China This Week: Iran's Defence Chief at SCO, Mosquito-Sized Spy Drone Revealed, and China's Innovation Model
This week in China, we explore key developments in its domestic and foreign policy landscape, as well as a closer look at China's innovation model.
China Quote 🗩
"The whole world economy relies on these magnets from China, if you stop exporting those, it will be felt across the globe."
Jost Wübbeke, managing partner at the Berlin-based Sinolytics research
The China Model of Innovation
China has emerged as a global leader in innovation because of its unique approach that combines corporate entrepreneurship, academic research, and government planning. This concept contrasts with that of the Western world, which is mostly driven by the market. In China, the government plays a crucial role in not just providing money but also in determining the course of technical advancement. The Torch Programme (1988) and the Mass Innovation and Entrepreneurship Plan (2014), among other initiatives, have turned universities into commercialization hubs that assist businesses with infrastructure, legislative incentives, credit availability, and tax benefits..
A defining feature of this ecosystem is the government’s willingness to underwrite risk. Despite the fact that many of these firms might fail, organizations such as the Ministry of Science and Technology and local innovation funds invest billions of yuan in them. Yet successes, such as DeepSeek’s affordable large language models and Likang Life Sciences’ development of AI-enabled mRNA cancer vaccines, have the potential to redefine entire sectors. Another important factor has been regulatory reform. For instance, the National Medical Products Administration has accelerated clinical trial clearances by implementing digitalized systems and priority review pathways.
In global data, the outcomes of this integrated model are becoming more visible. China's corporate research output is quickly catching up to that of the US, according to the Nature Index (2020–2024). Furthermore, 4 of the world's top 10 academic-industry relationships are currently based in China. Government-backed R&D quickly translates into market-ready technology, as seen by flagship businesses such as CATL, which is expanding its battery-swapping infrastructure, and BYD, which launched its "God's Eye" intelligent driving system in 2025.
Subject-specific measures also show that China is becoming more powerful. China's scores in chemistry and physical sciences are becoming close to those of the United States. Even though it is lagging behind in biological sciences, the upward trend is clear. Partnerships between state-owned firms like the China State Shipbuilding Corporation and academic institutions like Ocean University of China have emerged as one of the strongest academic-industry bilateral collaborations. China's approach is popular, but it has its critics. Concerns remain around bad investments, possible market signal distortions, and problems with intellectual property rights around the world.
Economic Activity🏦
Li Qiang Says China Is Becoming a ‘Consumption Powerhouse’ Amid Global Trade Frictions
Fortune reports that Premier Li Qiang used his speech at the World Economic Forum in Tianjin to warn of rising protectionism and assert China’s commitment to economic openness. Highlighting China’s growing domestic demand, Li positioned the country as both a manufacturing and consumption giant, while urging multilateral cooperation over isolationist trade policies.
World Economy to Slow Despite US-China Tariff Easing, Says Fitch
Fitch Ratings reports that despite a recent easing of US-China tariffs, global GDP growth is projected to fall to 2.2% in 2025—well below 2024 levels. While China and the US saw modest upward revisions, Fitch warns that persistent policy volatility, trade shocks, and weak domestic demand will continue to weigh on the world economy.
China Breaks More Records with Surge in Solar and Wind Power
Amy Hawkins writes in The Guardian that China added 198 GW of solar and 46 GW of wind capacity between January and May 2025—enough to match the electricity output of entire nations like Indonesia or Turkey. With solar capacity now topping 1,000 GW, China leads the world in renewable energy expansion, even as domestic firms face financial strain due to hyper-competition.
China’s Spiritual Economy Is Booming as Gen Z Turns to Tarot
Minmin Low writes in Bloomberg that a rising number of young Chinese are embracing astrology, tarot, and fortune-telling as they grapple with economic uncertainty. Hybrid bars offering mystic services alongside cocktails are proliferating in urban China, fuelling the growth of a booming metaphysical sector known as the Xuanxue economy.
China Tech Firms Ramp Up M&A Deals with the Blessing of Beijing
The Business Times reports that Chinese tech giants like Tencent and Alibaba are accelerating mergers and acquisitions after years of regulatory crackdowns. Encouraged by Beijing’s new emphasis on AI and innovation, firms are snapping up domestic and overseas assets. The resurgence in deal-making marks a shift in policy, with authorities aiming to foster national tech champions.
Chinese Energy Firms Urge Brazil to Clarify Rules or Risk Losing Investment
South China Morning Post reports that top Chinese energy companies have warned Brazil that delays in regulatory clarity could jeopardise billions in clean energy investments. Speaking at the Energy Summit in Rio, executives from SPIC and CEEC stressed the need for stable frameworks for energy storage and concessions to ensure Brazil remains attractive for green capital.
Chinese State Firms Advance in Bidding for Suez Assets
Bloomberg reports that three major Chinese state-owned firms — Beijing Capital Group, China State Construction Engineering Corp., and Guangdong Holdings — have progressed to the second bidding round for Suez SA’s Chinese water infrastructure assets. The French utility may seek over US$2 billion for the portfolio, though partial divestments remain on the table.
China Hits 1 TW Solar Milestone
PV Magazine reports that China has surpassed 1 terawatt of installed solar power capacity, marking a historic global first. The milestone, driven by record-breaking installations in early 2025, reflects aggressive policy support. However, analysts caution that the installation pace may slow in the second half as policy momentum tapers.
Inside China🐉
China Tightens Internet Controls with National Virtual ID System
CNN reports that China will roll out a centralised virtual internet ID from mid-July, consolidating online identity verification across platforms. Experts warn the system could sharply increase state surveillance and censorship, erasing digital anonymity. Though officially voluntary, critics fear it may become de facto mandatory, raising data privacy and free expression concerns.
China on Cusp of Seeing Over 100 DeepSeeks, Ex-Top Official Says
Bloomberg reports that China could witness over 100 AI breakthroughs akin to DeepSeek in the next 18 months, according to Zhu Min, former deputy governor of the People’s Bank of China. Speaking at the World Economic Forum in Tianjin, Zhu said these innovations could fundamentally transform the technological fabric of China’s economy.
China’s Electric-Vehicle Factories Have Become Tourist Hot Spots
WIRED reports that Chinese EV makers like Xiaomi and Nio are offering popular public tours of their highly automated factories, turning industrial spaces into major tourist attractions. With factory automation rates as high as 91%, these visits blend marketing with tech spectacle, drawing tens of thousands of visitors eager to witness China’s manufacturing transformation firsthand.
China and the World🌏
Iran’s Defence Minister Visits China for SCO Summit Amid Israel Ceasefire
CNN reports that Iranian Defence Minister Aziz Nasirzadeh travelled to China for the Shanghai Cooperation Organisation meeting in Qingdao—his first known foreign visit since Iran’s recent conflict with Israel. The summit underscores Beijing’s growing role as a security convener, as China positions itself as a stabilising force distinct from US-aligned blocs.
Israel-Iran Conflict Exposed China’s Limited Leverage, Say Analysts
Al Jazeera reports that Beijing’s restrained response during the recent Israel-Iran conflict revealed the limits of its diplomatic clout in the Middle East. While China pushed for a ceasefire and positioned itself as a stabiliser, analysts say its economic ties to both sides and lack of deep political influence hindered its ability to mediate effectively.
US Says Deal With Beijing Will Expedite Rare Earth Exports From China
Nandita Bose and David Lawder write in Reuters that the United States and China have agreed to fast-track rare earth shipments, a key breakthrough amid efforts to resolve their trade war. The deal follows Beijing’s earlier commitment to roll back non-tariff barriers and could ease tensions over mineral export curbs that disrupted global supply chains critical to high-tech industries.
Top U.S. Diplomat in Hong Kong Criticises the City and China for Curtailing Freedoms
Kanis Leung writes in PBS NewsHour that outgoing U.S. Consul General Gregory May condemned Beijing and Hong Kong for eroding freedoms, citing jailed activist Jimmy Lai and transnational repression efforts targeting U.S.-based individuals. His remarks, made at a July 4 event, drew a strong rebuke from Hong Kong authorities, who accused the U.S. of hypocrisy and interference in judicial matters.
Ex-New York Official Facing Chinese Agent Charge Indicted for US$35 Million in Kickbacks
South China Morning Post reports that Linda Sun, a former aide to two New York governors, has been indicted for allegedly steering US$35 million in pandemic-era contracts to favoured suppliers and receiving kickbacks. Already facing charges of acting as an unregistered Chinese agent, Sun and her husband are now accused of bribery, fraud, and laundering US$2.3 million in profits.
US Strikes on Iran Prompt Beijing to Reassess Trump’s Military Resolve
Edward White and Kathrin Hille write in The Financial Times that Donald Trump’s recent bombing of Iranian nuclear sites has shaken assumptions in Beijing that he would avoid foreign entanglements. The show of force has raised concerns among Chinese policymakers about how a second Trump term might approach Taiwan, signalling a potential recalibration of China's strategic expectations.
The Global A.I. Divide Deepens as Compute Power Concentrates in Few Nations
The New York Times reports that just 32 countries—led by the US, China, and EU—host specialised A.I. data centres, while over 150 nations lack such infrastructure. This imbalance in compute power is fuelling new geopolitical dependencies, limiting A.I. development in the Global South, and creating a digital sovereignty crisis as wealthy nations dominate chip access and infrastructure investment.
BRICS’ New Map Is Taking Shape
Mihaela Papa and Walter Streeter write in World Politics Review that ahead of its July 2025 summit in Brazil, BRICS is emerging as a key platform for countries seeking economic sovereignty and alternatives to Western-led institutions. Amid stalled global reforms and US-imposed tariffs, the bloc is accelerating financial cooperation, currency diversification, and engagement with new partners to champion a multipolar, multilateral order.
Tech in China🖥️
China Builds Mosquito-Sized Spy Drone
The Independent reports that Chinese military researchers have developed a mosquito-sized unmanned aerial vehicle for covert battlefield operations. Built by the National University of Defence Technology, the bionic robot can be remotely controlled and is equipped with sensors suited for reconnaissance missions. The development reflects China’s growing interest in micro-drone warfare technologies.
Huawei’s New Laptop Powered by SMIC Chip
Tech in Asia reports that Huawei has launched the MateBook Fold, featuring a 7nm Kirin X90 chip made by SMIC using its N+2 process. Analysts say SMIC’s inability to mass-produce 5nm chips—due to U.S. export controls—highlights China’s lag in advanced semiconductor tech. The laptop marks Huawei’s push into full-stack computing via its Harmony OS and integrated hardware-software design.
China's Sciwind GLP-1 shows promising results against obesity
CNBC TV18 reports that Chinese firm Sciwind Biosciences’ experimental weight loss drug, ecnoglutide, achieved up to 15.4% body weight reduction in a Phase 3 trial. The GLP-1 receptor agonist showed strong results across varying doses, with mostly mild side effects, positioning it as a potential rival in the booming anti-obesity drug market.
Decypher Data Dive📊
Nature Index data shows that from 2020 to 2024, Chinese companies greatly increased their scientific research, almost catching up with the US. This big push in research is leading to new technologies, like DeepSeek’s AI, BYD’s smart electric cars, and CATL’s quick battery-swapping stations.
Image of the Week📸
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Microessay by Shivani
Data By Bhupesh
Edited By Aurko
Produced by Decypher Team in New Delhi, India