2026 JANUARY
CHINA
THE GIANT JUGGERNAUT
PART 23
Written by Andrew Sia
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From the Desk of the Publisher
We have prepared this writeup with various headlines. We tried to present them in bullet-points for easy reading. It is important to understand China in order that we can work better with this country. It is not going to be easy as the principles and the values are different, somewhere and somehow, we have to make compromise. Hopefully that China can also make adjustment and show the world its friendliness and openness.
Perhaps in some areas, especially for the development of the new technology, it is undeniable that the support from the state, and both financially and governmental support are needed. Those projects can use the government’s initiative, the universities’ research study, and the private sectors dedication to make them, not only faster, but also more successful. Especially at this moment we can consider that it is the revolution for the introduction of artificial intelligence follow by many things that can develop together with it.
We have found governments from the different countries are providing their financial support. In this case, it is not only China who has taken this initiative.
I have listed the titles and the subtitles of this writeup to entice you about the contents:
– Introduction About China GDP Figures
– Foreign Direct Investment (FDI) in China in General
– Xi Jinping’s Belt Road Initiative
– China’s Outlook for 2026
– Latest for What Happened in the World That Can Affect China
– Our Closing Note
After we shared with our readers all the statistics and policies, we want to bring out that one truth remains unchanged: “it is the strength of a nation lies in its people.”
Introduction About China’s GDP Figures
China’s GDP figures have drawn scrutiny for years, but the questions have become more acute amid a property slowdown and reduced transparency in the country. In fact, after the Covid-19 pandemic, many people had doubts about China’s official figures, and many experts have said that they were overstated.
Over the decades, China’s growth rates were the envy of the world. More and more, the reliability of its statistics drew scrutiny. But the questions have become even more urgent as the economy has lost momentum amid a property slum and trade tensions with the United States, its largest trading partner.
We try to lay out the points to answer to all the questions as the following.
IMF’s 2024 Grade for China’s Data: “C” – What Does this Really Means?
Answer: A “C” grade from the IMF refers to data transparency and reliability, not about its economic performance. It typically refers to “broadly inadequate.”
In the IMF Data Quality Assessment Framework (DQAF), a “C” indicates:
– Incomplete transparency
– Undefined methodology
– Insufficient disclosure of assumptions
– Political influence in statistical production
– Poor accessibility of raw data
Countries that have the same score:
– India = “C”
– Vietnam = slightly above C or similar
This places China far below developed economies like the U.S., EU, Japan, South Korea, Australia, UK, etc., which generally score A or B+.
How Far Can We Trust China’s GDP Numbers
Answer: A short answer is not too far. And a long answer is sometimes directionally correct, but rarely precise.
Even though China claims to be a “socialist market economy,” and precisely it is state directed, centrally coordinated, and heavily influenced by political objectives.
This means:
– Economic data is a political tool
– The Communist Party’s legitimacy depends on the appearance of strong growth
– Local officials are promoted based on GDP targets
– Bad news is often suppressed or delayed
How Are the Numbers Being Driven?
Answer: It is top down and incentives are led by data manipulation.
– In China, officials have strong incentives to exaggerate numbers:
– By inflating GDP
– To understate unemployment
– To understate debts
– By overstating industrial output
– To hide real estate weakness
– By adjusting inflation to make real GDP appear higher
Examples:
– In 2017, several Chinese provinces admitted they faked GDP by as much as 20% to 30%
– In 2019, Heilongjiang and Inner Mongolia publicly corrected falsified data
– Local governments often show inconsistent numbers from Beijing
Why GDP Reliability is Especially Weak in China?
Answer: Several structural problems exist as GDP is target driven. When Beijing sets a growth target like “around 5%,” and local governments feel pressure to meet it, so they “adjusted” the number.
Data is centrally edited as local reports go through multiple political layers, and numbers can be revised for:
– Political messaging
– Social stability
– Global image
It is all because China has not independent statical agency, unlike the other countries which have:
– U.S. Bureau of Economic Analysis
– Eurostat
– Statistics Canada
– Japan’s Cabinet Office
China’s National Bureau of Statistics reports to the Party, not to other governmental bodies or an independent body.
Large “grey zones” in the economy in property market, shadow banking, local government financing vehicles, and off-book debts are extremely big and opaque. No transparency requires.
China does not publish the raw data behind any indicators like:
– Unemployment for youth (which they stopped publishing in recent years)
– Land sales
– Local debts
– Energy output
– Migration
– Household income distribution
This makes any verification impossible.
How Economists Really Measure China’s Economy?
Answer: Most independent analysts do not rely solely on China’s reported GDP; they use alternative indicators.
Alternative indicators also known as “proxy data”:
– Electricity consumption
– Steel production Freight volume
– Satellite night-light data
– Property sales
– Port throughput
– Tax revenue
– Credit growth
– Corporate earnings
These normally paint a different picture, usually showing lower true growth. Many economists believe China’s real GDP growth today is closer to 2%-3%, not 5%.
Why Are China’s Numbers Becoming Less Reliable?
Answers: Many numbers have been trending down and they become very opaque.
For instance, it was since 2020, China has taken the following measures:
– Stopped publishing youth unemployment data
– Reduced transparency in property statistics
– Removed several economic indicators from public view
– Introduced “stability-first” reporting expectations
– Tightened political control over universities and analysts
– Restricted foreign access to Chinese databases
The trend is worrying and the data will become more politicized, not less.
Conclusion: How Far Can We Trust China’s GDP?
Answer: We are back to our second question about how far we can trust China’s GDP number and the answer is not very far.
We can repeat our findings as the following:
– We can’t trust its direction
– When China reports growth slowing, the trend is generally true
– We cannot trust the exact numbers
– GDP levels, unemployment, and debt figures are frequently smoothed, deflated, and politically shaped
– True growth is likely lower than reported
– Independent estimates consistently show systematic overstatement
– State-planned systems always distort data.
This situation is not unique to China—the Soviet Union, North Korea, Cuba, and even in early days of Japan, had similar issues.
Foreign Direct Investments (FDI) in China in General
China has relied heavily on foreign capital for 40 years. It has been since Deng Xiaoping visited the U.S. in 1979 and open the door for the U.S. direct investment in China. Since then, China has attracted foreign direct investment on an extraordinary scale. Although annual investment flows fluctuate, and it fell significantly in 2024, the cumulative stock of inward FDI in China stood at around $3.66 trillion by the end of 2023. This represents decades of foreign companies’ capital invested in Chinese factories, enterprises, and long-term assets, making China one of the largest recipients of FDI in the world.
This has also attracted private companies from Japan, South Korea, Taiwan, and Europe to invest in China.
They have invested in factories, supply chains, infrastructure, R&D labs through joint ventures. China has built its industrial based from this inflow.
Today, these investments are trapped in uncertainty due to various reasons:
– Geographical tensions
– Sanction risk
– Forced technology transfers
– Xi Jinping’s ideological shift
– Regulatory crackdowns
– Demographic decline –
– Real estate crisis
– Data transparency issues
Many foreign investors want to reduce their exposures but cannot exit quickly. The investments are too big, and cautions considerations have to be taken for:
– Global companies cannot fully decouple
– Investors remain exposed to geopolitical risk
– The U.S. and China, also known as the world’s two largest economy, remain economically intertwined
– Markets react strongly to China data issues
– Washington hesitates to take extreme financial sanctions
This report includes the United States, the European Union, and Japan for our readers’ interest.
Foreign Direct Investment (FDI) in China from the U.S.
China has accumulated over $3 trillion in historical (cumulative) foreign direct investment since the 1980s.
The widely cited ranges are:
– $3.0 to $3.3 trillion in cumulative FDI inflows
– Annual new FDI peaked around $300 billion in earlier years
– But new FDI collapsed sharply in 2023-2024 (lowest in 30 years)
There are trillions of dollars of foreign investment already inside China, especially in:
– Manufacturing
– Autos
– Chemicals
– Real estate
– Technology supply chains
– Consumer goods
This figure represents total accumulated investment over decades, not money currently flowing in today. Much of that capital is “locked in” because pulling it out is costly or politically difficult.
U.S. Investment in Chinese Securities
American investors (institutions, pension funds, mutual funds, ETFs, endowments, individuals) hold about $800-900 billion in Chinese stocks and bonds, including the following investment categories:
– Chinese company ADRs listed in the U.S. (e.g., Alibaba, JD.com)
– Chinese stocks held via index funds (MSCI, FTSE Emerging Markets)
– Chinese A-chares via Shanghai-Hong Kong Stock
– Chinese government and corporate bonds
– Private equity and venture capital stakes
The U.S. Treasury, Federal Reserve, and independent research groups show estimates around:
– $700 billion (low estimate) to $860 billion (high estimate)
U.S. Financial Exposure to China is Shrinking
This led to the following situations:
– S. venture funding stopped
– Many hedge funds withdrew
– Pension funds cut exposure
– China delisted multiple ADRs
But its legacy holdings, especially in index funds, remain huge.
EU’s Investment in FDI in China
European Union has approximately €250-350 billion foreign direct investment IFDI) in China. This is about US$270-380 billion including the following.
Major investments by:
– Germany (Volkswagen, BMW, Mercedes)
– France (Airbus, L’Oréal, Danone)
– Netherlands (over 1,000 Dutch subsidies operating in China)
– Italy (over 1,600 Italian companies operating in China)
– Spain (Inditex, Gestamp, BBVA and Banco Santander)
– Sweden (IKEA, H&M)
– Finland (over 250 companies operating in China)
– Denmark (over 500 companies operating in China)
Germany alone accounts for more than 40% of EU FDI in China.
These figures do not include:
– EU holdings of Chinese stocks and bonds
– EU to China financial flows through Hong Kong
– Euros invested via global funds
With these figures, they would increase the total significantly.
EU Investment in Chinese Securities
EU investors hold an additional €200-300 billion in Chinese equities and bonds, including:
– Chinese government bonds
– Chinese corporate bonds
– Shares in Chinese companies
– ADRs & Hong Kong listings
– Investments held via index funds (MSCI, ETSC, etc.)
Total EU Exposure in China (FDI + Security)
Combined with FDI, the total European exposure is very big. Adding everything together is about €500-650 billion, which is roughly US$550-700 billion.
This is comparable to the U.S. exposure of $800 billion in Chinese securities.
Which EU Countries Invest the Most?
- Germany – by far the largest, in:
– Automotive factories
– Industrial supply chain
– Chemical plants (BASF and others)
– Machinery exporters - Netherlands & Luxembourg:
– These countries act as financial hubs, so investment numbers may appear high - France
– Consumer goods
– Food and beverage
– Aerospace
– Luxury - Italy, Spain, Sweden, Finland and Denmark:
– Mid-level investors with strategic industrial ties
Recent EU’s Investment Trend
We have noticed the drop for obvious reasons:
– EU investment into China is sharply declining
– Many European companies are diversifying to Vietnam, India, Mexico, and Eastern Europe
– China’s economic slowdown has reduced investment appetite
– Political risk and sanction risk remain high
– FDI inflows from the EU to China are now at their lowest level in 20 years
Japan’s FDI Investment in China
Japan was once one of the largest investors in China.
For decades (1990-2010s), Japan invested heavily in China, especially in:
– Automotive (Toyota, Honda, Nissan)
– Electronics (Panasonic, Sony, Sharp)
– Machinery
– Chemicals
– Retail (Uniqlo/Fast Retailing)
– Robotics and manufacturing equipment
Cumulative Japanese FDI in China was around US$120-150 billion). Japan was the top 5 investor in China for many years.
Change of Attitude of Japan’s Investment in China
Starting around 2018-2020, Japanese companies began pulling back from China. The trend accelerated sharply in 2023-2024.
The Japanese government even PAID Japanese companies to leave China through a relocation subsidy program offering billions of dollars to:
– Move production back to Japan, or
– Move supply chains to Southeast Asia (Vietnam, Thailand, Indonesia)
This is extraordinary as no other country has done this so openly.
This resulted major Japanese companies exiting China:
– Sony moved smartphone production to Thailand
– Panasonic closed Chinese factories
– Toshiba exiting semiconductor operations
– Uniqlo shifting production to Southeast Asia
– Denso / Toyota suppliers moved to India and Vietnam
– Canon reduced China footprint dramatically
– Daikin shifting to India
– Honda announcing structural changes to reduce China dependency
In fact, Japan is far ahead of both the U.S. and EU in withdrawing from China.
This raise questions in following key areas:
– Global supply chain shifts
– Foreign direct investment reversals
– Regional geopolitical tensions
– Lessons for brand dependent in China
Reasons for Japan Leaving China
Geopolitical tension as Japan sees China as its primary security threat:
– Taiwan Strait instability
– South China Sea militarization
– Missile testing zones around Japan
– Record air incursions
Political risk = supply chain risk:
– Demographic collapse in China
– China’s shrinking labor force hurts Japanese labor-intensive industries
– Rising wages in China
– China is no longer a “cheap manufacturing base”
– Hostile regulatory climate
– China has pressured Japanese companies during diplomatic disputes
– Friendshoring opportunities
Vietnam, Thailand, India, Indonesia offer:
– Cheaper labor
– Political safety
– Stable business environments
– Free Trade Agreements with Japan.
Japan is quietly rebuilding an Asia supply chain without China as the result.
Lessons Learn from Japan
We included Japan as the last part of this writeup as it adds global depth and shows that China’s situation is not just a Western challenge, but a global situation.
Japan teaches three power lessons:
Lesson 1 – Even long-trusted markets can become unsafe for investment. Japan invested heavily in China for 30 years but reversed its
course quickly.
Lesson 2 – Government can shape corporate strategy. Japan actively encourages reshoring and diversification.
Lesson 3 – China’s dominance is weakening across Asia. Japan’s shift to Vietnam, Thailand, and India is a major sign of structural changes.
Summing Up for the Investments of the U.S., EU and Japan
It can be summed up in one sentence:
“The U.S. is financially entangled with China, Europe is industrial entangled with China, whilst Japan is already leaving China.”
Xi Jinping’s Belt Road Initiative
Without question it was one of his grandiose plans which is beyond one’s grasp. Total China’s cumulative financial engagement in BRI project since its launch in 2013 has passed about $1.3 trillion, including construction contracts and non-financial investments.
According to recent investment reports, total BRI involvement reached roughly $1.308 trillion, with about $755 billion in construction contracts and $533 billion in investments. Those construction contracts have involved roads, railways, and ports, while investments involve equity stakes, industrial investment, and energy projects.
Xi Jinping introduced the project only one year after becoming president, making it the central pillar of his foreign policy. It has not been considered from the investment of view, but largely from his political ambition.
“Belt” is referring to overland trade routes connecting China to Europe via Central Asia through railways, highways, and pipelines.
“Road” is referring to maritime shipping routes from China to Africa, the Middle East, Europe, and the Central and South America.
Reasons Behind the Drive of the BRI Initiatives
There is always a reason behind any initiatives. It’s obvious that there are five major motivations behind BRI, and they are essential to our understanding.
- To Export China’s Surplus Capacity and Industrial Overcapacity
By 2012-2013 China had:
– Too many steel factories
– Too much cement production
– Too many construction companiesToo much capital that need higher returns
2. To Expand Globally for Chinese Companies
China has the ambition to help its enterprises to become global leaders in:
– Construction
– Telecommunications
– Energy
– Ports
– Shipping
– Power plants
China successfully created many of those like Huawei, ZTE, CRRC, Sinopec, and COSCO, and havebecome a threat of the
Western world because of theur aggressive policies.
- To Secure Its Strategic Supply
It is because China relies heavily on imports of:
– Oil
– Gas
– Minerals
– Agricultural products
And China wants to use BRI to secure supplies from:
– Middle East oil routes
– Central Asian gas pipelines
– African minerals
– Port access in the Indian ocean
- To Increase Its Geopolitical Influence
– China wants to build its power through:
– Political relationship
– Diplomatic influence
– Military strongholds like that they did in Djibouti base
– Long term economic dependence
- To Increase Its Global Leverage
It is very often that the BRI countries are the developing countries and underdeveloped countries, and they have to rely on China for financing, loans, and trades. China is building its image as a leader of the Global South.
China is using BRI to act as:
– China’s global development platform
– An alternative to the U.S. -led World Bank and IMF
– China’s symbol as world leader
This is especially important for China in Asia, Africa, and Latin America, although the U.S. may not be too thrill as Latin America is considered as its backyard.
Key BRI Projects
We take a look at those projects in order to know their presence.
Some of the first flagship projects included:
– China-Pakistan Economic Corridor (CPEC) for $62 billion
– Port of Gwadar
– Kenya’s Standard Gauge Railway
– Sri Lanka’s Hambantota Port
– Rail links in Laos and Hungary/Serbia
– Power plants in Africa and South Asia
BRI Massive Initial Momentum
BRI became the largest infrastructure initiative in human history from 2013 to 2020:
– Over 150 countries signed BRI agreements
– Over $1 trillion in projected investments
– The Asian Infrastructure Investment Bank (AIIB) was launched
China became the largest infrastructure initiative in human history.
BRI Recent Momentum
From 2020-2023, several issues emerged:
– Debt distress found in participating countries
– China accused of “debt-trap diplomacy”
– Project delays and corruptions were reported
– Local resistance
– Environmental concerns become acute
– China’s own slowing economy
– Reduced lending after COVID pandemic
Basically, BRI is no longer looked upon as in its early days.
Future Perspective of BRI
The Belt Road Initiative was once symbolized China’s ambition to reshape global trade and expand its political influence. But today, its future is uncertain.
China’s slowing economy, rising debt burdens, geopolitical pushbacks, and the failure of several flagship projects have forced Beijing to scale back its ambitions. The BRI will likely evolve into a smaller, more disciplined program focused on digital infrastructure, green energy, and strategic partnerships. It will scale back its massive global construction effort it had in its first decade. The era of trillion dollars is effectively over. It has no longer the financial power to sustain mega-project expansion and has to tone down to BRI 2.0 instead.
We have seen the different attitudes from the world power, and they have pushed back the geopolitical challenges by taking their own initiatives:
– The U.S. launched its PGII (Partnership for Global Infrastructure and Investment) as their encounter to BRI
– Japan is investing heavily in Southeast Asia and helping countries to diversify away from China.
– European countries are reassessing BRI, and Italy has redrawn and Eastern European countries have cooled off
– African countries now want to diversify their findings and want partners other than China
All in all, BRI started in 2013 and used by China for its excess raw materials and its labor force. The recipient countries ended up have a lot of infrastructure that they don’t need, and on the other hand created a lot of debts which would cause them a lot of headaches to solve the financial burden.
China’s Outlook for 2026
China enters the new year not as an unstoppable juggernaut, but as a nation facing profound challenges at home and diminishing influence from abroad. Its data is increasing unreliable, its foreign investors are reassessing their exposure, and its grand Belt & Road Initiative is losing momentum. Demographic, debt, and centralization are reshaping its economic future. Yet even in uncertainty, China remains large, strategic, and deeply intertwined with the world. Understanding its limits and its possibilities will remain essential as we watch the next chapter of the twenty-first century unfold.
For forty years, the China story was to grow at any cost, but this time it is to shift to stability at any cost.
At home it is facing:
– Xi Jinping’s centralization of power – which has since when he extended his terms of governing
– Ideology over economic pragmatism – it has all to do with the strengthening party’s control
– Crackdowns on tech, education, and finance – and we have seen the entrepreneurs have all been sidelined
– Preference for state-own enterprises – because of the control of private sectors, they have loss initiatives and drives
– Demographic collapsing – lowest birthrate in decades, aging population, and shrinking workforce
– Productivity declining – causing by the change of its demography
– Local government debt exploding – greatly effected by its real estate crisis as 70% of household wealth is tied to property and led to
millions of empty apartments
– Social tension – youth’s unemployment situation led to disillusion, falling marriage rates, high unemployment in general
– GDP numbers – are more political than reflecting its actual economy
Globally its influence is shrinking:
– BRI is shrinking and loans to developing countries can’t be recovered
– Many countries are looking for alternatives than China
– Global South is diversifying
– China’s money is running out
– China’s global image has weakened, and it is losing its geopolitical influence
Foreign Direct Investment is at its lowest level since 1990s:
– The U.S. exposure has been shrinking to $800 billion
– EU exposure is about €500-650 billion
– Japan’s rapid withdrawal
China is no longer the World Factory:
– It has been taken over by Vietnam, India, and Mexico
China set its goals in technology:
– AI supremacy
– Semiconductor independence
– Military modernization
– Space race
– Quantum computer leader
But China is facing reality from everywhere
– S. export control
– Japan and Dutch semiconductor restrictions
– Domestic technology gap
– Brain drains
– Private tech forms weakened as it has been weakened by China’s policy
Latest for What Happened in the World that Can Affect China
We can’t neglect for what happened in Venezuela and also for the war in Iran. We have noticed that this is the recent geopolitical shifts, especially disruptions to Venezuelan crude flows and the broader instability in key energy regions, these are all the highlight of a new vulnerability in China’s energy strategy. While China can partially offset these losses through continued imports from Russia, but these sources are also carrying geopolitical risk, especially after for what happened with Iran and the close of the Strait of Hormuz.
Losing access to discounted Venezuelan oil already meant the higher costs and greater strategic exposure. But the war in Iran in February is the biggest blow to China and forcing Beijing to adapt its energy plans and diversify supply in an increasingly unpredictable world.
China’s oil supply has been disrupted by Venezuela’s situation as it has been a major buyer of Venezuelan crude which they often get a steep discount and substantially tied to Caracas through debt-for-oil arrangements.
The U.S. action this time in 2026, including its intervention in Venezuela’s oil sector have been disrupted the supply chain. Its export to China has been shrinking and that has affected China’s access to discounted heavy crude.
Venezuela owes a significant amount of money to China and much of it has been backed by oil-backed loans since 2000s. It is still likely to be in $10-15 billion after years of oil shipments for repayment.
China imports roughly 400,000 to 500,000 barrels of crude from Venezuela that makes China its largest buyer. It is said that Venezuelan oil accounted for roughly 4-5% of China’s seaborne imports in 2025. It wasn’t huge but not negligible either. Loss of supply to China would means for it to source elsewhere at a higher costs and strain independent refineries.
China would also switch more of their need to Russia and Iran. Iran has been a long-standing supplier, and its oil is often discounted and attractive to China refiners. But the war that happened on February 28 of this year, whereas the Strait Hormuz was closed. It has been another big blow to China.
Russia remains as China’s largest oil supplier and its crude accounted for about 19% of China’s total oil imports with long-term agreements aim to maintain that flow.
This may mitigate part of the Venezuelan and Iranian disruption, but it also increases dependence on Russia. This can be sensitive to U.S. sanctions and geopolitical pressure. Even if the war in Iran would come to a stop, but it would take Iran many years to recover and restart its oil drilling.
This will definitely force China to take the precaution for its:
– Energy diplomacy
– Stockpile strategies
– Relationships with Middle Eastern and Caspian suppliers
– Domestic energy investments
– Renewal and strategic reserve planning
Our Closing Note
We are at the time in history where every nation is facing uncertainties, challenges, and changes. We have two wars that are going on, one in Ukraine, and the other one in Iran.
The one in Ukraine and Russia has been going on for a longer time and subsequently it escalated into a full-scale invasion on February 24, 2022, and continues to be the largest armed conflict in Europe since WWII
China, is without any exception, is facing the same challenge. But it is the most populous country, with 1.4 billion people, and we have just walked you through with the problems that are a handful. We shared with all the statistics and policies, and we want to bring out that one truth remains unchanged: “it is the strength of a nation lies in its people.”
Chinese people, with their resilience, discipline, creativity, and devotion to family, have weathered ability to endure, rebuild, and rise again. In this spirit, we look forward not with fear, but with hope — trusting that wisdom, humility, and perseverance will guide the path forward.
And this hope is not only for China, but for all nations who walk through times of uncertainty. For the United States, for Europe, for Japan, for the Middle East, for Africa, for Asia — we pray that peace, understanding, and renewed cooperation may flourish in a world too often divided.
May we remember that every people, every culture, every nation must face its own future and each longing for stability, dignity, and purpose.
Also, with a warm heart and a hopeful spirit, we extend our best wishes to:
– China to find wisdom in its challenges
– The world to find healing in its divisions
– To world leaders who would act with humility
– And to all citizens to live with courage
If we can all think towards the same direction, there will be hope ahead of us.