It’s Friday and I thought the video below would provide some much needed levity. Have a great weekend people!!

China Evening Missive So the Chinese 4th Plenum has officially concluded and with it comes a somewhat lengthy and still quite vague summary of the next five year plan. First impression is that there’ll be a doubling down on technology. There are a host of other high level points made. For now though, expect everyone to be rushing out with hot takes. Treat any definitive conclusions made with a high degree of suspicion. Need to let it all marinate at least for a day. Will return at some point with my take on what it all might mean.

South China Morning Post

China’s fourth plenum: leaders bolster self-reliance against ‘raging storms’

5,000-word Central Committee document stresses tech upgrades, security and domestic demand to guard against headwinds of the next five years.

China Morning Missive Interesting to see that the latest iteration of the Deepseek AI model isn’t getting much attention in the business media. Thankfully there’s always Tom’s Hardware. There is trend becoming increasingly apparent. Given the ongoing restrictions placed on China by the American government, AI developers are having to create unique solutions to solve the issue of compute. Here we have just one example taken from the linked article. “Chinese developers of Deepseek AI have released a new model that leverages its multi-modal capabilities to improve the efficiency of its handling of complex documents and large blocks of text, by converting them into images first. Vision encoders were able to take large quantities of text and convert them into images, which, when accessed later, required between seven and 20 times fewer tokens, while maintaining an impressive level of accuracy.” Again, this is just one example and provides the sort of roadmap being used by all AI developers in China. Keep in mind as well that the Chinese models are all open sourced and, in nearly all cases, open weight as well. Iteration among the larger players, such as QWEN and Kimi K2, explains why these groups have been so aggressively quick with the release of enhanced models. The same, too, holds for the application of these of models. In the Deepseek example, Chinese companies ranging from automotive to logistics are finding ways to use the AI models to enhance overall performance in production and/or servicing. The primary objective here is to build for scale and in doing so provide actual usability and with deep cost effectiveness. A stark difference when compared to all the financial shenanigans taking place among the various American AI groups.

Tom

New Deepseek model drastically reduces resource usage by converting text and documents into images —

Could help cut costs and improve the efficiency of the latest AI models.

China Morning Missive When you miss the actual point, entirely. Not sure if you’ve heard the story of an individual among the Chinese trade team “going rouge” recently. Or as Sec Bessent said “had acted unhinged”. Well, it was reported that this individual was removed from his post. Have included a CNBC article for reference below. Technically that would be correct, but as I noted above, that also misses the actual point. Have personally seen this tactic a million times before. When negotiating with a Chinese party you can expect one individual to “go rouge” and that will typically take place at a point of heightened tension. The aim is to put the other side further off balance. We, in the west, would call this person the “bad cop”. This is purposefully done, and I would also add that the actions and approach taken will be what is consider “unhinged” by western standards. But here’s the point that I find to be hysterical. This individual was, yes, formally and technically removed from his post as Ambassador to the WTO and a member of the trade team. He was, also, promoted, returning to Beijing for a higher up roll in the Ministry of Commerce. He did his job. Did it well and effectively to advance China’s interests. The entire circus, and this event in particular, just shows how poorly Sec Bessent and his team understand the opposing side.

CNBC

China removes top trade negotiator from former World Trade Organization post

China has formalized the new role of top trade negotiator Li Chenggang, dropping him from the post of permanent representative to the World Trade O...

China Morning Missive So, it would appear as though I’m kicking off my work week with yet another “Xi Jinping coup” rumor. It never seems to end. Just last week the rumor mill was convinced that the man had suffered a stroke. The latest culling or a purge, or whatever it might be called, among higher ups in the Chinese military over the weekend has certainly fanned the flames. There’s also the timing of all this chatter to consider. There’s a rather big conclave happening at the end of this week, the so-called 4th Plenum and then, of course, there’s the APEC meeting the following week and an expected bilateral meeting with President Trump. A recipe with a handful of simple ingredients allowing for the imagination to run wild. Let me start here by making the following important statement. No one knows shit about fuck and that includes me. With that point out of the way, the question of Xi being removed by others in the Party has been asked of me for years. What follows is how I answer that question. Is it possible that Xi could be removed from power? Absolutely. No question and even more probable than some might think. In fact, there’s even a rationale for his removal, but it has almost nothing to do with power or politics. It’s all about money. A sharp fissure within the party occurred back in 2017 when Xi Jinping threw down the gauntlet stating that the Chinese economy would “shift from growth at all costs to quality growth.” This decision would reverberate far and wide threatening the “alternative sources of income” for millions of Party members, aka soft corruption. That decision resulted in genuine tension throughout the Party remaining very much present even after reaching a crescendo in 2022. Many won’t recall, but at that time there were also widespread rumors of a coup attempt. So, yes, it is certainly well within the realm of possibility that a change in Party leadership could occur. Do I, personally, believe that such an outcome will take place? The short answer is no. No matter what conflict might exist within the Party, nor how intense that conflict might be, there are two critical variables that need to be taken into account. First, the Communist Party of China abhors instability. There’s been no positive outcome over 5,000 years when there’s strife. Above all else, consistency must prevail. Removing Xi from power, even if meaningfully done with a degree of subterfuge, will knowingly run the risk of system instability. Second, real or imagined internal difference aside, the entire Party is operating under the premise of “changes unseen in 100 years.” The Party sees clearly that the post-WWII world order is breaking and in China’s favor. Beijing can gain real credibility just by standing still, doing nothing. Ousting Xi would be the opposite of that tactic and would be viewed as highly counterproductive. Who knows in the end though. For now, I’ll just leave this here and let you all arrive at your own conclusions. Do, however, hit me up with any questions or feel free (its encouraged actually) to press me on any of the points raised above.

Epiphany of the day. Those who can, can. Those who can’t, teach. Those who can’t teach, become Senior Fellows at some partisan Think Tank. I mean, seriously, what is with the explosion in the number of “Senior Fellows”? To sell one’s integrity for a paycheck is just beyond what my mind can comprehend. “It is difficult to get a man to understand something when his salary depends upon his not understanding it” - Upton Sinclair

Happy Friday from Shanghai

China Morning Missive Thought some of you might enjoy a peak behind the curtain when it comes to how certain key geopolitical decisions are made in Beijing. The example, here, centers on the Korean chaebol Hanwha. Earlier this week you may have seen the headlines of China sanctioning five US subsidiaries of Hanwha Ocean, the shipbuilding subsidiary of the conglomerate. Quickly the US State Department came out stating that the move was for the sole purpose of intimidating the newly elected South Korean President. The Chinese Ministry of Commerce, for its part, stated that the action was taken in response to Hanwha Ocean providing direct assistance to the US government’s 301 investigation into Chinese shipbuilding practices. Most, including myself, viewed the move as nothing more than a further jockeying for position ahead of the upcoming APEC meeting. Come to find out, there were other forces at play that resulted in sanctions being placed on Hanwha Ocean, namely the not so invisible hand of Elbridge Colby in the East China Sea. Not but a day prior to the sanctioning of Hanwha Ocean came reports that another subsidiary, Hanwha Aerospace, was preparing to sell a package of anti-ship missiles to the Philippine government “for maritime deterrence …. against Chinese aggression in the South China Sea.” How Mr. Colby comes into the story is rather straight forward, although I will readily admit this is more an exercise of connecting what I find to be some very obvious dots. In the role of Under Secretary of War for Policy, Mr. Colby has made a name for himself when it comes to the topic of “China is set to invade Taiwan by 2027.” Mr. Colby has been an extremely strong advocate for eliminating, or greatly reducing, the delivery of American weaponry to both Ukraine and Israel moving, instead, to the full-throated deterrence of China and defense of Taiwan. There’s been push back on Mr. Colby including a report from a few months ago that he had refused to sign off on the delivery of a new package of arms to Ukraine. Uproar ensued and within 24 hours his decision was overturned by Sec. Hegseth with Trump’s direct involvement. Basically, America’s (very limited) supply of weapons won’t be going to support Asian allies anytime in the near future. This is where Hanwha Aerospace comes into the picture. If the sourcing of weapons can’t originate in the United States, then the Department of War will act as a broker between allied parties. Pick up the phone, tell the Philippine President to expect a call from Hanwha and when the call comes in just say “send us the contract”. The Chinese response, as always, is mercurial. Never, and I mean never, will the Chinese state publicly any direct connection between one adverse external event and whatever decision is made in response. The motives, which are both clear and understood by all parties, will be raised via backchannels. If global media outlets wish to manufacture a storyline, well, that is of no consequence to the Chinese. This is just the way the Chinese play the geopolitical game. Subterfuge and misdirection in public with – when deemed of value – brutal candidness via informal networks. Quite different compared to the American straight between the eyes approach. This differing approach to diplomacy does go a great distance to explaining why Sec Bessent is losing his calm and cool demeanor. And to think, the Great Game 2.0 is only just beginning. https://www.navalnews.com/naval-news/2025/10/hanwha-eyes-philippines-for-anti-ship-ballistic-missile-sales/

My new mantra “Fuck You! Make me!”

China Afternoon Missive And the TikTok saga continues. Notice how there’s been zero public commentary of late on the deal either from the Trump team or from the Oracle-led investment consortium. But I’m not here to harp on the deal itself. What I found of far greater interest was this linked Bloomberg opinion piece from the company’s editorial board. Of particular interest was the following statements. “Officials have been warning about TikTok for years. The app collects a lot of information about its users, including keystrokes and location data; it serves up content according to an opaque algorithm that might be used to censor or manipulate Americans; and its parent company must, by law, answer to the Chinese government.” Um, that exact statement perfectly sums up the entire social media complex in the United States. And the Bloomberg editorial board misses, entirely, the hypocrisy of its statement. The TikTok deal was never about “national security”, it was an exercise in regulatory capture in its rawest form. Meta, Google and their brethren simply couldn’t compete with a better performing algorithm and with it a massive loss in ad revenue. Why compete and build a better UX/UI when you can use your Washington connections to kneecap a rival. There’s no question that, in the end, a deal for TikTok will be made. I’ll also repeat myself here and state that China is seeking a Taiwan quid pro quo deliverable in return. What I do find ironic is how, ultimately, the acquisition of TikTok will prove to be a “poisoned chalice.” Not just for the investment consortium, but for Trump as well.

Bloomberg.com

The TikTok Deal Still Doesn’t Add Up

TikTok, the Chinese-owned viral-video platform that counts about 20% of the world’s population as users, has long raised red flags among US natio...

China Morning Missive Not only is there no concrete China policy out of the Trump administration, I am here to also state that the boys in Beijing are very well aware of this fact and are acting accordingly. Two days ago, the business media complex ran with Sec Bessent’s comment that “China want to pull the entire world down with them.” Recoiling from the decision by China to impose tighter export controls, Bessent’s frustration in dealing with the Chinese reached a breaking point of sorts. There was the late last week quip by Trump himself of a new threat of 100% across the board tariffs. That, of course, was walked back before futures opened on Sunday night. Now we have Bessent talking about “decoupling” while in the same breath raising the prospects of a “long truce”. Having personally dealt with Chinese counterparties far more than your average person, what you are seeing is the exact outcome the Beijing negotiators have been seeking. Act in a highly mercurial manner with the objective of frustrating those sitting across the table. Do so long enough and that party will snap, putting them off balanced. Bessent would have had far greater success trying to nail Jello to a wall. The only tactic the Chinese respond to is steely, aggressive determination. The unmovable object. There is no middle ground ever. To make this point a bit clearer, allow me to provide a more real-world example. If you run a business in China, you’ll, obviously, manage Chinese employees and these individuals only have two operating modes. (1) they work and work hard under a deeply seeded concern of losing their job or (2) no real concern is evident in the workplace and with that they will seek out and press aggressively any identified advantage. There are, of course, exceptions but what I’ve laid out here is the rule. I have no idea who is advising the Trump team, but I can assure you those advisors have no idea what they are doing. Failure on a epic scale.

Bloomberg.com

Bessent Floats Longer-Term China Truce After Rare Earths Gambit

US Treasury Secretary Scott Bessent dangled the possibility of extending a pause of import duties on Chinese goods for longer than three months if ...

America takes the path of weaponizing trade and the message conveyed is “suck it up”. China decides to enter the arena and go mano a mano and, well, you get Bessent playing the victim card. This isn’t at all the sort of America I grew up in Bessent tells the FT that China wants 'to pull everybody else down with them'

CNBC

Bessent tells the FT that struggling China wants 'to pull everybody else down with them'

Bessent accused China of trying to weaken the global economy by slapping export controls on resources vital for technology.

Again, for those interested, this short clip from a recent interview provides some China insight you won’t hear elsewhere. You’ve all read the stories of foreigners running afoul with the Chinese authorities. Arrests. Show trials ….. Well, in this clip I provide some much needed context. Always remember. Where there’s smoke there is fire.

Tim Cook making yet another pilgrimage to China. And of course there has to be a Labubu event to go along with his visit. #2025

This cannot wait. While everyone out there is flailing around commenting on China and rare earths, far more consequential moves are being made from Beijing to fundamentally restructure the global trade and financial systems. No outright headline driving action mind you, rather a subtle moving of pieces on the game board. What we have today is an agreement reached between Chinese buyers of iron ore and Australia’s largest company, BHP Beginning this quarter, BHP has agreed to invoice 30% of all purchases in Renminbi. From the article attached below, which is fantastic I might add, this equates to US$8-10 billion of value-added trade. While not specifically addressed in the article, one very logical conclusion to draw is that BHP would have only agreed to such terms if future excesses of Renminbi could be settled in gold through the Shanghai International Gold Exchange. @Marty Bent I suspect that this development has much to do with the gold “on warrant” you raised last month. Given this BHP agreement, I would suspect that a host of other groups, Vale out of Brazil for example, look to follow suit. More Renminbi invoicing with an agreement for final settlement in gold would require the Shanghai vaults to be at the ready. Anyway, there is a very discernable pattern taking place. While China isn’t at all interested in replacing the USD as a medium of all trade, there is a clear preference for key raw materials to be invoiced in Renminbi. This entire process began with gold back in 2014 (the required base layer) and then, ever so slowly, creeped into the petroleum sector beginning in 2022. I’m even beginning to wonder if Beijing is seeking an agreement over American soybean purchases where a percentage is invoiced in local Chinese currency. Heads would most certainly explode. To the best of your ability, ignore all engagement farming, trade war commentary. It’s of little value and will be forgotten in a matter of days. Focus instead on real-world developments that have an actual impact. There was the launch of the China to Tehran railway and the granting of Gazprom approval to issue Panda bonds. Expect more in the weeks and months ahead. Make no mistake. China is pressing its advantage, just not where you might think.

BHP Billiton's RMB Iron Ore Settlement: Market Shift Begins

Discover how BHP Billiton's iron ore RMB settlement deal with China reshapes global commodity trading and signals market power shifts.

China Morning Missive There seems to be a new term flying around the social media universe. “Escalation dominance”. Basically, it’s just a fancy way of saying China has far greater negotiating leverage as compared to the United States. Well, this bilateral imbalance has been at the core of the Notes I’ve been putting out for the past six months. My very succinct summary is this. China produces everything and America produces nothing. I’m not here to beat on America and China is most certainly working through its own issues. When you step back though and look at both parties on a net-net basis there is no other conclusion to draw than that of trade terms being dictated by China. Here is the best real-world example that I can give. To start, the current imbalance is the result of a three-decade period where multinational groups aggressively outsourced production to China. You hear this all the time. China hollowed out middle America. What doesn’t seem to get enough attention is that this entire imbalance was loudly telegraphed back in 2018 during Trump 1.0 and yet no corrective action was taken at that time. Just consider Apple as one example. Tim Cook knew at the time the precarious nature of Apple’s manufacturing dependence on China. Did he decided to marshal the company’s ample cash hoard and take aggressive steps to diversify away from China? Of course he didn’t. Such action would have tanked the stock. All that Time Cook did was accelerate the company’s share buyback program. For those who may doubt, I am a Red-Blooded American. There is, however, a reality that cannot be ignored. Like it or not, a very deep hole has been dug, and the first order of business is to stop digging. This then means that a collaborative relationship with China is the only option …. for now. A system based on financialization must shift aggressively to one centered on reindustrialization. It’ll take time, but as the old Chinese adage goes, “The best time to plant a tree is twenty years ago. The second best time is today.” https://www.politico.com/news/2025/10/12/china-defiance-trump-100-tariff-00605499

The definition of delusional. Thinking that the deal for TikTok will actually move forward.

President Trump posts first TikTok since approving sale:

President Trump has a message for Gen Z. He posted a video on TikTok, telling young users, "I saved TikTok, so you owe me big." Last week, he signe...

Call it serendipity, but was talking to a reporter yesterday prior to the Trump meltdown over China. The quotes are even more salient now than when I shared them with the reporter.

For those interested. China DGAF

China Morning Missive #Shocking and by “shocking” I mean not even a little bit. What should be expected is a rather manic period - heightened volatility - between now and the APEC meeting at month’s end. Perhaps not an exact replay of the massive back and forth in tariffs we witnessed earlier in the year, More aggressive posturing and strongly worded memos than anything else. What is rather certain though is there’ll be no Chinese purchases of soybeans anytime soon. Government will need to cut a decent sized check to bail out the farmers. Next week could be a very ugly for markets. Trump puts extra 100% tariff on China imports, adds software export controls

CNBC

Trump puts extra 100% tariff on China imports, adds export controls on 'critical software'

President Trump retaliated against China's export controls on rare earths after suggesting he also would cancel a meeting with Chinese President Xi...