Cautious optimism springs eternal | the weekly recap

What a year, huh?

• Captain, it’s January.

To say 2026 has been off to a volatile start geopolitically is putting it lightly.

• From abducting the Venezuelan president, to threatening to annex Greenland from a NATO ally, to a bevy of new tariffs (both real and threatened), the Trump administration has been ~*subverting expectations*~ globally.
• This uncertainty sent a ripple (or tsunami) of unease through the global elite at Davos and has prompted spurned American partners to shore up ties with China.

That’s why we’re pleasantly surprised by just how...well...quiet US-China relations have been in recent weeks.

ICYMI: Back in October, Presidents Trump and Xi met in Busan, South Korea, calling a time-out on an on-again-off-again trade war and agreeing to a series of de-escalatory measures.

• Most notably, China agreed to approve “general licenses” for exports of rare earth products.

Since then, the post-Busan follow-through has gone remarkably smoothly.

• Asked about China on the sidelines of Davos last week, US Treasury Secretary Scott Bessent registered his satisfaction with progress on trade issues.
• Bessent said that Chinese exports of rare earth magnets were “flowing as expected,” with a “fulfillment rate in the 90s, which I think is quite satisfactory.”
• He also said Beijing had lived up to its promise to buy US soybeans, another major plank of the truce.

And Bessent’s opinion carries weight: He’s reportedly been made the Trump administration's point man on all things China.

• As China czar, Bessent – a relatively steady hand – will be well positioned to tamp down on the sort of policy entrepreneurship within the US government that nearly torpedoed a previous iteration of the trade truce.

And it’s not just Bessent. The administration’s entire approach to China now seems to have shifted toward not rocking the boat – and maintaining positive momentum.

• In December, the office of the US Trade Representative (USTR) chose not to impose Section 232 tariffs on Chinese semiconductors for at least 18 months.
• Earlier this month, the US Commerce Department approved Nvidia’s high-end H200 AI GPUs for export to China – and Beijing now appears to have approved their import.

Changes to governmental org charts are also telling: Last week, the WSJ scooped that the Commerce Department’s Bureau of Industry and Security dismissed two officials from the Office of Information and Communications Technology and Services (OICTS) responsible for countering tech-related threats from China.

• This suggests a more relaxed approach to “the China threat” than we’ve seen in a long time.

And the change in attitude may have some serious legs: We think the Busan truce has a very decent shot of holding up for its initial one-year duration, especially if Trump’s planned April visit to Beijing goes well and Xi reciprocates with a US visit later in the year.

Having said all that, nothing should be taken for granted.

• Major disagreements remain at the heart of the Sino-US economic relationship, any one of which could disrupt the fragile balance seen over the past three months.

That’s why companies should take advantage of this moment of stability to address vulnerabilities in their China-linked supply chains – such as diversifying critical mineral supplies – while we are not actively in the midst of a crisis.

• While things are stable now – and we think that stability will last through 2026 – it's only a matter of time before another crisis hits at some point, even if it's not until 2027 or beyond.
• By then, though, it will already be too late to make the necessary adjustments – so best to make hay while the sun shines.

Joe Mazur, Head of Geopolitical Research, Trivium China

What you missed

Econ and finance

Citing multiple industry sources, Cailianshe reported on Wednesday that regulators have stopped requiring property developers to submit monthly reports on key debt metrics – a long-running requirement under the “Three Red Lines” policy.

• Introduced in 2020, the three red lines were central to Beijing’s campaign to rein in runaway developer debt.

• The policy introduced strict borrowing limits for property developers, based on three debt ratios – liabilities to assets, net debt to equity, and cash to short-term borrowing.
• The removal of mandatory reporting suggests Beijing has now shelved the policy for good.

China is relaunching an invoice lottery program to strengthen tax enforcement.

• On January 23, the tax bureau (STA) announced that 50 cities have been selected to pilot the program for six months, including all four first-tier cities – Beijing, Shanghai, Guangzhou, and Shenzhen.
• The initiative is designed to encourage consumers to ask for an invoice/receipt when purchasing goods or services, thereby strengthening corporate tax compliance.
• Beijing will provide subsidies of up to RMB 300 million for each pilot city.

Corporates

China’s renewables sector delivered another record year of energy installations in 2025. Per data released by the energy regulator (NEA) on Wednesday, last year the sector installed:

• 315 GW of new solar capacity, a 14% increase from 2024 and orders of magnitude higher than the EU and US, which installed 68 GW and ~35 GW, respectively
• 119 GW of new wind capacity – a 50% y/y increase from the record 79.3 GW installed in 2024

Tech

On January 23, the Ministry of Industry and Information Technology (MIIT) publicly announced its intention to draft a mandatory national standard governing a unified ID system for “digital people.”

• AI-powered digital avatars are proliferating online, doing everything from selling products via e-commerce live-stream, to reporting the news, to performing popular songs.
• But there’s no universal traceability system for digital people, making governance difficult.
• MIIT’s proposed standard would create a national ID coding system for digital people in China, presumably assigning each its own unique identification number.

On January 16, the State Council released updated regs implementing the Drug Administration Law, which will replace the current framework on May 15.

• The revised rules lean hard into innovation, explicitly backing novel drug development and fast-tracked approval pathways.
• That’s in contrast to the existing framework’s focus on baseline safety and administrative compliance.
• For the first time, certain drugs will be eligible for market exclusivity. When the new rules kick in, qualified rare disease therapies, for example, will receive up to seven years of exclusivity – broadly in line with US standards.

Politics

On January 24, the Ministry of Defense (MoD) announced that China’s two seniormost generals – Zhang Youxia and Liu Zhenli – are under investigation for “serious discipline violations.”

• Xi has now purged five of the six generals he promoted to the Central Military Commission (CMC) in 2022 and around two-thirds of the 42 generals promoted to the Central Committee in 2022 appear to be in some sort of trouble.
• In a Sunday editorial, the PLA Daily said the two are being purged because they “seriously fueled political and corruption issues that…endanger the Party’s ruling foundation.”
• In plain English: The two men are accused of undermining Xi Jinping’s authority.

On Monday, Premier Li Qiang consulted with leaders of China’s democratic parties and the All-China Federation of Industry and Commerce to get their input on the draft Government Work Report and the 15th Five-Year Plan (2026-2030).

• The readout offered little on the substance of the discussions, but what did stand out was a procedural shift.

• Under former premier Li Keqiang, the State Council leadership would first reach internal agreement on a draft at a plenary session before circulating it for input from experts, business and non-Party representatives outside the system.
• Li Qiang has reversed that sequence, opening the draft to external input before convening a State Council plenary session.

Foreign affairs

On Thursday, after meeting Xi Jinping, UK Prime Minister Kier Starmer capped off his China visit by holding talks with Premier Li Qiang and giving a speech to British and Chinese business leaders at the Great Hall of the People.

State media highlighted the visit’s long list of positive outcomes, including:

• Restarting high-level strategic, economic and financial, and security dialogues, alongside a new cooperation framework on climate and nature.
• Deepening financial ties, including a new China-UK financial working group and approval for a second RMB-clearing bank in the UK.
• Signing a broad slate of commercial and intergovernmental cooperation agreements spanning trade, agri-food, law enforcement, finance, health, and other themes.

US-China

On January 23, TikTok announced the details of a deal structure that would allow it to keep operating in the US.

• The structure looks largely unchanged from what was reportedly agreed in September between US and Chinese negotiators.
• Based on the latest announcement, it’s not fully clear who owns the algorithm, but a December memo from TikTok CEO Shou Zi Chew said ByteDance will retain the algorithm’s IP and license it to the new JV for a fee.
• If that licensing setup stays true (which we think it does), ByteDance didn’t give up much.

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.