Xi Jinping Warns Against Overinvestment in AI and EVs as China Faces Overcapacity and Deflation

Economic

Summary:

In a rare public critique, President Xi Jinping expressed frustration over local governments’ uniform push into AI, computing, and electric vehicles, warning that redundant development...

Xi’s Unscripted Rebuke Signals Strategic Course Correction

President Xi Jinping's unusually candid remarks this week reflect mounting concern in Beijing over China’s increasingly unbalanced industrial policy execution at the provincial level. In a high-level meeting on urban development, Xi questioned the wisdom of every province pursuing the same set of emerging sectors namely artificial intelligence, computing power, and new-energy vehicles (NEVs).

This blunt assessment, published on the front page of People’s Daily, departs from Xi’s typically formal public tone. By asking, “Should every province be developing industries in these areas?” Xi drew attention to the redundancy and inefficiencies in regional economic planning. The criticism was widely interpreted as a response to the worsening structural imbalance between supply and demand, particularly in China’s flagship innovation sectors.

Local Competition and Industry Redundancy Fueling Overcapacity

The centralized push for “new productive forces” like AI and EVs has prompted provincial officials to chase the same industrial targets, often resulting in duplicated infrastructure and unsustainable competition. The trend, once encouraged to stimulate growth, is now seen as contributing to declining company margins, excessive inventories, and deflationary pressure.

Even as the number of NEV makers has begun to shrink, China’s production capacity still exceeds demand by more than double, with utilization rates for many firms below 50%. In the energy sector, local targets for new energy storage by 2025 set by 26 of 31 provinces have already exceeded the national goal by over 100%, according to industry estimates.

This race-to-the-top in industrial investment has also led to market distortion. Qiushi, the Communist Party’s official theoretical journal, recently criticized local authorities for engaging in “disorderly competition,” offering illicit subsidies, and blocking out-of-province companies practices that create internal market fragmentation and further weaken business confidence.

Deflation, Overcapacity, and External Risks Converge

Xi’s remarks also come amid broader macroeconomic challenges. Although China’s real GDP showed resilience in Q2, nominal growth adjusted for price changes was only 3.9%, the weakest excluding the pandemic years since quarterly data began in 1993. This suggests that deflationary pressures are deepening, despite the headline recovery.

Domestic demand remains weak, even as output continues to climb in sectors like EVs, solar, and industrial machinery. The disconnect between production and consumption is now eroding corporate profitability and pushing some firms into unsustainable price wars. These dynamics also spill into global trade, raising geopolitical tensions as Chinese overcapacity floods foreign markets, particularly in Europe and the U.S.

Beijing Signals Shift Away from Investment-Led Growth

Premier Li Qiang, chairing a State Council meeting earlier this week, echoed Xi’s message by pledging to curb irrational competition in the EV sector. The same meeting reinforced a new policy direction emphasizing demand-side reform, better regulation of local investment incentives, and a more coordinated national approach to industrial strategy.

This pivot aligns with earlier guidance from Xi in March 2024, when he cautioned against creating “industry bubbles” and urged regions to develop emerging sectors based on their own comparative advantages. The renewed emphasis on “natural” urbanization and economic planning “aligned with reality” underscores a rejection of growth for growth’s sake.

China's Innovation Push Faces Structural Reset

Xi Jinping’s rebuke represents more than frustration with regional planners it reflects a deepening recognition that China’s rapid industrial scale-up has outpaced sustainable demand. As overcapacity and deflation risk converge with geopolitical trade tensions, Beijing appears intent on curbing excess and realigning incentives toward efficiency, coordination, and long-term economic health.

While the correction may reduce short-term growth momentum, especially in overbuilt sectors like EVs and AI, it could signal a maturing phase in China’s economic transition one where scale yields to quality, and central vision reasserts control over fragmented local execution.

Source: Reuters

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Winkelmann

Cryptocurrency

XRP has surged to a new all-time high, breaking a seven-year record as momentum builds across the altcoin market. On Friday, July 18, the token reached a new record high of $3.64, above its previous high of $3.40, set in January 2018. According to crypto.news price tracker, XRP is trading at $3.59 as of press time, up 18% in the last day and 40% in the last week.

Following the latest surge, XRP’s market value has risen to $212 billion, making it the third-largest cryptocurrency by market capitalization, outpacing Tether (USDT). Its market capitalization has increased by 65% in the last month alone as investor interest in the token grows.

There has also been a notable increase in trading activity. The spot trading volume of XRP increased by 135.5% over the last day to $19.05 billion. Derivatives markets followed suit.

Futures trading volume surged 162.6% to $46.65 billion and open interest has risen 27% to $11.11 billion, according to Coinglass data. The rise in derivatives activity points to growing speculation and increased positioning among traders.

Several factors appear to be fueling XRP’s rise. One major driver is Ripple’s recent push into regulated finance. Ripple and Circle (USDC) applied for a U.S. National Trust Bank charter at the beginning of July. If accepted, the move would bring Ripple under federal oversight and position it closer to the U.S. financial system.

At the same time, Ripple is preparing its stablecoin RLUSD for broader use, in line with emerging U.S. regulation. Momentum picked up sharply after the House passed the GENIUS Act on July 17, a bill that sets clear rules for stablecoin issuance. The legislation mandates full reserve backing, regular audits, and licensing requirements, criteria that Ripple has already moved to meet with RLUSD.

The company is seeking a Fed master account and has appointed BNY Mellon as the custodian of its reserves. With the GENIUS Act likely to become law, RLUSD could gain an early advantage in the compliant stablecoin sector, further increasing demand for XRP.

Institutional interest in XRP has also been rising. In a new stage of institutional adoption, VivoPower International and Webus have announced plans to purchase a total of $421 million worth of XRP for their corporate treasuries. These developments have strengthened investor confidence and contributed to the latest price surge.

Ongoing developments in Ripple’s legal battle with the U.S. Securities and Exchange Commission are supporting bullish sentiment. Both Ripple and the SEC have expressed interest in withdrawing their appeals, suggesting that a full settlement is on the horizon.

Another potential catalyst that market watchers are closely monitoring is the possibility of U.S.-listed XRP exchange-traded funds. Similar to how spot Bitcoin (BTC) and Ethereum (ETH) ETFs have enabled institutional inflows, an XRP ETF may draw capital from wealth managers, retirement funds, and financial advisors if regulatory barriers continue to drop.

Source: CryptoSlate

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Gerik

Economic

China–U.S. Trade War

A Strategic Shift Toward Deregulation and Infrastructure Expansion

In a bid to reposition the U.S. as a global AI leader, the Trump administration is finalizing its long-anticipated AI Action Plan, set to be unveiled on July 23. The blueprint includes a series of executive orders aimed at scaling back regulatory burdens, accelerating AI deployment, and enabling wider energy access to support power-hungry data centers.

The plan will focus heavily on executive branch actions rather than proposing sweeping federal legislative reforms, suggesting a pragmatic near-term strategy. According to insiders, the White House aims to streamline environmental permitting through amendments to the National Environmental Policy Act (NEPA), although it is not expected to address grid modernization directly.

This effort aligns with the administration’s pro-growth industrial policy, especially in sectors where AI intersects with national competitiveness, defense, and energy. Analysts view the initiative as a deliberate move to shift the AI narrative from regulatory restraint to economic acceleration.

Industry Backing Reflects Demand for Predictability and Flexibility

The expected deregulatory thrust has received widespread support from industry leaders, particularly Meta, Google, and OpenAI, who have criticized prior policy approaches under President Biden as overly cautious and fragmented. These firms have called for a lighter federal touch that balances innovation with responsible oversight especially in contrast to a growing patchwork of state-level AI regulations.

The Trump administration's plan would include a request for Congress to consider preemption powers, essentially asking for federal authority to override or harmonize inconsistent state laws. Although a recent attempt to codify such a provision into a federal tax bill failed in the Senate, the issue remains a top priority for tech stakeholders seeking legal clarity and operational consistency.

Promoting U.S. AI Abroad Through Development Finance and Export Strategy

Another key pillar of the plan involves expanding the global reach of American AI technologies. An executive order is expected to direct the U.S. International Development Finance Corporation (DFC) and the Export-Import Bank to support the overseas deployment of American AI infrastructure, especially in developing countries that lack domestic capacity.

This initiative represents a significant policy turn for historically conservative critics of the Export-Import Bank, rebranding it as a tool for digital diplomacy. By financing AI-related exports, the administration seeks to challenge China’s growing influence in international digital infrastructure while promoting American technical standards.

The push for global adoption also includes a focus on establishing international norms and partnerships. While the plan avoids committing to any new multilateral treaties, it supports cooperation on AI safety, third-party risk evaluation, and safeguards against the misuse of U.S.-developed AI tools by hostile foreign actors.

Language Model Neutrality Emerges as Political Flashpoint

One of the most controversial elements of the upcoming orders is a directive that all large language models used by the federal government must be “neutral and not biased.” Drafted under the guidance of tech executive David Sacks and White House AI adviser Sriram Krishnan, this order responds to conservative concerns about perceived political bias in generative AI systems.

Although the order’s criteria for evaluating neutrality remain unclear, it underscores growing political scrutiny of AI model outputs and content moderation policies. The mandate reflects a broader attempt by the Trump administration to influence how foundational AI tools are developed, audited, and procured especially for use in federal agencies.

Critics warn that enforcing “neutrality” could become a proxy battle over censorship and free speech, complicating relationships between Washington and the private sector. Nonetheless, supporters see it as a necessary step toward ensuring taxpayer-funded AI tools do not reflect ideological bias.

Policy Direction Clear, But Implementation Uncertain

The AI Action Plan marks a pivotal moment in U.S. technology policy, establishing a federal orientation that favors reduced regulation, infrastructure investment, and international outreach. While the strategy is still limited in scope focused largely on executive orders rather than comprehensive legislation it sends a clear signal to both domestic industry and global partners that the U.S. is doubling down on AI as a pillar of economic and strategic power.

Yet questions remain about execution. The plan’s success will depend not just on presidential directives, but also on how Congress, federal agencies, and courts interpret its implications especially as legal challenges and state resistance to federal preemption are likely. For now, the industry is optimistic, with investors eyeing additional exposure to AI as Washington signals open support for growth and deployment at scale.

Source: Bloomberg

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Olivia Brooks

Economic

Political

The Republican-controlled U.S. House of Representatives early on Friday passed President Donald Trump's $9 billion funding cut to public media and foreign aid, sending it to the White House to be signed into law.

The chamber voted 216 to 213 in favor of the funding cut package, altered by the Senate this week to exclude cuts of about $400 million in funds for the global PEPFAR HIV/AIDS prevention program.

Only two House Republicans voted against the cut, Representatives Brian Fitzpatrick from Pennsylvania and Mike Turner from Ohio, along with Democrats.

"We are taking one small step to cut wasteful spending, but one giant leap towards fiscal sanity," said Representative Aaron Bean, a Florida Republican, advocating for a similar spending cut package from the White House every month.

House Minority Leader Hakeem Jeffries countered that the funding cut "undermines our ability to keep our people safe here and to project America's soft power all over the globe," and argued rural Americans' access to emergency information on public radio will be diminished.

The funding vote was delayed for hours amid Republican disagreements about other legislation, and calls from some members of the party for more government transparency about the deceased convicted sex offender and disgraced financier Jeffrey Epstein.

To satisfy the Epstein-related concerns without holding up the funding cut bill any longer, Republicans on the House Rules committee introduced a resolution that calls for the release of Epstein documents by the U.S. attorney general within 30 days.

"It's a sound, good-faith resolution that ensures protections for victims and innocent witnesses," said Representative Virginia Foxx from North Carolina, the Republican leader of the rules committee.

But the top Democrat on the rules panel, Representative Jim McGovern from Massachusetts, blasted the resolution as a "glorified press release" because it lacks an enforcement mechanism to make the Justice Department comply.

When the chamber finally voted on the funding cut, it was the second close House vote on Trump's request to claw back the funds previously approved by Democrats and his fellow Republicans in Congress.

In June, four Republicans joined Democrats to vote against an earlier version of the rescissions package, which passed 214-212.

House Republicans felt extra pressure to pass the Senate version as Trump's administration would have been forced to spend the money if Congress did not approve the cuts by Friday.

The $9 billion cut amounts to roughly one-tenth of 1% of the $6.8 trillion federal budget.

Republicans say the foreign aid funds previously went to programs they deem wasteful, and they say the $1 billion in public media funding supports radio stations and PBS television that are biased against conservative viewpoints.

PREDAWN SENATE VOTE

In a 51-48 Senate vote before dawn on Thursday, only two Republicans, Senators Susan Collins from Maine and Lisa Murkowski from Alaska, voted against the funding cut.

Both questioned why Congress -- constitutionally responsible for the power of the purse -- was taking direction from the executive branch to slash funding.

"There's a good reason I think that we haven't seen a successful rescissions package before the Senate in almost 33 years," Murkowski said in a Senate floor speech this week, "It's because we've recognized that, 'Hey, that's our role here.' "

Funding cuts are regularly approved with bipartisan support in Congress through the appropriations process.

But Democratic leaders this week warned this one-party cut could damage the necessary bipartisanship to pass funding bills.

Funding bills require bipartisan support to reach the necessary 60-vote threshold for government funding legislation to pass the Senate, but a recissions package only requires a simple majority in both congressional chambers to pass.

Trump administration officials have promised to send more rescissions requests to Congress if the foreign aid and broadcasting package succeeds.

This week's funding clawback represents only a tiny portion of all the funds approved by Congress that the Trump administration has held up while it has pursued sweeping cuts.

Democratic lawmakers say the administration has blocked more than $425 billion of spending approved by Congress since Trump's second term began in January.

After the measure cleared the Senate, the White House's Office of Management and Budget Director Russ Vought said more such spending-cut requests are "likely" to be made by the Trump administration.

Murkowski, Collins and some Democratic appropriators also condemned a Thursday comment Vought made to reporters at a Christian Science Monitor breakfast, where he said the “appropriations process has to be less bipartisan.”

“The best way for us to counter what has been said by the OMB director is to continue to work in a bipartisan way," Collins, who chairs the Senate appropriations committee, said as her committee debated government funding for the next fiscal year.

Reporting by Patricia Zengerle, Bo Erickson, Richard Cowan and David Morgan; additional reporting by Ryan Patrick Jones; Editing by Scott Malone and Shri Navaratnam

Source: Reuters

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Gerik

Economic

China–U.S. Trade War

Strategic Export Restrictions Target Upstream Processing and IP

In its latest effort to safeguard critical technologies and secure economic leverage, the Chinese Commerce Ministry has expanded its export control list to include several EV battery-related technologies. Transfers of these technologies overseas whether through trade, investment, or cooperation will now require special licenses. The focus is on upstream know-how: refining, extraction of lithium, and LFP cathode manufacturing processes, which are essential for the increasingly popular LFP battery used in lower-cost EVs.

These new controls build on prior restrictions imposed earlier this year on rare earth materials and magnets, revealing a clear pattern in China’s trade strategy: shift from raw material dominance to intellectual property and process control. This tightening coincides with the global scramble to localize clean tech production, especially in the US and EU.

EV Expansion Plans Abroad Now Face Regulatory Hurdles

Chinese battery giants like CATL, BYD, and Gotion have rapidly scaled globally, setting up or planning production in the US, Europe, Southeast Asia, and Latin America. But these latest restrictions raise uncertainty over how much proprietary processing know-how can be transferred into overseas ventures.

At this stage, analysts suggest the short-term impact may be muted. CATL’s plants in Germany and Hungary primarily focus on assembling cells and modules not on restricted cathode or lithium processes. Similarly, BYD only assembles battery packs abroad and retains sensitive processing in China. Nonetheless, the long-term question is whether future expansions will face bureaucratic delays or denial of permits from Chinese authorities.

The policy effectively creates a conditional bottleneck: companies can expand globally, but only with Beijing’s approval of the specific technological elements involved. This could delay or reshape many localization efforts, especially in jurisdictions like the US, where clean energy tax credits require non-Chinese sourcing.

Reinforcing Global Dominance in LFP Batteries and Lithium

China controls 94% of global LFP battery production capacity and 70% of lithium processing output, according to Fastmarkets. This chokehold spans not just material extraction but also the technology underpinning high-efficiency LFP cathodes. In the EV sector, LFP batteries though lower in energy density compared to nickel-manganese-cobalt (NMC) types have become favored for their safety, durability, and lower cost. Their adoption has surged among Chinese EV makers and is now expanding into Western markets.

The export restrictions therefore represent a bid to keep that technological edge proprietary. Even if other countries develop LFP production capacity, they are still likely to depend on Chinese expertise for precursor materials and cathode processing, embedding a structural dependency.

Supercharged Innovation Raises the Stakes

BYD and CATL are pushing innovation boundaries that illustrate China’s lead. BYD’s latest “Super E-Platform” enables a 250-mile range with just five minutes of charging surpassing Tesla’s Supercharger metrics. CATL responded with a longer-range LFP battery capable of 320 miles with similar fast-charging performance. These breakthroughs demonstrate not only raw processing power but also process optimization, the very types of IP now under export scrutiny.

Such performance metrics give Chinese EVs a compelling value proposition in global markets. If this innovation edge is restricted from spreading through licensing or joint ventures, rival automakers may struggle to compete on cost-performance ratios unless local alternatives catch up.

Geopolitical Ramifications: From Trade War to Tech Containment

Beijing’s framing of the export controls as protecting “national economic security and development interests” underscores the geopolitical calculus. The move comes as the US and EU implement tariffs on Chinese EVs and battery components, trying to push Chinese firms to build locally or reduce market share. In turn, China is signaling that access to its tech advantage won’t come easily or cheaply.

Liz Lee of Counterpoint Research noted that this marks a shift from material constraints to intellectual property containment. It could accelerate Western efforts to develop domestic or allied processing capabilities, especially for lithium and cathodes. However, these buildouts will take time and substantial investment, during which Chinese firms may further solidify their dominance.

China Shifts from Material Dominance to Technology Leverage

With its new export restrictions, China is recalibrating the terms of competition in the global EV battery race. The controls emphasize not just holding ground in raw materials, but also preventing key process technologies from fueling rival industrial strategies abroad. This puts additional pressure on automakers and governments worldwide to localize not only production but also innovation.

The near-term operational effects may be modest for Chinese companies already abroad, but the longer-term implications are significant. These curbs represent a move from supply chain management to technological gatekeeping intensifying the global race for battery self-sufficiency and redrawing the strategic map of the clean energy economy.

Source: CNN

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Gerik

Economic

Commodity

Crude Benchmarks Stabilize on Supply Tightness Signals

Oil held steady on Friday following a solid rally in the previous session, driven by optimism about the U.S. economy and tightening supply conditions in refined fuel markets. Brent hovered above $69 per barrel, while West Texas Intermediate traded just under $67, maintaining upward momentum established over the past two months.

Recent macroeconomic data out of the U.S. has allayed fears of an imminent slowdown, even as Washington’s escalating trade actions continue to create geopolitical friction. The resilience of consumer spending and industrial activity has helped sustain risk appetite, leading to broader gains in equities across Asia and other global markets.

Crucially for oil, backwardation continues to dominate the structure of both crude and gasoil futures. This pricing pattern, where near-term contracts are priced higher than those for later delivery, reflects a market in which physical supplies are tight and immediate delivery is at a premium.

Diesel Shortage Adds Upward Pressure to Crude Prices

One of the key causal drivers of crude’s strength is a persistent shortage in the diesel market. According to analysts at Dadi Futures and market data from Europe’s Amsterdam-Rotterdam-Antwerp (ARA) hub, gasoil inventories have dropped to their lowest seasonal level since 2022. Simultaneously, the diesel crack spread an indicator of refining profitability has surged to its highest since March 2024.

This tightness is especially visible in the U.S. and European markets, where diesel demand typically peaks during the summer transport and agriculture seasons. The imbalance between supply and demand in refined products exerts a feedback effect on upstream crude prices, as refiners are willing to pay more for feedstock to meet current output margins.

Huang Wanzhe of Dadi Futures noted that while crude’s strength is supported by diesel fundamentals, the real question is duration: “The logic of diesel tightness propping up crude flat prices remains unchanged. The key question is how long this strength can last.”

OPEC+ Output Expansion Yet to Loosen Market

Despite the OPEC+ alliance relaxing production curbs more rapidly in recent months, the anticipated glut has not materialized at least not in price-setting markets. Analysts at Morgan Stanley and Goldman Sachs pointed out that much of the global stockpile build has occurred in peripheral regions with limited influence on benchmark pricing, rather than in key hubs such as Cushing (U.S.) or Singapore.

This geographic distribution of inventory builds has muted bearish sentiment, as price-setting centers remain relatively tight. As a result, traders are not yet repositioning for a sustained downturn in prices, and physical premiums remain elevated for prompt delivery barrels.

Market Holds Bullish Bias, But Fragile Underpinnings Remain

Oil’s upward trend, supported by strong diesel demand, a backwardated futures curve, and solid macroeconomic data from the U.S., highlights short-term tightness in the physical market. However, the outlook remains uncertain. If inventory builds in peripheral markets shift toward major hubs or if refined product margins ease, the rally may lose steam.

For now, the confluence of peak seasonal demand, a steady macro backdrop, and regional diesel shortages continues to support crude at elevated levels. Traders are watching closely for signs of either a sustained structural tightness or the beginning of a reversal as production catches up and demand normalizes.

Source: Bloomberg

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Gerik

Economic

Futures Hold Gains as Retail Resilience Lifts Sentiment

Futures tied to major US indices held modest gains late Thursday, continuing the bullish momentum that propelled the S&P 500 and Nasdaq to fresh record closes. Dow Jones futures rose 0.1%, while S&P 500 futures edged up by a similar margin. Nasdaq futures hovered just above flat, reflecting caution ahead of Big Tech earnings and broader macro developments.

Investors welcomed data showing stronger-than-expected retail sales in June and a drop in weekly jobless claims, both of which suggested continued consumer resilience. These indicators helped neutralize concerns that President Trump's tariffs are yet significantly dampening household spending, despite mounting cost pressures across other segments of the economy.

Earnings Season Supports Risk Appetite

Investor sentiment has also been underpinned by corporate earnings that so far reflect strong fundamentals. Netflix kicked off the Big Tech earnings season with a solid Q2 beat and an upgraded full-year revenue forecast, although shares dipped nearly 2% in after-hours trading due to the narrow margin of the revenue beat.

Upcoming earnings from 3M, American Express, and Charles Schwab will offer deeper insight into the strength of the industrial, financial, and consumer segments. So far, earnings have reinforced the market’s bullish tilt in Q2, allowing major indexes to shake off volatility triggered by political headlines.

Fed Focus Shifts from Powell Controversy to Successor Speculation

The political drama earlier in the week centered around reports that President Trump was considering removing Fed Chair Jerome Powell has since faded into the background. Powell responded by defending the Fed’s renovation budget in a letter to the administration, signaling institutional resilience despite mounting scrutiny.

Still, the market has begun to shift attention toward potential candidates to replace Powell next year. The debate centers around who can manage the dual mandate of maintaining monetary credibility while navigating political pressures from a president who continues to call for ultra-low interest rates.

Rate expectations have responded accordingly. Traders currently see a roughly 62% chance of a rate cut in September, though no move is expected at the upcoming July meeting. The Fed’s path forward remains conditional on data trends and tariff-related price effects.

AI Talent War Heats Up as Meta Poaches Apple Engineers

Beyond macro developments, investor focus has also turned to the intensifying competition in artificial intelligence. Meta has ramped up its recruitment spree, hiring multiple former Apple engineers for its Superintelligence Labs. These hires follow Meta’s blockbuster acquisition of Apple’s LLM leader Ruoming Pang, who reportedly secured a compensation package exceeding $200 million.

Meta’s aggressive investment strategy underscores Big Tech’s battle for AI dominance and is expected to drive long-term capital allocation decisions across the sector. The company’s strategic pivot continues to prioritize compute infrastructure, model development, and specialized engineering talent in a bid to compete with rivals like OpenAI and Google.

Other Notable Movers: Netflix, Norfolk Southern

Netflix, despite its earnings beat, saw its shares decline in after-hours trading, with investors parsing the narrow revenue margin and guidance. The market response suggests that expectations for Big Tech are elevated, and even solid reports may not be enough to sustain price momentum without upside surprises.

Meanwhile, Norfolk Southern surged 4.7% after reports from the Wall Street Journal revealed that Union Pacific is in early talks to acquire the rail operator. A merger would potentially create the largest rail network in the US, attracting regulatory attention and reshaping transportation logistics in North America.

As Wall Street rides the tailwind of strong economic data and encouraging earnings, futures markets suggest continued risk appetite heading into the weekend. While concerns over Fed independence and trade policy remain in the background, investors are choosing to focus on corporate resilience and consumer demand. Whether this optimism can be sustained will depend on the coming wave of earnings and clarity from the Federal Reserve’s July policy meeting.