reassurance from Trump that together, the US and China will not drift further apart on Taiwan, that Taiwan will not kind of get up a steam of impetus behind it to go for independence or anything like that that could trigger some kind of military response from China. That's my reading of it. But overall, Alice, I mean, I think everything that you've just mentioned, including that tragic fire in Hong Kong, I mean, my heart goes out to those people.

• 22:34James Kynge?

  That apartment complex was very close to where I used to live in Hong Kong. But all of the geopolitical issues that you've mentioned show to me just how fractious and tense and complicated the big power relations in Asia really are.

• 22:50Alice Han?

  For sure. And it shows that it's a multiplayer game. It's not just about the China and US conflict. I think with a more hawkish administration in Tokyo led by Takeuchi, it's clear that the Chinese are worried about the Taiwan question again. And like you, James, I believe that Xi Jinping was motivated to take that call that Trump initiated because he ultimately wanted American pressure on the Japanese prime minister to lower the heat. Because as you mentioned, James, Xi had made statements alluding to the fact that if Chinese troops were surrounding Taiwan, it would be a survival-threatening outcome. And that in itself was read by Chinese elements on the mainland as a provocative statement.

• 23:35Alice Han?

  And even although they've since, the Japanese officials have tried to, I think, improve relations. Uh, right now, it doesn't look like Beijing is interested in seriously lowering the heat. In fact, they probably want to send a message. This is happening at the time in which Taiwan is nominally showing that it is willing to increase its military readiness and defense spending. Uh, it planned recently to increase its defense spending to 3.3% of GDP by next year, and is committed to 5% of GDP by 2030. But as we know, James, money isn't everything, and China has an overwhelming defense superiority. If we just take America out of the equation, China has four times more personnel than Taiwan

• 24:16Alice Han?

  has, uh, it has roughly 200 more tanks, it has more than double the artillery capacity, and as we saw in Ukraine, that's actually quite important. It has 10x the submarines and double the military aircraft. Now, Taiwan can, I think, rely somewhat on some of these regional players like Japan, South Korea, and obviously the US. Uh, but to my mind, the Taiwanese increased support of the military is a little too little too late. I remember reading, uh, several years ago when Russia-Ukraine broke out as a conflict, a study that was looking at polling in Ukraine and Taiwan, and what was clear was the Taiwanese public, especially the young generation, were far less willing to go to war, uh, or

• 24:56Alice Han?

  use war as a means, uh, to solve any tensions with China, unlike the Ukrainians, where I think there was a lot more civilian and military battle readiness and appetite for conflict. Uh, it seems in the Taiwanese case, uh, that that is less true. That remains to be seen, obviously, uh, but certainly I worry when I look at Taiwan's general net capabilities, uh, vis a vis China. Uh, and then I worry also about the Trump administration. How credible is it for us to really believe that Trump would come out on the side of the Taiwanese if China were to go for a quarantine or blockade, let alone an amphibious assault? I think that that is not clear in this administration, especially at a time where...

• 25:37Alice Han?

  The impetus in the call it next six, 12 months is to try to reduce trade tensions, try to get talks back on track. So I think if I were in Taiwan and and Japan, I would be slightly worried about what's happening uh along the Taiwan Strait.

• 25:52James Kynge?

  Yes, I mean, I actually have the same feeling as you. I think that in some way, behind the scenes, the US implicit support for Taiwan is taking a couple of steps back. I don't want to be too definitive about this. I don't want to call this, but I think that this is the reason why we see China getting really quite confrontational towards Japan and also pushing Trump as well. I mean, these statements that Xi Jinping has come out with are rather cryptic, but the way I read them is he's putting pressure on Trump not to get too emboldened about Taiwan. So I would say, without being definitive, that uh the US pledge of support for Taiwan

• 26:37James Kynge?

  is ebbing just a little. I'm not going to say one way or another, whether the US would come in on the side of Taiwan if some kind of a conflagration blew up. But I do think that at the moment, it sounds as if US support is ebbing just a little.

• 26:54Alice Han?

  And you quoted Xi Jinping when he spoke to Trump about this friendship, especially during World War Two, where you had Japanese aggression. Parts of China were occupied, in fact, by the Japanese military. And it reminded me, as you were reading that, of the Rana Mitter book about China's experience of World War Two and Japan's invasion. And I I sense from Xi Jinping's rhetoric there that he is trying to revive the the friendship to some extent, but the great power relations that you saw during World War Two, where Japan was seen as the aggressor by both sides. And I think that he believes that he can play this card with Trump because Trump is somebody who I think believes in great power relations and having good relations with

• 27:39Alice Han?

  the great powers, be it Russia or China. And certainly after this call, it seems that Trump is going to go to Beijing in April. He's going to have the red carpet rolled out for him in in China, and we'll have to see what comes up in the discussions. I'm sure Taiwan will be chief among them. As you rightly say, this is the biggest. Geostategic priority for both China and Xi Jinping. And right now, we have an administration in Japan that is looking more like Abe's was a decade ago. And I think that there, again, will probably be more volatility in the Japan-China relationship because it's hard for me to see Takei seriously walk back some of her statements without really undermining her position.

• 28:22Alice Han?

  It was interesting to me that she met with Taiwanese President William Lai back in April before she was elected. And she's got a lot of pro Taiwanese members in her parliament as well, in her party, in the LDP. So I think she's got a political incentive to try to remain somewhat strong as well on this issue. So I don't think it's going away.

• 28:40James Kynge?

  That's fascinating. I must say, if Trump really does downgrade the US relationship with Japan in favor of China in the run-up to this summit between Trump and Xi Jinping in April, that will be a huge shift. That will be a shift in the tectonic plates that have really kept Asian security together since the Second World War. So this is why I think we spend time on this. And even though we're talking about effectively shadow play at the moment, these moves of feints and dodges are rather unclear, but it is a vital issue. So I guess we're focused and sensitive to the shadow play that's going on.

• 29:20Alice Han?

  Quite right, James. All right, let's take one last quick break and stay with us.

• 29:30Scott Galloway?

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• 30:38Alice Han?

  Well, welcome back. China is testing a very different kind of economic stimulus program: school holidays. More than two dozen cities have rolled out new autumn breaks to nudge families into traveling, and early numbers show it's working. Fortune saw travel jump more than 50%. Hotels in Zhejiang and Sichuan booked out, and travel agencies had to call in reinforcements. And now the experiment is expanding into winter. Some regions are introducing a new snow break, up to nine days off in parts of Xinjiang, and bookings are already surging. Flights out of Arumqi and Altai jumped roughly 45% to 50%. Warm-weather destinations like Sanya and Guangzhou more than doubled year-on-year, and ice and snow provinces are rolling out subsidies

• 31:23Alice Han?

  and free ski passes to keep the momentum going. But all of this also exposes the tension at the heart of China's consumption push. Parents barely have any paid leave, childcare options are limited, and these studied tour trips can cost thousands. Even with winter breaks lasting up to 45 days in some provinces, families still have to figure out how to actually use that time. James, I grew up in Australia, so I'm not at all familiar with this landscape. But I have a lot of relatives, cousins, and certainly my understanding was that they were studying all the time and in school all the time. And when I looked at the numbers, it's pretty shocking. The length of a Chinese school year is 245 days.

• 32:06Alice Han?

  This is one of the longest academic school years in the world. Just for reference, the US is about 180 days, and I think the UK is around 190 days. So these schools in China have, on average, about 55 to 60 more days than those in the West. And you don't even factor into that some of the tuition that they're doing outside of school. So it's not a surprise then that you don't see the same tradition of kids doing winter break skiing, having these longer tourism-related trips during the off-season. So my natural inclination is to be skeptical, but before I get into that, I want to hear what you have to say.

• 32:44James Kynge?

  You know, Alice, I'm playing devil's advocate on this one. I'm pretty bullish on China's hope to stimulate its service economy partly by tourism. I mean, there are other aspects of the service economy as well. There's obviously legal, and there's healthcare, and there's all kinds of other things. But tourism and entertainment are a very big chunk. And I think it is in these areas that China is really looking to try to push economic growth. And I must say, you know, you mentioned I lived in China for quite some time. I always felt that the next holiday was just around the corner in China. There are, after last year, when public holidays were increased by two days a year,

• 33:27James Kynge?

  there are 13 official public holidays. There's New Year's Day, Spring Festival, Qingming, Labor, Dragon Boat, Mid-Autumn, National Day, et cetera. And I think that quite a lot of people in China use their holiday creatively, and they sort of agglomerate days before and after the national holiday to get a decent bit of time off. The other thing is that if you've worked in China for 20 years, you would get the 13-days national holiday, and then you would get an allocation based on the minimum that you're entitled to. And in total, that would be 28 paid days of holiday a year. That's not bad.

• 34:12Alice Han?

  That's more than America.

• 34:13James Kynge?

  It's more than America, it's more than what I'm getting here in the UK. And so, you know, I think that China has a good stab at increasing the amount of spending on tourism by ramping up the holidays and making life more fun. The last thing I'd mention is that all of the statistics that China gives on the amount of holiday that you're entitled to, those are minimum, and that's for state employees. So if you work for a private company or a foreign company in China that often try to incentivize people to join them by allocating more holiday, you can get quite a bit more than that. So I think that it is possible that China will be able to sort of

• 34:55James Kynge?

  boost consumer spending by increasing people's desire to have fun. And not just fun, have emotionally engaging, personalized, culturally immersive experiences, which I think is what people are interested in China these days. I just spent a little bit of time before looking at Chinese camel caravans, tourist camel caravans, padding over the desert dunes to a beautiful crescent lake near Dunhuang. And that only costs a hundred RMB to go there and back on the back of one of those two humped camels. That's about a bit more than 10 US dollars, so that's not too bad.

• 35:38James Kynge?

  Or you can go cruising down the Li River in the cast landscaping Guilin, not to mention the Great Wall of China. I think that, you know, Chinese are increasingly getting with the tourism zeitgeist. Just one last thing, China now has 748 ski resorts. I remember going to the first ski resort in China, and now it's got 748. And you can find pictures of humanoid robots sort of sliding down the slopes and, you know. So I think there's quite a lot happening, but you may have a different view. I mean, I know you've been on holiday in China before, though.

• 36:14Alice Han?

  Yes, and certainly can vouch for the fact that people try to extend the number of days. And especially around, I think, family relevant ones like the Mid-Autumn Festival, Qingmingjia, the Tomb Sooping Festival, Chinese New Year as well. What I would say, and again, it's somewhat in consonance with what we said at the top of this episode about

• 36:37Alice Han?

  Import substitution is that we're seeing a tourism substitution effect happen whereby everyday Chinese are deciding to stay in China and do tourism locally as as opposed to going overseas and seeing Paris or seeing America. They're choosing to go to Xinjiang, they're choosing to go to Yunnan, places where there in the last few years, there's been a lot of infrastructure to develop those local tourism hubs and ecosystems. And now there's a social media environment that is highly conducive to people seeing that content and then easily, as you say, and cheaply going there. My parents, for instance, about two years ago, easily went to Xinjiang. They they had a tour bus with a tour guide and went across Xinjiang, um, seeing the landscapes and the steps.

• 37:22Alice Han?

  That, I think, has been a big quantum shift in the way that tourism occurs in China. You both have the supply side, and now, I think, to your point, James, increasingly, the demand side that's there. My my consternation skepticism is really about whether or not this can meaningfully boost consumption. A a lot of the sort of fears that I have is that structurally, while we do have a push to subsidize and offer more services, we're not necessarily empowering the bank accounts of households. You know, household share of GDP, uh, consumption share of GDP, that is, it's still around forty percent. Japan's at sixty percent, the US is seventy percent. China is still has a lot of way to go to get to the Japan-US level for sure.

• 38:06Alice Han?

  But it's hard for me to see beyond subsidizing these services, how we're going to see an uptick in the consumption share of GDP. That probably will require more structural solutions, you know, increasing the social security safety net, payments for people, pension schemes that are more reliable and stable. Uh, and then beyond that, demographically, how are we going to get people to continue to have more children? Um, not sure if having more school holidays will achieve that, but certainly I could see on the margin that this will benefit. Certain provinces, certain tourism locations, because everyday Chinese are deciding that they want to stay in China and safely, cheaply, reliably consume tourism in China as opposed to outside of China.

• 38:50Alice Han?

  For sure, I mean, it's probably come up with your friends, James, but my family and friends in China regularly say to me, why would I want to go overseas and travel when it's more expensive, less safe, people discriminate against us? Why not do it at home on your doorstep?

• 39:05James Kynge?

  Yeah, I mean, I think that's a good point. And I must say, the other thing I've noticed among my Chinese friends is that they do go on amazing holidays, whether they're in China or abroad. I mean, I suppose my friendship group would be, you know, kind of middle-class Chinese. So they have the financial wherewithal to do that. But then I think it's become quite a topic of conversation. I mean, just as it is in the UK, if you've been somewhere kind of interesting or offbeat or luxurious for holiday, you make sure to tell your coworkers, you know? And I find that this is one of the motivating factors in China for taking these wonderful holidays, you know? And I'm not always talking about luxury, I'm talking about adventure, you know, staying

• 39:50James Kynge?

  in a tent in the middle of the desert with the stars at night or sub-zero temperatures on the Mongolian steppe or, you know, all kinds of things. Chinese are quite adventurous when it comes to holidays, I always think.

• 40:03Alice Han?

  For sure. And if anybody wants to see that, it's all on social media. There's a huge push to show the breathtaking landscapes and the adventures and experiences that people can have across all the social media platforms. But, all right, James, it is prediction time. What's your prediction for this week?

• 40:19James Kynge?

  Okay, we generally don't want to do a prediction, which is the same as our opening topic, but I think the opening topic this time was so important that my prediction is similar to that topic. I'm going to predict that China's trade surplus, which this year will hit around 1.2 trillion US dollars, will next year, in 2026, rise to close to 1.5 trillion US dollars.

• 40:49James Kynge?

  I'm not so wedded to the number itself, but the point that I'm trying to make here is that I do not think that the outside world will be able to erect enough protectionist barriers to Chinese exports or to start manufacturing goods more cheaply in their own economies to displace Chinese exports. So I think next year will be another year in which the word imbalances dominates a lot of the media coverage with regard to China's rise. And the particular imbalance that everybody will be talking about is the unbelievable runaway Chinese trade surplus. So that's my prediction, Alice. What about you?

• 41:32Alice Han?

  Well, and not too dissimilar from yours, James, it's also in the land of macro. I would say that in spite of the crash that we're starting to see in fixed asset investment, that by, call it, March of next year, we'll start to see more fiscal support for the economy and a return to manufacturing investment led growth. I think this anti-involusion drive and rebalancing drive will be somewhat temporary. And that ultimately, if they are, according to my previous prediction, going to target around 5% growth for 2026, they're going to have to again lean heavily on manufacturing investment and to some extent, infrastructure

• 42:12Alice Han?

  investment. So my twofold prediction is that we'll see a ramp up in manufacturing infrastructure investment in Q1 and Q2 of next year. And we'll potentially even see at the March National People's Congress, when they announce the government work report, that the fiscal deficit target could be increased slightly above 4%, which was the target for this year. That's my set of macro predictions for 2026. All right, that's all for this episode. Thank you so much for listening to China Decode. This is a production of Prof G Media. Our producer is David Toledo. Our associate producer is Eric Janikas. Our video editor is Ness Smith-Savadoff. Our research associate is

• 42:55Alice Han?

  Dan Shalan. Our technical director is Drew Burrows. Our engineer is William Flynn and our executive producer is Catherine Dillon. Make sure to follow us wherever you get your podcasts so you don't miss an episode. Talk to you again next week.

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