Welcome back to What’s Happening in China, your weekly China brief.
I’m back after the summer break. I hope you had a good one if that was the case.
With just a few weeks to go before hosting Chinese leader Xi Jinping in Washington on September 24, the Trump administration increased pressure on Beijing this Monday by announcing secondary Iran sanctions.
Even though Chinese banks are considered to be providing Iran with an economic lifeline, none were included in the U.S. Department of the Treasury’s list of sanctioned entities, leading to bipartisan calls for the administration to “hold accountable any financial institution that knowingly helps the Iranian regime evade sanctions, finance terrorism, or fund activities that threaten Americans and our allies.”
The Chinese Ministry of Foreign Affairs, in response, said that it is “firmly against sanctions that have no basis in international law or UN Security Council mandate,” and that “China’s cooperation with Iran complies with international law.”
While the road to the upcoming summit has been bumpy, the two sides seem committed to maintaining the fragile truce. On Wednesday in Beijing, in preparation for the upcoming leaders summit, Chinese Minister of Foreign Affairs Wang Yi sounded measured when he met with U.S. Ambassador to China David Perdue, saying that while relations between the two countries “still face various risks and challenges,” they must “overcome obstacles to high-level exchanges, and promote the development of China-U.S. relations in a stable, healthy, and sustainable direction.”
Let’s jump into it.
— PC
Through the Lens
In Focus
I. U.S. sanctions, Iran, and China
When US Treasury Secretary Scott Bessent unveiled “Operation Economic Outcast,” threatening damaging new sanctions on countries that refuse to stop doing business with Iran, he didn’t name the one country that could decide its success or failure: China.
The world’s second-largest economy has long been a critical economic lifeline for Tehran, buying up the vast majority of its oil exports – worth an estimated tens of billions in US dollars last year – in addition to other trade.
Bringing it on board with the White House’s latest effort to subdue an Iranian leadership stubbornly defiant after almost six months of war, however, is an extremely tall order.
Beijing flatly rejects what it calls “unilateral” US sanctions and has long defended its right to regular trade with partners like Iran and Russia. It also surmises that Washington would be wary of triggering a broader economic confrontation that would hurt both countries, right ahead of the US midterms.
On Tuesday, following Bessent’s press conference, China’s Foreign Ministry vowed to “take all necessary measures” to safeguard its “own legitimate rights and interests” in the face of US sanction threats.
Read: Trump’s fallback strategy on Iran faces just one big problem (CNN)
Related:
II. Nepal-Tibet flood disaster
The Red Cross has said at least 93,000 people may have been affected by Wednesday’s flash floods on the Nepal-Tibet border, which have killed nearly 600 people, left another 1,900 missing, and triggered a huge rescue operation that is being hampered by fears of new flooding.
The International Federation of Red Cross and Red Crescent Societies (IFRC), the world’s largest humanitarian network, said it feared the death toll would continue to rise as some of the hardest-hit areas remained inaccessible after roads and bridges were destroyed by the torrents.
“The trauma of this event is enormous,” David Fisher, the IFRC head of delegation for Nepal, said on Friday.
“Thousands of homes have been destroyed or suffered significant damage. We believe that at least 93,000 people have been affected and are in great need. The death toll is very high and unfortunately likely to continue to rise.”
The deadly floods occurred on Wednesday morning after an enormous section of a glacier in the Himalayas broke loose and crashed on to the valley floor in Nepal’s Langtang national park, unleashing a massive surge of water, mud, rock and ice that thundered down rivers and valleys. The resulting floods obliterated villages and destroyed power stations, roads and bridges.
Read: At least 93,000 ‘in great need’ after Nepal-Tibet flash floods, says Red Cross (The Guardian)
Related:
Chinese rescuers find ‘nothing but ruins’ at border crossing as Nepal seeks help to ID and store the dead (The Guardian)
Chinese control of information hampers assessment of Tibet flood damage (The Guardian)
People missing in Nepal-China flooding are from over 30 countries (AP)
III. China and the next global economic crisis
When the Chinese export machine stalls, the reckoning will be most painful for China. But a material slowdown in its economy would send shock waves around the world, especially among China’s major trading partners, not only in the Asia Pacific but also in countries elsewhere whose economies have become intertwined with China’s. The United States would not be immune to the shock, but it would be the only actor with the economic and institutional capacity to stabilize the global economy.
The surest way to avoid this costly chain of events is a preemptive and gradual rebalancing of the Chinese economy. This has long been China’s best path toward more sustainable growth, and a route the United States has advocated for years. But whereas in decades past it was a smart choice, now it is a necessity.
[…]
A crisis is not inevitable. China’s economy is resilient, and at least on paper, its leadership has signaled a recognition of the problem and an interest in taking steps to address it. The Chinese Communist Party adopted an anti-involution campaign in 2025, and its 15th Five-Year Plan, for 2026 to 2030, promotes consumption, particularly in rural areas. The CCP has also taken modest steps to strengthen its social safety net, with the goal of reducing the incentive for households to save instead of spend.
But China’s leadership remains unwilling to make the most important change: fundamentally reorienting the country’s growth strategy toward a more sustainable model. Beijing has, in general, continued to suppress domestic consumption, with the goal of maximizing industrial output in strategic and low-value sectors alike.
Read: The Next Global Economic Crisis Could Be Made in China (Mike Froman, Foreign Affairs)
Related:
Who Paid for China’s Last Debt Cleanup, and Who Will Pay for the Next? (Michael Pettis, Carnegie Endowment for International Peace)
