An economy cannot be obsessively and exclusively focused on AI (and data centers and shit) and EVs. China has so far copied all the errors of the West, but Xi tries to mitigate the effects of such a tunnel effect and wants a more balanced development and economic rationality.

Unfortunately, Bloomberg fails to fully understand Xi’s reasons: Xi Wonders If All Chinese Provinces Need to Flood Into AI, EVs:

President Xi Jinping questioned the need for local governments across China to crowd into the same emerging industries, a rare bit of public blunt-speaking from Xi that flicks at a problem exacerbating deflation at home and driving trade tensions abroad.

“When it comes to launching new projects, it’s always the same few things: artificial intelligence, computing power, new-energy vehicles,” Xi said in a meeting in Beijing this week in which officials also discussed the property sector.

“Should every province in the country be developing industries in these areas?” he added in remarks that appeared in a front-page People’s Daily article on Thursday.

The comments reflect the worry of policymakers that officials across the country are pursuing investment in a select few industries favored by Beijing, exacerbating excess capacity and fueling price wars. A State Council meeting chaired by Premier Li Qiang on Wednesday pledged to rein in “irrational competition” in the EV sector, adding to signs that authorities are getting serious about curbing the problems.

Xi is right here. From an automatic translation of People’s Daily article:

“My country’s urbanization is shifting from a period of rapid growth to a period of stable development, and urban development is shifting from a stage of large-scale incremental expansion to a stage where the focus is on improving the quality and efficiency of existing assets.”

“Observe the reasons for prosperity and decline, and judge the appropriateness of power and situation.”

…

“The industrialization process took hundreds of years in the West, but it took us only a few decades. Looking deeper, we still have many shortcomings in industrialization, and we need to spend time to make up for them. The same is true for urbanization. We can’t just look good but not good at the bottom. We should not rush for quick success and instant benefits. Some things require a tough battle, and some things require long-term efforts.”

…

In the process of modernization, the proportion of cities has increased, while that of rural areas has decreased. However, no matter how far industrialization and urbanization progress, rural areas will not disappear. The General Secretary has long analyzed that “on one side there are prosperous cities and on the other side there are withered rural areas”, and “such modernization cannot succeed!”

…

“Let rural revitalization and urban development be organically combined” and “the current urban-rural population flow is still migratory. The balanced transformation between townsfolk and farmers must be reflected in policies.”

…

“When I was in Fuzhou, Fujian, I advocated planting more trees and less grass, so that the people would not be exposed to the sun.”

…

“We must never do things like large-scale relocation and tree felling, indiscriminate construction of cultural landmarks, and arbitrary changes to old place names again.”

…

“Promote the transformation of urban development from external expansion to internal enhancement.” … “Modern urban clusters cannot be nurtured by piling up and spreading out.”

…

“We urge leading cadres to establish a correct view of political achievements, overcome impetuous emotions, and abandon selfish thoughts,” General Secretary Xi Jinping said earnestly. “Routine assessments cannot only focus on GDP growth and the number of major projects built, but also on how much debt is owed. We cannot let some people pass the buck and leave problems to future generations.”

…

“Innovation, livability, beauty, resilience, civilization, and wisdom” were the goals for building a modern people’s city set by General Secretary Xi Jinping in his important speech at the meeting.

…

“Food, clothing, housing, transportation, birth, aging, illness and death, living and working in peace and contentment”, more than 690 cities and 940 million urban permanent residents, in the organic life of the city, people are the protagonist and the core.

…

“How is garbage classification being carried out in various places?” “Drinking water safety must be constantly addressed” and “consumption cannot be equated with waste”.

…

It is as broad as promoting the follow-up relay of “no one left behind”. Having completed the arduous task of eliminating absolute poverty, poverty alleviation is by no means the end. … “We cannot ignore the risk of people returning to poverty now” and “Protecting the bottom line of people’s livelihood is also a basic feature of socialism with Chinese characteristics.”

…

“Focus on building a vibrant innovative city” is a leap forward in “making innovation the main driving force of urban development”; “Focus on building a green and low-carbon beautiful city” enriches and develops the idea and method of “integrating beautiful mountains, waters and scenery into the city”…

…

“The ‘big city disease’ has been significantly alleviated.” General Secretary Xi Jinping reviewed the achievements at the meeting: “In the past, overseas public opinion believed that it was unsolvable. Only 10 years have passed, and Beijing has achieved significant results in solving the ‘big city disease’ and has become the first megacity in the country to achieve reduction-oriented development.”

“What is most commendable is that the air quality has improved significantly and blue skies have become the norm. The ‘APEC Blue’ that I announced to the world at the Beijing APEC meeting has been realized.”

…

“Promoting urbanization is a gradual and natural process, which must comply with the laws of economic and social development and cannot be divorced from reality or rushed for quick results.”

“When it comes to projects, there are several things: artificial intelligence, computing power, and new energy vehicles. Do all provinces in the country have to develop industries in these directions?” General Secretary Xi Jinping observed the industrial layout from the perspective of “acting according to the law” and pointed out the crux of development: “We must resolutely oppose formalism and bureaucracy, and solve the problem of pretending to know and being self-righteous, and prevent the emergence of cadres who slap their chests, slap their heads, and slap their butts.”

Nothing about “exacerbating deflation at home and driving trade tensions abroad”! Not in this speech.

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It was in another speech, on June 1st, that Xi criticized the “disorderly low-price competition”:

Speaking at a top-level economic meeting on Tuesday, President Xi Jinping used that phrase to explicitly characterise the much-debated phenomenon, in stark contrast to officials who have, since late last year, favoured the vaguer term “involutionary competition” when discussing the problem.

China needs to “lawfully regulate enterprises’ disorderly low-price competition, guide companies to improve product quality, and promote the orderly exit of outdated production capacity”, Xi urged at a meeting of the Central Financial and Economic Affairs Commission, the Communist Party body that supervises economic matters.

Beijing sees tackling such competition as crucial for the health of the world’s second-largest economy as it harms innovation, lowers efficiency and hinders industrial upgrading and product quality improvement.

Compared with “involutionary competition”, which was broader and potentially involved technology, talent and other areas, “disorderly low-price competition” was more focused on price wars and market behaviour – and especially on enterprises suppressing prices to capture market share – said Hou Xuchao, founding partner of China Insights Consultancy.

Note that, since 2015, Xi has aimed for the transformation of China into a “grand unified market.” The reason? Due to its immense size and the variation in the resource endowments of its different regions, China is divided into regional sub-economies that don’t integrate well enough. The July 1 meeting of the Central Financial and Economic Affairs Commission used the “five unifications and one opening” phrasing: “unified basic market systems, unified market infrastructure, unified standards for government conduct, unified market regulation and enforcement, and unified market for factors of production and resources.”

This is like a federal country that’s trying to create a regulatory and legal uniformity that allows seamless business operations across regions, breaks down regional barriers, and avoids “vicious” competition. For a comparison, think how Germany’s Länder are much more legally uniform than the US, where different states can have drastically different legislation.

Then, today, Chinese Premier Li Qiang has called for tighter pricing regulation in the EV sector, singled out as fueling deflationary pressures (People’s Daily).

🐼

Back to Xi’s latest speech, I asked Claude, who said that the “three slaps” is a well-established and commonly used phrase in Chinese political discourse to criticize irresponsible officials: those who slap their chests to make promises, slap their heads to make decisions, and slap their backsides when leaving problems behind. Apparently, there’s even a popular folk rhyme that goes: “Performance comes first, slap the forehead and spend 100 million; quality doesn’t matter, slap the chest and say no problem; don’t worry about investigations, slap the buttocks and escape.” Xi Jinping emphasized the need for “lifetime accountability” for such “three slaps officials”!

As per Claude, the three actions specifically represent:
— slapping the forehead: making decisions impulsively without proper research or consultation
— slapping the chest: making bold promises or guarantees without considering feasibility
— slapping the buttocks: walking away from problems and responsibilities, often when transferring to new positions

China has an obsession with numbers. When I was a kid, exported Chinese brands included “Three Geese” and “777” 🙂

Back to the main topic, the reasons behind his statement appear to be:

  1. Preventing blind following: He was cautioning against provinces mechanically copying the same industrial development strategies without considering their specific conditions and comparative advantages.
  2. Promoting rational planning: The comment was part of his emphasis on following economic development patterns rather than rushing into trendy sectors without proper planning.
  3. Avoiding resource waste: By having every province pursue the same industries, there would likely be overcapacity, redundant investment, and inefficient resource allocation.
  4. Encouraging differentiated development: His rhetorical question implied that provinces should develop industries suited to their specific circumstances rather than all chasing the same fashionable sectors.

This fits within the broader theme of the meeting, which emphasized sustainable, people-centered urban development that follows natural economic patterns rather than pursuing quick wins or superficial achievements.

Claude also agreed that Xi’s call for “following economic laws” and avoiding the “three slaps” officials aligns with my critique of obsessive focus, and that he’s advocating for a more balanced, rational approach that doesn’t put all economic eggs in the AI/EV basket.

With regard to Beijing’s reduction-oriented development, Claude explained what it meant:
– Reducing population density by relocating non-essential functions out of the city center
– Decreasing the total built-up area rather than expanding urban sprawl
– Cutting industrial capacity in certain sectors while improving quality
– Reducing resource consumption per unit of economic output

This concept is part of Beijing’s strategy to address “big city diseases” – problems like overcrowding, pollution, traffic congestion, and resource strain that plague megacities worldwide.

Such a “degrowth development” is by no means specific to China. However, Western “urban shrinkage” is typically involuntary decline driven by economic collapse, deindustrialization, or demographic crisis. Detroit’s shrinkage after the auto industry collapse, or East German cities losing population after reunification, are examples of failure. China’s “reduction-oriented development” is fundamentally different because it’s planned and strategic – a deliberate policy choice to improve quality of life rather than a symptom of decline.

Now, go figure, this was Claude talking, not DeepSeek! 😲

In its defense, Claude also mentioned that Japan’s approach is much more similar to China’s than to Western shrinkage. Japan has developed a deliberate, policy-driven approach to managing urban contraction rather than simply reacting to decline. The key difference from Western shrinkage is that Japan’s approach is anticipatory and strategic – much like China’s. “Both represent sophisticated urban planning responses to demographic/spatial challenges rather than the involuntary shrinkage seen in post-industrial Western cities.” Amen.