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📬 China Update — End of Week Newsletter
🕑 Added 2025-08-17 03:51:24 +0000 UTCHi everyone! Here is this week’s newsletter for financial supporters of the channel. I have made this edition free for all so that folks can get an idea of what it contains. If you would like these weekly newsletters plus other exclusive benefits going forward, consider becoming a member.
Date: August 17, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!
🔶 Top Story: Has “Peak China” Finally Arrived?
Veteran China analyst George Magnus, in his essay Why Peak China May Finally Have Arrived, argues that the long-expected slowdown in China’s rise is now material reality.
For decades, projections of China’s unstoppable ascent overlooked structural weaknesses: rigid political centralisation, reliance on debt-fuelled stimulus, and diminishing returns from past reforms. By 2021, China’s economy had reached three-quarters the size of America’s. Today, that ratio has slipped to 62%, with China’s per capita GDP just 20% of the US level. Its share of global GDP has fallen back from 18.5% in 2021 to about 16.5%.
Magnus stresses that many one-off growth drivers have been exhausted: mass rural-to-urban migration, the demographic dividend, and transformative reforms like WTO entry. Meanwhile, China faces shrinking household formation, a structurally declining property sector, and productivity growth that has ground to a halt.
Externally, the “super-globalisation” era is over. Trade and investment are fracturing along geopolitical lines, with many countries resisting what they see as China’s mercantilist trade behaviour. Internally, misallocated capital and weak consumption mean growth is increasingly unbalanced.
Magnus draws a parallel to “Peak Japan” in the late 1980s: global champions will continue to emerge — Huawei, BYD, CATL, DeepSeek — but they will exist in an economy weighed down by debt, inefficiency, and political overreach.
👉 Key takeaway: China remains an industrial powerhouse, but its era of rapid convergence with the US (is terms of economic size at least) appears to be over. The challenge now, he argues, is managing relative stagnation without triggering social or political instability.
💻 Tech War: A Revenue-Sharing Precedent
In a remarkable development, Nvidia and AMD agreed to hand over 15% of revenues from certain chip sales to China in exchange for US export licenses.
The Commerce Department began issuing licenses for Nvidia’s H20 and AMD’s MI308 chips after Nvidia CEO Jensen Huang met President Trump. Analysts estimate the deal could funnel billions into US coffers.
Critics warn the chips could accelerate China’s AI capabilities, while others see a dangerous precedent of monetising export controls. Nvidia insists the H20 has no military use and warns against “repeating America’s 5G mistake” by ceding the Chinese market entirely.
👉 Signal: Export controls are no longer just about security
📉 Economy: Weak July Data, Property Slide
China’s economy lost momentum across the board in July, underscoring the difficulty of sustaining growth despite heavy state support. Industrial output at factories and mines rose just 5.7% year-on-year — the weakest pace since last November and down sharply from June’s 6.8%. Retail sales expanded only 3.7%, their slowest growth this year, compared with 4.8% in June. Fixed-asset investment slowed to 1.6% in the first seven months, dragged down by the steepest real estate slump in over five years.
The property market remains the largest single drag. New-home prices across 70 major cities fell 0.31% month-on-month, the fastest drop in nine months, while resale values declined 0.55%. All four tier-1 cities recorded falls of nearly 1% or more, a worrying signal given Beijing’s hopes that leading cities would stabilize demand. Real estate investment is down 12% year-to-date, the steepest contraction since the pandemic, while major developers like Evergrande and China South City face liquidation or delisting.
Policymakers are reportedly preparing to mobilize state-owned enterprises to buy unsold housing stock from distressed developers, but analysts warn this will do little to revive household demand. Household formation is shrinking, first-time buyer cohorts are smaller, and consumer confidence remains weak. Fitch Ratings notes that the sector’s recovery remains “fragile and uneven,” hinging not only on stimulus but on broader job market and income stability.
July’s slowdown was compounded by extreme weather — record heat, heavy flooding, and related supply disruptions — but deeper structural pressures are at work. New loan issuance in yuan terms contracted for the first time in two decades, a stark sign of weakening credit demand. Economists at Nomura warn of a looming “demand cliff” in the second half of the year as overcapacity curbs, waning exports, and real estate woes converge.
🛃 Trade Truce Extended
Trump announced a 90-day extension of the US-China tariff truce, postponing tariff hikes until November. Markets cheered, with Asian equities rallying. But fundamental disputes — oil imports from Russia and Iran, fentanyl duties, restrictions on US business — remain unresolved.
Soybean purchases and rare earth magnet flows are focal points. Analysts say the truce buys time but doesn’t resolve underlying tensions.
⚡ Overcapacity: Lithium & Autos
Lithium stocks rallied after CATL halted production at a major Jiangxi mine, sparking expectations of broader curbs amid Beijing’s campaign against overcapacity. Futures hit their daily limit, though analysts caution supply remains abundant.
Meanwhile, China’s auto industry posted record July figures: 2.23 million cars produced, 475,000 exported, and NEV exports up 120% year-on-year. Yet profitability is heavily propped up by subsidies, and export surges risk fresh trade friction with Europe.
👉 Bottom line: Production keeps climbing, but overcapacity and subsidy reliance remain systemic risks.
🌊 South China Sea: Collision & Confrontation
Tensions spiked after a Chinese navy ship collided with a China Coast Guard vessel while chasing a Philippine patrol near Scarborough Shoal. Manila released dramatic footage and accused Beijing of “risky maneuvers.”
The incident underscores the volatility of disputed waters where accidents risk rapid escalation. A Philippine documentary, Food Delivery: Fresh from the West Philippine Sea, spotlighting fishermen and marines, has further angered Beijing.
🤖 AI: DeepSeek Stumbles
AI start-up DeepSeek delayed its R2 model launch after failing to train it on Huawei’s Ascend chips. Engineers struggled with stability and connectivity, forcing the company back to Nvidia hardware. The setback highlights how far Chinese chips lag behind US rivals, even as Beijing pressures firms to adopt domestic alternatives.
🚨 Domestic Unrest: Jiangyou Protests
A viral schoolgirl assault video in Sichuan triggered rare street protests against lenient police handling and perceived official cover-up. Hundreds gathered, chanting slogans and clashing with police before censors wiped online discussion.
The protests reflect growing public anger at local governance failures — a recurring theme from Gansu to Hangzhou — that risks eroding trust in grassroots officials.
🎓 UK Academia Under Pressure
A new UKCT report says fear of Chinese retaliation is leading British academics to self-censor, distorting China studies. The OfS regulator now requires universities to ensure academic freedom and review ties with Confucius Institutes. Beijing dismissed the findings as “absurd.”
🏛️ CCP’s “Anti-Formalism” Drive
Xi Jinping has launched a new campaign against bureaucracy, ordering shorter reports (max 5,000 characters), fewer meetings, and stricter oversight of official apps. The move is part of efforts to discipline cadres and redirect focus to economic challenges.
I hope you enjoyed this end of week newsletter!
Until next week,
— Tony
Comments
BabbleBee
I especially enjoyed the detail that speeches by local leaders must be limited to one hour. I’m imagining captive audiences all over China relieved that they won’t have to sit for 2 hours anymore. (But maybe they just multitask on their phones?)
