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Cembalest used the allegory of the ‘fire horse’, the Chinese zodiac sign for this year, to underpin his examination of China’s endurance and bold expansionism. Its economic gains are often at the expense of its trading partners, who struggle to compete with cheap imports and the lower product prices that result. 

Chinese companies are resiliently resisting the downward pricing pressure on its exports thanks to a policy of mercantilism and government subsidies of key industries. It is also actively pursuing policies to reduce its dependence on overseas oil and gas supplies.

According to industry insiders, a couple of thousand jobs have been lost in the European car industry as a result of competition from Chinese EV manufacturers. Another three to 400,000 auto jobs will be at risk by 2030. Despite 17-35% duties on EVs from China, this “isn’t slowing them down” according to Rhodium Group.

China is among the leaders in useful final energy producers at 80% in self-sufficiency re: Energy Institute IEA JPMAM 2025. Iran is 90% self-reliant and Russia, Canada, the US and Saudi Arabia are all 100% self sustaining in meeting their internal energy needs

Its renewable share of useful final energy since 2010 is 13% when aggregated, third only to Europe (18%) and Latin America ex-Brazil (20%). China and Japan are in the lead to convert useful final energy into electricity, and managed to cut its oil imports in three ways:

i) through recourse to strategic and commercial reserves reportedly constituting over 1bn barrels.

ii) more gasification of domestic coal supplies to create petrochemicals

iii) increased electrification.

Notes there is an opacity of information on how they transitioned away from imported oi, so some of this is speculation.

Cembalest explains,

“A lot of energy commentary I read obsesses over China’s use of coal for power generation, but that only represents ~55% of coal consumption; the rest is for thermal heat and feedstocks for petrochemicals and plastics…

on a rate-of-change basis, China is among the world leaders on deployment of renewable energy and electrification of transport.”

A growing problem for the ASEAN countries is the trade surplus for China with these nations, which in 2024 was $280bn re: World Bank WITS, UN Comtrade JPMM 2024. The trade surplus with Latin America and the Caribbean was $240bn.

Its capacity to produce is double what the current production rate is, raising the potential for future market dumping. In batteries, their biggest export by market share, they are producing 890 GW out of a latent capacity of 2,830GW. Solar panels are at a production level of 567 GW vs a capacity of 1045GW.

Despite transitioning to one of the more developed world economies, China continues to dominate the market for apparel, textiles, footwear and leather exports seen as the preserve of lower to middle income countries. At the beginning of the decade it had a 35% share of the market and a 35% working age population share in this market, re: OECD, Foreign Affairs, June 18 2026. While their population share is now a little below 30%, its value added share has gone from 35-65%.

Lower producer prices reflecting competition has not led to diminished industrial capacity to reflect change in demand. But the share of the Chinese industrial entities operating at a loss has doubled from 15 to 30% of all companies just over the last two years, re: China National Bureau of Statistics, JPMAM June 2026. Chinese level of domestic investment is low and an insignificant component of GDP.

This reflects what Cembalest sees as part of a concerted mercantilist policy rather than one of innovation, which is what they claim. As a percentage of annual firm revenue 58% of all new Chinese bank loans are extended at or below its prime rate of 3% re: OECD MAGIC database June 1 2026.

He describes this as the “most blatant example of mercantilism in the postware era and the consequences are pretty damaging. Just in the last three years when we look at those ASEAN countries… almost all of them saw their average share of manufacturing related to GDP decline,” citing the World Bank 2024.

Jobs have been lost especially in Indonesia and Thailand “which creates a lot of instability in those countries.”

He flags Pakistan as one of the major beneficiaries of cheap solar imports from China. Its solar share of electricity generation went from 4% to over 20% in 3 years, re: Energy Institute, IEA, JPMAM 2025. This means solar has an increasing share of total energy consumption.

This being said, trading partners have to put up with a “flood of cheap imports across multiple sectors of the economy and not just energy…energy independence dividends not withstanding.”

He cites a colleague Loan Wright at Rhodium Group – “An economy like China’s that is so dependent on global demand for growth cannot remain in perpetual conflict with its customers.” 

The WTO has catalogued anti-dumping and countervailing duty investigations initiated against China – 2025 JPMAM. It peaked in 2024 at 180 from 75 the preceding year, to around 150 in 2025.

Cembalest forecasts, “We’re heading for a global showdown of sorts as the US and Europe and Latin America and Southeast Asia begin to try to wall themselves off from this massive and unprecedented production surplus in China, none of which is good news for investors in China and we’ve seen the evidence of that already.”

The 2026 year’s total returns for global equity markets show only MSCI China and India saw negative movement, re Bloomberg JPMAM August 9 2026. China onshore investment showed just under 10% growth. From 2020-25 it had less than 5% of global equity with market share leaders Taiwan just over 20% and Nasdaq at 18%, US large cap 15%.