China Decode: Inside Xi’s Shocking Military Purge

23:23Alice Han:I would say it's certainly a big victory for ByteDance and, as you said, probably for Trump. But to me, the really key issue here is, have the risks to the American people been truly expunged? I mean, does this really mean that ByteDance's control, especially over the TikTok algorithm, has been severed or not. And I think, you know, obviously it's a crucial topic. I mean, TikTok has more than 170 million users in the US and it's no longer, you know, just young people who are looking at TikTok. Even oldies like me, I think, according to the latest statistics, are all on TikTok, glued to TikTok.

24:10Alice Han:Are you using TikTok, James? Yeah, you betcha.

24:13James Kynge:What are you using it for?

24:15Alice Han:I have a bit of an addictive personality, it turns out. I'm finding out rather late in life. I just scroll, doom scroll through TikTok the whole time. You know, there's all kinds of things, food, animals, pets, all kinds of stuff that I'm looking at. So back to the key issue. So the question to me is, has ByteDance's control over TikTok been reduced or severed? And I would say it's been reduced. In fact, I would go a little bit further than that. I would say that this deal effectively means that the ownership of the car that is TikTok in the US has been given to a US company, this joint venture that we'll get into in a minute.

25:01Alice Han:But the engine of that car remains in the hands of a Chinese company called ByteDance. When I say the engine, of course, I'm talking about the algorithm. So just a few bare bones of the deal. So ByteDance transferred the majority of its US operations to a new entity. That entity is called TikTokUSDS, Joint Venture LLC. And that company, the joint venture, is led by Oracle, Silver Lake, MGX. All of those are American companies. They hold over 80 % of the ownership of the equity in that joint venture. But ByteDance owns 19.9%. So the Chinese company remains a pretty significant shareholder. Now, the really important thing I think about these companies, and in the case of the TikTok US joint venture, it is also the most important thing, is the algorithm.

25:59Alice Han:The TikTok business is nothing without the algorithm that underlies it. And although Oracle is now responsible for securing the data of American users and overseeing the retraining of the recommendation algorithm using American sources, you know, so American data will be used to retrain the algorithm, the control of the algorithm will remain in the hands of ByteDance. ByteDance. And it will lease the algorithm to the American joint venture, TikTok joint venture, and it will get payments for that of around 20 % of the American entity's revenue. Now, so this to me means it is ByteDance that remains in control of the algorithm.

26:49Alice Han:And that to me is, You know, that's the key point, because it means that presumably ByteDance can tweak the algorithm anytime it wants without informing the U.S. entity. And it gives ByteDance an operational relationship with the company in the U.S. Do you see it like that, Alice? Or am I being two kind of reds under the bed about this?

27:14James Kynge:No, I have a similar view, but I would delineate it this way. I would say that Trump and his coterie of billionaires have put economic interest above the interest of everyday American state of security and privacy. The reason that, per fucker, the act was put into place was because people in Congress were scared that this tool, ByteDance, could be used to spy on everyday Americans. It could be part of a political interference or surveillance campaign. Now, we don't have evidence, I think, to fully corroborate those views. But if you're an American congressman, I think you're looking at this deal and thinking it solves none of the issues, the national security, data security, privacy issues that we have conveyed and voiced.

28:06James Kynge:and ultimately it rewards the billionaires who now have a seat at the table and can milk this cow for all it's worth. That is my view and this is why I think ultimately the Chinese and ByteDance see this as a victory because they've been able to keep the algorithm which from day one was a key national security priority as per their data transfer laws but at the same time It benefits Trump because it's a great political platform for him. It benefits the billionaire donors around him who now have a seat at the table, have equity in this joint venture. So I agree with you, James, but I would frame it somewhat differently.

28:46And I think it then begs the question, what happens to these other Chinese apps that are

28:51James Kynge:not considered the political golden goose for Donald Trump? You know, when we think about Xiaohongshu, which is Red Note in the West, or we think about Temu or Xin, some of these other platforms, Chinese platforms in the US context, are they up for a similar kind of regulation? And what is interesting is that this creates this TikTok USA joint venture framework, I think, creates a template for future deals potentially that is somewhat similar to what we saw historically with Western companies going into China and signing joint ventures. If you recall, James, back in the day, they could never own more than 50%.

29:33James Kynge:That was the whole point of a joint venture. And they had to partner with a local Chinese company. That is happening now in the reverse. But still, the Chinese have all the cards because to your point, James, all they're really sacrificing is the data security, which is going to be stored locally. But I mean, I talked to all kinds of data experts or national security experts. There are all kinds are back doors. They really wanted that data. And secondly, it's the algorithm that is the most of interest to the Chinese government. One thing that I will end on is Project Clover in the EU and what the EU is going to do.

30:10James Kynge:I think the EU is watching this. I'm not sure, maybe you have a better view, James, what the EU is going to do to regulate ByteDance. But the EU has the same concerns I think the Americans have had towards ByteDance from a national security data security perspective. I'm not sure if they're going to get the act together and enforce that in the way that the Americans have done, but that remains to be seen.

30:34Alice Han:No, I think that's such a good point. I think this opens a Pandora's box for virtually any Chinese tech company that's collecting data in foreign markets. This sets a template or at least an example of what might be done, what should be done, what could be done in order to increase data security that these Chinese companies are collecting, either in the US market or the UK or European market or anywhere else in the world. And I think it's so right of you, Alice, to point to what Western companies had to do in China. And for me, the main example was the way Apple in 2018 had to transfer its mainland Chinese iCloud user data to a joint venture called Guizhou Cloud Big Data that's situated in the southwestern province of Guizhou.

31:32Alice Han:And at the time, I think, you know, we all wondered why that was happening, why that had to happen. And it was purely because the Chinese state wanted to be sure that Chinese people's user data was not going to be used by Apple and taken abroad. It wanted control over the user data. And it seems to me that if you're a Chinese car company working in Europe, let's say BYD, you're collecting data. If you're a Chinese internet company, like Sheen or the other ones, you know, even Alibaba and AliExpress, you know, you're collecting data. So many Chinese companies are collecting data around the world.

32:09Alice Han:surely there has to be now some thinking that goes into the security of the data that they're collected and whether or not they need to set up joint ventures to allow authorities to ensure that let's say European data stays in Europe doesn't go back to China and vice versa for the US. So I think it's a I think this is a big moment in the treatment of the data that Chinese companies are collecting abroad. Now, paradoxically, this may be seen as a barrier to entry by Chinese companies into Western markets. But maybe it's one of those things that once it's overcome, actually smooths the entry of those companies into the European US or other markets around the world.

32:56Alice Han:So it's a big topic. I think this will run and run for the next few years. Definitely.

33:01James Kynge:And I mean, we're just scratching the surface because if you think about it with the Internet of Things, with embodied AI, you know, humanoid robots using world models and spatial intelligence, and then we get into the realm of autonomous vehicles collecting real-time data on the streets and geolocation data. there are so much more data out there to mine and Chinese companies are just scratching the surface we're just seeing one instantiation of it which is social media but it's only a matter of time where we see Chinese companies come in and do autonomous vehicles humanoid robots in western markets and I sense that there's going to be a bigger public debate in western economies about how you regulate that the data associated with those companies so I think we're just in the first innings of a global reframing of Chinese companies, you know, going global in terms of collecting data and using data.

33:57James Kynge:Okay, let's take one last quick break. Stay with us.

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37:06James Kynge:Welcome back. As the U.S. openly turns its back on globalization and leads harder into tariffs, China is pitching itself, at least rhetorically, as the grown-up defender of global multilateral trade, even as its own economy shows real signs of strain. Joining us now to talk with us about this is Hozi Song, China economist and director of China Research at 22v Research. Hozi, thank you so much for joining us today and welcome to China Decode. Thank you for inviting me, Iris. Great. I wanted to start with something that is topical this week, which is Davos. I think a lot of attention was paid to both the Trump and Carney speeches.

37:44James Kynge:But the day before Trump came to speak at Davos, we had Helifeng, Vice Premier Helifeng, who is the Trade and Economies Czar, talking about China's position in all of this. He was critical of the quote-unquote tariff-style law of the jungle and seem to defend the WTO liberal trade order and multilateral institutions like the WTO and IMF. This is coming at a time where we're seeing record Chinese trade surplus around 1.2 trillion last year. And it seems like China will not be escaping this manufacturing-led growth. So how did you interpret that speech and China's trade and economic policy going into 2026?

38:26I would say in terms of what they have been saying, the message has been pretty consistent. For example, if you compare West Premier's speech with the speech President Xi gave before the pandemic in 2018, the message, especially the part on the global order and the global trade systems, are basically essentially the same. So the signaling from Beijing has been pretty consistent. On the other hand, in terms of what they have been approaching and also the China's trade policy, it has been quite different compared to, say, eight years ago when President Xi made his speech during the Davos. But one thing, China was essentially running a balanced trade back in 2018.

39:15China's trade surplus was less than 1 % of GDP. In contrast, last year, China made a record$1.2 trillion trade surplus. And that part of it reflects Beijing's basic manufacturing-first economic policy, but also a greater part probably has to do with the fact of weak domestic China's weak domestic demand.

39:39James Kynge:And do you think going into 2026, we've got the March NPC, the Lianghui, as well as the new 15th five-year plan, that that strategy of, as you were alluding to, using trade and manufacturing to drive growth will shift? Or is China still wedded to this strategy in the midst of, I would say, still pretty weak consumption growth? And if you could also describe to us, why has it been so difficult for the Chinese government to try to boost consumption, even though it does identify it as a key economic problem? I would say, actually, in terms of weakness, Chinese consumption weakness, there's both a cyclical component, there's also a secular component.

40:21The secular component being that historically, the share of income in China that goes to the household sector. is much lower compared to other major economies. And also on top of that, there's the ongoing cyclical adjustment basically triggered and amplified by the ongoing real estate hard lending. So as to why the Chinese central government not providing more help to the household sector and the economy broadly, I would say there are a couple of reasons. The first is that basically that China's central government's priority in terms of their priorities' growth is no longer the top priority. Growth is probably at best secondary.

41:13So, for example, China's long-term growth target through the year 2035 basically implies that Beijing is aiming for an average growth rate of 4 % point for the next 10 years. On top of that, the basically ongoing U.S.-China tension means that Beijing needs to double down on its strategy, manufacturing a technology-first strategy to pursue tech independence, to reduce reliance on both U.S. as well as Western technologies. So I think while the current U.S.-China relationship is expected to be broadly stable this year, But probably most people as well as Beijing believe that this is more likely to be transitory, meaning that Beijing still needs to aggressively push for its tech independence initiative to prepare the longer term potential conflict and confrontation with the United States.

42:17James Kynge:Yeah, I want to touch on that aspect, the tech self-sufficiency in just a bit, because there is an argument that that drives some of the anti-involution campaign because it's created an oversupply in certain goods that has led to price deflation. but before I go into that I wanted to touch on the property sector which you alluded to we're probably five years into this slump in the property sector now there's a debate as to whether it's a hard landing or a soft landing but what is clear and I think you you've mentioned this in multiple instances in the past when we've spoken is that there is a macro knock-on effect of the property sector on consumers on household spending how do you think about it now that we're five years in, the impact of the property sector on households and their spending patterns?

43:06James Kynge:And number two, do you expect there will be some kind of policy support going into the March NPC in response to continued double-digit negative contraction in the property sector? A good question. I would say that first, that in terms of interplay between real estate and household expenditure, there has been some shift, being that initially, say, during the like 22 to 23 period, that you can say basically that real estate decline was a trigger or was a cause of weak household sentiment as well as expenditure. But more recently, I would say that the ongoing real estate property weakness is probably more a reflection and outcome of the broad growth weakness rather than the cost.

44:00The being that I think that currently that really the root cause of a weak household consumption is really the weak job market, both the unemployment rate being elevated and also the fact that the job security that, for example, close to a third of Chinese urban workforce are essentially gig workers. So basically, they're really not very sure that they will still have a job, say, in two months or three months from now. So I would say that right now, the labor market weakness, especially this feeling of insecurity, probably has a bigger role in terms of limiting Chinese household expenditure.

44:45James Kynge:And is it the case that we're going to see maybe more slackness in the labor market moving forward if you expect that AI will continue to decrease the demand for some of these gig workers or even graduate students entering the job market? There's a lot, I think, of apprehension amongst new grads. We had a record 11 million last year going into the workforce. There's apprehension that they might not be able to find jobs in an economy that is slowing down and where jobs are increasingly getting automated or replaced by AI. How do you see that debate play out in China as being distinct from what we're seeing in the U.S.?

45:20I would say, comparatively speaking, the balance is much more in favor of technology and capital compared to labor. When it compares to, for example, debate and also the public opinion in U.S. and other Western countries, there has really, the Chinese government doesn't seem to really take into the job effect of AI and automation. into considerations when they draft those AI and robotics-related policies. So, and I would say that actually they are much more encouraging about the AI and the robotics and its economic impact. So, that's kind of like understandable because it seemed to me that really that the technology advancement, especially how it helped China to boost its international standing, also its national security position, probably at this moment matters more for the Chinese government than really grows our job.

46:23James Kynge:And to zero in on this more concretely, what are your expectations in the new five-year plan for 2026 to 2030? And if you're advising investors or people following China closely, what are these sort of green shoots or hotspots in the economy or even in the financial markets that you think we should be following in the next five years? I think the Chinese government is clearly doubled down on its advanced manufacturing and technology initiatives. I think that's fine, I mean, as long as they're also taking care of the broad weakness of the Chinese economy. I don't see there's a fundamental tension between pursuing both initiatives that they are on the one hand just, for example, either through providing more income transfer to the household or other means to boost the overall economic growth as well as job creation.

47:15And on the other hand, they can continue to fund those manufacturing initiatives. There's really no fundamental tension between those two initiatives. So the surprise is really not that they are doubling down on manufacturing. The surprise seems to most people, myself included, is that they continue to be very reluctant to really stimulate the economy, to reflate the Chinese economy. I would say in terms of investment implications, One is really the, I would say, the most clear implication is the relevance for the Chinese equities. Basically, since late 24, that Chinese equities has enjoyed pretty solid rallies that the eco-weighted A-shares has been basically up by close to 50 % since late 24.

48:01And in the meantime, the curious thing is that the fundamentals of corporate earnings has not improved much. So as a result, basically what suggests the much more expensive valuation, the P-e ratio of Chinese equity indicates that investors have taken a categorically more optimistic view about the outlook of the Chinese economic future. I think the next question is really that whether the coming year the Chinese economic performance can validate or disprove the current quite optimistic expectation investors already press in. And here I see really kind of like risk of tensions between the fact that on the one hand, the Chinese government continue to be very reluctant to stimulate the economy.

48:52And on the other hand, the Chinese equity is being at a really historically high valuation level.

48:59James Kynge:And I think I share your view on this, that there has been a reluctance to do fiscal and monetary stimulus. We saw that in 2025. Now, you could argue that especially in the first half of the year, they did this to reserve the firepower if tariffs got really bad. But even then, they were reluctant to deploy that in the second half of the year. Thank you so much for your time, Hozza. This is an increasingly important subject. I know everyone's focused on Davos, but we're in a sprint until March where key decisions will be made in the second largest economy in the world. So thank you so much for sharing your time and insights.

49:33My pleasure.

49:36James Kynge:All right, James, you know what time it is. It is prediction time. As you peer into the future this week, what do you see?

49:42Alice Han:My prediction this week is in more of a general vein. I don't have any specific numbers or statistics that I'm going to throw at you, Alice. I would just like to say that I think that in relation to our previous conversation about the way in which the US is trying to control data that Chinese companies are collecting in the US, we're going to see a very similar effort in the EU this year. That's the European Union. In fact, I would say that 2026 will be a landmark year for the European Union, led by the European Commission, strengthening resilience against foreign cyber threats. And that includes all types of Chinese technology.

50:29Alice Han:I think we're going to see this in many different areas, including cars, including cellular modules, including wind farms, maybe, and some of the other areas in which Chinese companies collect data throughout Europe. So that's my prediction. What about you?

50:47James Kynge:Well, James, just cheekily, I'd say I do feel very sorry for the Europeans, because if you recall back a couple of years ago with the PRISM scandal during the Obama administration, where European data were transferred to American authorities without European permission. And that obviously caused a fracture in the transatlantic relationship. Now they're going to have to go through it all again with China and it's going to be even more complex. So I do feel very sorry for the Europeans. So my prediction is following up on a previous prediction I made about Chinese tech companies moving more to Singapore, to Singapore wash, or at least de-scienticize their companies in order to go truly global, get global investors and have more of a global reach in terms of marketplace.

51:32James Kynge:This is prompted by the Chinese cyber administration now looking into Manus and whether or not the Manus meta deal, basically meta buying Manus, violates Chinese tech transfer laws. And I have a sneaking suspicion, although I'm not entirely confident, that they may try to kill this deal or delay this deal. because this is an AI company. I mean, it does agentic AI, so it's not directly national security dual use related. But I sense that with AI getting even more charged as a topic in China domestically, there could be some spanners in the works, so to speak, for meta. And mainly because I think it'll make Mark Zuckerberg's life a little bit worse.

52:19James Kynge:So let's see if that actually happens. All right, that's all for this episode. Thank you for listening to China Decode. This is a production of Prof G Media. Our producers are David Toledo, Eric Janikas, and Ness Smith-Savadoff. Thank you to Catherine Dillon, Drew Burrows, Billy Bennett, Dan Shallan, William Flynn, Jesse Millwood, Gil Espinoza, James Patton, and Isabella Kinsel for production help every week. Make sure to follow us wherever you get your podcasts so you don't miss an episode and talk to you again next week.

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