Chinas’ imagination living in the United States: one is a technology and manufacturing superpower that helps lead the world. The other is an economy on the verge of collapse.
Each reflects the true aspect of China.
A China – we call it the hopeful China – is defined by companies like AI startup DeepSeek, electric vehicle giant Byd and Tech Powerhouse Huawei. All are innovation leaders.
Jensen Huang, CEO of Silicon Valley chip giant Nvidia, said China is “not lagging behind” the United States in artificial intelligence development. A considerable number of experts have announced that China will rule the 21st century.
Another China – The frustrating China tells a different story: slow consumer spending, rising unemployment, a long-term housing crisis, and a business community working toward the impact of the trade war.
President Trump is trying to negotiate a trade war resolution when he must estimate two versions of geopolitical rivals with the United States.
The bet has never been more aware of China. Not enough to worry about your success or comfort in financial difficulties. You should know that the biggest competitor of the United States needs to see how the two Chinese coexist.
“Americans have too many imaginative ideas about China,” said Dong Jielin, a former Silicon Valley executive who recently moved back to San Francisco after 14 years of teaching and studying the country’s science and technology policies. “Some of them want to use the Chinese approach to solve the U.S. problem, but that obviously won't work. They don't realize that China's solution brings a lot of pain.”
Just like the United States, China is a huge country full of differences: coastal and inland, north and south, cities and rural areas, rich and poor, state-owned and private sectors, Gen X and Z. The ruling Communist Party itself is full of contradictions. It avoids socialism, but recoil gives its citizens a strong social safety net.
The Chinese also deal with these contradictions.
Despite the trade war, the Chinese tech entrepreneurs and investors I have spoken to in the past few weeks have been more optimistic than at any time in the past three years. Their hope began with DeepSeek's breakthrough in January. Two venture capitalists told me they plan to come out of a hibernation period that began in Beijing’s 2021 crackdown on the technology sector. They all expressed their desire to invest in China's AI applications and robotics technology.
But they are far less optimistic about the economy – the frustrating China.
The 10 executives, investors and economists I interviewed said they think China's technological advancement will not be enough to lift the country out of its economic downturn. Advanced manufacturing accounts for only 6% of China's output, much smaller than real estate, which accounts for 17% of GDP even after a sharp slowdown.
When I asked them if China could defeat the United States in a trade war, no one said yes. But they all agree that China's threshold for suffering is much higher.
It is not difficult to understand the anxiety that Americans are frustrated by the efforts to build and manufacture their own country. China has built more high-speed rail than the rest of the world, with more industrial robots deployed for every 10,000 manufacturing workers in any country except South Korea and Singapore, and now leads electric vehicles, solar panels, drones and several other leading industries worldwide.
Many of China's most successful companies have gained resilience from the economic downturn and prepared for the bad days ahead. “They've been calling for a long time,” said Eric Wong, founder of New York hedge fund Stillpoint. “In contrast, the United States has been through a long time.”
But when we marvel at the so-called miracle of China, it is necessary to ask: How much does it cost? Not only finance, but also humanity.
China's top-down innovation model relies heavily on government subsidies and investments and has proven to be inefficient and wasteful. Just as the over-building of the real estate sector has triggered a crisis and erased much of China’s wealth, excessive industrial capacity has exacerbated economic imbalances and raised questions about the sustainability of the model, especially as broader conditions deteriorate.
The electric vehicle industry demonstrates the power of two Chinas. In 2018, the country had nearly 500 electric vehicle manufacturers. By 2024, there will be about 70. The casualties include Singulato Motors, the startup raised $2.3 billion from investors, including local governments in three provinces. The company failed to ship a car for eight years and filed for bankruptcy in 2023.
The Chinese government can tolerate wasted investments from its chosen initiatives, which will help fuel the surplus. However, reluctance to invest heavily in rural pensions and health insurance will help increase consumption.
“Technological innovation alone cannot address China’s structural economic imbalances or cyclical deflationary pressures,” Robin Xing, chief Chinese economist at Morgan Stanley, said in a research note. “In fact, latest advances in technology may enhance policy makers’ confidence in the current path, thereby increasing the risk of resource and capital allocation.”
The obsession with Chinese leaders about technological self-reliance and industrial capacity has not helped its biggest challenges: unemployment, weak consumption and dependence on exports, not to mention the housing crisis.
Officially, China's urban unemployment rate is 5%, excluding unemployed immigrant workers. The youth unemployment rate is 17%. The actual number is believed to be much higher. This summer alone, Chinese universities will graduate more than 12 million new job seekers.
Mr Trump said factories are closing and people are unemployed in China.
At that time, Prime Minister Li Keqiang said directly or indirectly that the foreign trade department accounted for 180 million Chinese hirings. “The downturn in economic and trade will almost certainly hit the job market,” he said at the outset of the pandemic. Tariffs could be more devastating.
Beijing is downplaying the impact of the trade war, but the impact is obvious as negotiators held talks with their U.S. counterparts last weekend. In April, Chinese factories experienced the sharpest slowdown in the month over a year, while shipments to the United States fell 21% from the same period last year.
All the economic impact will be borne by the man I talk to, with the last name of the former university librarian at a large university in southern China. He asked me not to use his full name and where he lives to hide his identity in the authorities.
Mr. Chen lives in gloomy China. He stopped taking the self-proclaimed high-speed trains because they were five times the price of buses. Flying is also usually cheaper.
He lost his job last year because the university is one of the most important universities in the country and is facing a budget shortage. Many state-owned institutions have to let go because many local governments, even in the wealthiest cities, have debt.
Because he is in his 30s, Mr. Chen is considered too old. He and his wife gave up buying a house. Now, with the trade war, he expects the economy to weaken further and his job prospects will become dim.
“I became more cautious about spending,” he said. “I weigh every penny.”
