Analysis

Over the next few weeks, Chinese state media will likely repeat ad nauseum the phrase “Chinese-style modernization” (中国式现代化). It is an umbrella term that encapsulates a broad range of development strategies that the CCP portrays as uniquely Chinese in their combination of market capitalism with the party’s monopoly on political power. While it is questionable to what extent the CCP invented state capitalism (after all, many states employ similar economic mechanisms, albeit few with the capabilities or degree of leverage of the CCP), this emphasis on the party’s way of doing business will continue to shape China’s private sector in ways that serve CCP interests. 

The 15th Five-Year Plan emphasizes how the CCP intends to strengthen political control through a combination of different goals. This makes for some necessary tradeoffs between ​​“unleashed vitality” (“放得活”) and “effective regulation” (“管得好”).The party wants to spur private sector innovation while steering firms to drive consumer spending and to champion the party’s priorities. The challenge is that political control tends to impede innovation. Moreover, the party’s investment in tech assumes that such investment will translate into increased domestic consumption. This is far from given. 

To achieve these goals, the party is interested in specific industries. Some sectors that were previously a priority have been downgraded, meaning that they were included in previous five-year plans but not this one, including electric vehicles, health sciences, and eco-friendly technologies. Some sectors remain from the previous five-year plan, namely AI, integrated circuits, quantum computing, new energy technologies, and aerospace, which gives a sense of which industries remain the party’s priorities. Other sectors are newly within the CCP’s crosshairs, including advanced materials for high-end manufacturing (think semiconductors), “embodied intelligence” like humanoid robotics, and fusion energy. US businesses operating in any of these priority sectors will likely face a wave of state-supported Chinese competitors, each tasked with realizing the CCP’s industrial priorities in these key sectors. 

Chinese businesses will face an increasingly heavy-handed party machine intent on ensuring that China’s private sector functions as an extension of the party. Chinese businesses face a Faustian bargain: maintain access to unprecedented government financing for R&D and talent retention with favorable market access at home and overseas, while at the same time face demands to spur macroeconomic consumption and innovate beyond global rivals so that the CCP can win the new industrial revolution. That is a heavy burden for China’s companies to bear. The pressure to perform according to the CCP’s metrics will also likely drive corporate decisions to cheat, steal IP, and cut regulatory corners. 

For US companies, dealing with any Chinese company, regardless of past engagement, will carry the additional risk of CCP influence and infiltration. Collectively, this means that the already prominent risks facing US companies that engage Chinese firms, ranging from suppliers to customers, are likely to increase, not deplete, under the CCP’s renewed political direction.

Analysis

Regardless of US policies and priorities, the CCP sees the United States as an existential threat to CCP rule and China’s ambitions for global economic and political dominance. China behaves accordingly. However, many in the US government seem to regard China as a mere competitor, a country that can be bargained with and accommodated. This is not possible, and acting under those assumptions will cause grave damage to US national security and economic well being. So what is driving a surprising dovishness approach in DC? 

Short term economic gains from exporting our most sensitive technologies to a determined adversary will make the US less secure, and ultimately less wealthy, as China develops its own cheaper, equally capable technology. Moreover, the US administration is sending mixed signals to businesses. Is the US blocking exports to China? Or is it permitting exports in certain sectors that undermine the reason for export controls in the first place? How should US businesses proceed given the variability and inconsistency in US policy? 

US companies need to understand that they run two separate but related types of risk. The first is China risk, specifically IP theft, cyber infiltration, and insider threats which come from dealing with PRC competitors, customers, and suppliers. The second is US regulatory and political risk, which comes from losses imposed by export controls and other USG actions affecting supplies from and sales to China  The first is constant. The second is variable and harder to predict.

US companies must hedge against both risks. Engagement with China is too lucrative for many companies to walk away from, but they must engage carefully with eyes wide open about China threats and the steps to mitigate them. Similarly, the US administration remains divided between China hawks and China doves, and so US firms must plan for radically different policies depending on which faction is dominant at the time. This is difficult. If firms exercise too much caution (because they fear regulatory action that never comes)  they risk ceding the China market to competitors; if firms exercise too little caution (because they believe wrongly that China doves will regulate with a light hand), these companies subject themselves to fines and other penalties.

Analysis

US-China relations may soon be on the rocks again, as the US Department of Defense (DoD) updated its list of Chinese Military Companies (CMC) to include ecommerce giant Alibaba and China’s premier EV company BYD. The DoD pulled the list down shortly after posting it, but not before the document circulated widely enough to get public attention. Even if the companies are removed in the next list, their potential listing could be yet another form of trade-war brinksmanship in the lead up to President Trump’s planned state visit to Beijing. 

The listing of major Chinese companies or a return to such brinksmanship would both be bad omens for market stability. In either case, we would expect to see a return to supply chain manipulation and/or the imposition of new tariffs. Even the potential listing also raises the reputational risk for US companies considering or already doing business with China.While a company’s addition to the CMC list does not make it illegal for a US company to do business with it, it does mean that US companies who do so are voluntarily taking on a significant liability–specifically that they may be accused of aiding the Chinese military. 

Even as new challenges appear on the horizon, companies are still trying to negotiate their way out of the tariff dilemma caused by last year’s trade wars. For instance, Taiwan’s TSMC has pledged to invest $250B dollars in the US on the condition that the US tariff rate against Taiwanese goods will be reduced to 15%--bringing it in line with other major allies with bilateral agreements–and that certain quotas of semiconductor chips will be tariff exempt. And it’s not just TSMC. Taiwanese companies across the supply chain, from MediaTek to Foxconn and Quanta Computer, have all committed to new US investments in 2026. These are complemented by announcements of new Japanese investments in US natural gas, crude oil, and the construction of a synthetic diamond plant in Georgia. South Korea has also benefitted from US efforts to remove China from its supply chains, with ship construction requests already up 8% from last year, in a net-zero gain at Chinese companies’ expense. In short, US companies may have new options for China-free supply chains and friendshored manufacturing options as the year goes forward.

In a developing story, however, the Supreme Court ruled that tariffs issued under the International Economic Emergency Powers Act are now unconstitutional. President Trump’s retribution was quick, as he condemned members of the court who affirmed the decision, promised to find work-arounds, and issued a retaliatory 10% global tariff on all goods (now 15%). What effect these promises and new tariffs have remains to be seen. At the same time, companies like Costco, who have borne the brunt of the current tariffs, are poised to sue for the return of the now illegally taxed monies. Seeing as the tariffs are what has led to the restructuring of the market over the past year, their potential elimination creates uncertainty. Will the new investment that just arrived in the US be withdrawn? Does the federal government have to return the collected tariff funds? Will new duties regimes be installed to replace the emergency tariffs? We will hope to know the answers to these and more in the coming weeks. Until then, caution on all fronts will be prudent and ensuring supply chain redundancies all the more important.

Analysis

Investors sent a clear signal as Hong Kong markets reopened on February 20, 2026. Shares of leading Chinese generative AI startups—Zhipu (officially Knowledge Atlas Technology) and MiniMax Group Inc.—surged as much as 43% and 15% respectively. Since their landmark initial public offerings in January 2026, both companies have seen their valuations rise more than fourfold. This surge suggests rotation away from traditional internet giants like Alibaba and Tencent as investors seek concentrated AI exposures they believe are better positioned for the current geopolitical climate.

The market’s revaluation of these firms aligns with a broader architectural shift in China’s AI arena. Rather than solely pursuing the massive, hardware-heavy frontier breakthroughs favored by Western firms, leading Chinese innovators are increasingly focused on resilient, cost-efficient software coordination. By deploying clusters of specialized AI agents—a swarm—startups like Zhipu and MiniMax can achieve high-level task execution while optimizing for lower compute requirements. This approach is particularly critical as it offers a path to technological resilience despite ongoing international chip restrictions.

These developments occur as CCP policymakers prepare the 15th Five-Year Plan (2026–2030). AI remains a priority. However, intense domestic competition to launch products before rivals such as DeepSeek has triggered a race to the bottom on pricing that may prioritize immediate market share over long-term profitability.

Founded in 2021 by former SenseTime executives, MiniMax has emerged as a premier AI Tiger by focusing on a consumer-first, multimodal business model. Unlike competitors that rely heavily on state contracts, MiniMax generates a significant portion of its income from international markets, including Singapore and the United States. Its flagship products include the Hailuo AI video generator and the Talkie AI companion app, which has reached over 200 million global users. The company recently released its M2.5-Lightning model, which is served natively at 100 tokens per second and costs just one dollar per hour to run continuously. This pricing is ten to twenty times cheaper than comparable Western offerings.

The competition is shifting from a race for raw intelligence to a race for cost. While American firms lead in building the most capable monolithic models, Chinese firms are winning on execution efficiency. If US companies ignore this emerging system of coordinated AI swarms, they risk a future where Western models are expensive luxuries while Chinese modular AI becomes the global standard for digital infrastructure.

Analysis

A Greek air force officer arrested on suspicion of spying for China stands accused of “transmitting top secret information of a military nature” about Greece and NATO’s military plans. The officer’s access to sensitive NATO information exposes a range of potential materials to China’s military (and likely Russia’s as well, as China and Russia share intelligence). Why does a seemingly traditional state-on-state espionage case against a military target have implications for the commercial sector?

The case demonstrates that, despite sophisticated cyber techniques, Chinese intelligence still uses seemingly low-tech engagement techniques, including human-to-human outreach through LinkedIn. The initial engagement claimed to be a private Chinese company seeking "business consulting" services. LinkedIn remains a favorite for Chinese intelligence, partially because individuals often think that outreach on the platform automatically conveys legitimacy. This is particularly the case for individuals who advertise specific skills or work experience that are attractive to Chinese intelligence, including individuals with technical backgrounds. 

For those in the tech sector who work with specific labs or on commercially valuable, sensitive development programs, the risk of outreach through LinkedIn, or via shared groups like alumni organizations, is high and increasing. The engagement usually starts small, but ramps up to include paid visits to China and coaching for how to extract sensitive information. US businesses need a corporate culture that encourages employees to report such outreach, as well as steps for how to address systematic employee targeting.