Logan Wright (Rhodium Group) on ChinaTalk — discussing Broken China — is the most narrative-altering conversation I've heard on China in years. The growth story is over. Not slowing. Over. podcasts.apple.com/gb/podcas… Rhodium projected 1–2.5% growth for 2026. China is now tracking below that, probably negative in Q2 and Q3. This is down from 7–10%. COVID is no longer the explanation. The root cause is the credit boom that followed the 2008 financial crisis — the largest single-country credit expansion in at least a century. Bank assets grew by a third of global GDP in eight years. Credit flowed into shadow banks, property, and local government infrastructure. Property was the trigger, not the cause. Construction is down roughly 80%, sales roughly 60%, and nothing has replaced what was once 20–25% of GDP. Credit growth ran at 18% a year in 2007–16, then 9%, and sits at around 5% now. Consumer lending is shrinking. Wright's answer to the always impressive @Brad_Setser question — why no crash? Leaders chose slow decay over crisis, because in China "the path to crisis is reform." The Japan parallel holds, with one difference. China's binding constraint is fiscal, not monetary (interest rates). The government deficit already sits at roughly 9.5% of GDP. Pushing it higher adds little without fixing the system underneath. They make @michaelxpettis point: Weak domestic demand and the export surplus are one problem, not two. Industries that fed the housing boom now sell abroad at cut prices. The result is persistent deflation and a weaker real exchange rate. Calling it K-shaped misses the structural link. @jordanschneider, playing Xi: power means making everything the world needs and owning the key technologies, even if Chinese consumers pay for this. Wright answers: if most demand is abroad, China can only grow by taking others' export share, "fighting over a shrinking pie." The new strategic industries — EVs, AI, robotics — get enormous coverage but add up to roughly 6.3% of GDP and need capital, not workers. Youth unemployment passed 20% before Beijing stopped publishing the figures in 2023. Beijing appears to treat this as a cyclical problem. It isn't. AI won't close the gap even if its claimed Chinese leadership may think so. China's frontier AI models earn roughly $11bn combined. Its big tech spends roughly $135bn on AI infrastructure this year and roughly $160bn next — 15–20% of US spending — and that spending relies on high share prices. China is short of both chips and capital. Setser's pushback is the important counterweight: exports still grow at roughly 10% a year, twice world trade growth, and supply-chain control creates genuine leverage. Wright concedes this is the real threat — not China becoming number one, but locking in dependence. That distinction matters for how Europe should think about exposure. The conclusion Wright lands on: there is no longer a systemic economic rivalry. China will not outgrow the West. What remains are military and industrial threats — and leverage the West holds but isn't using. China needs Western markets more each year. That asymmetry is a policy tool, and it works better used collectively. One footnote worth flagging separately. Wright cites Kevin Rudd's claim that Beijing sees AI as the state's "visible hand", able to outperform markets. I looked up Rudd's Chinese sources. None of them say that — all preserve a role for markets. Motivated reasoning, or something else? I'll post a fuller analysis of Rudd's framing later.

Understanding the U.S.-China Competition A new RAND report out this week grapples with a fundamental question that will shape the world in the coming decades: What is the scope and nature of the U.S.-China competition? China is indeed a formidable U.S. competitor, but it is not poised to dominate world politics. "The competition is clearly something other than a classic power transition," the authors write. "China is rising relative to the U.S. but not in a straight-line trajectory." The report identifies seven areas of power and influence that provide a useful framework for understanding the competition. Science and technology and domestic economics stand out as the two most critical areas. The authors also note that this is a contest to prove which country's system best provides for its own people during a time of turbulence and instability. They also warn that, despite limits to China's rise, Beijing is approaching this contest through a comprehensive campaign, within and across many elements of national power. Meanwhile, the U.S. has yet to fully embrace the scope of the contest or invest sufficiently in critical tools of statecraft. This has many implications for U.S. strategy. For example, the contest for influence in global digital, AI, and energy networks must be an important focus of strategic investments. Washington should also seek to strengthen its existing global power alignments, which remain a huge advantage. And focusing more on homeland resilience issues could put the U.S. on better footing, whether in peacetime or war. In its competition with China, the U.S. must preserve its vital interests without blowing up the relationship. The most plausible end state, the authors write, "is to create the conditions that encourage and require China to constrain its ambitions and aggressiveness—to become not a friend or ally but a great power more capable of controlled coexistence."

Understanding the U.S.-China Competition A new RAND report out this week grapples with a fundamental question that will shape the world in the coming decades: What is the scope and nature of the U.S.-China competition? China is indeed a formidable U.S. competitor, but it is not poised to dominate world politics. "The competition is clearly something other than a classic power transition," the authors write. "China is rising relative to the U.S. but not in a straight-line trajectory." The report identifies seven areas of power and influence that provide a useful framework for understanding the competition. Science and technology and domestic economics stand out as the two most critical areas. The authors also note that this is a contest to prove which country's system best provides for its own people during a time of turbulence and instability. They also warn that, despite limits to China's rise, Beijing is approaching this contest through a comprehensive campaign, within and across many elements of national power. Meanwhile, the U.S. has yet to fully embrace the scope of the contest or invest sufficiently in critical tools of statecraft. This has many implications for U.S. strategy. For example, the contest for influence in global digital, AI, and energy networks must be an important focus of strategic investments. Washington should also seek to strengthen its existing global power alignments, which remain a huge advantage. And focusing more on homeland resilience issues could put the U.S. on better footing, whether in peacetime or war. In its competition with China, the U.S. must preserve its vital interests without blowing up the relationship. The most plausible end state, the authors write, "is to create the conditions that encourage and require China to constrain its ambitions and aggressiveness—to become not a friend or ally but a great power more capable of controlled coexistence."

I remember Xi’s pictures were all over the place around 2015, then they suddenly disappeared…

China ran a sustained trade deficit in cars with Europe from 09 to 19 -- but China didn't give up, and there has indeed been remarkable shift over the last 5 years. But Europe hasn't forgotten how to design and build quality cars ... China has a price edge, and a battery quality/ cost and supply chain edge. Time for action, not panic 2/2

If you’re not feeling the AGI, you’re not paying attention. The way economists think about the slow diffusion of general purpose technologies is distracting them from the real game. The scientific and technological frontier is structurally different from every other activity. The frontier is pushed not by diffusion at all, but by the leading research team. You can model it as a winner-take-all tournament game. But that pays too much attention to the economics and not enough to the science. What is happening here is that the scientific frontier is exploding outward. This process is clearly in its early days, given the rapidity at which AI are improving. But even if model level progress completely stalls, we’re still looking at a dramatic acceleration of the scientific frontier. As I have mentioned before, the most dramatic developments may well come from dedicated agent research swarms (with overlapping generations if the context problem cannot be solved) working on fundamental physics. So this is very exciting and scary to see at the same time. And AI-Newton is just a single agent. Imagine what a dedicated research swarm of 10,000 AI-Newton agents can already do. Even if there is no more progress, even if RSI fails, this is a runaway train.

If you’re not feeling the AGI, you’re not paying attention. The way economists think about the slow diffusion of general purpose technologies is distracting them from the real game. The scientific and technological frontier is structurally different from every other activity. The frontier is pushed not by diffusion at all, but by the leading research team. You can model it as a winner-take-all tournament game. But that pays too much attention to the economics and not enough to the science. What is happening here is that the scientific frontier is exploding outward. This process is clearly in its early days, given the rapidity at which AI are improving. But even if model level progress completely stalls, we’re still looking at a dramatic acceleration of the scientific frontier. As I have mentioned before, the most dramatic developments may well come from dedicated agent research swarms (with overlapping generations if the context problem cannot be solved) working on fundamental physics. So this is very exciting and scary to see at the same time. And AI-Newton is just a single agent. Imagine what a dedicated research swarm of 10,000 AI-Newton agents can already do. Even if there is no more progress, even if RSI fails, this is a runaway train.