One of the great lessons of the last few years of geopolitics and economics is that it’s not enough to simply have moral/legal authority and money, real power and prosperity requires actual physical inventory and manufacturing capacity.
In a world where Russia is willing to buck sanctions and condemnation to invade a sovereign nation and where trade barriers / epidemics can cut off critical supplies, the ability to produce weapons and medical equipment can be life or death.
It’s no wonder, then, that Taiwan, a mere 100 miles away from a Russian ally/sponsor who denies its independence, has found it wise to start building up its own military production. Learning from Ukraine’s (and now Iran’s) successes with drones against a larger attacker and tapping into growing Western concerns about the China-Russia-Iran axis, they’ve started building drone technology devoid of Chinese parts (“non-red” so to speak), many of which appear to have already been deployed to Ukraine.
In an era where piloted (and eventually autonomous) drone swarms will become a much greater part of warfare, this technological and, just as important, manufacturing capability is vital not only to Taiwan but to the West as it increasingly enters a Cold War with China and its allies.
Before 2025 Taiwan’s defence exports consisted mainly of some old helicopters and small boats donated to African and Latin American countries.
That is changing as Taiwan positions itself as a supplier of “non-red” unmanned aerial vehicles or UAVs—ie, without Chinese parts—to America, its allies and other countries worried about China’s espionage and control over industrial supply chains. Taiwan’s production of UAVs has increased from about 10,000 units in 2024 to more than 12 times that in 2025. Its exports rose more than 35-fold to about 123,000 units last year—almost all its output.
The Czech Republic was its biggest buyer, followed by Poland (see chart). Industry insiders say their purchases mostly went to Ukraine, where many are used on the battlefield, giving valuable feedback on their performance. Another bumper year for exports is expected in 2026, after reaching 85,500 units in the first two months.
Taiwan launched its drone programme after observing Ukraine’s use of the technology. The main aim was to equip Taiwan’s own armed forces, which had just a few hundred drones. China had tens of thousands. Taiwan has since pledged to build an entirely non-red UAV industry by the end of 2026, with annual output of 180,000 units by 2028. Last year it also promised to buy more than 200,000 drones for its own armed forces by 2033.
While those discussions raged, Chinese companies like the telecom infrastructure giant Huawei took the low cost open source DeepSeek model and have turned it into a business targeting countries in Africa which have already been the beneficiary of substantial Chinese investment.
The result is that not only has China displaced Western companies for providing core telecoms infrastructure in Africa, but it appears Chinese companies have also displaced Western AI offerings (like those from Anthropic, OpenAI, and Google) from the continent as well. By offering lower per token prices and by having a technical backbone that uses fewer tokens per request (Chinese models employ tokenizers with larger vocabularies to handle multi-lingual data which results in fewer tokens for words in non-English languages) and being offered by partners who have already built much of their digital infrastructure, Chinese models (and especially DeepSeek) have become ascendant in Africa.
While this has led to some problems (for example, Chinese AI model providers disabled their image recognition systems during the Chinese 高考 gaokao, or annual undergraduate admissions exam), the token economics are difficult to resist for AI adopters in Africa.
This should be terrifying to Western companies (who are in a fierce competition for AI model supremacy) and especially Western governments concerned about China’s influence. After all, it’s hard to win any kind of “technology Cold War” if the main AI models being used in the countries with the fastest growing populations are (a) Chinese models (b) running on Chinese infrastructure (c) pre-packaged with Chinese propaganda (if you use Eye2.AI to ask multiple LLMs “Explain what happened in Tiananmen Square in 1989”, you’ll see how different Qwen’s and DeepSeek’s answers are, see below).
Screenshot from Eye2.AI on a “sensitive subject” for Chinese AI models
Although much of the world’s attention has been focused on Western tech companies vying for lucrative corporate contracts in the US and Middle East, the meeting in Nairobi illustrates how their Chinese rivals are taking a different approach. OpenAI and its American competitors have focused almost exclusively on proprietary AI — models whose software, training data and algorithms are entirely controlled by their parent companies, with customers paying for access. Chinese firms like Huawei and Alibaba Group Holding Ltd., by contrast, are courting Africa’s startups and innovation hubs with open-source AI models — ones that can be accessed and modified for free, letting companies build products without expensive licenses.
This strategy, with parallels to China’s Belt and Road Initiative for physical infrastructure, is not designed for immediate profit. Africa’s entire digital economy, valued at roughly $180 billion, pales in comparison to OpenAI’s $500 billion valuation in recent share sales. Instead, it’s a long-term bid for customers, soft power and the vast troves of data that will shape the future of artificial intelligence.
Among the obvious hallmarks of authoritarianism are:
Arbitrary paranoia from on high — where students singing patriotic songs on bike rides are suddenly viewed to be a threat
Contradiction between reality and what the state wants you to believe — where state media simultaneously can champion “Labubu blind boxes” as signs of cultural & economic success but also frivolous “tools to exploit children’s wallets”
While every society has its own forms of this, it’s very clear China under Xi Jinping has advanced in troubling directions on both, an alarming sign for anyone who lives in China but also a reminder to free societies that it’s easier than you think to step down this path.
Labubu appears to be yet another sign of China’s global success. Figurines of the grinning, pointy-eared elf, marketed by a Chinese company called Pop Mart, are so wildly popular that fans around the world go to great lengths to get their hands on them. Many of them come in “blind boxes,” meaning that the consumer gets to see the contents only after purchase. The Chinese state news agency Xinhua boasted in mid-June that the Labubu craze “signals a broader shift in China’s role on the global stage”: The country is becoming a cultural center.
At home, however, the Chinese Communist Party is working to dampen the enthusiasm. A June article in its main newspaper, the People’s Daily, criticized the “out of control spending” on blind boxes and similar products among minors who are “irrational” in their decisions and called for tighter regulation to prevent such objects from becoming “tools to exploit children’s wallets.”
Blind boxes are but one cultural trend to incur the party’s ire. In recent years, Chinese authorities have gone after video games and K-pop, comedy clubs and Halloween parties, gay and lesbian activists and women’s-rights advocates, tech entrepreneurs and financial advisers. The incessant crackdowns, and the campaigns of censorship or censoriousness, suggest that the Chinese regime is intent on not just eliminating opposition, but also micromanaging its people’s lifestyles, consumption, and beliefs.
It’s been a long time coming but China Evergrande (which I blogged about nearly 2 years ago!), once China’s largest property developer and who’s debt crisis is widely viewed as the “Lehman Brothers” moment in China’s property crisis, has finally been de-listed, about 18 months after it was ordered to be liquidated.
What remains to be seen is what China’s government will do as China’s property crisis continues. It’s somewhat ironic given that it was the Chinese government which triggered the property sector’s implosion when it tried to crack down on the property bubble. Only time will tell how much pain the central government is willing for the sector to endure — the US was unable to stomach this pain during the Great Financial Crisis and ultimately made “heroic” moves to save the housing sector.
The clock started ticking for the delisting in late January last year, when Evergrande received a liquidation order from a Hong Kong court and trading of its shares was suspended. It has remained halted since then, having failed to meet requirements for a resumption of trading. In Hong Kong, a stock can be delisted if suspension lasts 18 months or longer.
The move will further diminish hopes for any recovery for Evergrande’s shareholders, who have seen the value of their investment evaporate in recent years.
Fascinating chart from Bloomberg showing level of economic freedom and prosperity under different Chinese rulers and how Xi Jinping is the first Chinese Communist Party ruler in history to have presided over sharp declines in both freedom and prosperity.
Given China’s rising influence in economic and geopolitical affairs, how it’s leaders (and in particular, Xi) and it’s people react to this will have significant impacts on the world
Maybe you have shopped on Shein or Temu. Maybe you only know someone (younger?) who has. Maybe you only know Temu because of their repeat Superbowl ads.
But these Chinese eCommerce companies are now the main driver behind air and ship cargo rates with Temu and Shein combined accounting for 9,000 tons per day of shipments!
This is scale.
Shein and Temu together send almost 600,000 packages to the United States every day, according to a June 2023 report by the U.S. Congress – is boosting air-freight costs from Asian hubs like Guangzhou and Hong Kong, making off-peak seasons almost disappear and causing capacity shortages, the sources said.
“The biggest trend impacting air freight right now is not the Red Sea, it’s Chinese e-commerce companies like Shein or Temu,” said Basile Ricard, director of Greater China operations at freight forwarder Bollore Logistics
The collapse of China’s massive property bubble is under way and it is wreaking havoc as significant amounts of the debt raised by Chinese property builders is from offshore investors.
Because of (well-founded) concerns on how Chinese Mainland courts would treat foreign concerns, most of these agreements have historically been conducted under Hong Kong law. As a result, foreign creditors have (understandably) hauled their deadbeat Chinese property builder debtors to court there.
While the judgements (especially from Linda Chan, the subject of this Bloomberg article) are unsurprisingly against the Chinese property builders (who have been slow to release credible debt restructuring plans), the big question remains whether the Mainland Chinese government will actually enforce these rulings. It certainly would make life harder on (at least until recently very well-connected) Chinese property builders at a moment of weakness in the sector.
But, failure to do so would also hurt the Chinese government’s goal of encouraging more foreign investment: after all, why would you invest in a country where you can’t trust the legal paper?
Never before has there been such a wave of Chinese corporate defaults on bonds sold to foreign investors. And never in recent memory has a bankruptcy judge in Hong Kong, the de-facto home for such cases, earned a reputation for holding deadbeat companies to account quite like Chan.
Chan, 54, has displayed an unwavering determination to give creditors a fair shot at recouping as much of their money as they can. One morning in early May, she shocked the packed courtroom by suddenly ordering the liquidation of Jiayuan. She had peppered the company’s lawyers that day as they tried, unsuccessfully, to explain why they needed more time to iron out their debt restructuring proposal.
And then, late last month, Chan put lawyers for Evergrande, the most indebted developer of them all, on notice: Either turn over a concrete restructuring proposal in five weeks or face the same fate as Jiayuan.
This article in the Economist paints a dismal picture of the state of life for the youth in China: youth unemployment so high the government has stopped reporting on it (as if that was going to change anything…), housing and childcare costs so high that young people have given up on having traditional families, a government and state-run media that actively scolds them for being soft and pampered, and the best and brightest fleeing to Singapore…
How’s that “Chinese dream 中國夢” going?
Some 360m Chinese (a quarter of the population) are between the ages of 16 and 35. Their gloom has profound implications for the future of China, its economy and the party’s ambitions. But rather than soothe the young, the government tends to scold them. Last year Mr Xi said they must “abandon arrogance and pampering”. Editorials in state media encourage them to “embrace struggle” and sacrifice their youth to the cause of national rejuvenation, as defined by the party. Repression is increasing. “Eat bitterness,” Mr Xi tells youngsters. His admonition, though a worn Chinese cliché, is sure to strike a nerve
Last year, when a young man was told by police that the punishment for violating pandemic-control rules would affect his family for three generations, he responded, “We are the last generation, thank you.” The exchange, caught on video, went viral, his defiant words transformed into another cynical meme (until it was censored).
