China Decode: Ballistic Missile Test, Europe's AC Addiction, and China's AI Coding Challenger

Summary

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China Decode: Ballistic Missile Test, Europe's AC Addiction, and China's AI Coding Challenger

The Prof G Pod with Scott Galloway (Vox Media Podcast Network)
Release Date: July 7, 2026
Guests/Hosts: Alice Hannah & James King

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Episode Overview

This episode of China Decode delivers an incisive look at three intertwined threads shaping China’s global posture: its latest military muscle-flexing via a Pacific missile test, its sweeping economic impact exemplified by Europe’s surging demand for Chinese air conditioners amid a historic heat wave, and China's rapid advance in AI—positioning its latest open-source large language models (LLMs) as credible challengers to US tech hegemony. Finally, the episode examines China’s newly effective Ethnic Unity Law, sparking international concern over human rights and extraterritorial legal reach.

The hosts, Alice Hannah and James King, weave these topics together, emphasizing the theme of “rising temperatures”—geopolitically, economically, and literally.

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Key Discussion Points & Insights

1. China’s Ballistic Missile Test & Geopolitical Signaling

[01:49–10:32]

• Event Coverage:
  On Monday, China test-fired a submarine-launched ballistic missile with a dummy warhead into the Pacific—its second such test in two years.

  • Coincided with Australia and Fiji signing a mutual defense treaty, evidencing heightened regional security concerns.

• Geopolitical Read:

  • According to James King, the launch, likely involving the JL-3 missile, serves as a “veiled warning” to the US and its allies due to its transcontinental range.
  • "The world is getting hotter geopolitically, climactically and in terms of trade tensions.” (James King, 05:18)

• China’s Assertiveness:

  • Part of a broader pattern of over 154 joint military exercises in the last decade, mostly with Russia.
  • China projected to increase its nuclear warhead arsenal from ~500 today to ~1,500 by 2035.

• Strategic Context:

  • Alice frames the launch as deterrence: “It's to show, hey, we have long range missiles with capabilities to reach Australia, to reach the US. Don't mess with us…” (Alice Hannah, 10:32)

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2. Europe’s Soaring Demand for Chinese Air Conditioning

[01:49–16:41]

• Economic Link:

  • Europe faces its worst heat wave in decades. Demand for Chinese air conditioners is up 10% year-on-year in Western Europe; portable fans/ACs up 70%.
  • “We turn to China for all our needs…Chinese stuff is so much cheaper. It's often better in terms of technology than what Europeans can produce.” (James King, 10:32)

• Trade Implication:

  • The EU’s trade deficit with China expected to exceed €400B this year, up from €360B last year.
  • Structural issues in European manufacturing competitiveness keep Europe dependent on Chinese imports.

• European Response:

  • Despite ongoing “strategic dialogue,” Europe appears unable to leverage unified action or policy.
  • "Europe is fatally disunited…They cannot get consensus among the member states…It is presiding over the weakening and erosion of its industrial base." (James King, 13:53)

• Geopolitical Stakes:

  • Europe’s vulnerability in the event of a Taiwan crisis (esp. rare earths). Concerns over possible Chinese retaliation if the EU sides with the US in a crisis scenario.

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3. China’s Open-Source AI Leap—GLM 5.2 & Global Influence

[20:57–31:22]

• AI Developments:

  • Zai’s GLM 5.2 LLM launched in June, with Zcode harness for autonomous coding. Touted as competitive with ChatGPT5.5, Claude, and other US-based models.
  • Chinese AI models, notably open-source, are surging in global adoption (e.g. Alibaba’s Kwen: over 1B downloads).

• US-China AI “Iron Curtain”:

  • Anthropic restricts its leading models for non-US users in response to concerns about Chinese distillation of Western models; US Dept. of Commerce tightens export controls.
  • "The AI race between the US and China is kind of diverging…China is catching up." (James King, 23:19)
  • Widespread access to open Chinese models creates global competition.

• Geopolitical Ramifications:

  • Growing “AI iron curtain” as nations split into US and China-aligned AI platforms.
  • “My concern is…it will not be Chinese models used in China and US Models used in the US. It'll be Chinese models used in China and everywhere else in the world and US models used in the US.” (James King, 27:52)

• Open Source vs Closed Source Nuance:

  • Nvidia’s entry into open-source LLMs reveals it’s not a simple dichotomy.
  • "Things are shifting, things are varying. This is an endlessly complicated and rapidly evolving situation." (James King, 30:47)

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4. China’s New Ethnic Unity Law: Purpose, Powers & Global Critique

[33:14–46:34]

• Law Overview:

  • Law introduced by the National People's Congress in Sept. 2025, effective July 1, 2026.
  • Ostensibly aims to promote ethnic unity and protect minorities (China recognizes 55 minority groups).

• Key Provision (Article 63):

  • Grants China extraterritorial reach: organizations/individuals outside China deemed to undermine “ethnic unity” can be “pursued for legal responsibility.”
  • “That could be virtually anything, I would say…What kind of legal responsibility are we talking about?” (James King, 35:37)

• Implications & Concerns:

  • Vague law could be leveraged flexibly—mainly as a deterrent.
  • Parallel to US extraterritorial sanctions; part of broader legal brinkmanship in global politics.

• Domestic & International Tension:

  • Law reinforces Mandarin in schools/government to “forge a strong sense of the community of the Chinese people”—evoking CCP policies from Mao’s era for unity and stability.
  • Criticized abroad: UN letter warns of violations of 12 human rights treaties; European Parliament warns of “systematic suppression of ethnic identities.”
  • “I have detected…in everyday Chinese society…growing appreciation for the ethnic minority groups and not just the Han Chinese identity.” (Alice Hannah, 45:35)

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5. Predictions & Closing Thoughts

[46:50–48:57]

• James King (EU-China Trade):

  • Predicts continued contraction in EU exports to China (down 10% in 2026); Chinese exports to EU rising by 16%, exacerbating trade imbalances.

• Alice Hannah (Chinese Consumer Sentiment):

  • Predicts further weakening in Chinese consumer confidence and spending due to heightened geopolitical and economic uncertainty.

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Notable Quotes by Segment

| Timestamp | Speaker | Quote | |------------|--------------|------------------------------------------------------------------------------------------------------------| | 05:18 | James King | "The world is getting hotter geopolitically, climactically and in terms of trade tensions." | | 10:32 | Alice Hannah | "On the one hand it's trying to strategically deter. On the other hand, it is showing that it is still very much embedded in the multilateral trade system." | | 13:53 | James King | "Europe is fatally disunited…It is presiding over the…weakening and erosion of its industrial base." | | 23:19 | James King | "The AI race between the US and China is kind of diverging…China is catching up." | | 27:52 | James King | "My concern is…it will not be Chinese models used in China and US Models used in the US. It'll be Chinese models used in China and everywhere else in the world and US models used in the US."| | 30:47 | James King | "Things are shifting, things are varying. This is an endlessly complicated and rapidly evolving situation." | | 35:37 | James King | "...it appears to give China extraterritorial powers...That could be virtually anything, I would say." | | 45:35 | Alice Hannah | "...a growing appreciation for the ethnic minority groups and not just the Han Chinese identity." |

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Timestamps for Major Segments

• [01:49] — Introduction and market snapshot
• [01:49–10:32] — China’s missile test & political signaling
• [10:32–16:41] — EU-China trade, AC imports & Europe’s economic vulnerability
• [20:57–31:22] — Chinese AI models go global & the AI “iron curtain”
• [33:14–46:34] — China's new Ethnic Unity Law & international reactions
• [46:50–48:57] — Predictions: EU-China trade, Chinese consumer sentiment

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Summary & Takeaways

Through analysis of military, technological, and legislative developments, the episode illustrates how China’s assertive ambitions—militarily, economically, and in AI—are meeting an increasingly multipolar and fragmented response from the West. The co-hosts repeatedly stress the intersection of these threads, underscoring patterns of rising temperature—literal (climate), economic (trade), and political (law and tech).

Listeners leave with a nuanced appreciation for:

• The scale of China’s military and economic projection,
• The global AI competition and its wider implications for access/innovation outside the US and China,
• New rules that may impact not just internal Chinese politics but also the international order.

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Transcript

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[James King]

My concern is that because the Chinese models are open source, it will not be Chinese models used in China and US Models used in the US It'll be Chinese models used in China and everywhere else in the world and U.S. models used in the U.S. it's possible the U.S. may try to corral European countries into using only U.S. models, but that would be a big heavy lifting operation if the US Was to try to do that.

[Alice Hannah]

Well, welcome to China Decode. I'm Alice Hannah.

[James King]

And I'm James King.

[Alice Hannah]

In today's episode of China Decode, we're discussing China test firing a ballistic missile with a dummy warhead into the Pacific, a Chinese AI model that rivals anthropic and a new ethnic unity law drawing criticism. That's all coming up, but first let's do a quick check in with how the markets in China are starting the week. On Monday, the CSI 300 was mostly flat while the Shanghai Composite was down slightly 0.06%. The Shenzhen component, however, fell 1.16% to a three week low. Bank stocks saw gains, with the Industrial and Commercial bank of China up 1.14% and the Agricultural bank of China up 1.19%. Notable falls were with Eoptolink Technology down 3.6% and Victory Giant Technology down nearly 5%. Alright, let's get into it. On Monday, China test fired a ballistic missile with a dummy warhead into the Pacific Ocean, only the second time it has done so in two years. The launch coincides with Australia and Fiji announcing a new mutual defense treaty showing how China's growing missile capabilities are accelerating a broader regional defense buildup. Meanwhile in China Europe relations, the EU's ongoing attempts to balance the trade deficit with China have hit a new hurdle. Soaring temperatures. The bloc's worst ever heat wave is driving unprecedented demand for imports of Chinese made air conditioners which was making serious inroads at undercutting the deficit reduction push. Cooling demand has been pushed to its highest level in at least 45 years. James I'm in Spain at the moment which is quite sweltering. It's in the sort of 35 region. But the UK a few weeks back, you know, we were both based there was, I was so close to 40, was seeing record temperatures across Europe and I was just looking at some of the figures of Chinese air conditioners being imported by the Europeans. So in the first five months we saw a 10% rise in household air conditioners imported from China to Western Europe and apparently 70% year on year rise in that same period of portable fans, portable air conditioners from China to Europe. And I see a lot of those on the trains in the uk, I have to say on the London trains where they're very much needed. But the reason this image is so startling is that on the one hand you have Europe undergoing blistering heat, but also undergoing record trade deficit with China. We just saw the Chinese Commerce Minister Wang Wen to in Brussels. A bit of a nothing burger in terms of what came out of it, but they apparently engaging in strategic dialogue for a framework that will probably be unveiled in October. But it seems like the Europeans haven't really been on the offensive in terms of trying to seriously address these deficit concerns. James, we'll go to the Europe and heat dimension in just a bit. I want to start firstly in terms of this ballistic missile launch with a dummy warhead that China's just made and it's obviously riled a lot of the Asia Pacific countries, Australia my own country being one of them. What was your read of that? Because the Chinese readout was hey, this is a very bog standard military exercise that we do in the region, nothing to worry about, but it certainly has caused a lot of consternation amongst some of the surrounding countries.

[James King]

Yeah, absolutely Alice. I mean I think, you know, the world is getting hotter geopolitically, climactically and in terms of trade tensions and yeah, as you say, I mean it is Pretty tough in the UK at the moment without air conditioning. But we'll come to that in a minute. I think this issue of this long range ballistic missile that was fired by China with a dummy warhead, in other words, it wasn't armed, of course, and it landed somewhere in the Pacific Ocean. We don't exactly know where. But this happened, as you mentioned, just hours after Australia had signed a defense pact with Fiji. I think it definitely shows assertive behavior by China and that assertive behavior we can see in so many other domains right now. I think that's, to me the theme that binds together what we're seeing in European trade, what we're seeing in China's military assertiveness. And I also think that this is particularly relevant to the United States because if you look at the detail of this missile, it, it does appear, at least to me, that this was also a veiled warning to the United States. And that's because according to the official Chinese media, the missile that was fired from a submarine was likely to have been the JL3. Now that is, as I said, a submarine launched missile. And the point is that this missile could reach the, the continental United States from Chinese coastal waters, according to the Pentagon. So although we're talking about a missile that was launched into the Pacific and it had a dummy warhead, not a real warhead, we can see that in terms of signaling, this is basically saying to the west, to the United States, and certainly to Australia, Fiji and anyone else who cares to watch, it's saying, don't mess with us. We are a growing and increasingly assertive military power. And for that reason I think that the context around this is also key. China has been launching many, many more combined military exercises with different countries. In fact, more than 45 partner countries in the decade that ended in 2025. It's conducted more than 154 of these combined exercises, mostly with Russia. And the scope of the exercises has also increased. It's done exercises in the Pacific Indian Ocean and around Africa and it's had extensive voyages, naval voyages. This is around Australia. So to me this is part of the same picture, this missile test into the sea somewhere in the Pacific. Obviously it's part of another big picture, which is China's very rapid expansion of its missile arsenal. China is supposed to have, we think estimates say around 500 ballistic missiles currently. But by 2035 it is projected to have about 1,500 nuclear warheads, which could be delivered on ballistic missiles by that time. So this is part of a much Bigger picture, it's part of the rise of an assertive China. And you know, to flip that to the trade domain, we've got another side of an assertive China emerging. And it's showing in China's trade surplus with Europe that is really hitting the big time this year. Last year it was 360 billion euro and this year the estimate is that it will top 400 billion euro. So I don't know what you think of it, of the trade side of things, or maybe if you want to talk about ballistic missiles, Alice, but on the trade side of things, you came in talking about these air conditioners. This is just one example of the way that Europe seems to be ineluctably drawn to importing Chinese stuff. And I suppose that's because Chinese stuff is so much cheaper. It's often better in terms of technology than what the Europeans can produce. But structurally, it seems to me, sitting here in Europe, that Europe is really very weak when it comes to industrial production and producing things that Europeans can buy. And that's simply why, whether it's a heat wave causing us to import air conditioners or in the middle of winter, if there's a cold snap, we'll be importing Chinese heat pumps, I'm sure of it. It just seems that these days we turn to China for all of our needs. What do you make of it, Alice?

[Alice Hannah]

Yeah, I know that on the surface these two stories don't look too interlinked, but hopefully we can convince people that they somewhat are right. Because on the one hand you see China that is worried about the geopolitical situation. I think that that exercise is more of a deterrent strategy than an offensive saber rattling one. It's to show, hey, we have long range missiles with capabilities to reach Australia, to reach the US and don't mess with us in a period where we've seen a lot of geopolitical uncertainty and uncertainty that's increasing. And I don't think it's a coincidence that Fiji and Australia signed that mutual defense treaty. China has been engaged in an influence campaign with the Pacific island countries and my counterparts in Australia have been worried about that. The amount of Chinese investment that's gone into say, a Fiji, which was the first Pacific island country to diplomatically recognize China, by the way, but also the telecommunications and infrastructure development that is almost completely Chinese at this point in a lot of these countries, including Fiji. So I think that there is one side which is from Chinese vantage point, we want to maintain influence in the Pacific. We also want to deter any Kind of coalition building or offensive coming from the Quad or coming from the US by showing that we have these ballistic missile technologies and capabilities. On the one hand it's trying to strategically deter. On the other hand, it is showing that it is still very much embedded in the multilateral trade system. The numbers that you just cited in terms of the trade deficit that Europe is running with China now almost close to 400. It could be this year billion euros of trade deficit between EU and China. The EU is 15% of Chinese exports. In terms of market destination, it's a huge market for Chinese manufacturers. So China is still heavily dependent. We've spoken previously on this export engine, net exports of 30% of total GDP growth. You know, in a way, I think they're kind of playing this balancing act of being tough on the geopolitical issues. But, but really still, I would, I would argue somewhat vulnerable on the trade issues. But the big question here is why isn't Europe doing more? Because I think that they have some leverage to bear, given what I've just noted, China's trade dependencies and its total, you know, macro machine. But it's also a dependency on Europe as a huge market. So all I can point to is this structural fragmentation in Europe as this supranational body to try to get its act together and put in legislation that is smart in terms of maybe price minimums on Chinese exports, limitations on the amount of exports that come into certain markets, getting smart about IP development being based in Europe and not just assembled in Europe. But the big question, and here I defer to you, James, as the expert, is why isn't Europe doing more? Because I think it could have a lot of leverage.

[James King]

That is absolutely the key question, Alice. I do note that the EU and China recently released a rare joint statement that aims at balancing trade and addressing market access issues. And the two sides said that they would set up a bilateral working group to monitor trade flows. And Beijing offered reassurances that existing rare earths and permanent magnet export controls will not disrupt EU supply chains. So that's the official sort of picture. But to be honest with you, I sort of. My feelings on this are similar to what you just described, Alice. I feel that Europe is fatally disunited on this issue. They cannot get consensus among the member states of the European Union to actually impose stiff tariffs or other forms of restrictions on Chinese imports. And they don't seem to have the political clout to push European exports to China either. And so the reason why this is important is that we're not just talking about trade balances here. We are talking about the end game for European industry. Europe stands to lose its industrial base. And I don't make any apology for speaking in such blatant and blunt terms. It really is that simple. The reason is that China has overtaken Europe when it comes to technological advancement. And the technology products that China's producing are way cheaper than the nearest competitors in Europe. That's why we've seen this flood of high tech products. Everybody knows about the EVs that the Europeans are buying from China, but it's happening in almost every sector. And this is why we are in a very important moment. It seems to me that Europe has not yet imbibed the necessary sense of crisis that attends this situation. And while it doesn't, while it remains fairly flabby sort of talking around the issues like Europe always seems to do without coming out with strong, staunch action. It is presiding over the, well, I won't say extinction of its industrial base, but certainly the weakening and erosion of its industrial base which is going to take decades to build up again if it loses it. So this is vitally important. And as I said at the top, it's a geopolitical question. Therefore I think it does belong with the story about the ballistic missile landing in the middle of the Pacific.

[Alice Hannah]

Yeah. Because in the question which we've discussed in previous episodes of this Taiwan crisis, risk and what will be the corollaries or outcomes or responses from some of these other countries, whether it's the US We've talked about Japan and Korea, Australia in the past. But another question is what is the EU going to do? Right. Because China is a huge obviously market, but it's also a big exporter of a lot of goods that the Europeans require. We haven't discussed at rare earths yet, but that's another choke point that the Chinese have over the Europeans that they have not yet weaponized, but they have with the Japanese. The big question for the Europeans will be what will you do when there is a Taiwan crisis? If there's an invasion, a blockade or quarantine, will you put economic, financial, you know, technological sanctions on China and then will China react in kind? And here I think Europe could be quite vulnerable to a China counter response, which is I'd imagine something in the vein of will cut off exports of critical technologies and rare earth commodities. I can imagine that that would be hugely disruptive for the Europeans. Oh, and we'll also import less agricultural products and chemicals products from the Europeans. Again, very, very disruptive. For European business.

[James King]

Yep, I fear that you're right there too, Alice. I think China's got so much coercive power that it could use. It is easy to imagine a scenario under which China does something that Europe doesn't like and then China threatens to use these coercive powers and Europe backs off. I think that's also highly possible.

[Alice Hannah]

Okay, we'll be back with more after a quick break. Stay with us.

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[James King]

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[Alice Hannah]

Welcome back. Speaking of AI, there's more exciting news coming from Chinese models, specifically GLM 5.2 from Zai. It was released in mid June, but just last week Zai launched zcode, a harness for its model that lets it function as an autonomous coding agent. The model is said to rival ChatGPT5.5 and Claude. So James, a lot of chatter in the news about how Anthropic just cut off its latest Claude fable and Mythos models from non US users. They were clearly worried about the fact that the Chinese have been distilling a lot of their cutting edge models. They're so worried about the national security risk and pressure from Washington to make sure that this is indigenized, this technology is indigenized as possible so that American businesses and the military intelligence community have a step up or a leg up relative to other countries. And they have been forced to comply with the U.S. department of Commerce's export controls that are now not just applied to chips and equipment, but also to increasingly AI models. Right, but the big news that came out of China just recently is there's a couple of models that are purported to be competitive in this space. There's one, for instance, a cybersecurity firm called 360 Security Technology has apparently unveiled two AI powered cybersecurity tools that could rival Anthropic's Mythos. And then obviously, as I've mentioned, you've got Drupal's GLM 5.2. This is an open weight model that people can download and use that is supposed to be as competitive as a new cutting edge chord code or even cursor code. So the big question then is how accurate are these statements? Can we test them out and how do we compare them even against the cutting edge models that may or may not be available to a lot of non Americans because of the Department of Commerce's shadow on export controls? I find this exceptionally hazy and opaque and would welcome anybody to come and tell me what the best benchmarks or testing mechanisms are to really compare. But this whole world seems to be moving so quickly and yet it's so opaque.

[James King]

Yeah, I couldn't agree more, Alice. This is really hard work to keep up with all of this. As I see it. Basically we have a couple of trends going on here. First of all, the AI race between The US and China is kind of diverging. We're getting a separation certainly in terms of the users of these models. The other thing that's happening is that China is catching up. It's producing more and more very impressive pieces of technology. I think this is a very considerable move by China. And as you mentioned, Alice, it takes this JPU GLM 5.2 into the arena with some of the best like the Claude Opus 4.8. Almost all of these Chinese LLMs and agents are open source and this means that they can be downloaded pretty much anywhere in the world and used by anybody who wants to develop their own AI products. And so what we're seeing is vast numbers of people all over the world downloading these very good Chinese LLMs. Alibaba's Kwen for instance, appears to have surpassed 1 billion downloads worldwide. And this Jupu GLM 5.2 has climbed to the top of the Western usage charts on third party development platforms such as OpenRouter. So we can see that the Chinese open source approach, as opposed to the US approach, which is much more closed, is creating a really big following internationally. I'm not going to call it, I never call the AI race between the US and China. I think that's a mugs game. Basically, China seems to be ahead in some areas, the US is ahead in other areas. It's basically neck and neck as I see it. But what I would say is that this latest GLM 5.2 is another reminder that China's doing some very impressive stuff.

[Alice Hannah]

And you see this in Chinese tech companies. They basically subsidize usage, make it a freemium model to try to get subscribers to get onto their platform. They've done this with developers. They increase their data quotas for existing subscribers by 50%, offered 5 million free tokens to new users. And at the same time, you know, shout out to my friend Kevin Shu, who writes the great AI blog Interconnected, he's saying that this is a bigger deal than the Deep Seat moment. And if he says that, I'm listening. Apparently he's noting that according to the arena's agent leaderboard, that the AI's GLM 5.2 is the only open model that is competitive with OpenAI and topics latest LLMs and you know, reportedly according to this leaderboard, bested Claude Fable on Design Arena. So there are areas in which they seem to be as competitive. But I think when I broaden it out to this geopolitical question, and I made this prediction probably a few episodes back, it's only a matter of time before Washington starts cracking down on this. You know, they probably don't like the fact that so openly you've got developers in Silicon Valley and elsewhere that are using Quinn and Japu and Chinese open source. Right. And so on the other side, there seems to be these guardrails that Anthropic is now putting in because they're very worried about distillation. And they've made it very clear compared to OpenAI, that China is the strategic threat or strategic challenge for the US AI community. And so apparently they're able to covertly track now Chinese users of their CLAUDE code platform. They've got this hidden tracking code that is basically able to pick up on Chinese users using it. And the idea is to prevent future distillation efforts. So this space is getting politicized or geopoliticized very, very rapidly. And wouldn't surprise me if we end up with some kind of end AI iron curtain being pushed by both Beijing and Washington.

[James King]

Absolutely, Alice, that's a very interesting, thought provoking phrase. And I have to say you did predict this several episodes ago. And it does seem that if this trend continues, there will be this divergence between the US models and the Chinese models. My concern is that because the Chinese models are open source, it will not be Chinese models used in China and US models used in the US It'll be Chinese models used in China and everywhere else in the world and US models used in the US this is the big concern because I can't see a country in Europe, let's say, which has none of its own AI LLMs, or very, very few, and none of them nearly as impressive as the Chinese or, or the Americans are producing. I can't see countries over here, let's say, saying, okay, you're not allowed to use Chinese LLMs because we simply don't have other choices. It's possible the US may try to corral European countries into using only US models, but that would be a big heavy lifting operation if the US was to try to do that. So I feel that your Iron Curtain analogy actually may come to pass in some shape or form.

[Alice Hannah]

But don't you think, James, that in a way, Washington under this administration is killing the golden goose, so to speak? Because if it's telling anthropic, hey, you're not allowed to release the latest fable or mythos to foreign nationals. If you're European going back to Europe, what are you going to do? Right? And then there is no real clear argument that, hey, we're going to pick American models Because Americans are also national securitizing this AI issue and Chinese models are cheaper. You know, we do run some kind of a security risk, but what can we do? Because we don't have models that are as competitive as the two countries. Right on the open source question, which I think we shouldn't take our eyes off of, is Nvidia getting into the mix? Nvidia is now offering open source LLMs because it's a big believer in that ecosystem. So maybe it's not fair to say that the bifurcation or breakdown between China versus the US on the AI front is open source versus closed source. Maybe it's more an idea of, yes, China has predominantly open source, but there are some important open source players hugging face in Europe. Nvidia now is a big one in the US And I'd imagine that with the frustrations that people have because of Washington politicizing the closed models like Anthropic, there may be some more entrance into the market like Nvidia in the open source space where things are harder to control politically.

[James King]

That's a very good point, Alice. That's a very good point. Yes, of course Nvidia is putting out open source models. So it's not as simple as a clear bifurcation between Chinese open source and US Closed source. Things are shifting, things are varying. This is an endlessly complicated and rapidly evolving situation. It's very hard to draw clear conclusions. But one thing is for certain, and that's what you've been describing, which is that the temperature of the rivalry between the US And China is rising.

[Alice Hannah]

Yeah, well, we keep coming back to rising temperatures, both in the climate and in geopolitics. Let's take one last quick break. Stay with us.

[Today Explained Host]

No one could blame you if you thought this men's World cup was going to be a disaster. The President of the United States isn't exactly a welcome mat for the world. And there have been plenty of embarrassing stories for the country. And there was the mom of Kate Byrd's goalkeeper who wasn't let into the United States to watch her son play until the team started doing well and people clamored for her entry. The team from Dr. Congo hadn't made a Men's World cup in 52 years and hardly made this one because the United States was supposedly worried about Ebola, even though no one on the team had Ebola. If you were watching Senegal Norway last week and were wondering where all the Senegalese fans were, they weren't let into the country. But you probably noticed we let in like a million Vikings. I wonder what's different about their fan bases. Oh, and who could forget we're literally bombing one of the countries that up until Friday was playing here.

[James King]

Missiles aren't the problem, but.

[Today Explained Host]

But somehow the vibes at this World cup are mostly positive. The World cup might just be healing us on Today. Explained from Vox.

[John Finer]

As America reaches its 250th anniversary, how should Americans assess their country's strength relative to the rest of the world?

[John Marco Cerese and Russell Daniels]

We're moving into a genuinely multipolar world,

[Alice Hannah]

and that's a world in which every nation is basically for itself because nations

[John Marco Cerese and Russell Daniels]

can no longer rely on the United

[Alice Hannah]

States to protect them.

[John Finer]

I'm John Finer.

[Alice Hannah]

And I'm Jake Sullivan. And we're the hosts of the Long

[John Finer]

Game, a weekly national security podcast. This week we sat down with historian and foreign policy expert Bob Kagan to assess America's role in the world at 250 and the future of American power. The episode's out now. Search for and follow the Long Game

[Alice Hannah]

wherever you get your podcasts. Welcome back. A new ethnic unity law in China came into effect on July 1 and is drawing criticism while the Chinese government works to promote and defend the measure. So, James, this ethnic unity and progress promotion law was introduced by the National People's Congress Ethnic affairs committee on September 8, 2025, and it was signed into law and became effective July 1, 2026. And just for context, I, I think a lot of people don't understand this about China. There are around 55 recognized ethnic minority groups. They account for about 9% of the population, which is still predominantly Han Chinese. That's about 91% of the population. And obviously throughout history, there have been periods of ethnic conflict and division. And you know, if you look, go back to the Yuan Dynasty, China was taken over by the Mongols. Then you go back to the Qing Dynasty, China was also taken over by the Manchurians in the Qing Empire. So it's fair to say that China is a lot more multi ethnic than people understand it to be. But this has become a political issue under the Chinese Communist Party because a big part of the core tenet of the CCP since its founding in 1949 as the head of the People's Republic of China is this idea of ethnic unity. And my own take on this is that it's grounded in a desire for political unity and control and a fear that because China's had periods of, you know, the warring states of, of warlordism, of great instability, creating ethnic unity and political unity are important in ensuring Political stability. So when I look at this and I look at some of the language about, you know, trying to avoid and preclude foreign agents who undermine ethnic unity and ethnic stability, I look at that as. And maybe this is a simplification. So correct me, I look at that as the government saying, hey, we need to make sure that we ensure political stability. We don't have protests and unrest and make sure that there aren't these foreign agents that are trying to undermine our political unity.

[James King]

I think that the first thing is that this new law, the Ethnic Unity Law for short, took effect on July 1st, and that's why we're talking about it now. The next thing I think that's really significant about this is that it appears to give China extraterritorial powers. In other words, it appears to give China powers to enforce Chinese law in other parts of the world. And in this regard, the critical article of the law is Article 63, which states that organizations and individuals outside mainland China who commit acts, quote, aimed at China that undermine ethnic unity are, quote, are to be pursued for legal responsibility in accordance with the law. Now, that's a very vague statement. What does that actually mean? How do you define acts aimed at China? That could be virtually anything, I would say. And then the other side of it, the question of being pursued for legal responsibility in accordance with the law, what does that mean, pursued? Does that mean arrested? Does it mean sent a letter? Does it mean sent an email telling you to stop doing whatever you're doing? Does it mean reported on or legal responsibility? What kind of legal responsibility are we talking about? So it is a very vague law. And I have to say that, you know, in the interest of balance, Beijing says that this law is intended to protect national minorities, 55 of them in China and many of them living abroad as well. So the first thing to say about this is that we really don't have a clear sense of what this law means in practice. However, one concern of this law is that it could mean something like the following. We all know that the Dalai Lama, who is recognized as the spiritual leader of Tibetan people, some Tibetan people living abroad, some Tibetan people living in China. He is 91 years old. What would it mean if China decides that the Dalai Lama is acting in a way that is aimed at China or inimical to the interests of China? I mean, China regularly calls the Dalai Lama a splittist, a separatist trying to split China. So if this is the case, then what would happen there? Would China invoke this law to go after the Dalai Lama, would they try to apprehend him and bring him to China to stand trial? I mean, we just don't know. It's really not that clear. But what I would say is significant in this is that it is giving China extraterritorial powers. If China chooses to use them or decides to use them, that could mark a significant shift in the way that China conducts itself around the world. So I think that's really key.

[Alice Hannah]

Do you find that a lot of, and I look back to say sanctions law in particular in technology, that a lot of the time China will announce, whether it's the unreliable entities listing or the anti blocking law, certain legislation, but not necessarily enforce it. They use it as a kind of option, so to speak. If something happens that they don't like, they at some point may weaponize that. But in general, is it fair to say that we shouldn't see this as a kind of trigger happy activity where they're going to go out and find different groups, whether they're Chinese or otherwise, that are undermining this ethnic political unity? Are they really going to be, I guess what I'm trying to say, going on the offensive and trying to find these people and stop them and sanction them, or is it really going to be a symbolic move when they're upset with certain policies from a particular country or activities from a particular group or individual?

[James King]

It's a really good question. I really don't think it's clear at the moment. One thing I would say as part of the big picture is that, you know, we've seen the way that the US has been invoking extraterritorial laws on China. I mean, all of the US entity lists, the lists of Chinese companies that foreign countries are restricted from dealing with because of U.S. law. Right. That's an extraterritorial law. I mean, if you're telling a European country that it can't deal with a certain Chinese company, then that is extraterritorial. And I would say that this might be in some senses an answer to that type of extraterritorial pressure that is coming from the US We've seen, I would say the start of it in some of the laws that China's been coming up with. In May this year, the Ministry of Commerce in China issued an enforcement order blocking US Sanctions imposed on on five Chinese companies related to Iranian oil transactions. That's just one small example. But basically I would say that law is going extraterritorial all over the world. This is not just a Chinese thing. And so maybe it's part of that. Maybe it's related to that, but it's got different aims and different antecedents. It's really hard to tell at the moment because as I said, this is a very vague law.

[Alice Hannah]

Yeah. And reminds me a little bit, even though it's not in the same category of the extraterritorial laws that were unveiled last year, you recall, for rare earths, James, in which, if you actually read the fine print, they were saying as little as if something was as little as 0.8% comprised of Chinese originated rare earths, then it could be subject to Chinese export restrictions. They haven't yet weaponized that, but that was a pretty expansive extraterritorial insert they put into the new export restrictions on rare earths. But my, my take, and the reason why I lumped that in the category of this one, is that in a way it's more about the symbolism that as opposed to being, you know, an offensive legislation that they're going to go at on and to really try to find people and stop them. I think it's more like case by case, are they worried about a particular group or a particular country? Because remember, a lot of other countries have agency. When I look back to some of the sanctions over the Uyghur rights issues, labor rights issues, Chinese issued sanctions on European ministers. European Union also issued sanctions on Chinese companies and individuals in response. So it becomes a bit of a multipolar trap in the sense that you have escalation, dominance or escalation potential on both sides. And I want to take it a little bit back maybe to the domestic side of things, which I find interesting, because as a historian, a big part of what this CCP under Mao first tried to do is to really nationalize the system. Because if you recall, China is a multi ethnic but also multi dialectical country. You know, my own people are from Shanghai. Shanghai is a very particular dialect. If anyone who's not living in Shanghai speaks to a Shanghai person, they can find it very difficult to understand them. And, you know, very early on when the Communists came to power, they enforced, you know, unified writing system and simplified, made sure that schools use Mandarin as their primary language. And this law, in effect is trying to reinvigorate, I think, some of those moves because, you know, it's saying that schools and government agencies must use Mandarin as their primary language and that curricula needs to, quote, unquote, forge a strong sense of the community of the Chinese people. There's also an element of trying to make sure that people speak the same language and think the same way. Right. And, you know, we talked about the extraterritorial dimension, but there's also this kind of internal unity dimension, and it comes up in the education system and the political system. But I thought that that was another interesting aspect of this law. It's harkening back to the legacy of Mao.

[James King]

Yeah, absolutely. I think the last thing to say on this from my side would be that it has attracted criticism from abroad outside China. I'll just mention a couple of those. A UN letter from eight former special rapporteurs said earlier on this year that the law could violate at least 12 international human rights treaties that China has ratified. That's the first thing. And then the other piece of reaction has been from the European Parliament, which adopted a resolution in April this year condemning this law. We're talking about the Ethnic Unity Law, and warning that it could intensify the systematic suppression of ethnic identities. That's a quotation. And further strain relations between the EU and China. Of course, China has rejected those criticisms. So, you know, this is yet another point of tension between the west and China, or is evolving into that.

[Alice Hannah]

Yeah. And the last thing that I will have to say, James, you know, as much as this is a political issue, I have noticed, again, this is more of a cultural observation, as a political one, based on travel to China, that there is more of an opening up, and I would say from everyday people an appreciation of different dialects and different ethnic minority groups, a celebration of their cultures. You know, I was in Yunnan a couple, two years ago, and it's the most dense area for ethnic minorities in China. You've got the Miao, you've got the Hui, you've got a lot of different ethnic groups there. And everyday people in China are keen to learn about their different cultural practices. So I just wanted to offer a flip side, which is, yes, this is seems like a bit of a politically sensitive and potentially controversial issue, but I have detected, at least in everyday Chinese society that there still isn't a growing appreciation for the ethnic minority groups and not just the Han Chinese identity.

[James King]

Yeah, I would definitely agree with that. I have personal friends who very much respect certain ethnic minority cultures and religions in China, and I very much hear from them exactly the same trend that you're talking about.

[Alice Hannah]

All right, James, you know what time it is. It is prediction time. As you peer into the crystal ball for the future this week, what do you see?

[James King]

Okay, I'm going back to the big topic for me, which is the EU's commercial relationship with China. This is A massive topic. Let's not forget that the European Union comprises about 450 million consumers. This is one of the biggest markets in the world. And EU exports to China, in my prediction, will continue to fall this year. In 2025, they were about 199.6 billion euro. This year, I think they'll fall back to around 180 billion euros euro. So that's about a 10% contraction. And it contrasts with Chinese exports to Europe, which so far this year have been rising by around 16%. So you've got a very significant contraction of exports to China from Europe and a very significant increase of Chinese exports to Europe. So that's my prediction. Alice, what have you got for us?

[Alice Hannah]

So I've been running numbers on the Chinese consumer landscape, and what I find fascinating just looking at the recent history since COVID is that Chinese households are actually quite sensitive to what I would call geopolitical risk. So in a way, they attach a risk premia to their consumption based on the uncertainties that they're seeing geopolitically, economically. We saw that first with a massive downfall in Chinese consumer confidence during the COVID lockdowns from 2020, really, to 2022, and then from 2022 onwards, Russia, Ukraine had a huge impact on Chinese consumer spending habits as well as confidence. And we're starting to see early signs that the Iran crisis is also starting to weigh on consumer confidence. So my prediction, it's kind of unfair because I've already run the numbers, would be that we're going to see further weakening in Chinese consumer confidence and therefore spending, because everyday Chinese people are worried about not just the geopolitical landscape, but also the economic landscape in terms of head to external demand. All right, that's all for this episode. Thank you for listening to China Decode. This is a production of Prof. G Media. Make sure to follow us wherever you get your podcasts so you don't miss an episode and we'll talk to you again next week. Sam.