Understanding Chinese Power

China is one of the 21st century's most consequential nations. It has never been more important to understand how the country is governed, and what its leaders and its people actually want and believe. Welcome to peckingology, the podcast that unpacks China's evolving political system, and the trajectory of China's domestic and foreign policy. I'm your host, Henrietta Levine, senior fellow with the Freeman Chair in China Studies at CSIS. This is peckingology. I am very pleased to be joined today by Zoe Liu, a fellow for China Studies at the Council on Foreign Relations and author of a new Foreign Affairs article called China's Long Economic War, How Beijing Builds Leverage for Indefinite Competition. It is a fantastic piece when I started reading it. I thought it would be an article on economic security, and Zoe does explore how she is fortifying China's economy for a long contestation with the United States. But the piece is more ambitious than that. It also puts forward a compelling framework for understanding the relative national power held by China and the United States, and I am really excited for Zoe to unpack that framework with us today. Zoe, thank you so much for coming on the show. Thank you, Henrietta, for having me and for the very generous introduction. I did not intend to write a grand strategy or a grand economic strategy piece, but here we are. Thank you. We'll be like to start all of our conversations with a question about how our guests developed their China expertise. What did that look like for you? For me, I studied history in college and minored in economics. I grew up in Europe when China experienced this rapid transformation literally through my lifetime up and now, from a not developed country to a relatively higher income country compared to what I was little. I'll give you one example. When I was little, I loved Friday, not because it has any meaning with weekend, but because Friday was the day my mom could cook fish. And then, of course, as I vividly remember, as I entered middle school, that's when we got a choice. Mom would ask me, do you want fish today? Do you want fish tomorrow? So the abundance is a kind of interesting transformation through my life. And as I grow older, I become interested in understanding how China's economic rise means for China, for Chinese people, and for the rest of the world. Hence, I studied international economics and the finance in grad school. Great. And your piece opens with a very difficult economic moment for China and for the United States, going through the greatest hits of the trade war from 2025. And you present China's approach to the trade war with the Second Trump administration as a window into its broader strategic plans. Can you tell us about that? Thank you for putting my writing in a way that actually reminded me, that's a kind of interesting way to frame it. Thank you. You look, I did write that. So the way I think about it is more taking a step back because when I wrote the piece, a lot of commentary articles or op-ed, it was all talking about China is winning the trade war and it makes me wonder is China actually winning and is America actually losing as President Trump likes to say, right? So that's sort of like why I started to try to think through some deeper and structural issues. And if we only take it last year as the window to look at, I'd say China's approach compared with the first Trump administration is very difficult. They came when they were confronted with this new trade war, they have a very well developed playbook. They know what to execute, they obviously know what to expect. But then at the same time, it almost feels like when it comes to tariffs, China's tariff against the United States retaliatory is always slightly lower than the US tariff on China, which for me is a signal that China is maintaining off-ramps, but then at the same time China also used other non-tariff measures to hit American companies, hit American supply chains where it actually hurt a lot. So from that perspective, I'd say throughout the last year, China showed its readiness to weaponize its supply chain dominance, but then at the same time it also maintains the strategic flexibility. From that perspective, this gives China at least the flexibility to negotiate, but then at the same time they have also demonstrated a long-term comparative advantage in terms of supply chain dominance and their ability and readiness and their willingness to weaponize it. And in terms of China's broader objectives, you break them down into short medium and long-term goals. And I'm just going to read that part because I think it's important to use that very well. So you say in the short term, Beijing's priority is securing the concessions on advanced technology needed to accelerate semiconductor development in China and reduce reliance on imports. In the medium term, it aims to deepen technological capacity, diversify export markets, and capture a larger share of value added exports in global supply chains to reduce US leverage. In the long run, it intends to build an alternative global trading and financial architecture strong enough to strip the United States of its unilateral sanctioning power. And I read that in full because I think it presents a compelling perspective on this perennial question of what is China actually want and what is she actually want. And so I actually wanted to start with a question about the short term objectives related to trying to try to access higher end US pack to accelerate its indigenization process because over the past few months, we've actually seen Chinese authorities make it more difficult in some cases for Chinese companies to buy Thai and US semiconductors even as the Trump administration has actually lessened restrictions in some cases on that same tech. So does that mean China has already achieved its short term objective or should we see these policies another way? That's a great question. And indeed, if I can take a step back, I have been trying to, the piece I wrote is really about what it does China or the Communist Party want and how they want to achieve what do they want and what is America going to do about it, right? So that's literally what the piece is about. And in the short term, what China want and how relates to your question, especially thinking that President Xi Jinping or the government of the party seems to warn Chinese tech companies to not being overly reliant on American chips or American technology. I'd say so it's actually a signal to its realization that a China has not reached technological self-sufficiency yet. However, by intentionally reducing their dependency on American or foreign tech, you force, you use scarcity, you use a, in a way, it's a man made, right? It's a man made scarcity to force domestic investment to force domestic innovation so that eventually you make, now the idea is you make do with whatever you have access to. And if it means you have to work with the two or three generations behind technology or chips to work with that, eventually you hope you can create your own alternative. So the fact that it is still trying to use this man made lack of access to force domestic innovation, to force domestic investment is a signal that they have not yet achieved their goal of technological self-sufficiency. If they were able to achieve that goal, it would almost be like a Chinese EV. You are no longer putting any restrictions on that. And do you think as Beijing moves through the short medium long-term objectives, is there a timeline that you see associated with these goals or how do you think Beijing assesses its own success or lack thereof in moving along this timeline? That's a great question. Like a cliche is that the Chinese is thinking in terms of a hundred years. Whereas here in the US, we think in terms of four-year election cycle or human shorter than that. I don't think in this case is about a hundred years as we are speaking now is the time for the five-year plan. So I do look forward to read the specific target being announced in the 15s five-year plans. Because the reason why I think this 15th five-year plan is important is that they are going to lay out clear timeline in terms of by which year we want to achieve what kind of market share dominance, what kind of breakthrough. So there will be numeric numbers that China lay out, especially in terms of manufacture, production capacity. So by saying that, I think now I do not really know what is their clear timeline, is it by 2030, is it by 2050? I cannot put a clear timeline there. And I also anticipate that the Chinese probably will also be very vague in terms of their own technological or their own innovation ambition. The reason I say why they want to be vague is because remember the maybe in China 2025, right? Maybe in China 2025, which literally triggered America's response than looking at what China tries to do, the ambitious lay lady out and then followed with America's export control. So I think China learned from that lesson and now they are probably going to be very vague about it. I should say also we're recording on February 27th. So our listeners may know slightly more about the next five year plan than we do here that we will be back to go deeper on five year plan in coming episodes. So don't worry. So I want to get into your framework for understanding relative power and Chinese national power. And you point out in the piece that conventional side by side comparisons of Chinese and American economic data or military capability are unlikely to provide a clear indication of which side is actually ahead in any meaningful or enduring way. So instead, you opt for a rather novel use of a framework traditionally used by banks and lenders to assess a business's creditworthiness, adapting that framework to bring I think a more nuanced understanding of how Chinese power is actually experienced and perceived in the world. And so those four parameters are capacity, capital, character and collateral, which you term or I guess quote the banking industry as terming the four seats. And so now you're going to help us understand what this actually means in a geopolitical context. So let's start with capacity. Perhaps the most straightforward to understand or transmute into the world of national power. So what does this mean in geopolitics and for Chinese power when it comes to capacity? So thank you for liking the framework. I mean, I love a little relation of any kind. So I'm here for it. Yeah, I'm a framework person. So I try to use a framework to understand this bilateral relationship because it's literally arguably the world most important bilateral relationship. It's not just diplomacy, it's not just economics, not just military. It has bothered me for a long time how to have a parsimonious framework to understand this complex relationship. You know, as the trade war demonstrated, China and the United States, they now both have the power to hurt each other. It's hard to say who is winning or who is losing. So you know, way we are dealing with a lot of complexity and a lot of uncertainties. And I realized that at the banking, the finance industry deal with complexity, do always uncertainty all the time. So that's why I thought of this framework could be useful. I played with it a couple of times and I figured maybe this is a way to assess the balance relationship. And I did, as you correctly pointed out, I did start with capacity intentionally because capacity, yeah, a lot of ways, it can be quantified. You know, like when we talk with American military or security, hard security people, oftentimes they would point out like China has the world largest standing army. And we talk with the economic policy people, we talk with industry people, the oftentimes would point out that China has the world's second largest economy. And if you measure it by PVP terms, it's already the world's largest economy. If there may be appreciate 30% China didn't do anything simply by the rooming be appreciation, it would already be the world's largest economy. So size matter. And we just lived through a period of very contentious over capacity discussion, right? You know, you worked in the Biden administration during that time, a lot of the bilateral economic negotiations really focus on the over capacity, the idea that China simply produce a lot. So capacity matters. China's rise in a lot of way, rise not just because it's a larger country, but because it rise from one of the world poorest economy into the second largest economy in the world. So from that perspective, it's very easy to imagine China as this gigantic, calcium giant. And something could appear to be very scary, to be fearful for folks simply because it's huge. But then on the other hand, I also want you to point out that capacity cut both ways, right? Yes, China is big, China is huge, China has produced a lot, the China dominates a lot of industrial supply chains, but enormous capacity poses China a lot of challenges, not just because of the international pushback against China's over industrial capacity, but it also creates a lot of domestic challenges for China as well in terms of the inefficiency of a capital allocation in terms of fierce domestic evolution, which lead to President Xi Jinping himself had to come out and say, well, we have to do this thing called a campaign against the evolution. So from that perspective, I'd say China's extraordinary, enormous industrial power in a way also present China a lot of structural constraint that the longer it delays to address the more difficult and the more costly for China to continue its current trajectory growth. And you also highlight in terms of that some of the paradox of China's very high levels of productive capacity that that same industrial capacity has in some ways made China dependent on the US, even as it tries to improve its self-sufficiency. So what does that look like? Oh, yeah, exactly. Thank you for putting that out. I think of the narrative, it's simple, right? You know, sellers need buyers. And for a long period of time, the United States is the largest consumer of Chinese manufactured good. And now, yes, if you only look at the statistics, one can say, well, you know, because of tariffs, China has like direct export from China to the United States is only constituting less than 10% of Chinese direct export. Some people might point that as this huge success for China to reduce its dependence on US market. But that is actually a wrong understanding because direct export to the US might be small, indirect exporting the China export through Southeast Asia through the Middle East countries like UAE. A lot of this intermediary export even to landed in the US. So if you ask Chinese exporters or especially those private companies, small and medium sized companies, they will tell you that's the customer for them is American consumers, is American companies. So from that perspective, China's enormous industrial capacity, one way or another is being consumed by the United States. So that's sort of the hard reality that China simply cannot ignore. And on the other side, even if one can say, you know what, I'm just super happy not selling to America. I make sure that nobody producing anything in China is eventually going to sell you to the United States. Then eventually you end up having to have deal with this perpetual question in terms of company management in terms of expertise, especially in terms of research and development and network. A lot of this is still very much international corporation. And the US leadership in this area is tremendous. A lot of people talk about artificial intelligence or quantum computing, material science, material engineering, these days a lot. And interestingly enough, you see a lot of US trained Chinese scientists have decades experience working US labs. And now a lot of them have returned to China. So how are you going to say this is Chinese self-assessfficiency? This is not necessarily Chinese Chinese. This is really a international collaborative work. So from that perspective, I just say eventually, eventually, it's very hard to decouple industrial capacity, industrial markets, industrial R&D network. And just to go a little further down this paradox, Road, you point out in the piece that China can produce almost anything cheaply and at enormous scale. But the more it uses that strength, the faster the world turns against it. Because some of the structural trade tensions that you discuss that result from China needing to find markets for these massive waves of industrial over capacity. Do you think Chinese leaders in how you see she and others engaging with China's industrial capacity? Do you think they see that paradox? Do you think they're trying to deal with the challenge? Like how do you think they view that structural tension in their model of growth? That's an interesting question. I haven't talked to with Xi Jinping. I couldn't say, well, you didn't even prepare interviews. I should have. But I do understand that China has a lot of serious American politics and American economy researchers. And they have definitely observed the America's use of coercive economic statecraft. And how that incentivized other countries to develop alternatives such as using dollar and sanctions as an example. It incentivized other countries to develop alternatives as a backup. And the reason I mentioned this is because China actually learned a playbook from America's export control and sanctions. And China didn't have an export control regime up until 2020. And they learned from the United States. And now over the past year, you started to see China use export controls to target American companies or companies who work with American companies. So from that perspective, I'd say China understand the dynamic of the more you use coercive power, the more American use coercive power, the more other countries, including China, is going to develop alternative. But probably we have not yet reached to the realization that the more China exercise coercive economic power, the more it introduced other countries to develop alternatives to Japan as an example. That decade ago, China restricted rare earth export to Japan because of bilateral relationship tensions. And then as a result, Japanese companies have developed their own strategic reserves at a company level with the support of Japanese government. And with China's weaponization of its supply chains, especially rare earth materials, gallium, germanium and those things, you see Western countries, Western government started to build their own economic security strategy with a heavy focus on critical minerals and critical materials. So from that perspective, perhaps a wake up call for Chinese policymakers, especially with regard to rare earth material, is that they now realize their dominance in rare earth mineral may be temporary. The moment when the rest build out alternatives, the moment when the rest of the world build up enough recycling facility, and the moment when technology become available so that some other material could replace rare earth, then China's dominance in rare earth material may no longer be relevant. It no longer have the credibility to punish foreigners, foreign companies or foreign government. So from that perspective, I think we probably learned about economic coercion and we learned about the timeline and we learned about the one to use it when it can still have the power or the credibility to hurt to punish. But to what extent they learned that actually the more you use it, the more you present yourself as a unreliable partner, hence the more you also push others away, I'm not sure they are there yet, but they definitely understand there is a timeline, there is an expiration date on their monopoly, and if you are going to use it. At least they don't view their capacity as a static form of power. Exactly. Exactly. Okay, so let's go to scene number two, which is capital. You literally wrote the book on how China uses sovereign funds to execute financial statecraft on a previously unimaginable scale. So I am very excited for you to tell us more about capital as a dimension of Chinese power. So capital is related to capacity in the sense that you build a lot of stuff, you export a lot, and as a result you accumulate a lot of foreign exchange reserves. So falling capacity, I wrote about the importance of capital. And the idea is really about to what extent China can use money to buy friends or shape outcomes internationally to the way that Chinese leaders desire. If we just put some numbers there, China has over $3.3 trillion foreign exchange reserves at this height, is over $4 trillion, but since 2016 it is stabilized around $3.3 trillion. And this foreign exchange reserves give China enormous flexibility to cushion domestic financial challenges. And also gives China the flexibility to fund support Chinese companies to conduct overseas mergers and acquisitions or to give out loans to fund overseas project. It's the 3.3 trillion is only the so called official foreign exchange reserves. And there are somewhere between 1 to 2 trillion reserve foreign exchange asset, not directly managed by the PBOC people's bank of China, but we are foreign exchange asset data can be used to invest year risk bearing longer term projects, such as infrastructure investment. And China has all sorts of vehicles to deploy this money. It's not just a China development bank or import export bank. There is also the Silk Road of China. There is Chinese investment corporation. There are a bunch of institutions underneath the safe or the state administration foreign exchange. So overall the idea is China has a lot of money government has a lot of money to deploy. And I think for a lot of our academics or commentators or policymakers, this is the familiar story. You know, China is government has a lot of money. But I just say if you only look at that side again, it's easy to think China as this omnipotent the Communist Party or the government controls everything. But in reality, I just say the China's capital as well as its financial power is more constrained than purely the number may suggest. In the article I used to remain as an example, you know, here is interesting that now as we are recording a lot of the news headlines in the past years since 2025, people have been talking about the debasement of the US dollar. People are talking about where is the future of the dollar as if the dollarization is a reality. And a lot of people are talking about the rise of RMB and things like that. I myself write things related to the dollarization and the baseline of any article that I wrote, even if the article, you know, you write for a lot of outlet, Harriata. You know that very rarely you get to choose your title, right? So even for the articles with my name, the title is China's attempt to dethrone the US dollar. I never made that argument. I never said China intend to dethrone the US dollar. And this is the part I also wanted to emphasize in this piece, which is, you know, just look at the RMB. Xi Jinping, President Xi Jinping himself, talking about that he wants the RMB to become a global international currency. But he never talking about having the RMB to be the dominant currency. Literally no Chinese official ever talking about the Chinese RMB replace the US dollar. And this actually is very interesting in the sense that the capacity of China is huge, right? China is a second largest economy. The largest trading country in the world is the largest trading partner for over 120 countries in the world. Like this huge country trade. Okay. But if you think about the currency, it's very minimum. And as he's a height, if you follow the swift RMB tracker, at his height, is at most up to like 5% and it's only because of the increased trade with Russia after putting the initial Russian the Russian sanction all that. And now it has returned back to somewhere between 3% or so. So from that perspective, you compare the role of RMB international usage versus the gigantic size of China international trade is minimum. And China has been pushing the broader use of RMB in international currencies. But the progress has been limited. China has built out a alternative financial infrastructure, the centerpiece of which is CIPS, the cross-border interbank payment system. That alternative system is there is ready to use. And if you believe the number that a Russian foreign minister said last year, he was saying that the Russian China trade 99% of Russian China trade is conducted by local currencies, mini-RMB and Russian Roku. So from that perspective, they build alternative as insurance as a hedge, not necessarily because they wanted to dethrone the US dollar. And then finally, just to conclude this sort here, even if the government developed this piece of alternative financial infrastructure, if you look at international investors holding of the RMB dynamite asset, is still very limited. So from that perspective, yes, Chinese numbered the capacity is huge. It has a lot of foreign exchange reserves. Chinese state-owned bank, ICBC for example, is among the world the largest bank. But in a lot of ways, financially, China's do remain very much dependent on the dollar-based system. And any fluctuation in the dollar, the depreciation of dollar literally means the majority of China's $3.3 trillion foreign exchange reserves, the majority of which is invested in dollar-based asset. A lot of those are going to be depreciated as well. So this is why I think it's very hard for China to not just dethrone the dollar, but also just to have a clear separation decouple from the dollar based system. Yes, the build alternative, but the alternative is as the insurance. You have it, hoping that you will never use it. And if we're trying to grasp something like the totality of China's capital-based power, how much do you think it matters that they can only get so far in mainstreaming use of Chinese currency and the international system? That's a good question. It speaks to perhaps two things. The one thing is about the relative importance and the human-compensity of the existing system, which is dollar-based. And the rise of China as the world largest trading country, as the world largest foreign exchange reserve holding country, China benefited from the dollar-based system. So that's that. And then on the other hand, it speaks more about China's considerations. China probably learned a lot of histories, and learned a lot of lessons from not just Asian financial crises, but more specifically from the liberalization experience of a Korean under the Japanese financial market. So it's very conscientious about the potential devastating effect of having a free flowing capital account. And without removing capital controls, it is going to be very hard to convince international investors that their money can easily go into China, and whenever they want to pull their money out, they can pull it out with capital control that cannot be assumed. The default understanding is that you can invest in China with approval, but it's not when you want to pull your money out, especially in times of crisis. You may not be able to pull your money out, and that is not what international investors want. So those two factors, the income, the China's own political economic reasons that we wanted to. We haven't shown any interest to liberalize, remove capital control. So these two factors means they can build alternatively, they can push them in being internationalization, but this is for them to be to rise to become a leading currency in international trade or settlement or to become a reserve currency. They have a gigantic long way to go. The interesting question there is, I'd say, it's actually related to China's industrial capacity, green or clean energy. And the reason I mentioned this is that, we tend to talk about dollar dominance or related to this thing called the petrol dollar system, the idea that countries like Saudi Arabia export a lot of oil, and then they receive dollar, and then these oil exporting countries would invest the dollar they receive from oil revenue, you master those in US asset, the buy US product, the buy US jet fighters, and things like that. So you complete this petrol dollar recycling system, and the central banks also hold dollar reserves. China so far doesn't have it, but they have developed their own payment system and payment as settlement system. So the infrastructure is there. And then China has this enormous dominance in green energy, the entire supply chain, not just the manufacturer, the physical goods. We also control rare earth material, and we also established the domestic exchanges that can improve RIMINB's international pricing power. So from that perspective, I'd just say China probably has a chance to push for RIMINB internationalization as the world move more and more into clean energy, because that's where China's industrial capacity dominance lies. That's where the technology is, their expertise, and their control of the physical stuff. So as long as we are still intermediary transition, and as long as the rest of the world being skeptical about China's dominance, the as long as the rest of the world keep trying to do their own green energy transformation, the mighty Chinese investment, they are not purely happy only buying from China. So I think this is sort of like a dynamic period of time, to what extent China can convince foreigners to buy Chinese green tech, green industrial manufacturer the goods, Yiren Mimbi, and to what extent foreigners are willing to hold Yiren Mimbi. So this is the era that I'm watching. Okay, let's go to C number three, which is character, which tell me if I'm not getting this right, I think the way you define this, that's a little more abstract than our prior TCs is around the question of how China uses its capacity and its capital beyond its borders. And what is the story China tells about what it is doing on the world stage, something maybe adjacent to soft power, right? And you argue that China has defined itself with what is it doing on the world stage, largely in negative terms, focusing on what China is not. It's not Western, it's not liberal, and you point out, I think, insightfully that this is good for building a broad tent across the global South and other countries that also feel they are not Western, not liberal, etc. But this approach has trade-offs and it also makes maybe for a broad coalition, but a loose one and sort of an uninspired coalition. So how does China look at that trade-off and how its character is represented on the world stage? So I think you're right, you know, the way that you characterize character is exactly how I think about it. And it's really about a character is not necessary so abstract in a sense that is like, you know, identity or ideology, right? It's really about how China behaves on international stage. And here the trade-off, in some ways there is no trade-off because character really fundamentally comes from domestic, domestic politics and domestic identity. China views itself as a victim of colonialism and a Western imperialism. And this is why the Communist Party of China and the President Xi Jinping talk a lot about the hundreds years of humiliation. And by closely aligning it itself with global South China basically came show that the narrative of his historical grievances became this banner rallying like Monday to countries if you will. But here I'd say not having a clear definition of what you represent, but simply by defining what you are not, it constraints, it put this dilemma to Chinese leaders in international stage, which basically means, okay, so you wanted to learn from the West, you wanted to use market forces to grow your economy, you wanted to join the WTO be part of this international system led by the West, but at the same time, you also say this is not a necessary, you also try to point out the deficiencies of existing system. You try to show how the existing system is not necessarily representing your voice. So for me, the term I use in the article is that a lot of these go to show China's real objective is to learn from America, learn from US, learn from Germany, learn from the West without becoming it. And for a country that doesn't really seek to export its ideology, it backs the question for the rest of the world. So you become this tremendous economic powerhouse and you have the largest standing army. So what is your intention by defining yourself as not this, not that, not that, you created this confusion. What do you represent? And I think this confusion blew distrust and skepticism. On the other hand, I'd also say by defining itself in negative terms, China seems to have this pragmatism, it can criticize the United States when the US doing unilateral sanctions, as the government say, they never provided direct military support to Russians or Ukraine, but nonetheless, they have a continued buying Russian oil, they have continued to sell goods to Russia. So it presented this dilemma for China making it hard to explain itself to international audience. And as a result, you ended up having damaging your relationship with others. I think the Russian Ukraine war and China's leaning, although again, the government never said we believe in the towards either side, but they criticized the US approach and their continuing support in material terms to Russia had damaged the very relationship with Europe. As a result, Europe is viewing China not just in terms as an economic challenger, but also a security threat. So from this perspective, I think it's very hard for China to build a international coalition under the banner of what the represent, but against that is very much a transactional relationship. There is no fundamental trust among China's partners, if that makes sense. Yeah, and you can sometimes I think feel the maybe genuine frustration from Chinese officials that there is this sense even in corners of the world that have no appetite for strategic competition who do want a cooperative relationship with China. There's perhaps still a sense that China's power is somehow not fully legitimate. Right. And I'm glad you pointed out the word legitimate, because sometimes a legitimacy is something or good reputation, right? Things like that and trust. These are all things that you cannot pass a law. And I say now I declare legitimacy. I declare credibility is something that has to be tested. And so far, there is no case. China is a power that has not been tested to be credible. And it has an earned the trust among international communities. And in a way, this actually offers China and Chinese entities tremendous amount of flexibility when they are dealing with developing countries, because developing countries we have learned how to exploit great power competition, right? It's sort of like what America can give us, what China can give us. And the fact that China came in and say, you know, I'm only here doing business. I don't six to export democracy or human right. I'm not here to pedagogy you how to run your country only here to to do business. For a period of time, I think it worked. But look at the reason Casey and Venezuela, the case of Venezuela, I think is kind of interesting case to show China's transactional opportunistic way of doing business, contacting diplomacy, is encountering more and more trouble. Part of the reason is because not only the oil backed loan program has proven to be not as accessible, but when Chinese transactional approach in a country meet with America's hard power and they literally couldn't do anything to defend their interest. The year of foreign country goes to show China's way of doing business or China's way of conducting international diplomacy, international relations has a lot of constraints. Okay, that leaves us to see number four, which is collateral, perhaps the strangest fit for a geopolitical framework. So what does collateral means in the context of national power? So I'll take a step back why I just switched the collateral to the word that I used in the article, talk about credibility. So collateral, incredible analysis means you put down something your house can be a mortgage as a collateral, right? You put down something so that you can lend. And if you are good credit risk, you have a great credit score, you don't even have to put down collateral. So this basically means it's collateral or the lack of needing a collateral in credit and allows or in terms of your lending, borrowing is a signal of what a kind of a credit risk you are. If you have a great credit history, you have a lot of capacity to pay. You probably don't need collateral. So in a way, it's a signal of credibility. So this is why instead of using the bizarre word, maybe for geopolitics, in the geopolitics world, I use the plan word credibility because it literally means to what extent one country can convince other country about its intent. And I think this is where China really feels the frustration, right? Overcapacity is a great example. You hear Chinese officials for so long, they say, we don't have a grand strategy to flood international market. We don't have a grand strategy to use overcapacity to kill your industries. But nonetheless, Western leaders from Europe to other capitals, the oftentimes point out China's intentional use of industrial overcapacity to kill other countries, companies and industries. So I think a credibility probably is the weakest dimension in China's overall multi-dimensional measures of power. It has a lot of credibility. It has a lot of capacity. It has a lot of foreign exchange reserves and a lot of state on the capital. It also has a lot of overseas investment and so on so forth. The more China invest overseas, the more China tries to exercise its muscles, the more it invests, the more it might skepticism. You see, not just the overcapacity ports is another example, right? Every now and then you see folks talk about, oh, China is investing in this support and why China is investing in this overseas support. That means the PLA is going to come and make this supporting into overseas military base, although we don't really have a lot of concrete evidence suggesting that, but those narrative stuck. And then the other interesting example stuck with me is the whole data trap diplomacy. You work down a lot of things related to Southeast Asia. You will know this, perhaps better than anybody. There is literally no empirical or serious academic work as shown. There is no such thing like a China intentionally set up that trap, knowing that you cannot pay, but I'm going to set up this trap so that I lend you knowing that you cannot pay and eventually I just want to have a control of your piece of critical infrastructure or have a piece of control of your commodity. Although academically, to each other show there is no such evidence, but that narrative is just a stuck. So I have a lot of sympathy to Chinese policymakers in this way because it really shows this international anxiety about how China behave, how China exercises is the capacity and how China uses its power. So taking a step back, having walked through these four dimensions of power, like what is your conclusion? Like how is the math shake out for you? How much what kind of power does China have? I'd say if we use sort of like the classic IR language, you know, there is the soft power, hard power, sharp power, whatever you want to probably China's weakest part is in soft power or smart or sharp power, but it has built up industrial power for sure. But does the industrial power equal to hard power? I'm not exactly sure because hard also probably include is not just a numbers game, it's also the quality. So from that perspective, this is why I feel like the bilateral relationship with the power match between these two countries is so hard to quantify now because winning or building more stuff in one area might trigger negative reactions in the other area. And ultimately, what does China want by building up all its various powers? Right? You build up powers to achieve something, right? So this is why the piece I try to explain that what China really wants is a strategic autonomy, although it does not seek to dethrone the US leadership, it does not seek to replace the US as the international leader, it does not seek to dethrone the US dollar, but it does want to have the freedom of action in its core area of interests. And it does want to have the veto power against America's ability to conduct unilateral actions. And I think probably the trade war experience in 2025 showed that at least China now can force the United States to accommodate China. And this is probably also an area where China is slowly but steadily proving its ground. And in that context, you argue that the bus case scenario for US-Tina relations for the period ahead is what you called stabilized confrontation. What does that look like? Yeah, you know, I did have a hard time to think about the best case scenario given that both countries now have built this build up mechanism to hurt each other, which make the rest of the world become collateral damage. So what is the best case scenario? I feel now we are already working in the government, so you correct me if my understanding of the mentality is wrong. It almost feels like the two countries are locked in a competitive and a confrontational mindset. It doesn't take even if a present Trump is willing to make a transactional deal. There are structural factors that force the two economies and two political economies into this long-term struggle. And China already settled into this long-term struggle all the way back to 2017, trade war followed by technology, the global tech campaign against the Chinese tech giants. So from China's perspective, we have already at least the mentality is this long-term confrontation with the United States. But I think both countries have smart people try to manage the relationship carefully to nuclear powers, right? So how to carefully manage this confrontation so that it does not spill over to hard military confrontation or does not escalate into military war? So I think that's how I imagine stabilized confrontation. It is stabilized. It is a confrontation. It is confrontation in multi-dimensional, in tech, in ideology, in political, whose model of growth is better, in diplomatic sphere of influence and so on so forth. But as long as these two countries are competing and carefully managing the competition in this area so that these confrontation are insulated from direct military confrontation, I think that's the best case scenario. There is no easy way to comment to the Chinese. You know what? Please just buy our advanced ships. We are not going to constrain our export to you anymore. And please, by the way, don't restrict your rare earth material to us. We are not going to build rare earth, prospering, and process capacity at home because we are so happy to just buy from you. I think we are no longer in that kind of happy to buy from you. You're happy to buy from me. So this is why I imagine the bilateral relationship is going to be carefully managed by smart and experienced people so that the long-term trajectory is your confrontational, but it's kind of stabilized so that all the confrontations are insulated from a militarized war. I think that's by 2026 standards, an optimistic note to end on. So we'll wrap there, Zoe. Thank you so much for coming on the show. You thank you for having me, Henrietta. To our listeners, I do hope you'll read Zoe's latest piece in foreign affairs. Again, it's called China's Long Economic War. And as always, we'd love to hear what you thought of today's conversations and what issues you'd like to see, peckingology, unpack in future at this out. So you can send your ideas to peckingology at csis.org. And if you haven't already, please rate review and subscribe to the show. We will be back in your feed soon. If you enjoyed this podcast, check out our larger suite of csis podcasts. You can listen to the mall on major streaming platforms like Apple podcasts and Spotify. Visit csis.org slash podcasts to see our full catalog.