Two Chinas live in the American imagination. First, it is a world-leading technology and manufacturing superpower. The other is the economy that is on the verge of collapse.
Each one reflects a true side of China.
One China – let's call it a hopeful China – is defined by companies such as AI startup Deepseek, electric car giant BYD, and Tech Powerhouse Huawei. Everything is an innovation leader.
Jensen Fan, CEO of Silicon Valley Chip Giant Nvidia, said China is “not behind” the US in artificial intelligence development. A considerable number of critics have declared that China will rule the 21st century.
Other Chinas – the pessimistic China – are business communities that withstand slower consumer spending, higher unemployment, the chronic housing crisis and the effects of trade wars.
When President Trump tries to negotiate a trade war resolution, he must consider both versions of the geopolitical rivals of the American arch.
To understand China, its interests are higher than ever before. It's not enough to fear its success or comfort financial difficulties. To know America's biggest rival, we need to see how the two Chinas can coexist.
“Americans have too many imagined concepts about China,” said Don Zilin, a former Silicon Valley executive who recently returned to San Francisco after spending 14 years in China, where he teaches and studies the country's science and technology policy. “Some of them want to use Chinese methods to solve American problems, but that clearly doesn't work. They don't realize that Chinese solutions have a lot of pain.”
Just like the United States, China is a huge country full of inequality. Coastal vs. Inland, North vs. South, Urban vs. Rural, Rich vs. Poor, State-owned vs. Private Sector, X vs. ZZ. It praises socialism, but it repels it from giving citizens a strong social safety net.
The Chinese are also tackling these contradictions.
Despite the trade war, the Chinese tech entrepreneurs and investors I have spoken over the past few weeks have been brighter than any point in the past three years. Their hopes began with a breakthrough in Deepseek in January. The two venture capitalists told me they were planning to escape the hibernation period that Beijing began in 2021 after he oppressed the tech sector. Both said they are trying to invest in Chinese AI applications and robotics.
But they are not optimistic about the economy, they are pessimistic China.
Ten executives, investors and economists I interviewed said they believe China's tech advancements are not enough to separate the country from the economic recession. Advanced manufacturing, which makes up only about 6% of China's production, is much less than real estate, and even after a sharp slowdown, it contributes to about 17% of gross domestic product.
When asked them if China could defeat the US in a trade war, no one said yes. But they all agreed that the pain threshold in China is much higher.
It's not difficult to understand the anxiety that Americans found themselves frustrated with their country struggling to build and manufacture. China has built more high-speed rail lines than other parts of the world, deploying industrial robots per 10,000 manufacturing workers than any other country except South Korea and Singapore, and is currently a global leader in electric vehicles, solar panels, drones and several other advanced industries.
Many of China's most successful companies have gained resilience from the recession and are better prepared for the bad days ahead. Eric Wong, founder of New York hedge fund StillPoint, which visits China quarterly, said, “It's a great opportunity to see the Trump administration's cost-cutting efforts known as government efficiency.” “In comparison, the United States has lived an overdue for a long time.”
But when we marvel at the so-called miracles of China, it must ask: at what cost? Not just finance, but humans.
China's top-down innovation model, which relies heavily on government subsidies and investment, has proven to be inefficient and wasteful. Just like buildings in the real estate sector that create a crisis and erase much of the wealth of Chinese households, excess industrial capacity deepens economic imbalances, raising questions about the sustainability of the model, especially when wider conditions worsen.
The electric vehicle industry shows two China's power. In 2018, there were nearly 500 EV manufacturers in the country. By 2024, about 70 people remained. Among the victims were Singulato Motors, a startup that raised $2.3 billion from investors, including local governments in three states. For more than eight years, the company failed to deliver a single vehicle and filed for bankruptcy in 2023.
The Chinese government will help to tolerate unnecessary investments in selected initiatives and fuel overcapacity. However, they are reluctant to invest heavily in rural pensions and health insurance that help to lift consumption.
“Technological innovation alone cannot resolve China's structural and economic imbalances and cyclical deflationary pressures,” said Robin Singh, chief economist at Morgan Stanley, in a research note. “In fact, recent advances in technology could strengthen policymakers' trust in current channels and increase the risk of misallocating resources and capital,” he wrote.
The obsession with technology independence and industrial capabilities of China's leadership does not support the biggest challenges, not to mention the housing crisis, including unemployment, weak consumption and reliance on exports.
Officially, the unemployment rate in Chinese cities is 5%, excluding unemployed workers. The unemployment rate among young people is 17%. Real numbers are considered to be much higher. This summer alone, Chinese universities will graduate from over 12 million new job seekers.
Trump was not wrong to say that factories were closed and people were losing their jobs in China.
In 2020, then-Prime Minister Li Keqiang said the foreign trade sector, directly or indirectly, employs 180 million Chinese people. “The slump in foreign trade will almost certainly hit the job market hard,” he said at the start of the pandemic. Tariffs can be much more devastating.
Beijing down the effects of the trade war, but its impact was clear as negotiators held consultations with US counterparts last weekend. In April, Chinese factories experienced the most sharp monthly slowdown in over a year, but shipments to the US plummeted 21% from the previous year.
All economic fallout was carried over by people like the guys I spoke with, along with the surname Chen, a librarian at a large university in southern China. He asked me not to use his full name and to use where he lives to protect his identity from the authorities.
Mr. Chen lives in gloomy China. He stopped riding his proud highway trains, as it costs five times the cost of a bus. Flying is also cheap.
He lost his job last year after a university, one of the nation's top universities, was facing a budget shortage. Many state-owned institutions have had to let go of people because many local governments, even in the wealthiest cities, are deeply in debt.
As he is in his late 30s, Mr. Chen is considered too old for most jobs. He and his wife had given up on buying a house. Now, in the trade war, he hopes that the economy will weaken even more and the prospects for his work will dim.
“I've become even more cautious about spending,” he said. “I weigh every penny.”
