Keeping up with the provinces | The weekly recap

China's 31 provincial Five-Year Plans all landed in June.

ICYDK: The national FYP lays out the overall direction of travel.

• The provincial plans tell you what local governments will actually do, with direct implications for corporate investment or operations.

What stood out: The provinces' priority industry lists converge on the same handful of frontier domains – at a level we haven’t seen in decades.

The shared priorities are nearly universal:

• All 31 provinces name new energy, biopharma, new materials, and AI.
• 30 name the low-altitude economy.
• 28 name aerospace and semiconductors.
• 27 name robotics.

But they aren’t all approaching each priority the same way.

• Hubei stakes out a "World Optics Valley" and "World Storage Capital."
• Anhui claims the national lead in quantum and a concrete nuclear fusion energy timeline, targeting completion of its Burning Plasma Experimental Superconducting Tokamak (BEST) experimental reactor by 2028.
• Inner Mongolia wants to own rare earths and green computing.
• Guizhou is pitching itself as a low-cost compute hub.

In numerous regions, running alongside that industrial buildout, is a harder-edged agenda to replace foreign imports with homegrown products.

• The drive is heaviest in the manufacturing heartland, light in the west, and essentially absent in Tibet, Hainan, and Ningxia.
• Industry-wise, the focus is on high-end CNC machine tools, industrial and basic software, EDA chip-design tools, and high-end instruments and sensors.

Again, each province is taking a distinct approach.

• For example, Liaoning is targeting machine tools and CAE software.
• Beijing, Jiangsu, and Heilongjiang are all targeting the scientific instruments.

The chip layer, including the toolmaking and materials underneath, is also prominent.

• Hubei is going after storage and automotive-grade chips plus photoresist and ultra-pure chemicals.
• Hunan is targeting power semiconductors like high-voltage IGBT and silicon carbide.
• Anhui is going for memory, advanced packaging, and lithography masks.
• Liaoning is focused on front-end equipment, large-size silicon, and special gases.

A whole cluster is localizing the commercial-aircraft supply chain.

• Shaanxi, Jiangxi, Heilongjiang, Hunan, Guizhou, Anhui, and Liaoning all name the C919, or its engines and components

Resource-rich provinces, on the other hand, are focused on scaling up China’s raw-material capacity: That is,owning the upstream, processed materials that feed everyone else's batteries, magnets, and airframes.

• Jiangxi – rare earths, tungsten, lithium.
• Hunan – rare earths, tungsten.
• Sichuan – vanadium-titanium, lithium.
• Shaanxi – titanium, carbon fiber, superconductors.

Policymakers are directing governments and state companies to buy locally developed products – giving the products a guaranteed market.

The upshot: if you export machine tools, chips, industrial software, instruments, aircraft parts, or high-end materials into China, you are being targeted, often down to the sub-sector, for replacement with a domestic alternative.

But the drive to replace foreign imports doesn’t preclude foreign companies from building and selling onshore.

• Coastal regions are courting foreign capital globally – Shanghai wants 300 new multinational regional HQs to set up shop, whole Beijing targets USD 35 billion in cumulative FDI and around 500 foreign R&D centers.
• Borderland regions, like Guangxi and Yunnan, are courting ASEAN investment hard, while Heilongjiang is making a similar play toward Russia.

Beijing is clamping down hard on local governments dishing out subsidies and tax breaks to attract investment. Instead, the competition among local governments is shifting to who provides the best infrastructure and environment for all companies.

• Some localities are promoting fully-fledged “scenario-based“ infrastructure to companies to test their products.
• Others are promising cheap renewable electricity to energy-hungry manufacturers, a practice especially prominent in green-energy-rich Yunnan, Inner Mongolia, Shanxi, and Guizhou.

Why it matters: Direct cash handouts are a thing of the past, but there will still be plenty of opportunities to play provinces against each other, and benefit from cheap power, infrastructure support, or guaranteed buyers.

Get smart: As state policy increasingly steers state buyers toward domestic companies, you have a tough decision on your hands – localize, partner up, or pivot to the niches not yet in China’s sights.

Ether Yin, Partner, Trivium China

What you missed

US-China

China is reportedly planning to allow its largest AI firms, including Alibaba, ByteDance, and DeepSeek, to purchase a limited number of Nvidia’s H200 chips.

• The chips are for training only – with Chinese processors used for inference.

Foreign affairs

During NATO’s annual meeting, Secretary General Mark Rutte announced new initiatives to strengthen the alliance’s defense capabilities, including a “multinational initiative on defense-critical raw materials involving 12 Nato member states.”

• Beijing’s adroit use of critical minerals as economic leverage has galvanized support for friendshoring in Western capitals – a lengthy process given China’s dominance in critical minerals.

The Chinese Navy test-launched a long-range ballistic missile from a nuclear submarine – this is the second time in two years that China has conducted a missile test.

• The show of strength may be aimed at symbolically turning the page on an embarrassing chapter in China’s military history as Xi Jinping begins to reconstitute the PLA’s top brass.

Econ and finance

In June, the producer price index (PPI) contracted 0.3% month-on-month – the first decline in four months – driven by a drop in crude oil prices and nonferrous metals resulting from the US-Iran ceasefire.

The PBoC’s monetary policy committee for the first time listed “structural divergence” as a challenge facing the economy, alongside the now familiar “supply-strong-demand-weak” imbalance and “external shocks.”

• AI- and certain export-linked industries have roared ahead this year while the fortunes of domestically oriented sectors have stalled – economists are increasingly describing this divergence as a K-shaped economy.

Business environment

Local tax authorities are reportedly clamping down on employers who underpay social insurance contributions – by one survey, only about 34% of firms are fully compliant.

The finance ministry (MoF) announced that, starting January 2027, it will cancel vehicle and vessel tax (VVT) exemptions for battery and fuel cell electric commercial vehicles, and both passenger and commercial plug-in hybrid electric vehicles.

• “Energy-saving vehicles” – internal combustion engine vehicles (ICE) with an engine displacement of 1.6 liters or below – will also no longer enjoy a 50% VVT reduction.

Tech

Rumors are flying that regulators – including the macro-planner (NDRC) and industrial regulator (MIIT) – have circulated guidance reining in the types of data centers that local governments are allowed to build.

• Projects below RMB 300 million, with less than 1000 racks, and less than 2,500 kilowatts of electricity cannot be built by local governments.
• Projects over this size require pre-approval, and ultra-large projects may only be built in designated areas with central oversight.

Alibaba and Bytedance are taking their AI agent features offline until they can figure out how to comply with new regulations on anthropomorphic AI services.

• The rules specifically target psychological risks from AI bots that take on a human persona to provide emotional companionship and support, like AI girlfriends and therapists.

Politics

Li Qian, a former vice minister of state security, has been appointed head of the Ministry of Foreign Affairs’ (MoFA) anti-corruption team, a post that had been vacant for about six months.

• A security-minded watchdog inside MoFA sharpens the scrutiny diplomats face over their foreign contacts – foreign diplomats should expect Chinese counterparts to be a touch more guarded than before.

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.