Changing Perceptions

In 2021, President Xi Jinping called on his subordinates to create a “trustworthy, lovable and respectable” image for China. According to the Pew Research Center, they succeeded.

Pew’s annual survey finds global favourability towards China now exceeds that toward the US for the first time in nearly two decades. The shift is seen even among traditionally US-aligned neighbours like Canada and Mexico. Younger respondents are especially favourable toward Beijing.

Pew polled 36 countries. A median of 46% of respondents have a favourable view of China versus 36% favourable to the U.S. Last year it was the reverse. Before the 2024 election, it was 58% U.S. and 32% China. Ten out of twelve NATO countries now favour China over the U.S., several by wide margins. This includes Spain (24% margin), Italy (20%), Canada (11%) and France (9%). The UK, a Five Eyes partner, holds a positive 5% margin for China. The main countries that skew to the U.S. are Israel (63% margin), Japan (39%), India (22%), South Korea (17%), Philippines (16%) and Poland (10%).

The soft power win for Xi Jinping does not seem driven by China's own messaging. And it’s still not exactly “lovable”. China reported its weakest quarterly GDP growth in three years, with soft consumer sentiment, a prolonged property slump, and a sluggish job market. These aren’t hallmarks of success. Export strength was the main bright spot much to the consternation of its trading partners.

But there has been a collapse in US favourability tied to tariffs, Greenland demands, and the Iran war. European people seem to overlook China's support for Russia in Ukraine and its export overcapacity.

China also took a leadership role at the World AI Conference. Xi framed AI as a “symphony of global collaboration” not a “solo performance” by one country. In May, the US approved H200 chip sales to roughly ten Chinese firms. Beijing itself withheld approval to import the chips until this month, when it allowed a capped volume under half of what those firms had requested. That suggests Chinese AI labs need the compute now, even as Beijing keeps one eye on chip self-sufficiency.

The poll and the AI summit had no impact on markets, but soft power helps the U.S. fund large fiscal deficits and defends the U.S. dollar’s reserve status. As parallel monetary systems develop and nations reposition geopolitically, the tail risk to the dollar system grows.

A Moonshot Torpedoes AI Stocks. Chinese lab Moonshot AI released Kimi K3, an open-weight model that sets new highs for both Chinese and open-source models. On benchmarks it trailed Fable 5 and GPT-5.6 Sol while beating Claude Opus 4.8 and GPT-5.5. But practically it seems competitive with frontier models such as Claude Fable 5 and GPT-5.6 Sol. Price points are lower than Fable 5 and GPT-5.6 Sol but are around the same tier as Sonnet. Goldman’s benchmark data showed that Chinese models are leading on many coding and agentic tasks. According to Anthropic’s Dario Amodei, China was supposed to be 6-12 months behind given its compute constraints.

The news accelerated massive AI unwind trades that had started earlier in the week. In Korea, about 1.2 million accounts or 3.5% of its adult population hit margin-call thresholds, and about 0.6%-0.7% of the population were forcibly liquidated. SpaceX traded below its IPO price. Semiconductor stocks fell sharply globally.

The plumbing is intact, and no systemic risks are metastasizing. Bank stocks started to report record earnings and fair winds. Anthropic and OpenAI researchers may not be able to buy up San Francisco after all.

But there could be economic effects from a reduction in consumer spending from those that had seen their margin account balances mushroom due to the uptrend in the AI trade.

China’s Technological Clout Overstated for the Present but Not the Future. There were articles about China leading in 69 of 74 key technologies. These reports cite the controversial Australian Strategic Policy Institute (ASPI), a think-tank that’s historically been hawkish on China. ASPI tracked the 10% most cited research papers in each of the fields over a five-year period. China’s citation counts have rapidly expanded, leading to ASPI to conclude China is ahead.

However, the U.S. still leads in practical deployment. Private venture capital has historically yielded better outcomes than state-directed investment, and on that basis the US holds a real edge: roughly $270–350bn in US VC funding in 2025 versus $165–170bn in China's combined VC/PE market. The gap looks far starker in AI specifically. US private AI investment dwarfs China's $12.4bn in tracked private AI funding, although that likely understates China's true AI capital, since large state-guided don't show up in conventional VC datasets. The high-volume citation counts may also reflect the sheer scale of China’s workforce and domestic citation ecosystem, which can inflate output metrics relative to qualitative leadership.

But China criticized the report, saying ASPI receives partial funding from the Australian government and the U.S. State Department. China is complaining about a report that makes it look strong, from an institution that China considers hostile. That’s an unusual thing to do if the numbers were fabricated in China’s favour. The Mao-era showed China is capable of the opposite instinct, inflating output to claim strength, when that serves the narrative.

ASPI says 41 of 74 new technologies are now rated “high monopoly risk” up from 33 the year before. That suggests China’s practical technology deployment five years from now may better match its research prowess.

China’s Submarine Missiles. China test-fired a submarine-launched ballistic missile (SLBM) on July 6th as part of a “routine” training program. It was the first time since 1982 that the PLA announced the launch of an SLBM. The test indicates that China has significant second-strike capability (as nuclear warheads can top the ballistic missiles). It also signals to the U.S. that any military planning around Taiwan must assume that China retains nuclear retaliation capability.

This partially explains Greenland’s importance to the U.S. as the island’s location can help defend against Chinese submarines which are spending more time in the Pacific. The Chinese could utilize the Greenland-Iceland-UK gap into the Atlantic to evade American defences.

This is the latest in a series of moves China has made to buttress its Taiwan ambitions. China has conducted drills using commercial roll-on/roll-off ferries as auxiliary landing craft. It’s recent exercises in December 2025 pushed closer to Taiwan’s contiguous zone than ever before learning from Taiwan’s reactions. China has stockpiled oil and grain and attempted to bolster a parallel currency system designed to bypass the dollar.

While nothing suggests an invasion is imminent, the direction of travel is clear.

Iran Seeks Long-Term Revenge. Besides the U.S./Iran War, there appears to be war between the hardliners and the moderates who negotiated the MOU. The moderates want to rebuild, but Supreme Leader Mojtaba Khamenei and the hardliners want revenge. The elected government’s official newspaper, creatively entitled Iran, cited the eldest son who said that “patience is in no way incompatible with taking revenge.” Trump responded by saying that if Iran attempts to assassinate him, he will “decimate and destroy” Iran with “1,000 missiles locked and loaded.”

During the Cold War, major powers worried that normalizing leader assassination would invite retaliation in kind. The U.S., for instance, banned assassination by executive order (Executive Order 12333) partly out of concern that American leaders would become fair game too.

This now looks to be yet another forever war, although maybe a bit Godfather in style. The impact on global oil markets in the medium-term may be mitigated as countries across the Gulf build pipelines to avoid the Hormuz Strait but prices will remain elevated

End Note

It looks like one of the fastest growing cost items in Silicon Valley are security costs. Security spending at Palantir jumped 150% to nearly $3 million in 2025. At Oracle, security costs are up 86% to $5.6 million mostly to fund Larry Ellison’s residential security (he has a very big house). Salesforce is now spending $4 million, about $1 million more than last year.

The Luddite movement, from 1811-1816, was violent. Skilled textile workers were being displaced by machinery and wage cuts during wartime hardship. They had little political voice and no legal outlet like unions. Mill owner William Horsfall was assassinated. Attacks on mills sometimes involved firearm exchanges. Britain deployed thousands of troops, more than it had fighting Napoleon, to suppress the movement. Many participants were executed or shipped to Australia.

I’m sure many anti-AI protesters wouldn’t mind being shipped to Australia, but I don’t think that option is feasible anymore.

Omar Sayed