Panic As China's Government Runs Out of Money | US-China Trade War Moves | China Leak

Happy Monday everybody. Welcome to another episode and a new week of China Update, where we discuss leading political, economic, and geostrategic analysis on the world's number two economy. My name is Tony. Today's episode contains this month's sponsored feature. Sponsored features are limited to just one to two per month. These are longer form sponsored features. I find that having one or two longer form features is far less disruptive than having say two to three shorter features per week. If you'd like to know how I work with these companies, I've put this in the description below. Today's company is very interesting, so I look forward to presenting that to you. But first up, we need to move into the episode and we start as we usually do with the Chinese economy. So let's jump in. The central government is preparing a major initiative to clear a mountain of overdue payments owed by local governments to businesses, signaling a renewed push to ease financial strains on the country's private sector. According to several outlets citing unnamed sources, Beijing is considering asking state lenders and policy banks, including China Development Bank, to extend loans to local authorities so they can settle arrears in what could be a package of at least one trillion yuan, 140 billion US dollars. The move would directly address a problem highlighted in the April Politburo meeting, which we covered at the time, where senior leaders pledged to accelerate efforts to resolve local government debt risks and ensure overdue payments to enterprises are repaid. Nearly five months later, policymakers appear finally ready to act on that promise, with plans to complete the first phase by 2027. The arrears, estimated by some economists at over one trillion US dollars, have weighed heavily on private firms, many of which rely on timely government payments to cover wages and supplier costs. Regular viewers will recall that some local governments in poorer regions are in a state of de facto bankruptcy, unable to pay trillions in liabilities. And these are not just bonds. What we're talking about here are things like bills to local contractors, or wages to, say, bus drivers and street cleaners. Xi Jinping underscored the urgency in a February speech, warning that unpaid bills risked, quote, crippling companies, end quote, and, quote, undermining public trust in government, end quote. However, as the great US economist Thomas Sowell once observed, there often are no solutions, only trade-offs. And that is the case here. While the proposed loans would bring much-needed relief to private contractors, which are owed money by these local governments, they would shift risk onto state banks already struggling with squeezed margins and rising bad loans. In the first half of 2025, China's five biggest commercial banks set aside 3.51 trillion yuan in allowances for loan losses, almost 6% higher than at the end of last year. Bankers have expressed concern that, without explicit guarantees, they could be left holding the bag if local governments fail to repay, some of which are in no position to repay. Local government-related entities in China owe an estimated 10 trillion yuan, or 7% of GDP, to corporates and civil servants, according to Chinese economist Li Daokui. That isn't total debt, that is just liabilities due to be paid to companies and workers for work done. To use an analogy, this debt is only the dinner bill, not the home loan. Authorities have previously taken smaller steps to address the issue, such as encouraging banks to provide short-term liquidity loans and considering 200 billion yuan in special bond allowances. The new plan would mark the most sweeping effort yet. Analysts say that, if implemented, the measure could serve as a quasi-stimulus, projecting liquidity into the corporate sector without adding to central government debt. But it also highlights the delicate balancing act Beijing faces, shoring up growth and stabilizing the private economy while managing risks in an already debt-laden financial system. We are living in a revolutionary time. On the Nasdaq, just a matter of days ago, a new company was taken public, which creates a seismic shift in the gold market. We have been told all our lives that gold doesn't generate yield, that it's not a productive asset. But StreamX Corp., a company on the Nasdaq as STEX, the sponsor of today's video, is completely throwing that on its head with an earth-shattering financial innovation. StreamX is a technology company that took about three years to develop from scratch a tokenization platform with RWA's real-world assets. For decades, gold investors seeking exposure had two primary choices—buy and store physical gold or buy gold ETFs like GLD. Both models came with inefficiencies. Physical gold has storage, insurance, and liquidity obstacles. ETFs charge management fees and never pay a yield. Additionally, many don't trust the backing of the outstanding shares of GLD compared with underlying bullion. Into this vacuum steps StreamX, with what may be the most radical innovation gold markets have seen in half a century—a fully tokenized, yield-bearing gold instrument backed one-to-one by vaulted bullion and delivering a 4% annual yield. What StreamX has developed is not just a product, but a direct challenge to the 100-plus billion ETF complex and the beginning of gold's remonetization in digital form. The global gold market is massive, worth $24 trillion with daily turnover of nearly $300 billion. That's more than seven times that of Bitcoin. And as global instability increases, gold demand will too. Yet astonishingly, less than $2 billion worth of gold is tokenized on-chain today. ETFs, despite their ubiquity, are structurally limited—no yield, trading restricted to market hours, and offer opaque custody arrangements. This leaves an enormous gap between what gold investors want—direct, secure, efficient, and productive ownership—and what legacy vehicles deliver. StreamX's innovation lies in combining three irresistible features. 1. Direct physical backing. Every StreamX gold token will, according to the company, be tied one-to-one to an ounce of LBMA-accredited vaulted bullion with transparent on-chain proof of reserves. 2. Liquidity and accessibility. 3. Yield generation. Through proprietary structuring, StreamX offers investors an up to 4% annual yield on their gold tokens—something no ETF can match. The result is a product that gives investors the timeless security of gold, the efficiency of blockchain, and the income stream of a bond. The trifecta is unprecedented. Tokenization is the next mega-trend. Boston Consulting Group projects real-world asset tokenization to explode from $29 billion Gold is the ideal first mover in this trend—university-recognized, deeply liquid, and already a monetary benchmark. StreamX is staking out the high ground in tokenized commodities. The team brings heavyweight experience to Wall Street veterans, mining executives, and crypto developers with proven billion-dollar track records. The roadmap is aggressive and ambitious. They have just gone public—early 2026 sees the launch of gold bullion tokens and first structured yield-bearing products, late 2026 expansion into other commodity tokens. By 2028, StreamX envisions itself not just as a token issuer but as a fully-fledged commodities exchange of the future, with gold as its beachhead. If they are successful, it would represent an explosion in value. Just as Netflix killed cable by offering on-demand content and Coinbase built a $20 billion business by simplifying crypto access, StreamX could seize ETF market share by solving pain points ETFs cannot. Investment in such a revolutionary company, by its very nature, is a speculative move. High risk, but if successful, also high potential return, and is worth doing research on. StreamX Corp. Symbol STEX on the Nasdaq. This is a sponsored feature. It is not individual investment advice. More information on this company, including relevant disclosures, is in the description below. Another thank you to StreamX for sponsoring this episode of China Update. Okay, we now return to regular coverage. Yesterday, Sunday, senior US and Chinese officials met for nearly six hours in Madrid, Spain, pressing forward on issues ranging from tariffs and technology to the future of TikTok. The talks marked the fourth round of dialogue since US President Donald Trump launched his tariff offensive earlier this year, and come just weeks before a potential face-to-face summit between Trump and General Secretary Xi Jinping in South Korea. We also note that Beijing has now formally invited President Trump to Beijing for a summit with Xi. The US delegation was led by Treasury Secretary Scott Besant and Trade Representative Jameson Greer, while China's team was headed by Vice Premier Li Feng. Both sides emphasize the discussions will continue into Monday, today, and likely beyond, as they attempt to stabilize an increasingly fraught relationship. A central focus of the talks was ByteDance Ltd.'s TikTok, which faces a looming deadline this week under US law requiring it to be divested from its Chinese parent company or risk being banned outright. Trump struck a characteristically ambiguous tone, telling reporters in New Jersey that TikTok's future was, quote, up to China, end quote. Beijing, for its part, accused Washington of abusing national security concerns for political ends, while state media highlighted the dispute as emblematic of US overreach. The Madrid session unfolded against a backdrop of renewed trade hostilities. Just days earlier, Washington expanded its entry list to include 23 more Chinese companies, citing national security concerns, while Beijing launched anti-dumping investigations into US-made analogue chips. These tit-for-tat measures show the fragility of a truce that temporarily paused US tariffs on Chinese imports that pauses due to expire in November, adding urgency to the negotiations. Tariffs remain a sticking point. Trump initially imposed levies of 145% on Chinese goods in April, before scaling them back to 30%. China retaliated with 10% duties on American exports and has since restricted purchases of US farm products. Soybeans, once the bedrock of US agricultural exports to China, have been conspicuously absent from Beijing's buying spree. American farmers, already facing lower prices, warn of severe losses without relief. For both sides, the Madrid talks carry weight beyond bilateral disputes. US inflation remains elevated and the Federal Reserve is widely expected to cut interest rates this week, a move aimed at supporting growth, but one complicated by higher import costs tied to tariffs. For China, exports to the US have dropped 15% this year, though trade with other regions continues to expand, with some analysts suspecting trans-shipments, that is Chinese goods being shipped through a third-party country, to avoid tariffs. Xi has seized the opportunity to showcase alternative partnerships, hosting a summit of over 20 leaders last month in Beijing in a bid to promote a global order less dependent on Washington. With just six weeks until the Asia-Pacific Economic Cooperation Summit in South Korea, negotiators are under pressure to deliver tangible progress that could pave the way for a Trump-Xi meeting, yet analysts caution that differences remain profound. For now, Madrid has proven a temporary stage for dialogue, but the outcome, whether on TikTok, tariffs or soybeans, will hinge on decisions yet to come. We will be following it closely here in the coming days, as we've been following the wider US-China trade dispute and US-China Cold War for years now. If you would like to come along on that journey, consider subscribing to China Update, and if you're getting some value from today's episode, don't forget to hit the like button. And finally for today, a vast leak of more than 100,000 internal documents has exposed how a little-known Chinese company, Ge-Edge Networks, is exporting sophisticated censorship systems modeled on China's so-called Great Firewall to authoritarian governments abroad. The revelations, detailed in new research from InterSecLab and reviewed by international media and rights groups, highlight the global commoditization of state-level surveillance tools. Founded in 2018, Ge-Edge Networks has close ties to the Chinese Academy of Sciences' so-called Massive and Effective Stream Analysis Laboratory. The lab is credited with key research behind China's own censorship apparatus, and one of the architects of the Great Firewall is reportedly an investor in the company. Although Ge-Edge presents itself as a provider of network monitoring and cyber surveillance tools, leaked files show that its core business involves developing and selling systems that enable real-time internet surveillance, deep pocket inspection, and customized censorship protocols. According to the documents, Ge-Edge has signed contracts with governments in Kazakhstan, Ethiopia, Pakistan, and Myanmar, as well as one unidentified country. These deals involve not only the installation of censorship hardware at national telecom hubs, but also the provision of software platforms operated by local authorities. The systems can block websites and apps, throttle traffic to certain regions, enact complete blackouts, and even track the online behavior of individual users. Efforts to neutralize tools designed to evade censorship, such as VPNs, are also central features. The leak further reveals that Ge-Edge's work extends inside China, with deployments in Xinjiang and other regions where surveillance and control are particularly intense. This demonstrates how the company serves both as a domestic supplier of advanced controls and an exporter of repression technology. The documents also suggest future ambitions. Functions under development include geofencing certain populations and offering cyber attack for higher services. Human rights groups warn that the spread of such tools deepens risks to privacy, free expression, and data sovereignty worldwide. Amnesty International, the Tor Project, and Justice for Myanmar, part of a consortium that reviewed the leak, say Ge-Edge's activity exemplifies a troubling new frontier. Censorship and surveillance infrastructure sold as turnkey solutions to governments seeking tighter control over their citizens. By exporting the Great Firewall's architecture beyond China's borders, Ge-Edge Networks is helping authoritarian regimes consolidate power in the digital era. The leak shows that information control has become not only a domestic imperative for Beijing, but also a lucrative global industry. Okay, that is today's episode of China Update. Thank you so much everybody for watching. Have a good Monday, have a productive week, and I will see you for another episode tomorrow.