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THIS WEEK:

Chip industry faces stronger U.S. export controls, admiral on Central Military Commission suspended, bond market booms as confidence lags, China monitors the Antarctic atmosphere, and Xi says China must break norms

1. Chip Industry Faces Stronger U.S. Export Controls

What Happened: Washington announced new export controls targeting China’s semiconductor industry that will block it from obtaining critical chipmaking tools and AI chip components. It also blacklisted 140 Chinese companies.

Breaking the Circuit: The new measures will prevent U.S. investment in military technology from fighter jets to AI, but they will also hamstring both American and foreign companies using U.S. tech in chipmaking.

China’s Counter-Strategy: In the short term, China will leverage its dominance in critical minerals such as gallium, germanium, and graphite, which are vital for the semiconductor and defense industries, by restricting their export. Longer term, China is accelerating research and development projects with the aim of building its own tech ecosystem.

Why It Matters: The new export bans and investment restrictions will further fragment the global tech industry, potentially splitting supply chains and capital markets into competing U.S.- and China-aligned blocs. The new rules also raise uncomfortable questions about the future of international technological collaboration, as geopolitical lines are drawn around silicon and code.
 
By Lizzi C. Lee, Fellow on Chinese Economy, Center for China Analysis

Learn More: Watch “China’s Post-Plenum Tech Gambit: Chips, Shifts, and the Race to the Next Frontier,” a webinar hosted by Lizzi on China’s semiconductor strategy and its implications for global tech.

 2. Admiral on Central Military Commission Suspended

What Happened: Last week, China announced that Central Military Commission member and Director of its Political Work Department Admiral Miao Hua has been “suspended from duty” due to a suspected “serious violation of discipline” — a euphemism for corruption.

Another One Bites the Dust: Over the past two years, Xi Jinping has purged at least fourteen senior military leaders. Many of them were in the rocket and equipment development forces, though more recent targets have been in the navy. 

Investigations Expand to SOEs: Xi has also targeted executives of state-owned enterprises (SOEs) involved in arms procurement. In December 2023, the Chinese People’s Political Consultative Conference revoked the memberships of three senior leaders of military-industrial SOEs, and the former chairman of China Shipbuilding Industry Corporation, who oversaw the country’s aircraft carrier development program, was sentenced to thirteen years’ imprisonment for corruption.

Why It Matters: By far the largest shakeup of military leadership and SOEs involved in military procurement in recent memory, these moves suggest deep anxiety and dysfunction within the military ranks and a greater measure of distrust from Xi. 

By Lyle J. Morris, Senior Fellow on Foreign Policy and National Security, Center for China Analysis

Learn More: Check out Decoding Chinese Politics to learn more about Xi’s relationship with the Central Military Commission.

 3. Bond Market Booms as Confidence Lags

What Happened: The yield on 10-year Chinese government bonds fell to a new low on the first trading day of December, reflecting the market’s expectations that economic growth will remain weak and a lack of more appealing options for investors.

Flight to Safety: With the property market in disarray and stocks underperforming, investors have shifted to bonds over the past two years, settling for low but reliable returns. Even a 1.975% yield, the lowest on 10-year bonds in more than two decades, is still better than the 1.5% interest that banks are allowed to pay.

Preferred Rates Banned: To attract funds, banks were offering some customers preferential deposit rates above 1.5%, but the People’s Bank of China banned this practice in late November, and this move contributed to the surge in demand for government debt. 

Why It Matters: Concerns about inequality and livelihood issues have spurred widespread unease throughout Chinese society, and a great deal is riding on the leadership’s ability to stabilize the economy. However, unless they can successfully instill a greater measure of business and consumer confidence, stimulus measures will have difficulty gaining traction.
 
By G.A. Donovan, Fellow on Chinese Society and Political Economy, Center for China Analysis
 
Learn More: Read about the consequences of China’s economic slowdown in the summary of an expert roundtable co-organized by CCA and the Stanford Center on China’s Economy and Institutions.

 4. China Monitors the Antarctic Atmosphere

What Happened: The China Meteorological Administration announced the opening of the Zhongshan National Atmospheric Background Station in Antarctica on December 1, World Antarctica Day.

Watching the Atmosphere: The new permanent station will monitor changes in atmospheric composition and concentration in Antarctica, providing crucial data to enhance global efforts to combat climate change. 

Building Capacity: The Antarctica station is China’s ninth fully operational atmospheric station and the first overseas. Ten more stations are undergoing one-year observation trials.

Why It Matters: The data from the new station will help scientists understand how the polar regions are affected by climate change. China is increasingly concerned about the impact of climate change on its population and economy, and it has devoted more resources to climate research in recent years.

By Taylah Bland, Fellow on Climate and the Environment, Center for China Analysis

Learn More: Watch “Shrinking Spaces: Indigenous Peoples on the Frontlines of the Climate Crisis,” a webinar moderated by ASPI’s Farwa Aamer on the dire consequences of rising sea levels and climate-related disasters.

 5. Xi Says China Must Break Norms

What Happened: On December 1, Qiushi published an article by Xi Jinping on how China continues to uphold its fundamental principles while breaking new ground.

Fundamental Principles: The article includes excerpts from Xi’s speeches from 2013 to 2024. Xi emphasizes that only by upholding fundamental principles — such as Marxism, the leadership of the Chinese Communist Party, Chinese socialism, and traditional Chinese culture — can the country avoid losing its bearings or making disastrous mistakes.

Breaking New Ground: Looking ahead, Xi states that only by breaking new ground can China shape the trends of the times: the country must “dare to say what has never been said and do what has never been done” by adopting “new theories” to guide “new practices.”

Why It Matters: Xi is concerned that China could lose its direction or stagnate amid unprecedented changes at home and abroad. Countering stagnation might involve breaking certain norms, particularly in dealing with the second Trump administration on critical issues such as trade, Taiwan, and the South China Sea.

By Lobsang Tsering, Senior Research Associate, Center for China Analysis

Learn More: Find out “Who Briefs Xi Jinping? How Politburo Study Sessions Help to Decode Chinese Politics” in a new paper by CCA Fellow Neil Thomas and Affiliated Researcher Feifei Hung.