Analysis

The CCP is not good at PR. The leadership couches important announcements in dense party-speak directed at CCP members, rather than as public-facing promotions. A recent update about “new productive forces” (新质生产力) sounds like dull political jargon, but is in fact likely a highly consequential signal about the CCP’s current concerns and the future direction of China’s economy. 

Importantly, this announcement explicitly calls for a deepening of the ties between Chinese businesses and the CCP’s national priorities, including encouraging the commercialization of research, the further diffusion of AI across China’s economy, and additional sharing of key personnel among universities, research institutes, and the private sector. In short, this new directive turbocharges the CCP’s existing aspirations to fuse China’s academic, public, and private sectors. Clear separation among these sectors will be increasingly challenging to discern. While we have long argued that China does not have a private sector in the same sense as the United States, engaging with PRC-based partners will likely become more risky as a result of this announcement. 

This intensified integration of politics and economics is part of the CCP’s attempt to better align state-financing for research with the potential for commercialization. The cautious tone of the announcement, however, points to the CCP’s unwillingness to unleash local government investment in pushing commercialization at the expense of government finances. Instead, the announcement stresses a need to consider local circumstances (因地制宜), establish new growth drivers before dismantling exisintg structures (先立后破), and try to avoid the excessive competition (内卷式) that has resulted in worsening productivity and profitability for Chinese companies, and deflation across the entire economy. The CCP is therefore trying to have it cake and eat it too: call for more commercialization, while cautioning against local governments from following those instructions without careful planning. 

For US businesses, two other areas of this announcement stand out: the CCP’s call for a full implementation of the “AI+” (人工智能+) initiative, which encourages the distillation of AI into business practices, and a push to integrate university, government, and corporate talent programs. Both areas mean that Chinese companies will likely embrace more AI across their processes. Moreover, governments and universities will become more heavily involved in employee training, acquisition, and retention. In other words, the CCP is pushing its thumb down on the scale in favor of Chinese businesses in their ability to implement AI into their business processes, innovate, and hire and retain key employees. This means that not only will engaging with PRC companies mean more risk regarding these companies’ likely integration with high-risk PRC-based universities or institutions, as noted above, but also that competition in global markets from Chinese companies will likely accelerate. 

Far from being bureaucratic party-speak, “new productive forces” should therefore tell US businesses that the CCP is leaning further on China’s private sector to both accelerate their growth and to achieve the party’s economic ambitions. China has always been different in that it has no real private sector in the Western sense, and the party-state has always supported Chinese companies in ways that simply does not happen in real market economies; this dynamic is intensifying.

Analysis

US companies with a corporate presence in the PRC typically insulate their US- and PRC-based businesses by registering them as separate legal entities. A PRC-based subsidiary or representative office, for example, typically answers to a shared parent company, but is purposefully separated from other corporate units to protect each side from potential legal issues. That may be changing. A recent $200,000 fine from the US Treasury targeted Amidi LLC for “failing to notify the US government of an investment by its Chinese subsidiary in an AI and robotics company in China.” 

The fine against Amidi was for an investment of almost $100,000 made by its subsidiary in Shanghai, Noematrix, and levied under the Outbound Investment Security Program (OISP). This program has been in effect since January 2025 and requires US citizens to notify the Treasury department about investments from their US-based companies into PRC-based entities “engaged in certain activities in the quantum computing, AI, and semiconductor sectors.” OISP now requires that same reporting for foreign subsidiaries. In other words, Treasury is attempting to close loopholes open to US investors who use a foreign subsidiary to avoid investment restrictions at home. Importantly, the investment itself was not prohibited; rather, Amidi was fined for failing to report the investment. 

For US-headquartered multinational companies, this has implications for how they conduct business in the PRC. Foreign subsidiaries, including both PRC-based entities and other foreign entities that invest in the PRC, will increasingly face similar legal scrutiny from the US government as their headquarters. While the $200,000 fine is small to some companies, the real challenge will be that such fines may flag additional regulatory investigations or restrictions into PRC commercial connections. Moreover, such fines may inflict potential reputational risks for affected companies that could negatively impact the ability to engage US-based clients spooked by being tied to China. Collectively, while the fine is relatively small for a major company, and it is unclear how Treasury determined the size of the fine, the potential knock-on effects are therefore less certain and potentially much more damaging.

Analysis

Chinese exports are back in the spotlight again, with October 14 numbers released by the General Administration of Customs of the PRC reporting year-on-year growth of 36.3% and an increase of 25% from just last month. Manufacturing exports have accounted for nearly 90% of Chinese exports this year, with integrated circuits, EVs, and lithium batteries being among the biggest winners. Global demand for advanced industrial products to support the AI boom were identified as the major driver of overall exports this year, while the month-on-month jump is likely the result of China pushing its EVs and related products to European markets before new tariffs are set to take effect. 

This latter point deserves further consideration, as it points to the potential limits of China’s current economic model. While the EU’s concerns about Chinese overproduction and market saturation are not new, Europe’s increasingly unified and hawkish position about how to deal with the problem is. In the past, EU member states have been divided over how to deal with China, with concerns about dumping offset by the need to maintain access to Chinese markets. Now, the EU’s two largest economies, Germany and France, have joined forces to support tighter controls on an increasing number of Chinese imports. The announcement came, moreover, as EU Trade Commissioner Maroš Šefčovič completed a round of trade negotiations with Chinese Commerce Minister Wang Wentao in Beijing just the previous week.

In the case of China’s EV exports to the EU, the EU employed WTO Safeguard Measures that allow a country to impose temporary, emergency trade restrictions when surge of imports threatens serious injury to the domestic economy. The results will be nearly immediate, since the WTO rule enables the EU to bypass lengthy negotiations with China, and reduce the Chinese market share in half, from six to three percent. While this is a potentially better outcome for China than aggressive, blanket EU tariffs that would price Chinese vehicles beyond consumer reach, PRC authorities remain predictably, if hypocritically displeased. Beijing is concerned about losing access to European markets, however, and is seeking ways to satisfy the EU.

The question now becomes whether China can sustain its current, export-driven model of economic growth without triggering new or increasingly punitive global trade responses that would also create a decline in exports, which in turn would do real damage to the PRC economy. China’s domestic economy offers no pathway to relief, with its Producer Price Index (PPI) up five percent, year-on-year, as of September, but the Consumer Price Index (CPI) rising just under one percent in the same period. This tells us that Chinese manufacturers are feeling the effects of rising oil prices and other basic inputs as it costs more to produce the same products, but that domestic demand remains far too low, and so producers cannot pass those expenses onto consumers. 

If products are not moving domestically, then it seems China’s only option is to continue to rely on exports. Given the EU’s invocation of WTO measures to unilaterally impose limits on imports from China, however, the international community appears increasingly determined and united that it will not accept China’s solution. Despite posting impressive numbers so far this year, then, the long-term forecast for the Chinese economy does not look nearly as promising.

Analysis

The US tech sector faces an ongoing talent squeeze from both the United States and China. Hiring foreign employees in the United States is becoming increasingly difficult. Last month, for example, China’s new entry/exit requirements not only restricted PRC-based tech employees in certain fields from leaving the country without permission, but also extended those restrictions to family members of those affected. This demonstrates how the CCP is increasingly treating tech workers as national security assets and that the party intends to ensure that it holds leverage over its leading AI experts in terms of forcing them to remain at home. It also raises the risk for PRC citizens or Chinese Americans employed at US-based tech companies from being barred from leaving the PRC if they visit, such is the CCP’s current obsession with retaining expertise. These new restrictions point to China's attempt to make hiring and retaining PRC technology workers increasingly difficult for US companies. 

At the same time, an additional squeeze from the United States government will similarly make hiring foreign employees even more challenging. The Trump administration’s announcement that it is suspending visa applications from Microsoft and other US-headquartered tech companies to restrict what it deemed “visa fraud” points more to an attempt at pre-midterm anti-immigration politics than it does an attempt to root out fraud. In response, for example, Microsoft defended its H1B support, announcing that: “of the approximately 6,000 H-1B visa applications we submitted in the last fiscal year, 80% percent were to extend or change the status of existing Microsoft employees.” Microsoft will likely litigate this restriction and argue that the restrictions are invalid as they target specific corporations, rather than restrict all H1B visas.

Accusations of fraud, as well as the timing of the suspension, suggests that this is politics, not pragmatism, by the administration. Similar demands for US universities to limit visas to international students, for example, collectively point to the administration’s assertions that companies and universities are favoring foreigners over US citizens, which the administration is attempting to redress through legal restrictions and public accusations. US companies will likely face further hiring restrictions for foreign nationals that they will need to litigate. 

The real challenge posed by the government’s decision is that the US tech sector dominates globally because it is able to attract the most qualified employees from across the globe. That is an advantage that China does not share. Shutting the door to the hiring of foreign talent not only undermines the US tech sector’s ability to innovate, it also potentially drives those same individuals to found their own competing companies overseas. In the same vein, such moves potentially increase insider security risks in these companies as it gives leverage to competitors that either can provide visas or to foreign state actors over employees who are uncertain about their visa and employment status. 

Collectively, restrictions in both the PRC and the United States mean that hiring foreign workers will likely become increasingly challenging. The US tech sector will likely be the biggest loser.

Analysis

State-sponsored espionage, particularly from the PRC, targets specific industries and technologies for extraction. One of the top targets of these efforts is US-based quantum computing research, predominantly because of its encryption, cyber security and dual-use technology capabilities. In response, the FBI announced the federal government’s intent to better protect the US quantum sector. This announcement includes security frameworks by the National Counterintelligence Task Force to detect insider threats, report foreign personnel recruitment efforts, and secure supply chains in the name of safeguarding dual-use research. 

For US quantum companies, FBI assistance is a potential double-edged sword. First, what the US government “counts” as dual-use technology is currently ill-defined. It is unclear exactly what research or sectors this categorization includes, which limits the tech sector’s ability to prepare. Second, for companies aiming to profit from their research, being labelled “dual-use” is potentially unwelcome. It means the imposition of more controls and less freedom to sell to whom they want. That is important from a national security perspective, but will be a new mindset for many in the private sector. 

The initial focus on quantum will potentially expand to other tech fields, most likely AI frontier labs, and that US tech companies will need to increasingly see themselves as part of a broader defense-aligned industrial base, with all the connotations about the need for security, mandatory reporting, and increased federal oversight that entails. What was once purely commercial activity is now part of US national security. FBI assistance is likely a positive measure for securing the US industrial base. But reporting lapses, inadequate internal controls, or unvetted foreign supply chain partnerships will increasingly lead to federal compliance penalties and regulatory sanctions, not to mention potential IP loss from state-sponsored targeting. Tech leaders need to think about how their security protocols should adapt to this newfound dual-use categorization. 

Part of the impetus for the FBI’s moves likely stems from its recent threat advisory, in which it outlines systemic cyber intrusions, economic espionage, and IP theft directed by the PRC government against US businesses and research institutions. The advisory underscores how state-sponsored corporate infiltration efforts and personnel acquisition programs specifically target specific technologies to gain strategic market dominance. While many in the intelligence and national security communities know this all too well, the business community finds this kind of thinking alien and strange.

The FBI’s recent moves, however, call for a greater role from the private sector, as well as academia and federal law enforcement to safeguard commercial supply chains and research into advanced technologies. In other words, companies in frontier tech development will likely see far more attempts by the PRC to gain access to their most advanced technology, which means that the FBI will be far more involved with these companies in the coming years than perhaps otherwise anticipated. Companies need to prepare for this increased likelihood by doing their homework now on their own security exposures and vulnerabilities.