China Morning Missive “Begun, the Robot Wars have” Forced technology transfers and an overreliance on China for intermediate inputs to final production. If there were ever to be an honest to God conversation in Washington over Chinese leverage it begins and ends with these two issues. The issue of forced technology transfers would be easy to address if difficult to execute. To start, there was never all that much “force” applied. American corporations spent three decades willingly engaging with Chinese contractors and in that process IP was aggressively extracted. So, Chinese steal IP. Ok. To address the technology transfer and theft issues, you just stop making those transfers in the first place. This would, however, require management to accept a degree of impairment to both top and bottom-line results. Like I said, difficult to execute. Addressing the issue of intermediate goods will take time and a great deal more commitment. In 2023, the latest data available, these inputs represented 47% of China’s total export value. Basically, China exports nearly as much finished goods as they do intermediate goods. China is no longer simply supplying final product to Walmart or Costco. China is now the primary supplier to a countless number of America manufactures. This issue, right here, lays at the core of last year’s rare earths episode. And yet, for all the talk and posturing, it is very clear that there’s been no change in corporate behavior on either of these two fronts and there is no better example than that of Elon Musk’s Optimus robotics program. Not that there is much need for confirmation, but reports are now surfacing that the Optimus production process will be reliant on “hundreds” of China suppliers. The rationale behind this decision is borderline delusional. Somehow, there’d be a market segmentation where America would lead in the robotic “brain” (software) and China would lead in the “body” (hardware). After this past year, with DeepSeek, QWEN, Kimi-K2.5 et al, it is beyond naive to even consider that China will be solely relegated to hardware. As for Musk, he simply knows that sourcing from America just isn’t an option, especially given his aggressive timeframe. Over the past year I’ve been vocal in stating that the die is cast and that what China achieved with EVs will be fully replicated, and at tremendous speed, in the realm of humanoid robotics. It is already playing out when you consider the installation of industrial robotics. In 2024, China had total new installs of 295,000 versus America at 34,200. Worse, in the first nine months of last year, China’s new installs nearly doubled to 595,000 or 470 units per 10,000 workers. Now that I think on it, the robot wars might already be over.

Interesting Engineering

Chinese parts challenge Optimus humanoid robot production goals in US

Elon Musk is exploring the possibility of manufacturing the Tesla Optimus entirely in the US while facing multiple challenges.

China Morning Missive The essay! All, as mentioned yesterday, spent the past month hammering out a doctorate-sized essay which details events from the past 30 years and how they - cumulatively - led to our current state of affairs. The plan is to break the essay up into easier to digest installments the first of which you’ll find below. For those truly interested in how China successfully navigated a world run by a unipolar hegemon, you’ll enjoy and find value in what is presented. Again, I welcome any comments, questions or areas of disagreement. Am tagging @ODELL and @Marty Bent just for fun. View quoted note →

This is a test. Seem to be having issues with relays.

China Morning Missive China’s RMB ambitions So, there seems to be a massive knee jerk, highly emotive, reaction across social media over the mere mention of China seeking to have the local currency (Renminbi, RMB) rise to the status of “reserve currency”. The level of cope is on a whole new level. For myself, it is all just the latest example of “post first and ask question later”. The comment has been taken completely out of context and yet it does very much align fully with how it is Beijing has been working to ameliorate the inherent risks imbedded in the USD system. I’ve recently written a massive 18,000 word essay that addresses this very subject, the historical drivers and motivations, and I need to prioritize getting that essay uploaded here on Primal. To the point, it isn’t the reserve currency where China is making inroads. It is, but it is slow. Where there’s been meaningful progress is in targeting the USD reserve asset. Gold settled trade is accelerating. As just one example, the ASEAN trading block has settled a full third of its trade with China in RMB and much of that has final settlement in gold. Anyway, once I do get the entire essay up on Primal I’ll return and direct those interest were to find that tome of a document.

MSN

China Morning Missive Speculative Folly Yet another top Chinese general is purged, and, once again, the speculation is rampant. Claims are made and conclusions drawn and the attention quickly moves to what this will mean for the reign of Xi Jinping. There is talk of a coup. There is talk of a removal from office by “the Elders”. It is all a fugazi and, more importantly, a distraction from events underway that do matter, that do have significance. In terms of the Xi rumors, this would make for the seventh or eighth episode (I’ve lost count honestly) of how events in Beijing are expected to bring down this “Emperor for Life”. And that doesn’t count all the rumors of ill health. Then again, all the speculation is to be expected in a world driven by social media engagement farming. There may be, possibly, importance connected to this latest development, but it has taken away from actual events from the past week that do have real-world implications. Firstly, this past week provided an initial view into the strategic aims of China’s latest Five-Year plan. State Grid, China’s largest power transmitter and grid operator, announced a 40% increase in CAPX out to 2030. A commitment of Rmb4trillion (US$570billion). There’s been ample commentary of late of the massive gap between China’s ability to produce energy versus that of the United States. This announced investment demonstrates that energy, broadly speaking, will remain a top priority over the next five years and, with it, a further widening in the gap. Then there was the announcement that the Shanghai Futures Exchange will begin trading LNG contracts denominated in RMB as soon as February. Beijing has spent the past decade making inroads into the adoption of RMB for pricing across the entire commodity complex. This move would indicate there now being greater willingness among counterparties to accept RMB payment terms. The Qataris would be the most obvious group given the construct of the current bilateral trade relationship. What will need to monitor is if Australian suppliers, delivering one-third of China’s LNG imports, will accept RMB as well. The reason why Australia needs attention goes to another development from this past week. BHP announced that it would be accepting price concessions on iron ore exports to China after a lengthy period of stalled negotiations. And this deal comes just a few months after BHP agreed to accept 30% of iron ore purchases contracted in RMB. Finally, there are the reports of the growing gold reserves held by Poland. How this connects with China goes to how it is the bilateral trade relationship is managed. Poland settles just over a third of its annual trade with China in RMB. It does run a trade deficit with China but taking into account the role played by the Shanghai International Gold Exchange in final settlement, it is reasonable to conclude that a portion of the rising gold reserves by Poland is attributed to RMB surpluses being net final-settled with gold. These are the development that matter and is also a demonstration, once again, of China operating on a very low time preference. The most impactful events occur on the margins and are, almost always, overlooked and absent from geoeconomic analysis. It has always been a game of inches and will remain a game of inches.

Yahoo News

China’s top general is ousted as Xi ramps up crackdown

China’s top military general, Zhang Youxia, was ousted after reportedly being accused of leaking nuclear secrets to the US.

Fuck me. Just jumped on Twitter for the first time in two year. Had a look around….. If that is a representation of America today, well, I’m calling it. GAME OVER. Nothing but vitriol. Zero empathy. Zero introspection.

China Morning Missive Moving Parts Please accept my apologies for having not sent through any morning updates from Shanghai over the past week. It has been a hectic period for all of us. In addition, I have been finalizing a rather in-depth essay on the path to rivalry between China and the United States. A tome really. Will see about where best to upload it on Nostr. For now, however, please find below the initial section of that essay’s introduction. It ties nicely into recent comment from Canadian PM Carney Introduction The veil has fallen. America has discarded the charade that its primacy was held to account by the very international rules-based order it built 80 years ago. This realpolitik dichotomy has been known throughout most of the world and for quite some time. What actually transpired over the past several weeks is a realization – a loss of naïveté – among the American populace and the citizenry of post-1945 allied nations that America would act as it saw fit in the pursuit of self-interest and will do so, whenever necessary, fully unencumbered. America has deployed uber-primacy and the raw projection of power from the very moment the Cold War ended and the unipolar world commenced. These actions are just no longer concealed by diplomatic subterfuge. From the Iraq War to the Global Financial Crisis policy responses and myriad other instances, the very “international rules” forced upon others has always been deemed inconvenient by Washington and, thusly, ignored when those “rules” conflicted with self-interest. Throughout the unipolar moment, the non-American allied world was acutely aware of American intentions. Those nation-states accepted, with reticence, the power bestowed upon this hegemon. China, and Russia for that matter, also accepted that the world was to be dominated by a single superpower. Both nations, however, knew their world histories and in 1997 began planning for that inevitable day when America’s reach would finally exceed its grasp. That day has long since arrived and there is now a broad agreement that a realignment in the world order is underway. The only debate present is found in the international relations community and its zealous quest for labels: Multipolarity, G2, the Global South and even, more recently, the Core Five. Amongst them are the ubiquitous and overly simplistic comparisons made to the Cold War. For those seeking historical comparisons, there’s arguably far more compelling evidence to measure current events against the backdrop of those occurring in and around 1904. No matter one’s outlook or perspective, the only real conclusion which can be drawn is that the present moment is a unique point of departure from the previous century. History has not ended. And yet, there remains an obsession over labels and constructs, an exercise – importantly to be stressed – which is Western led and Western promoted. China eschews such framing. Where others find comfort in taxonomy and historical comparisons, Beijing views such exercises, while providing some value, as unnecessarily restrictive and, ultimately, misguided. And then there’s the fact that China is the “Middle Kingdom”. An important cultural point of reference as it is a defining element for understanding Beijing’s view of the world and how it goes about engaging with all sovereign actors. (More to follow) https://www.cbc.ca/news/politics/carney-davos-speech-9.7052725

For the past month the Chinese have been discussing, actually have been shocked by, the state of the American middle class. They call it the “kill line”.

Instagram

GrumpyChineseGuy on Instagram: "12.29 America’s “Kill Line”"

41K likes, 1,651 comments - neil3d on December 29, 2025: "12.29 America’s “Kill Line”".

Well, one thing is for certain. The American actions over Venezuela have resulted in a wide variety - and multitude - of publicly expressed opinions over China and Taiwan. For whatever it’s worth, keep in mind that the truth is always found somewhere in the middle. Statements of the more definitive nature don’t tend to age well.

China Morning Missive IPOs as a Strategic Lever Capital formation in China is back with a vengeance and is being strategically deployed for the expressed purpose of countering America’s technological dominance. Over the past two months the pace of IPOs has been frenetic both in Hong Kong and on the upstart STAR Market here in Shanghai. While western business media has covered a handful of highly publicized chip makers going public, what has been missed is how Beijing is accelerating the use of the primary market to funnel capital towards key industries of geopolitical significance. Before commenting on the strategic nature underlying the renewal of Chinese IPOs, it is well worth noting that the move wouldn’t have been possible had Chinese retail investors not turned decidedly “risk on”. There has been a palpable shift in sentiment over the past year, and while Chinese households do remain cautious over the near-term economic prospects there has been a recognition of a vast improvement directionally. That said, the primary driver of retail investor demand is a genuine excitement over Chinese tech/AI companies demonstrating an ability to not just match their American rivals, but – in more than a few cases – out innovate. DeepSeek, it is now clear, wasn’t a “moment”, it was an insurgent declaration of intent and ability. What resulted was a solid 2025 for equity returns and performance has continued to deliver so far this year. In fact, volumes of late have been at or near record highs. It does need to be mentioned, however, that Chinese investors are limited when it comes to available alternatives to allocate capital. With property still viewed as toxic and limited upside to fixed income then meant a shift back to equities was expected. At the same time, Chinese retail investors are the tail which wags the dog and they’ve a ton of idle capital sitting on the sidelines. What all of this has meant is an opportunity for Beijing to strategically direct growing end investor demand. With all approvals to list tightly controlled by the CSRC, China’s securities regulator, the decision was made to prioritize those companies building capabilities and critical infrastructure that could best ameliorate the containment threat posed by America. The uniqueness of the policy, however, went even farther. The IPO process favors companies that are at an earlier stage of development, even loss-making and, additionally, approvals to list are also widespread with a far greater number of such companies greenlit to IPO and a stark departure from previous periods. Take but a few examples from just last week; GPU maker Iluvatar CoreX and Edge Medical which manufactures surgical robotics. These companies raised $473million and $154million respectively and, currently, trade with market capitalization of around $6.0billioin and $3.0billion. Small in size by just about any measure, but forward leaning industrial players and, once again, only a small sample set of the multitude of the types of companies now going public. The concept of “market cap” doesn’t even register as a priority KPI here in China and directing capital is an activity solely meant to optimally deliver on both market and political objectives. This isn’t a new concept, but the leveraging of IPOs is. There will, ultimately, be a considerable destruction of capital as an outcome of this IPO policy, as was evident with the solar and EV industries. The policy, however, will also deliver an array of world leading companies as well, again as is evident with the solar and EV industries. https://m.investing.com/news/stock-market-news/china-ai-chipmaking-stocks-extend-rally-as-ipo-boom-boosts-sentiment-4440684?ampMode=1

China Morning Missive Software is useless without the hardware to run it As anecdotes go, this is perhaps one that should be duly noted. Moreover, I highly recommend for those interested in an assessment of the ongoing and ever intensifying competition between China and America over the future of technological advances to give this article a read. Basically, what we have here is a reporter from PCMag who attended last week’s Consumer Electronics Show in Las Vegas. The highlighted summary quote from the article reads “It was hard to ignore the pull of what was emerging from Shenzhen.” The author then went on to detail a host of areas where it was increasingly clear that China wasn’t just matching the United States in terms of innovation but that it was increasingly hard to ignore the numerous areas where Chinese companies have unquestionably taken the lead. Now, the author did have a rather specific focus, consumer solutions for energy storage and solar generation. The comments made on the advances in sodium-ion battery technology, versus today’s ubiquitous lithium standard, were of particular interest. The author did, however, look to extrapolate his specific area of interest farther afield. What stood out, however, was the comparison of the vastly different nation-state policies, although not all that unexpected. Washington, under the Trump administration, was curtailing aggressively support to all categories within the vertically integrated complex of next-gen power solutions. Beijing, to quote the author, “was doubling down” as was supported by the datapoint of there being a cumulative 650 gigawatts of solar capacity installed nation-wide (I believe this to be an underreported datapoint though). It isn’t that the comments here or those in the linked article represent some sort of tectonic shift in the present state of the geopolitical rivalry. At issue is the increasingly obvious direction of travel. Then there is the issue of competitive primacy. Yes, there can be no question that America has a lead, I’d even say a material lead, in advanced chips. But chips are, essentially, just software and will have no commercial value without the requisite hardware. Beyond datacenters, the manufacturing of real-world hardware requires production capabilities, and this is where China dominates and does so at tremendous scale. There is no better example than the rapid global expansion of Chinese EVs. You should expect the very same with humanoid robotics over the next five years, if not sooner. Bear in mind as well that China is entering the first year of its fifteenth five-year plan. This then means an even greater concentration of energies to further dominate the global hardware arena.

PCMAG

At CES, One Thing Became Clear: China Is Surging Ahead in Energy and Solar Innovations

In Las Vegas, I saw just how wrong-headed the US's 'drill, baby, drill' mentality is.

How to change the path of what increasingly looks to be an inevitable repeat of ancient (and modern as well) history? It is a question I struggle with each and every day.

China Morning Missive You’ll have to accept my apologies. In my note the other day I made the claim that in response to American action over Venezuela, Beijing would do nothing and sit idly by awaiting the expected, and dire, second and third order effects of said action. With that outlook a very amateur mistake on my part, as it pertains to China, was made. Not a mistake, mind you, in terms of the original outlook. It remains the case that Beijing will “do noting” in direct response. You’ll notice here, however, that there’s a vital distinction this time around with the inclusion of the world “direct” and that is what should have been expected and, we now know, was carried out. Shortly after the weekend’s Latin American activities, China announced that it would be targeting Japan with a series of rare earth export controls. To the uninitiated, the two events would look to have very little connective tissue. There’s been an ongoing, and increasingly heated, exchange between the two Asian nations over the issue of Taiwan. Any decision by Beijing to scale up the fight shouldn’t be seen as a surprising development and the same, too, in deciding to deploy rare earth export controls. What hasn’t been asked, however, is why would Beijing take such action now? This latest episode of regional saber rattling began back last November and only now is the decision to apply leverage made. If we look back to the events of 2010 when China and Japan were also entangled in a territorial dispute, Beijing had first used rare earth export controls as a point of pressure and did so almost immediately. I would argue that the difference, today, comes down to a material shift in geopolitical dynamics over the past 15 years. The gamesmanship here is for this move to act as an application of indirect pressure on America. It might even be a not-to-subtle signal as well. As is readily known, access to rare earths remains an issue for America and, while there is a delicate truce currently in place, China has various vested interest in Venezuela that are now threatened. Placing export controls on Japan might very well be an artfully telegraphed message to Washington. Beijing will be seeking some form of negotiated settlement over a host of Venezuelan related issues and the move on Japan could indicate that rare earth access remains firmly on the table. It could also be far simpler. The act of escalation would require at least some level of attention out of Washington and attention is in very short supply at the moment. The art of forced distraction on a rival is an often applied tactic by China. Whatever the case might be, it is, at least from my vantage point, clear that the placement of export controls on Japan is an indirect response to events from this past weekend. Furthermore, albeit depending on how events transpire over the coming weeks and months, additional indirect pressure applied by China should be expected. Finally, and keeping in mind China’s ever present strategic aim of embedding optionality throughout all decision making, the direct pressure on Japan serves to meet the objective of driving Prime Minister Takaichi from power. An objective I do believe that Beijing views as distinctly possible before the end of this year. https://www.reuters.com/world/asia-pacific/china-curbs-rare-earth-exports-japanese-companies-after-dual-use-ban-wsj-reports-2026-01-08/

China Morning Missive If rare earth minerals, and China’s stranglehold over the refinery process, was the topic of 2025, you should all expect to see at some point a similar heated discussion over LiDAR. This critical technology used in everything from EVs to weapon systems (you know, all that hyped up precision targeting) is dominated by Chinese players and now, with the latest application, robotics, the subject looks to be finally gaining the attention of various American interested parties. The reason for bringing this topic up today is in relation to the news that Nvidia has selected a Chinese company – Hesai Technology – to provide LiDAR sensors to its recently announced autonomous driving platform. A rather sharp shift from the American conventional wisdom (ie Elon Musk) which viewed LiDAR as a luxury and which favored a camera-centric system for autonomous driving. Hesai is currently the single largest supplier of LiDAR sensors globally and is a company I’m fairly certain virtually no one has ever heard of. It is also a company which has been uniquely responsible for obliterating the cost to manufacture. From sensors priced in the thousands of US dollars, Hesai built an in-house production facility and is now selling sensors at just US$500. Not only is the company now beginning to shift focus towards the robotics industry, but it is also in the process of doubling its manufacturing capacity with the stated aim of reducing the price point to US$200. A well-worn tactic among Chinese companies over the past three decades: Build a competitive product and then scale production aggressively to price out the competition. Just think back on the entire solar panel industry and, I would highlight, the example of Sunnova and with it the limitations laid bare of an American industrial policy. Dozens of American industries are reliant on LiDAR systems and while it isn’t all that clear the degree of sourcing from China given both cost and availability of supply it would be reasonable to conclude that there is an industrial dependence. Then there is the “national security threat”. Even the most minimal reliance on Chinese LiDAR would be looked upon as concerning. It is, after all, Chinese tech and Washington has made it quite clear that Chinese tech is to be avoided at all costs. For myself, the actual issue isn’t about LiDAR or rare earth minerals for that matter. I’ve stressed for the lonest time that China produces everything and America produces nothing. Perhaps a gross exaggeration, but the point still holds. For the foreseeable future there is little that can change this dynamic. The leverage in the geopolitical relationship is owned by China and, it is now increasingly clear, both sides understand this to be true.

South China Morning Post

Nvidia chooses China’s Hesai for lidar in Hyperion autonomous driving platform

Hesai will supply lidar sensors for Nvidia’s Drive Hyperion, targeting L4 self-driving, as the firm accelerates global expansion.

China Morning Missive During the holiday break there was a news item that was very poorly covered and yet provided indicative clarity to a decade’s long key geopolitical shift. China announced that its official holdings of American debt had not only declined yet again in the month of November, but had reached a level not seen since 2008. In terms of the data points, the country stated that it held a total of $688brillion worth of US treasuries. That is a 48% decline from the 2013 peak of $1.32trillion. Furthermore, of China’s total FX reserves, the relative position of US sovereign debt has also been cut in half and is now just 20% of China’s total FX reserves. There has certainly been commentary and coverage over this downtrend in the past, but there has been little, dare I say no, critical analysis into the explicit strategy underlying, what is, a very deliberate move made by Beijing. Consider the following. As an historical pattern, the main driver of China’s foreign currency reserves, in total, was its annual trade surplus. At the time of peak exposure to US sovereign debt in 2013, which just so happened to correspond with total peak FX reserves I should add ($3.8trillion), China’s trade surplus was $260billion. By 2021 the trade surplus had more than doubled reaching $676billion. And for 2025? It will surpass $1.0trillion as I am rather certain you’ve already read in the business media. You had a massive influx of foreign currency over the past decade, and yet total reserves held in a tight range of between $3.0trillion and $3.2trillion. Where, then, did the excess funds from a rapidly accelerating trade surplus go? Not into US Treasuries, that’s for sure. To some extent, the trade surpluses remained on the balance sheets of the exporters and in their onshore (and offshore) bank accounts as there was no longer the direct requirement to repatriate and/or convert into the local currency. That would, maybe, account for a fifth to a quarter of the trade surplus leaving hundreds of billions unaccounted for. The answer lies, primarily, in the Belt and Road Initiative (BRI) which, you will not be surprised to find, was formally launched in 2013. US dollar funding was directed into an aggressive global infrastructure investment program. Ports in Greece and Peru. Rail lines in Hungary and Serbia. A massive sector wide investment into Indonesia. The list goes on and on. You see, Beijing policy makers were the first to truly comprehend that to address a large and growing debt obligation, Washington had no other option than to continue with a debasement of the currency. With this knowledge, China not only made the decision to de-risk its direct USD exposure but to go even farther and learn from the lesson and de-risk from as much sovereign “paper” as possible and, instead, reallocate excess reserves into hard assets. Data is difficult to source, but what is out there has China’s total cumulative BRI investment since 2013 at around $1.3trillion. I’d take the over on that though. Either way, that is a significant redirected flow of funds away from American sovereign debt and a truly debilitating loss of a (not so) marginal buyer. One final point to make: China also “officially” purchased a total of 1,226 tons of gold between 2013 and 2024. Here, again, I would be taking the over. No question though. China has been exiting the entire sovereign paper market for over a decade, artfully executed I might add, and there is little doubt that this trend will continue.

South China Morning Post

China cuts US Treasury holdings to lowest level since 2008

The stockpile has now fallen to nearly half its November 2013 peak, financial data shows, as long-term sell-off continues.

China Morning Missive New Year and it is time to return with my periodic updates on all things China. Perhaps apropos of current events, but with America’s adventurism into Venezuela it didn’t come as a surprise to anyone that the Chinese leadership has responded in a deeply negative way, albeit conveyed with diplomatic flair. Above all else, there is the Great Game 2.0 at play here as China maintains certain key assets in the South American country and there was even an elevation of the bilateral relationship to what was termed an “all weather partnership” whatever that might mean. China remains the largest creditor of Venezuela (not a surprise) and is also the single largest buyer of the country’s oil exports (again, no surprise). That said, it’s estimate are that only 5% of China’s overall annual oil imports come from Venezuela. Here’s the real question though: What is it that China will do in the immediate future? The answer is absolutely nothing. Yes, there will be bellicosity and some periodic saber rattling, that is just how China operates. In terms of any meaningful actions, though …. expect Beijing to sit idly by and do nothing. Classic (misattributed) Sun Tzu quote, “Never interrupt your enemy when he is making a mistake.” The primary reason for this “non-action” approach is that it plays to Beijing’s favor. There are numerous occasions from the past where America has acted quickly with military might and in doing so quickly found itself mired in a quagmire and, ultimately, exited the theater. In each of these past occasions those activities resulted in a sidelined, distracted and, ultimately, humbled hegemon. China simply needs to tap into that ample reserve of low time preference energy and wait for the inevitable. Doing nothing whenever it is that America acts in haste has always found China coming out the other side far stronger in term of diplomatic relationships. I would just add here that China will also aggressively leverage this latest American move as further evidence of the abjectly uselessness of the “international rules-based order”. Granted, this will be done deep in the background. There should even be the expectation of a willing audience throughout Latin America.

South China Morning Post

Venezuela crisis underscores China’s challenges in Latin America

Washington making an example of Maduro as a ‘warning shot’ would create a ‘chilling effect’ across Latin America, observer says.