Regulating open source | The weekly recap

Xi Jinping's speech at last week's World AI Conference in Shanghai was an exercise in “balancing development and security.”

• Xi expressed full-throated support for AI development, while indicating that regulation is moving up Beijing's priority list.

Read together, the message was that China intends to compete hard on AI, but on its own terms, with stability ranked ahead of any near-term gains.

The bit that attracted the most attention was Xi's reaffirmation of China's commitment to open-source AI.

• There has been growing speculation that AI safety concerns may force Chinese regulators to disallow ongoing release of open-source models.
• But Xi's message was that China isn't going to walk away from open source.

That’s likely because the global popularity of Chinese open-source tools is a once-in-a-generation opportunity to bring the international community onto China's AI stack – particularly in the absence of cheap, open US alternatives.

• Beijing intends to press that advantage for as long as it can.

Running alongside the open-source pitch, however, was a notable elevation of regulation, ethics, and governance in Xi's remarks.

• The speech raised deep questions about practical and existential AI risk and called for new laws and risk-monitoring systems.
• Beijing was already an early and fast mover on AI regulation, but Xi’s talk indicated that China will double down on AI safety, potentially placing stronger controls on both the release of new open-source models and the distribution of open model weights.

Then there was the announcement of the World Artificial Intelligence Cooperation Organization, formally launched on the eve of the conference last week.

• This represents Beijing's bid to compete with the US on global AI governance and offer the Global South an alternative to Western-led bodies.
• Whether it gains traction is an open question – China's track record on tech governance organizations is patchy at best, and the recent past is littered with abandoned Chinese-led cooperative platforms.

Zoom out from the individual announcements, though, and a bigger picture emerges: Xi believes that while AI is deeply important and transformative, it should never become so all-consuming that policymakers lose sight of what really matters.

• Technology is not an end unto itself – instead, AI should serve social development and stability.

The implications of that framing are far-reaching. Beijing is prioritizing AI’s long-term development over a sprint race to build the most advanced frontier model.

• Viewed through that lens, the tighter regulations, willingness to slow model releases, and the hard line on NVIDIA chip imports all begin to make a lot more sense.

The bottom line: The AI race won’t be decided this year – it is a decade-long play for who owns the AI stack that the developing world runs on, who sets the rules of global AI governance, and ultimately, whose industries make the best use of these tools for economic gain.

Kendra Schaefer, Partner and Head of Tech Policy Research, Trivium China

What you missed

US-China

The Trump administration imposed tariffs of between 10% and 12.5% on 60 countries, including China, alleging that they hadn’t done enough to prevent the import of products made with forced labor.

• The fact that China wasn’t singled out and that the new duties merely aim to re-establish Washington’s previous tariff rate mean Beijing is highly unlikely to retaliate.

Xi Jinping looks headed to DC in September – at least for now.

• Trump has downplayed his July 16 comments claiming that China interfered in the 2020 US election, saying: “Well, we’re going to talk to them about it. It took place a long time ago.”
• On Monday, US Secretary of State Marco Rubio said, “we anticipate that the trip is happening in September,” while China’s foreign ministry says the two sides have “kept in communication on head-of-state interactions.”

Foreign affairs

Top diplomat Wang Yi met a delegation from the European Parliament’s Committee on Foreign Affairs visiting Beijing on Tuesday.

• Wang told the delegation: “China and Europe should…refrain from politicizing economic and trade issues and overstretching the concept of security in exchanges, and work for an upward and dynamic balance of trade from a long-term perspective.”

Econ and finance

Five of China’s largest state-backed insurers – China Life, PICC, Ping An, China Pacific, and New China Life – issued separate statements expressing confidence in A-shares.

• A-share valuations have collapsed over the past month, with the CSI 300 Index down more than 9% between its June 22 peak and July 17.

Total fiscal expenditure fell 11.9% y/y in June, widening from the 3.9% decline in May – but the scale of the decline is deceiving.

• Government-managed fund expenditure – which accounts for about 30% of total spending – was the main drag in June, plunging 43.7% y/y, largely due to base effects.

Commodities

China added 72.1 GW of new solar capacity in H1, a massive 66% y/y decline.

• Installation growth is all but certain to pick up in H2 as utilities rush to meet year-end grid connection deadlines. However, the structural bottlenecks constraining growth are unlikely to be resolved anytime soon.

Business environment

The finance ministry (MoF) has announced that, starting September 1, lithium-ion batteries – a core input for new energy vehicles (NEV) – will be subject to a 2% consumption tax.

• Innovative, early-stage battery products that have yet to reach mass-scale commercialization – including sodium-ion batteries and fuel cells – will be exempt from the tax until the end of 2028.

Tech

Chinese regulators, led by the commerce ministry (MofCom), are consulting domestic AI and chip firms on tightening export controls over advanced technologies.

• Regulators are also discussing ways to prevent offshore chip firms from fabricating chips designed by Huawei, Alibaba, or ByteDance.

Net zero

The macro planner (NDRC) and energy regulator (NEA) jointly released the 15th Five-Year Plan for renewable energy.

• The plan targets an increase in annual renewables output to 6,000 TWh by 2030 – a 50% increase from 2025 and roughly 35% higher than the US’s 2025 annual power output.

Zhang Xiliang – the chief architect of China’s national carbon market (ETS) – says regulators will tighten the screws on ETS compliance over the 15th Five-Year Plan (FYP) period.

• Zhang also hinted that policymakers are considering a carbon tax for energy-intensive industries not yet covered by the ETS.

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.