Sinocism

On today’s show, Andrew and Bill begin by parsing the economic data released by the PRC this week, including slower-than-expected growth, the Party’s response to the status quo, export-powered growth that is widening trade imbalances, and the questions all of this will raise for foreign policymakers. From there: The Party's findings on Ma Xingrui, questions that remain unanswered, and cadre risk aversion for the next 18 months. Then: PRC messaging around openness in AI, an ongoing U.S. debate over open-source AI models, three chip bills that may end up in the NDAA, and the continued adventures in China policy on Capitol Hill. At the end: Reflections on the 10th anniversary of The Hague ruling on the PRC’s territorial claims in the South China Sea, as well as the state of play today.

The PRC economy slowed more than expected in Q2. Real GDP growth declined from 5.0% year-on-year in Q1 to 4.3%, below the 4.5% consensus and the lower bound of the government’s 4.5–5.0% full-year target. First-half growth was 4.7%. Sequential Q2 growth of 0.9% was in line with expectations. AI, high-tech manufacturing, exports and selected modern services are expanding rapidly. Property, private investment, conventional infrastructure and household consumption remain weak. The official Q&A noted that “new growth drivers” contributed more than 40% of economic growth, while officials largely avoided explaining why aggregate investment is contracting. The GDP deflator turned positive for the first time in 12 quarters. The data is not great but probably not bad enough for significant new policy measures coming out of the upcoming July Politburo meeting that will discuss the economy. But in his meeting with experts and economists earlier this week, Premier Li, whom I assume already knew today’s data, said “counter-cyclical adjustment must be stepped up; existing policies must be used well and to the full while incremental policies are studied and reserved in advance”.

At present two entirely different logics of development exist in the AI field: some media have summed them up as "oil thinking" and "water-flow thinking" — the former treats data and computing power as exclusive scarce resources, fostering barriers, blockades and zero-sum games; the latter treats AI as a universally beneficial public good, nurturing connectivity, sharing and mutual benefit. The vitality of technology lies in open flow. The development of AI must never move toward a technological monopoly that walls itself in, but should always be anchored to the fundamental goal of serving humanity. - People’s Daily commentary previewing the themes of the upcoming World Artificial Intelligence Conference

The July Politburo meeting is usually about the economy, and adjustments needed for the rest of the year, and as part of the work ahead of that meeting the Premier solicits feedback. Today he held a meeting with several experts and entrepreneurs to “hear their views and suggestions on the current economic situation and the next steps in economic work.”

A joint investigation by The Insider, Der Spiegel, and Le Monde provides shocking but unsurprising revelations about China-Russia military cooperation. The reports should destroy any lingering illusions of PRC “neutrality” in the Russia-Ukraine war.

This episode of Sharp China is outside the paywall.

It is necessary to seize the window period of global talent flows and actively recruit outstanding young talent and teams from overseas. 要抓住全球人才流动窗口期，积极引进海外优秀青年人才和团队。- Xi Jinping at the July 8, 2026 National Science and Technology Award Conference

Reuters reported Tuesday that the Ministry of Commerce convened a meeting to discuss “putting limits on the most advanced AI models — ⁠both closed-source and more open versions”. This report comes ten days before the start of the WorldAI Conference in Shanghai, where we should expect much discussion about PRC leadership in AI governance as well corporate announcements about advances in models, chips and other AI tech and services. There is even talk that Xi Jinping will give the keynote speech. Given what we have seen wit the US government and Anthropic’s Mythos, it makes sense that the PRC government would be thinking about controlling access to the most advanced models. And companies that are shifting Ai usage to PRC models, and especially American companies that handle sensitive data and/or work with the US government, should probably have a backup plan given the mood in DC towards the PRC and AI. The politics matter more than the technology. The world needs open models, from countries other than China or the US.

These two new generals have survived the PLA purges, but as the PLA Daily reminds everyone in a full page article in the Monday edition - Carry the Rectification of Thought Through to the End 将思想整风进行到底 - the rectification will continue: Rectify in defeat, and rectify likewise in victory; the tempering of thought has never ceased. From the Sanwan Reorganization to the Gutian Conference, from the Yan’an Rectification to the New-Type Army Rectification Movement, from the rectification of Party work styles and Party organization in the early days of New China to the comprehensive Party rectification after reform and opening up, and again to advancing political rectification and training in the spirit of rectification in the new era — in different historical periods, we have always persisted in reforming thought and rectifying work styles in the spirit of rectification, ensuring that army building always advances along the correct political direction.

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The PRC’s throttling of tungsten exports to Japan is starting to hurt Japanese firms, and some of their overseas customers. Japanese supplies of tungsten hexafluoride WF6 gas needed for advanced semiconductor manufacturing are struggling, as are makers of carbide tools for the US aerospace, defense, auto and oil industries. At what point does the US government show more support for Japan, especially since export controls on Japan that hurt US companies would seem to be a violation of the US-China “understanding”?

The US government has removed export controls on Anthropic’s Claude Fable 5 and so it is again available to the public. In its post announcing the restoration of that service, Anthropic downplayed the security concerns that triggered the US government response: Our testing confirmed that many less capable models—including Claude Opus 4.8, GPT-5.5, and Kimi K2.7—could identify the same vulnerabilities as Fable 5 did in the report. When it came to the demonstration of how to exploit the single vulnerability, every model we tested could produce the same demonstration as Fable 5 (including Claude Haiku 4.5, Sonnet 4.6, Opus 4.6, Opus 4.7, Opus 4.8, GPT-5.4, GPT-5.5, and Kimi K2.7). It certainly feels like PRC models are gaining momentum, and with the World AI Conference convening in Shanghai July 17-20 we will probably see more announcements soon that increased that momentum. Since I am watching the World Cup as I type this, did the Trump Administration score a significant own goal?

Flood and drought risks must be especially acute right now. The June Politburo meeting had as its agenda “study and deploy flood control and drought relief work”. From the readout (translated here): The Political Bureau of the CPC Central Committee held a meeting on June 30 to study and deploy flood control and drought relief work. CPC Central Committee General Secretary Xi Jinping presided over the meeting.

small plane flew into Beijing’s tallest building - the CITIC Tower aka “China Zun” - killing the pilot and injuring 13 people. The authorities released a brief statement that did not name the pilot or even the building, and then censorship went into overdrive. It looks to have been intentional. The crash exposed some major gaps in Beijing’s security, it was likely shocking to the leadership, and heads will roll, but it probably will not hurt the low altitude economy in the long-term, and may end up being constructive as it forces a regulatory revamp that derisks efforts going forward. Developing the low altitude economy 低空经济 is written into the 15th five year plan: 加快新能源、新材料、航空航天、低空经济等战略性新兴产业集群发展。 Accelerate the development of strategic emerging industry clusters such as new energy, new materials, aerospace, and the low-altitude economy. There are lots of interests and reasons to not slow development in this area once they fix the security holes.

Li Qiang told the audience in Dalian used “steady, new, vibrant, integrated” to describe “both the overall profile of China’s economy at present and its general posture going forward.” He apparently is a tokenmaxxer, as he said “by the end of May, China’s average daily token call volume had reached the hundreds of trillions, leading the world”. I have posted a translation of his speech here. He pushed back on the idea that subsidies played a role in the development of industry leading firms: The vigorous growth of China’s new-energy and intelligent connected vehicle industries is precisely the result of technological breakthroughs in new materials, power batteries, communications, and the like. This is the key to the competitiveness of Chinese products—not mainly government subsidies, as some speculate; we could not afford that either. Expect to hear a lot more about “China Opportunity 2.0”:

On today’s show Andrew and Bill begin with Xi Jinping Thought on Party Building and further signs that one year after from a summer of rumors and one year out from the 21st Party Congress, Xi’s power remains entrenched as ever. Then: MOFCOM and the Ministry of Finance announced restrictions on several dozen US firms, the global memory chip shortage is an opportunity for CXMT and YMTC, what to make of the U.S. government's scrutiny of ASML, and Elon Musk's alarmism at the West’s China vulnerabilities. At the end: Takeaways from the EU Council meeting on China, Germany's push for PRC currency revaluation, structural forces that yield EU inertia, and emails on Chinese soccer, space warfare, and the JIm Cramer of weather.

Politburo member and Vice Premier Liu Guozhong inspected Wuxi and Nanjing on June 22-23, touring biopharmaceutical, AI, and cloud computing firms along with the Jiangsu Provincial Institute of Industrial Technology. According to the readout biopharma is to be built up as an “emerging pillar industry” (新兴支柱产业), while brain-computer interfaces are to be “cultivated and developed” as a “future industry” (未来产业). On drug development he calls for making enterprises the principal actors in innovation, strengthening industry-university-research platforms, putting AI and big data to work in pharmaceutical R&D, and delivering “whole-chain” policy support for innovative drugs. During his visit to the Brain-Computer Interface Research Institute at Nanjing University Liu said: Brain-computer interfaces are a major international frontier technology and a commanding height of industrial competition.

Is a new “Plaza Accord” the EU’s latest China fantasy? - Last week’s European Council summit signaled growing concern about the PRC’s economic practices, but no immediate new measures to deal with what is an intractable problem given the low tolerance for any short-term economic pain. German Chancellor Merz suggested something akin to the 1985 “Plaza Accord”. If EU leaders are pinning their hopes on the PRC voluntary revaluing the RMB by 20-30% under external pressure, they will be disappointed.he PRC establishment has for mamny years

Xi Jinping Thought on Party Building 习近平党建思想, the newest branch of Xi Thought that we learned about at Monday’s national conference on Party building, will of course have it own campaign. The Central Leading Group for Party Building Work issued a “Notice on Studying and Implementing Xi Jinping Thought on Party Building”, translated here. From that notice: Studying and implementing Xi Jinping Thought on Party Building helps push the whole Party to deeply grasp the decisive significance of the “Two Establishes” and resolutely achieve the “Two Upholds”; it helps deepen the Party’s theoretical armament with its innovative theory and push the whole Party to keep raising its ideological and theoretical level; and it helps advance comprehensive and strict Party governance on a sustained basis and keep Chinese modernization on a steady, long-term course.

Wang Yi said China welcomes the first-stage memorandum of understanding reached between Iran and the United States. The facts prove that force and power politics cannot solve problems, and that dialogue and negotiation are the correct choice. As a comprehensive strategic partner, China has consistently supported Iran’s reasonable and legitimate claims, supported Iran in safeguarding its own sovereignty and security, supported the mediation efforts of Pakistan and the international community, and has all along worked in its own way to halt the fighting and promote peace. The dawn of peace has already appeared; the key in the next step is for all parties to genuinely put their commitments into practice and to eliminate interference from all quarters. The issue of navigation through the Strait of Hormuz should be handled appropriately, with a prudent response to the common concerns of the international community.