The limits of détente
U.S.–China tensions persist despite a 90-day tariff truce. Beijing warns of legal consequences over Huawei chips and calls for a return to multilateralism.
Welcome back to What’s Happening in China, your weekly China brief.
On Wednesday, the PRC’s Ministry of Commerce accused the U.S. of “abusing export controls to contain and suppress China.” It said Washington’s actions “violate international law and basic norms governing international relations,” and amount to “discriminatory restrictive measures” targeting Chinese companies.
This came in response to Washington’s warning last week that any company using artificial intelligence chips made by Huawei would be considered in violation of U.S. export controls.
The Ministry added that “any organization or individual that implements or assists in the implementation of the US measures will be suspected of violating the Anti-Foreign Sanctions Law of the People's Republic of China and other laws and regulations and must bear corresponding legal responsibilities.”
(If you want to dive deeper into the PRC’s invocation of the Anti-Foreign Sanctions Law,
has more here.)On Monday, the PRC had already accused the U.S. of undermining “the consensus reached at the China-US Geneva high-level talks” and demanded that Washington “correct its mistakes.” While acknowledging that the U.S. had recently adjusted its press release language, Beijing said “the discriminatory measures and market-distorting nature of the guidelines themselves have not changed.”
Also this week, Reuters reported on Beijing’s concerns over the U.S.’s proposed “Golden Dome” missile defense system. The Financial Times wrote that “Top Republican financial officers from 21 states have urged the Securities and Exchange Commission to determine if Chinese companies on US stock exchanges should be delisted for failing to protect American investors.” And CNN noted that “Chinese authorities appear to be strengthening implementation and ramping up oversight” of rare earth export controls.
As I noted last week, the truce may prove fragile.
At the WTO General Council meeting in Geneva on Wednesday, the Chinese delegation called for a return to multilateralism: “While bilateral talks may sometimes work, China believes multilateralism is the inevitable and ultimate choice to address global challenges.”
Against this tense backdrop, senior U.S. and Chinese officials held a call on Thursday—possibly laying the groundwork for a Xi-Trump call in the weeks ahead?
Let’s jump into it.
— PC
Through the Lens
In Focus
I. Made by China for China
China’s President Xi Jinping has stepped up calls for greater “self-reliance” in the country’s manufacturing sector, emphasising a strategy that critics say has fuelled tensions with trading partners.
Xi’s comments on Tuesday, which the Chinese leader made on a visit to a ballbearing factory that dates back to Mao Zedong’s era, came barely a week after the US and China agreed to a 90-day truce in their trade war.
The two sides agreed to slash tariffs from levels as high as 145 per cent, which had threatened to cut off trade between the world’s two largest economies.
Economists have called for Chinese policymakers to shift a long-standing focus on high-tech production to boost weak domestic demand, which has left the country dependent on manufacturing and exports for growth. They have also argued that Beijing’s emphasis on production over consumption has helped drive global economic imbalances, leading to the trade war with the US.
But Xi on Tuesday said China’s focus on industrial output had been the right decision.
“From relying on imports of foreign matches, soap, and iron in the past, we have now become the world’s largest manufacturing country,” he said, according to state news agency Xinhua, adding: “We need to keep improving our manufacturing sector, insist on self-reliance and self-improvement [and] master key core technologies.”
China’s emphasis on self-reliance predates the current tensions with US President Donald Trump. In 2015, Xi launched Made in China 2025, a government programme aimed at expanding domestic market share in strategic industries through the use of subsidies and policy support.
Read: China’s Xi Jinping steps up calls for industrial self-sufficiency amid trade war (Financial Times)
Related: Xi Establishes ‘Strategic Endurance’ Priorities for the PRC’s Next Five-Year Plan ()
II. “It’s glorious to save and it’s shameful to waste.”
White elephant projects, the use of official vehicles, lavish meals and meeting venue decor are all in Beijing’s crosshairs under new rules introduced as part of an intensified government austerity drive.
The latest revised regulations to “implement frugality and cut waste” among party and government bodies were jointly issued by the Communist Party Central Committee and the State Council, or China’s cabinet, Xinhua reported on Sunday.
All regions and ministries had been urged to “conscientiously follow and implement” the regulations, the state news agency said, citing the two top decision-making bodies of China’s ruling party.
All officials should bear in mind that “it’s glorious to save and it’s shameful to waste”, the latest rules say, while urging the party and the government to demonstrate “strict diligence and thrift, and oppose extravagance and waste”, according to the Xinhua report.
An observer described the latest round of tightening as perhaps “the most detailed and stringent” since the austerity campaign was launched 12 years ago.
Analysts said the move reflected Beijing’s growing anxiety over the mounting debts incurred to finance its budget, and its aim to curb potential wasteful spending at various levels of government.
[…]
Beijing’s first set of austerity measures was issued in November 2013, less than a year after President Xi Jinping took office.
The revised measures, which seek to “free up more funds for development needs and people’s livelihood expectations”, include 20 major changes related to official work meals, the use of government cars, study and inspection tours, government office and dormitory decor, and other expenditure.
For instance, “no expensive dishes, cigarettes or alcohol shall be provided at work meals”.
Officials must also stop all welcoming and sending-off ceremonies during inspection visits by higher authorities, and strictly limit the number of local officials accompanying the inspectors.
Extravagant decorations for official reception venues are prohibited, as are group tours disguised as party-building activities or training programmes.
Officials must also strictly monitor the number of meetings – avoiding unnecessary ones and merging those that can be merged – so that the rank and file can spend more time on their actual duties, according to the regulations, which were reproduced in full by Xinhua.
The meeting venues should be simple, with “no flowers or backdrops” to be used.
In a stern message to officials who seek to invest in white elephant projects to impress their superiors, cadres at all levels have been ordered to uphold “a correct view of political achievements” and to strictly avoid projects that “waste public money and labour”.
Read: China’s fresh belt-tightening push takes aim at white elephants, lavish meals and flowers (SCMP)
III. How to expand in Europe
More than two years ago on the outskirts of a medieval German town, China’s biggest EV battery company placed a €1.8 billion ($2 billion) bet on the future of global trade.
The decision by Contemporary Amperex Technology Co. Ltd. to open a sprawling factory in central Germany — its first outside China — symbolized President Xi Jinping’s recognition that protectionist impulses around the world are here to stay. The idea was simple: invest abroad, create local jobs and keep Chinese goods flowing into key markets. CATL — which this week started trading in Hong Kong after raising $4.6 billion — is a flagship example of that initiative.
“I see ourselves as a blueprint for Chinese companies who are looking to expand in Europe,” Matthias Zentgraf, the battery giant’s European president, said from his factory office outside the town of Arnstadt. With the EU slapping tariffs as high as 45% on Chinese EV exports last year, it’s a tactic being rolled out from Spain to Hungary by companies including BYD Co., Chery Automobile Co. and Zhejiang Leapmotor Technology Co.
As tariffs and protectionism rise around the world, that strategy is looking like a critical lifeline for China’s economy. CATL has little exposure to the US, so new American tariffs have limited impact. Building factories abroad helps Beijing defuse complaints about surging exports and widening trade deficits. Chinese overseas investment surged by $48 billion, or 28%, in the first quarter of 2025 from a year earlier, according to preliminary data from the State Administration of Foreign Exchange.
Yet Chinese companies are discovering some downsides to the build-abroad strategy, including more labor-management tensions than are typical in China, higher operational costs and the risk that key technology and know-how leak to competitors.
[…]
Xi, as well, has signaled some reservations about how far the effort to establish more factories overseas should really go. As it vies for dominance in the global EV market, Beijing has advised its automakers to ensure that advanced vehicle technology stays in China. Its also ramped up scrutiny of outbound investments after record capital outflows pressured the yuan.
“Chinese firms are stuck between a rock and a hard place” when it comes to navigating EU demands for more localization and Xi’s expectations that core technology stay in the country, said Gregor Sebastian, a senior analyst with Rhodium Group’s China Corporate Advisory team.
For now, Xi’s invest-abroad approach is looking like China’s least-worst option. Spilling, Arnstadt’s mayor, echoed that idea in his interview, saying that the success of CATL and other businesses relocating to Arnstadt have had some drawbacks, including increased traffic complaints, but that it’s a price worth paying.
“The advantages clearly outweigh the disadvantages,” he said.
Read: CATL's $2 Billion German Factory Is Helping China Hedge Against Trump Tariffs (Bloomberg)
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