China Decode: Ballistic Missile Test, Europe's AC Addiction, and China's AI Coding Challenger

23:33James Kynge:And they have been forced to comply with the U.S. Department of Commerce's export controls. that are now not just applied to chips and equipment, but also to increasingly AI models, right? But the big news that came out of China just recently is there's a couple of models that are purported to be competitive in this space. There's one, for instance, a cybersecurity firm called 360 Security Technology has apparently unveiled two AI-powered cybersecurity tools that could rival Anthropik's mythos. And then obviously, as I've mentioned, you've got DIPL's GLM 5.2. This is an open-weight model that people can download and use that is supposed to be as competitive as a new cutting-edge Claude code or even cursor code.

24:24James Kynge:So the big question then is, how accurate are these statements? Can we test them out? And how do we compare them even against the cutting edge models that may or may not be available to a lot of non-Americans because of the Department of Commerce's shadow on export controls? I find this exceptionally hazy and opaque and would welcome anybody to come and tell me what the best benchmarks or testing mechanisms are to really compare. But this whole world seems to be moving so quickly and yet it's so opaque.

24:58Alice Han:Yeah, I couldn't agree more, Alistair. This is really hard work to keep up with all of this. As I see it, basically, we have a couple of trends going on here. First of all, the AI race between the US and China is kind of diverging. We're getting a separation, certainly in terms of the users of these models. The other thing that's happening is that China is catching up. It's producing more and more very impressive pieces of technology. I think this is a very considerable move by China. And as you mentioned, Alice, it takes this Zhipu GLM 5.2 into the arena with some of the best, like the Claude Opus 4.8.

25:52Alice Han:Almost all of these Chinese LLMs and agents are open source. And this means that they can be downloaded pretty much anywhere in the world and used by anybody who wants to develop their own AI products. And so what we're seeing is vast numbers of people all over the world downloading these very good Chinese LLMs. Alibaba's Quen, for instance, appears to have surpassed 1 billion downloads worldwide. And this Jupu, GLM 5.2, has climbed to the top of the Western usage charts on third-party development platforms such as and router. So we can see that the Chinese open source approach, as opposed to the US approach, which is much more closed, is creating a really big following internationally.

26:55Alice Han:I'm not going to call it, I never call the AI race between the US and China. I think that's a mugs game. Basically, China seems to be ahead in some areas, the US is ahead in other areas. It's basically neck and neck as I see it. But what I would say is that this latest GLM 5.2 is another reminder that China's doing some very impressive stuff.

27:19James Kynge:And you see this in Chinese tech companies. They basically subsidize usage, make it a freemium model to try to get subscribers to get onto their platform. They've done this with developers. They increase their data quotas for existing subscribers by 50%, offered 5 million free tokens to new users. And at the same time, shout out to my friend Kevin Shrew, who writes the great AI blog Interconnected. He's saying that this is a bigger deal than the deep seek moment. And if he says that, I'm listening. Apparently, he's noting that according to the arena's agent leaderboard, that the Zipu AI's GLM 5.2 is the only open model that is competitive with OpenAI and Anthropic's latest LLMs.

28:08James Kynge:And, you know, it reportedly, according to this leaderboard, bested Claude Fable on design arena. So there are areas in which they seem to be as competitive. But I think when I broaden it out to this geopolitical question. And I made this prediction probably a few episodes back. It's only a matter of time before Washington starts cracking down on this. They probably don't like the fact that so openly you've got developers in Silicon Valley and elsewhere that are using Quen and Zipul and Chinese open source, right? And so on the other side, there seems to be these guardrails that Anthropic is now putting in because they're very worried about distillation.

28:53James Kynge:And they've made it very clear compared to OpenAI that China is the strategic threat or strategic challenge for the US AI community. And so apparently they're able to covertly track now Chinese users of their Claude Code platform. They've got this hidden tracking code that is basically able to pick up on Chinese users using it. And the idea is to prevent future distillation efforts. So this space is getting politicized or geopoliticized very, very rapidly. And it wouldn't surprise me if we end up with some kind of AI iron curtain being pushed by both Beijing and Washington.

29:32Alice Han:Absolutely, Alice. That's a very interesting, thought-provoking phrase. And I have to say, you did predict this several episodes ago. And it does seem that if this trend continues, there will be this divergence between the U.S. models and the Chinese models. My concern is that because the Chinese models are open source, it will not be Chinese models used in China and U.S. models used in the U.S. It'll be Chinese models used in China and everywhere else in the world and U.S. models used in the U.S. this is the big concern because I can't see a country in Europe, let's say, which has none of its own AI LLMs or very, very few, and none of them nearly as impressive as the Chinese or the Americans are producing.

30:23Alice Han:I can't see countries over here, let's say, saying, okay, you're not allowed to use Chinese LLMs because we simply don't have other choices. It's possible the US may try to corral European countries into using only US models, but that would be a big heavy lifting operation if the US was to try to do that. So I feel that your Iron Curtain analogy actually may come to pass in some shape or form.

30:55James Kynge:But don't you think, James, that in a way, Washington under this administration is killing the golden goose, so to speak? Because if it's telling Anthropik, hey, you're not allowed to release the latest fable or mythos to foreign nationals. If you're European going back to Europe, what are you going to do? Right? And then there is no real clear argument that, hey, we're going to pick American models because Americans are also national securitizing this AI issue. And Chinese models are cheaper. You know, we do run some kind of a security risk, but what can we do? Because we don't have models that are as competitive as the two countries, right?

31:34James Kynge:On the open source question, which I think we shouldn't take our eyes off of, is NVIDIA getting into the mix? NVIDIA is now offering open source LLMs because it's a big believer in that ecosystem. So maybe it's not fair to say that the bifurcation or breakdown between China versus the US on the AI front is open source versus closed source. Maybe it's more an idea of, yes, China has predominantly open source, but there are some important open source players, you know, hogging face in Europe. NVIDIA now is a big one in the U.S. And I'd imagine that with the frustrations that people have because of Washington politicizing the closed models like Anthropic, there may be some more entrance into the market like NVIDIA in the open source space where things are harder to control politically.

32:27Alice Han:That's a very good point, Alice. That's a very good point. Yes, of course, NVIDIA is putting out open source models. So it's not as simple as a clear bifurcation between Chinese open source and US closed source. Things are shifting. Things are varying. This is an endlessly complicated and rapidly evolving situation. It's very hard to draw clear conclusions. But one thing is for certain, and that's what you've been describing, which is that the temperature of the rivalry between the US and China is rising.

33:02James Kynge:Yeah. Well, we keep coming back to rising temperatures, both in the climate and in geopolitics. Let's take one last quick break. Stay with us.

33:17one two three i'm stand-up comedian john marco cerezi and i'm actor penis model russell daniels the downside is our podcast where we bring on guests to talk about how miserable their lives are because let's face it things are not getting better every episode we talk about what's wrong with our lives, our guests' lives, the world, but in a fun way. Bottom line is you're going to walk away feeling better about your life. We've had so many cool guests. Caleb Huron, Busy Phillips, Stavros Halkius, Laverne Cox, Hassan Piker, Alana Glazer. I promise you're going to have a good time. Now on the Vox Media Podcast Network, this is The Downside.

34:02James Kynge:Welcome back. A new ethnic unity law in China came into effect on July the 1st and is drawing criticism while the Chinese government works to promote and defend the measure. So James, this ethnic unity and progress promotion law was introduced by the National People's Congress Ethnic Affairs Committee on September 8th, 2025, and it was signed into law and became effective July 1st, 2026. And just for context, I think a lot of people don't understand this about China. There are around 55 recognized ethnic minority groups. They account for about 9 % of the population, which is still predominantly Han Chinese.

34:43James Kynge:That's about 91 % of the population. And obviously, throughout history, there have been periods of ethnic conflict and division. If you go back to the Yuan dynasty, China was taken over by the Mongols. Then you go back to the Qing dynasty. China was also taken over by the Manchurians in the Qing empire. So it's fair to say that China is a lot more multi-ethnic than people understand it to be. But this has become a political issue under the Chinese Communist Party because a big part of the core tenant of the CCP since its founding in 1949 as the head of the People's Republic of China is this idea of ethnic unity.

35:27James Kynge:And my own take on this is that it's grounded in a desire for political unity and control and a fear that because China's had periods of, you know, the warring states of warlordism, of great instability, creating ethnic unity and political unity are important in ensuring political stability. So when I look at this, and I look at some of the language about, you know, trying to avoid and preclude foreign agents who undermine ethnic unity and ethnic stability, I look at that as, you know, and maybe this is a simplification, so correct me, I look at that as the government saying, hey, we need to make sure that we ensure political stability, we don't have protests and unrest, and make sure that there aren't these foreign agents that are trying to undermine our political unity.

36:22Alice Han:I think that the first thing is that this new law, the ethnic unity law for short, took effect on July the 1st, and that's why we're talking about it now. The next thing I think that's really significant about this is that it appears to give China extraterritorial powers. In other words, it appears to give China powers to enforce Chinese law in other parts of the world. And in this regard, the critical article of the law is Article 63, which states that organizations and individuals outside mainland China who commit acts, quote, aimed at China, close quote, that undermine ethnic unity are, quote, are to be pursued for legal responsibility in accordance with the law.

37:20Alice Han:Now, that's a very vague statement. What does that actually mean? How do you define acts aimed at China? That could be virtually anything, I would say. And then the other side of it, the question of being pursued for legal responsibility in accordance with the law. What does that mean? pursued. Does that mean arrested? Does it mean sent a letter? Does it mean sent an email telling you to stop doing whatever you're doing? Does it mean reported on or legal responsibility? What kind of legal responsibility are we talking about? So it is a very vague law. And I have to say that, you know, in the interest of balance, Beijing says that this law is intended to protect national minorities, 55 of them in China, and many of them living abroad as well.

38:21Alice Han:So the first thing to say about this is that we really don't have a clear sense of what this law means in practice. However, one concern of this law is that it could mean something like the following. We all know that the Dalai Lama, who is recognized as the spiritual leader of Tibetan people, some Tibetan people living abroad, some Tibetan people living in China, he is 91 years old, what would it mean if China decides that the Dalai Lama is acting in a way that is aimed at China or inimical to the interests of China? I mean, China regularly calls the Dalai Lama a splittist, a separatist, trying to split China.

39:16Alice Han:So if this is the case, then what would happen there? Would China invoke this law to go after the Dalai Lama? Would they try to apprehend him and bring him to China to stand trial? I mean, we just don't know. It's really not that clear. But what I would say is significant in this is that it is giving China extraterritorial powers. If China chooses to use them or decides to use them, that could mark a significant shift in the way that China conducts itself around the world. So I think that's really key.

39:55James Kynge:Do you find that a lot of, and I look back to say sanctions law in particular in technology, that a lot of the time China will announce, whether it's the unreliable entities listing or the anti-blocking law, certain legislation, but not necessarily enforce it. They use it as a kind of option, so to speak. If something happens that they don't like, they at some point may weaponize that. But in general, is it fair to say that we shouldn't see this as a kind of trigger happy activity where they're going to go out and find different groups, whether they're Chinese or otherwise, that are undermining this ethnic or political unity?

40:38James Kynge:Are they really going to be, I guess what I'm trying to say, going on the offensive and trying to find these people and stop them and sanction them? Or is it really going to be a symbolic move when they're upset with certain policies from a particular country or activities from a particular group or individual?

40:55Alice Han:It's a really good question. I really don't think it's clear at the moment. One thing I would say as part of the big picture is that, you know, we've seen the way that the U.S. has been invoking extraterritorial laws on China. I mean, all of the U.S. entity lists, the lists of Chinese companies that foreign countries are restricted from dealing with because of U.S. law, right? That's an extraterritorial law. I mean, if you're telling a European country that it can't deal with a certain Chinese company, then that is extraterritorial. and I would say that this might be in some senses an answer to that type of extraterritorial pressure that is coming from the US.

41:41Alice Han:We've seen, I would say, the start of it in some of the laws that China's been coming up with. In May this year, the Ministry of Commerce in China issued an enforcement order blocking US sanctions imposed on five Chinese companies related to Iranian oil transactions. That's just one small example. But basically, I would say that law is going extraterritorial all over the world. This is not just a Chinese thing. And so maybe it's part of that. Maybe it's related to that, but it's got different aims and different antecedents. It's really hard to tell at the moment because, as I said, this is a very vague law.

42:24Yeah.

42:25James Kynge:And it reminds me a little bit, even though it's not in the same category of the extraterritorial laws that were unveiled last year, if you recall, for rare earths, James, in which, if you actually read the fine print, they were saying if something was as little as 0.8 % comprised of Chinese-originated rare earths, then it could be subject to Chinese export restrictions. They haven't yet weaponized that, but that was a pretty expansive extraterritorial inset they put into the new export restrictions on rare earths. But my take and the reason why I lumped that in the category of this one is that in a way it's more about the symbolism that as opposed to being, you know, an offensive legislation that they're going to go out on and to really try to find people and stop them.

43:17James Kynge:I think it's more like case by case. Are they worried about a particular group or a particular country? Because remember, a lot of other countries have agency. When I look back to some of the sanctions over the Uyghur rights issues, labor rights issues, Chinese issued sanctions on European ministers, European Union also issued sanctions on Chinese companies and individuals in response. So it becomes a bit of a multipolar trap in the sense that you have escalation dominance or escalation potential on both sides. And I want to take it a little bit back maybe to the domestic side of things, which I find interesting because as a historian, a big part of what the CCP under Mao first tried to do is to really nationalize the system.

44:03James Kynge:Because if you recall, China is a multi-ethnic but also multi-dialectical country. You know, my own people are from Shanghai. Shanghai is a very particular dialect. If anyone who's not living in Shanghai speaks to a Shanghainese person, they can find it very difficult to understand them. And, you know, very early on when the communists came to power, they enforced, you know, unified writing system and simplified, made sure that schools use Mandarin as their primary language. And this law, in effect, is trying to reinvigorate, I think, some of those moves because, you know, it's saying that schools and government agencies must use Mandarin as their primary language and that curricula needs to, quote unquote, forge a strong sense of the community of the Chinese people.

44:49James Kynge:There's also an element of trying to make sure that people speak the same language and think the same way. right? And, you know, we talked about the extraterritorial dimension, but there's also this kind of internal unity dimension, and it comes up in the education system, in the political system. But I thought that that was another interesting aspect of this law. It's hearkening back to the legacy of Mao.

45:15Alice Han:Yeah, absolutely. I think the last thing to say on this from my side would be that it has attracted criticism from abroad, outside China. I'll just mention a couple of those. A UN letter from eight former special rapporteurs said earlier on this year that the law could violate at least 12 international human rights treaties that China has ratified. That's the first thing. And then the other piece of reaction has been from the European Parliament, which adopted a resolution in April this year condemning this law. We're talking about the ethnic unity law and warning that it could intensify the systematic suppression of ethnic identities.

46:02Alice Han:That's a quotation. And further strain relations between the EU and China. Of course, China has rejected those criticisms. So, you know, this is yet another point of tension between the West and China or is evolving into that.

46:20James Kynge:Yeah. And the last thing that I will have to say, James, you know, as much as this is a political issue, I have noticed, again, this is more of a cultural observation as a political one based on travel to China, that there is more of an opening up. And I would say from everyday people, an appreciation of different dialects and different ethnic minority groups, a celebration of their cultures. You know, I was in Yunnan two years ago, and it's the most dense area for ethnic minorities in China. You've got the Miao, you've got the Hui, you've got a lot of different ethnic groups there. And everyday people in China are keen to learn about their different cultural practices.

46:57James Kynge:So I just wanted to offer a flip side, which is, yes, this seems like a bit of a politically sensitive and potentially controversial issue, but I have detected, at least in everyday Chinese society that there still is a growing appreciation for the ethnic minority groups and not just the Han Chinese identity.

47:18Alice Han:Yeah, I would definitely agree with that. I have personal friends who very much respect certain ethnic minority cultures and religions in China. And I very much hear from them exactly the same trend that you're talking about.

47:35James Kynge:All right, James, you know what time it is. It is prediction time. As you peer into the crystal ball for the future this week, what do you see?

47:42Alice Han:Okay, I'm going back to the big topic for me, which is the EU's commercial relationship with China. This is a massive topic. Let's not forget that the European Union comprises about 450 million consumers. This is one of the biggest markets in the world. And EU exports to China, in my prediction, will continue to fall this year. In 2025, they were about€199.6 billion. This year, I think they'll fall back to around€180 billion. So that's about a 10 % contraction. and it contrasts with Chinese exports to Europe, which so far this year have been rising by around 16%. So you've got a very significant contraction of exports to China from Europe and a very significant increase of Chinese exports to Europe.

48:49Alice Han:So that's my prediction. Alice, what have you got for us?

48:52James Kynge:So I've been running numbers on the Chinese consumer landscape. And what I find fascinating, just looking at the recent history since COVID, is that Chinese households are actually quite sensitive to what I would call geopolitical risk. So in a way, they attach a risk premia to their consumption based on the uncertainties that they're seeing geopolitically, economically. We saw that first with a massive downfall in Chinese consumer confidence during the COVID lockdowns from 2020 really to 2022. And then from 2022 onwards, Russia, Ukraine had a huge impact on Chinese consumer spending habits as well as confidence.

49:34James Kynge:And we're starting to see, you know, early signs that the Iran crisis is also starting to weigh on consumer confidence. So my prediction, it's kind of unfair because I've already run the numbers, would be that we're going to see further weakening in Chinese consumer confidence and therefore spending. because everyday Chinese people are worried about not just the geopolitical landscape, but also the economic landscape in terms of hit to external demand. All right, that's all for this episode. Thank you for listening to China Decode. This is a production of Prof G Media. Make sure to follow us wherever you get your podcasts so you don't miss an episode.

50:10James Kynge:And we'll talk to you again next week.

50:22We'll see you next week.