China This Week: Strategic Moves and Messaging
July 25-31, 2025
Each week, Xinanigans tracks Beijing’s most strategically significant moves across military, economic, technological, and narrative domains, revealing how China is shaping global power dynamics and impacting US decision space.
Amid intensifying geopolitical competition, Beijing deepened operational coordination with Moscow near key Japanese waterways, showcased AI advances that exploit US policy reversals, and exercised tactical restraint in economic talks. all while navigating a deepening industrial slump that is subtly recalibrating its global posture and opening windows for allied leverage.
1. China Showcases AI and Semiconductor Advances, Undermines Tech Containment Narrative
At the Shanghai International Smart Tech Expo, Chinese firms including Huawei, SenseTime, and DeepSeek showcased major artificial intelligence (AI) breakthroughs - including Huawei’s in-house chip clusters and DeepSeek’s open-source models - while publicly demonstrating systems powered by Nvidia’s newly export-authorized H20 chips. On July 31, China’s Cyberspace Administration summoned Nvidia to probe “security risks,” even as state media celebrated access to US chips as a proof of strategic adaptability.
Why it matters:
The event reflects a critical juncture in the AI competition: China is simultaneously exploiting US policy flexibility and accelerating its domestic chip ecosystem, while reframing the AI narrative around “global solidarity” in contrast to Washington’s declared posture of AI dominance.
Implications for US National Security:
Technology Containment Breakdown: The Trump administration’s reversal on H20 exports creates an enforcement credibility gap, allowing China to sustain its commercial AI momentum.
Military-Civil Fusion Risk: Broad access to advanced chips, even of limited performance, feeds dual-use innovation pipelines with unpredictable defense implications.
Narrative Reversal: Beijing used the expo and Premier Li Qiang’s remarks to cast AI as a “global public good,” challenging US efforts to lead on AI norms and standards.
2. China and Russia Announce and Deploy for “Joint Sea 2025” Naval Exercise Near Japan
On July 30, China’s Ministry of National Defense formally announced the “Joint Sea 2025” naval drills with Russia, as warships including the destroyers Shaoxing and Urumqi arrived in Vladivostok ahead of the August 1–5 exercise near Japan’s western coast.
Why it matters:
This exercise goes beyond symbolic cooperation: it marks the first time since 2022 that Sino-Russian drills have operated this close to Japan’s strategic Soya and Tsugaru Straits. The timing - just ahead of PLA Day on August 1 - suggests a deliberate effort to signal operational readiness, deterrence, and joint force projection near US treaty allies.
Implications for US National Security:
Regional Flashpoint Calibration: Rehearses combined-force visibility near Japan’s northern maritime corridors, stressing regional maritime surveillance and contingency planning.
Alliance Pressure Test: Positions China and Russia as coordinated disruptors of Indo-Pacific alliance cohesion, particularly under multilateral maritime norms.
Joint Deterrence Signal: Reinforces the idea of a functional strategic alignment - not just parallel interests - between Beijing and Moscow.
3. US-China Tariff Truce Holds Amid High-Level Talks, with No Extension Announced
US and Chinese negotiators met in Stockholm on Monday, July 28, in an attempt to extend the current 90-day tariff truce expiring August 12. Talks ended without a formal outcome, though US officials cited “optimism” about potential follow-on engagements. Key sectors of semiconductors, copper, and battery components remain exposed.
Why it matters:
The “optimism” likely reflects Washington’s short-term desire to reduce inflationary risks before the fall election season, while Beijing views the delay as an opportunity to gain maneuvering room without making structural concessions. Both sides are buying time, but for very different endgames.
Implications for US National Security:
Strategic Signaling Asymmetry: China can frame the pause as tacit US retreat from economic confrontation, feeding a narrative of American inconsistency.
Defensive Posture Stress Test: Lack of clarity constrains US ability to coordinate with allies on technology export regimes or contingency trade planning.
Supply Chain Fragility Window: As uncertainty extends, sectors tied to defense and advanced manufacturing face increasing operational risk exposure.
4. China’s Manufacturing Slump Deepens, Politburo Signals Subtle Economic Policy Shift
At its mid-year economic meeting on July 31, the Politburo acknowledged deepening industrial headwinds as China’s July manufacturing PMI fell to 49.3, marking the fourth straight month of contraction. Severe flooding in the northeast compounded the slump, disrupting logistics and energy infrastructure. While no major stimulus was announced, leaders signaled targeted fiscal and demographic support to stabilize confidence.
Why it matters:
This downturn lands at a critical juncture: Beijing faces sustained external pressure from US technology controls, while navigating rising internal demands for economic security and social stability ahead of next year’s National People's Congress cycle. The contraction underscores the fragility of China's dual-circulation model, revealing the costs of shielding key sectors from Western decoupling while struggling to generate domestic demand.
Implications for US National Security:
Strategic Pressure Window for Allied Coordination: China’s economic fragility creates a rare opportunity for the US and allies to press synchronized demands on trade access, tech norms, or supply chain governance while Beijing is less likely to escalate in response.
Constrained External Assertiveness in Near-Term: Domestic manufacturing stress may lower China’s appetite for economic confrontation or adventurism (e.g., Taiwan economic blockade, tech sanctions), temporarily reducing escalation risk.
Defense Industrial Implications: Economic strain may delay specific PLA modernization programs, particularly in shipbuilding and autonomous systems, where civilian-military industrial overlap is greatest.
Posture Rebalancing Risk: A weaker economy increases the incentive for Beijing to divert attention through non-kinetic gray zone operations or global propaganda wins (e.g., AI leadership narratives), requiring agile US counters.
Long-Term Competitive Opportunity: If the US can maintain economic and tech pressure while managing inflation, prolonged Chinese stagnation may offer a window to rewire global dependencies and blunt Beijing’s economic statecraft tools.
Strategic Outlook
This week reveals a multidirectional Chinese campaign to adapt under pressure: operational signaling with Russia, narrative repositioning on AI, and tactical moderation in trade negotiations, all unfolding as its economic foundation weakens. The combination of internal strain and external constraint is driving Beijing toward a blended strategy of tactical restraint, gray zone pressure, and global narrative competition. The US and its allies should seize this moment to shape future dependencies, coordinate export regimes, and probe for openings before economic stabilization or political hardening narrows the window for pressure.