China Decode: Xi Tightens His Grip, Trump Seeks a Deal

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1:08And they're kicking things off with episodes on ZipLine and Bolt, two companies with surprising paths to success. Crucible Moments is out now and available everywhere you get your podcasts and at cruciblemoments.com. Listen to Crucible Moments today. You know, the last major Trump-She meeting was in 2018 in Argentina at G20. and it took still a year after that meeting for trade war one to end and for a trade effectively deal to be worked out and signed. So I think we're still a long way away from an actual deal, but certainly this should be seen as a positive signal to markets.

1:53Welcome to China Decode. I'm Alice Han. And I'm James King. In today's episode of China Decode, we are discussing Trump's trip to Asia and a possible trade truce, the state of crypto in China and Europe trying to curb China's fast fashion dominance. All right, let's get right into it. The last few weeks have been a bit of a wild ride, I think, for US-China relations. China just wrapped up a major four-day meeting and the message couldn't be clearer. tighten control, double down on manufacturing and purge disloyalty, especially in the military top brass. Beijing's new five-year plan, to my mind, leans heavily on technological self-reliance and manufacturing strength, even as its economy strains under high debt levels and weak domestic demand.

2:41Chinese President Xi Jinping has also launched one of the biggest military purges in decades, ousting nine top generals and promoting a trusted enforcer in the PLA. Meanwhile, President Trump is on a huge Asia diplomatic tour, fresh off a visit with Japan's emperor, and is heading to a summit meeting with Xi Jinping likely on Thursday. U.S. and Chinese negotiators have teed up a series of easy wins. China, for instance, buying soybeans again, Washington dialing back on tariffs, and a potential extension of the critical minerals export controls. But the deeper fights over technology and national security remain unresolved.

3:22It's a one-two play. Xi is consolidating power at home, and Trump is chasing quick diplomatic wins abroad, both eyeing a long standoff ahead. James, this is, I think, a really exciting episode in US-China relations. I want to start first with the fourth plenum and the five-year plan, because I think that that document, the communique for the five-year plan, is potentially one of the most important documents to come out of Beijing this year. My own take is that there are three main elements to keep in mind. Number one is China wants to have complete technological self-reliance, whether it extends to semiconductors or biotech or aviation equipment.

4:03It also wants to double down on its manufacturing output. and the third element, which is boosting domestic demand or consumption. That is going to be a key part of this longer-term rebalancing strategy. But James, I'd love to get your thoughts on this. Do you agree that this is probably the most important document this year? Yeah, absolutely. I mean, I rarely reach for hyperbole, but I really do think that this could even be a historic document. I think this fourth plenum, which of course tees up the five-year plan, which we announced next spring, is really important. A lot of it builds on things that China has been doing for a while, but some of the phrasing is different, some of the emphasis is different.

4:47And, you know, Alice, you and I don't compare notes before this. I'm not sure if the listeners know this, but I've got down a rather similar formula to you. I've got one main point, one big vulnerability and one big crackdown. The main point is, as you've just said, this incredible emphasis on technological self-reliance. And I think China is saying explicitly in one of the most important documents of the political five-year cycle that it wants to overtake the US as a tech power. To give the quote, it says that China has the opportunity to quote, seize the commanding heights of technological development.

5:30That really jumped out at me. And the way in which it intends to do this is to move more towards what I would call technological autarky. In other words, it not only wants to build up its own prowess as a science and technology leader, it also wants to reduce dependencies on foreign actors. Now, it hasn't defined who those foreign actors are. But if I was a big Western company selling technology into China or making technology in China, I would be quite concerned about that. It may mean that China wants to slowly ease those guys, well, maybe not out of the market, but to reduce their market share.

6:13So that's the first big point. The other two, the big vulnerability is China's ability to finance its current economic model. I see big problems there. And the big crackdown is one that everybody's talking about, this incredible purge of military officials and lots of other officials too. So there's plenty to talk about. What are you seeing in terms of the document itself, Alice? Well, James, I think we've come to this discussion with pretty much an aligned set of views on the five-year plan moving forward. I want to piggyback on what you mentioned about the crackdown. I think this is extremely significant.

6:52This big political purge of the PLA that has been many years in the running, this process, and again, we can debate the rationale behind it, of basically cleaning house in the top military brass, both in the PLA, but also in the CMC. I think that that's pretty significant. And even the fact that we had eight members who didn't show up to this fourth plenum. That is probably an unprecedented number in Xi Jinping's term. And that points and indicates to me that he's probably not happy with the state of affairs in the military, whether it's their political loyalties to Xi or their battle readiness when it comes to the Taiwan issue.

7:33He's trying to put in loyal acolytes. But again, we've seen, I think, in the last two, three years, a ramp up in a couple of high-level people like Miao Hua, for instance, or Hu Weidong more recently, who have been ousted. What's your take on this? I've read so many different views, so I'm very curious. I mean, my sense is that this shows that Xi Jinping is in charge. He can purge who he wants from the military, and the purges have been dramatic. I mean, some of the biggest military purges that we've seen since the days of Chairman Mao. But I don't get the sense that these military purges suggest that Xi Jinping's position is rocky.

8:15Some commentators have been talking about that over the last few months. I think that this fourth plenum gives all the evidence that we needed to show that Xi Jinping is in charge. His name is all over it. It's his vision. You know, he's had this techno-centric view of China's development for a long time. So I think really he is purging the military of people that he sees either as disloyal or corrupt, or maybe have engaged in espionage, or they're just no longer useful for Xi Jinping's power base. I just have one other statistic to throw in here, Alice, to show the size of these purges in China.

8:58I think our listeners might be interested to know that Last year, the Communist Party of China disciplined 889 ,000 people last year. That was up about nearly 50 % from the year before. It's the highest annual total since the party began releasing data about two decades ago. So this shows that there's enormous stress within the Chinese Communist Party hierarchy. And, you know, it's a pretty perilous place to be if you're a Chinese official. Well, again, a statistic that listeners will appreciate is eight of these generals have been disciplined in the Central Committee, and 14 of them are undergoing some kind of investigation.

9:43It's not yet known. But 22 generals in total didn't turn up to this fourth plenum. And that's a pretty sizable number. I think it's one of the biggest in recent years and certainly biggest purges, at least to my mind, since Chairman Mao. My view, and then we can pivot obviously to Trump's trip to Asia. My view is that they are trying to effectively strengthen China's economy and technological stack as much as possible to reduce what they call the choke point vulnerabilities. Because they are very worried about the recent history of export controls and entity listings coming out of Washington. So I sense that the next five-year plan is about trying to strong arm the Chinese technological and economic capabilities such that if there is a major showdown, you know, militarily speaking, that China will not be so severely kneecapped that it doesn't have alternatives when it comes to chips, when it comes to electronic equipment, when it comes to even certain chemicals that they still rely on heavily from the US.

10:46That is, I think, the biggest takeaway of the five-year plan is that Xi Jinping is effectively trying to bolster China's economy and technological capabilities. But this is, I think, a great segue to the second part of this two-part story, which is Trump's impending meeting with Xi Jinping in South Korea at APEC. It seems to be happening on Thursday. The mood music since last week, I think, has improved quite a bit. Both, I think, are signaling that this meeting is going to be largely positive, that there has been moves towards a framework of a deal. So to my mind, it seems that both sides are willing to make some kind of concession.

11:25On the U.S. side, it seems to be in the form of potentially not escalating the tariffs. Now, I remember the next major deadline on tariffs is November 10th. Another error in which they could concede would be potentially waiving port fees. That, I think, in the last few days has been flagged as an area of possible cooperation. There's also talk about cooperating on fentanyl, for instance, in a task force that, remember, we actually did see happen in the Biden administration for precursors of fentanyl. And then last but not least, you know, this would be, I think, an extreme bullish case for China, potentially relaxing some of the semiconductor export controls, especially as it pertains to Blackwell chips that are higher up and more advanced than H20s, for instance, coming out of NVIDIA.

12:12On the Chinese side, there seems to be room for some concession in the form of agricultural purchases, especially of soybeans, potentially extending, which I think is highly likely the critical minerals export controls, which again come in on November 8th. And then similarly mutually waiving the port fees that they quickly installed after Washington. But this is, I think, going to be quite an important meeting. markets are already expecting I think largely positive mood music from this if you look at today's performance but my own view is this is maybe a tactical win in the short term but strategically it's hard to see any any real deal come out of it and I would remind people that you know the last major Trump-She meeting was in 2018 in Argentina at G20 and it took still a year after that meeting for trade war one to end and for a trade effectively deal to be worked out and signed.

13:08So I think we're still a long way away from an actual deal, but certainly this should be seen as a positive signal to markets. But what's your view, James, on this meeting and what do you think will actually come out of it? Yeah, I'm completely in agreement, Alice. I think, you know, the danger is that the media reporting on this when it's taken place will be trade deal has been reached. But what is being spoken about so far is a framework of a potential deal, which will be discussed when President Trump and President Xi meet. So that is much, much more tentative than a deal. And many of the elements of the deal, as you've already said, are things like China's deferral of the rare earth mineral export controls.

13:55So the idea is that they will delay for one year while they re-examine, you know, the Chinese export control regime on rare earth that we've mentioned a few times in this podcast. And on the US side, Scott Besant said that he didn't anticipate that the 100 % tariff on Chinese goods threatened by Trump would go into force. So, you know, the language is really quite vague. I would be on the same page as you. I would think that what we're going to perhaps get is something that might be dressed up in the media to the media as a deal, but might actually in concrete terms take a lot longer to work out.

14:38And I wouldn't even rule out the possibility that there would be backsliding or reversals in whatever is announced after President Trump and President Xi have met. So obviously, it's an important step forward. No question about that. But I think that it is still quite a long way from being a deal, as you say. Exactly. Yeah, my own sense is that TikTok is probably an easy win. That will likely come out of the meeting for both sides, which we've discussed in previous episodes. China may rhetorically commit, as they did under the Biden presidency, to a task force that deals with fentanyl precursors.

15:19I think that that is likely, but I do not see Washington decreasing tariffs because that would, remember, bring tariffs below a lot of the Southeast Asian countries, which I think would defeat the purpose of the Trump administration trying to rebalance the structural trade deficit with China. And then the next part of it, which I think is still not my base case, but may actually happen, is China committing at a future date to buy more soybeans. Remember, they have not bought a single soybean this year for this season. Instead, they've been purchasing massive amounts from Brazil and now Argentina.

15:52And then highly probable in my probability matrix is that China decides to extend that critical minerals export controls beyond November 8. They're getting, I think, a lot of whiplash, not just from Washington, but Brussels and other countries, now even Japan with Takeishi as prime minister. So I sense that there may be an extension. My own feeling about this relationship is, to borrow a terminology used in Chinese debt financing, extend and pretend. Both sides just keep extending deadlines and pretending like they can actually reach a deal in the short term. Again, I think we're a long way away.

16:26And I would add that analogy to the fentanyl side of things as well, Alice. I did quite a lot of research on fentanyl last year, and it seems to me that Chinese promises over fentanyl don't really stack up because a lot of the action in fentanyl comes from not within China's borders, but over the border in a lawless part of Myanmar, where Chinese smugglers take the fentanyl out of China's borders, and then quite a lot of processing goes on in Myanmar, and then it goes down the rivers and is smuggled over to parts of Latin America using some of the drug cartels over there. And so really, China does not have the ability to promise something concrete or watertight on fentanyl.

17:12And I fear that there will be a great deal of optimism that might, you know, accompany a fentanyl deal in inverted commas, which is then undermined by subsequent reality as we go forward. Yeah. And likewise for agricultural purchases, where I think they only reached by the end of the Trump presidency 40 % of the agreed total agricultural purchases they committed to after the first trade deal. One last thing that I will add that I think is also really interesting before we pivot is that if Trump administration agrees to sell Blackwell chips, there's a good piece by the IFP that suggests that Blackwells are 12 times more powerful than age 20s, which currently can be sold to China.

17:53And that if they were to be sold, the U.S.'s advantage over China on compute would be 4x rather than the current level, which is around 31x. That, I think, again, to drive this point home, is going to be critical in this broader tech race and AI race. Okay, we'll be back with more after a quick break, so stay with us.

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20:37Welcome back. China's crypto story is getting more and more complicated. On the one hand, Beijing is cautiously re-engaging, in fact, encouraging collaboration between Hong Kong and the mainland to build up Web3 stablecoins and blockchain standards. Hong Kong's new stablecoin ordinance has put it at the forefront of global regulation, and Beijing is quietly watching, perhaps even testing how far it can go without reopening the crypto floodgates. But at the same time, there is a darker side of the industry that is playing out. Chen Zhe, a Chinese-born tycoon, is now accused by the US of running a$14 billion crypto fraud empire out of Cambodia, showing just how murky and unregulated parts of the Chinese-language crypto ecosystem remain, even as officials talk about oversight and legitimacy.

21:29Now, this all raises questions about where China truly stands on crypto and digital finance. And to my mind, somewhere probably between cautious experimentation and global scandal. James, this is an exciting topic because I'm sure some of our listeners are crypto believers. But when I was covering this a couple of years ago, what was interesting to me was how radically, I believe in 2020, the summer of 2020, that dark summer, China went from leading the global mining reflected in hash rate of crypto, especially Bitcoin, to basically having virtually zero crypto mining. Now it's kind of recovered and Bitcoin, it's the third largest miner behind the US and Russia.

22:12But certainly I think this has been a bit of a 180 in China's approach to crypto from completely cracking down and stamping it out to kind of cautiously letting it play out. And I think the number one driver behind this is that China is quite concerned that the U.S. may be leading in stablecoins. I think it's very clear that the Trump administration and the people around him are crypto believers and crypto, to some extent, maximalists who believe that the U.S. dollar probably benefits from a stablecoin ecosystem led by U.S. stablecoins. So I think Beijing is sort of cautiously watching and wanting to have at least a horse in the game because it doesn't want to be left behind.

22:52This is, I think, driving the sandboxing approach we're seeing in Hong Kong with stablecoins, but it is also driving a degree of tolerance in domestic mining and trading again in the mainland. But James, do you have any views on this? And how was it when you were in China? What was your view of crypto over the time and the people that you spoke to? How do they feel about it? Yeah, I mean, I had quite a lot of friends back in 2021, when I was in Hong Kong, who were engaged in crypto in one form or another. And so when the ban came at that time, sort of the bottom fell out of their world. China effectively banned digital tokens such as Bitcoin from all transactions at that time.

23:34But as you said, Alice, things are much more complicated on the ground in China. And I would echo what you've been saying about Hong Kong being currently a sandbox for mainland China to get a sense of how some of the latest trends in crypto are playing out, how they're working. But I think the mainland authorities, and we've just seen an announcement today, are sticking to a more hardline approach. The central bank on Monday reaffirmed its hardline approach towards virtual currencies, warning over the risks of these stablecoins in spite of concerns that the US is dominating the industry and US dollar dominance is growing because of the fact that the US dominates the crypto and stablecoins industry.

24:26So I think China's between a rock and a hard place on this one. They don't want the US dollar to run away with the stablecoin market. Stablecoins, just in case we have listeners that are not sure, are cryptocurrencies that are pegged to a clear and fixed value of an existing currency like the US dollar. So China doesn't want the US to run away with the stablecoin market globally. But at the same time, it remains very cautious about allowing stablecoins or other forms of crypto within China itself. And I think the reason for that is clearly stated by Pan Gongsheng, who is governor of the People's Bank of China in the statement today.

25:10He wants most of the attention to be focused on China's official digital currency known as the ECNY. He doesn't want crypto to steal Beijing's thunder when it comes to promoting this official digital currency. So it fears on one hand, the US running away with the crypto market globally. But on the other hand, it doesn't want domestic adoption of stable coins to undermine its own official digital currency. So I think they're kind of going back and forward, zigzagging a bit on this. I really don't know where this will end up. Have you heard anything from your sources? So I was there about a month ago speaking to people who are involved in the crypto market between US and China.

25:58And their own attitude about Beijing was that Beijing is definitely playing a cautious wait and see approach. It has realized that ECNY hasn't fulfilled its, to some extent, domestic and global ambitions, which we can go into just a bit. And it understands that the US is the leader in stablecoin ecosystem. China, I think, wants to find ways to increase its share of global finance and payments. And it believes that maybe an investment or at least paying attention to blockchain technologies will maybe enable that or create a leapfrogging opportunity. But it doesn't really know how that's going to happen.

26:42So hence the sandboxing that I see in Hong Kong. China currently, by BIS estimates, is still under 3%. Its currency, the NMEB, is still under 3 % of global payments and about 8.5 % of global finance. For a ton of structural reasons, I think it's hard for the CNY to displace the dollar anytime soon. But certainly, my feeling of the reason behind a more tolerant approach to blockchain and crypto is because they still don't know how this is going to play out in a larger race of currencies. And they're still very much fixated on trying to internationalize the currency and increase its share of global payments and trading.

27:23I think what is quite significant more recently that we've seen is the pressure that they put on BHP to do 30 % of their iron ore spot prices trading in CNY. I think that may be a stratagem moving forward. but certainly to my mind they're putting their foot off the neck of crypto largely because they want to see how it may further advance let me be internationalization and they're concerned that the u.s may be leading far too much in the stable coin and currency race but just to backtrack a bit i thought it was interesting that eric trump when he was at bitcoin asia 2025 in hong kong delivered a speech in august stating that bitcoin is on track to reach one million per coin and describes China as, quote unquote, a hell of a power.