In 2025, Beijing’s diplomats traversed the world claiming that China—and not the United States—is the more responsible steward of international order and the global economy. Yet China’s actions show that this rhetoric is far from the reality. Despite facing serious economic strains, over the past year Chinese leaders have continued to funnel state resources into high-tech manufacturing, expand evasive and coercive economic tools, export their problems abroad by flooding global markets with state-subsidized excess supply that distorts global prices and weakens competitors, and weaponize their leverage over supply chain chokepoints. Beijing has intensified its destabilizing gray zone activities, advanced its preparations for potential military conflict, and deepened its coordination with malign actors like Russia and Iran. Beijing has also continued its concerted efforts to establish regional economic and military hegemony in Southeast Asia and the Pacific Islands as stepping stones for projecting power toward its longterm goal of displacing the United States as the dominant power in the Indo-Pacific and, eventually, the world.
Industrial Policy and Imbalances Lead to Two-Speed Economy
In the concluding year of its Made in China 2025 industrial plan, China now possesses a hyper-charged, state-directed manufacturing base without historic parallel. Chinese firms count numerous successes in meeting ambitious market share and localization goals under policies like Made in China 2025. Yet the economy’s greatest gains are not in exports or value-added growth but rather in the cumulative and overlapping capabilities of its industrial capacity built through years of state support and other distortive practices. China is now positioned to develop and scale new technologies and attain first-mover advantage in many industries of the future. At the same time, China’s broader economy continues to experience malaise and structural weakness due to years of broken promises to rebalance. China’s desire to move up the value chain, reduce its dependence on foreign technology, and make the world more dependent on its output means it will continue massive, distortionary policy support for strategic and favored sectors, even if that means slower growth elsewhere in its economy. This dual-speed trajectory of industrial overcapacity amid consumer stagnation poses a direct risk to U.S. competitiveness and the resilience of global markets.
China Shock 2.0
In 2025, China is on track to run the greatest trade surplus with the world, exceeding its own historically unprecedented $992 billion surplus in 2024. While China professes to be a responsible steward of the global economy, in practice it has continued to flout international trade rules even as it is the biggest beneficiary of those rules. Its heavily state-distorted economic model has resulted in systemic dumping and massive excess supply, which is now flooding emerging markets—causing major job losses and hurting the manufacturing sectors of developing economies all over the world. Thus far, Southeast Asia has been ground zero for this “second China Shock.” China’s surging exports of low-cost products like textiles and electronics to Southeast Asia have already lead to hundreds of thousands of job losses in Indonesia and contributed to thousands of factory closures in Thailand. These distortions are rippling outward, driving price collapses, political instability, and new dependencies across Africa, Latin America, and Eastern Europe. Without concerted efforts to counter China’s unfair trade practices, China’s economic model will continue to cause economic harm to countries around the world for years to come. Left unchecked, this wave of predatory overcapacity threatens to hollow out not only developing economies but also key segments of U.S. and allied manufacturing—eroding the industrial base essential to national security.
Leveraging Supply Chain Chokepoints and Security Vulnerabilities
For at least the past five years, China has deliberately pursued a strategy of expanding production and deepening global dependence on Chinese exports while reducing its own reliance on imports. This strategy builds on decades of industrial policy that led to a concentration of supply chains in China and undercut competitors by flooding global markets with subsidized, underpriced goods. It parallels a trend of China sharpening its economic statecraft toolkit and escalating economic coercion against foreign countries, firms, and individuals. In 2025, these trends converged as China leveraged its monopoly over the processing of rare earth elements in trade negotiations with the United States, imposing export restrictions on critical minerals and magnets essential to a range of manufacturing industries and defense technologies. While Beijing has recently relaxed some of these restrictions, it is also tightening its enforcement capabilities for the future —signaling its readiness to weaponize these chokepoints again when politically advantageous.
Beijing’s successful use of economic coercion in bilateral trade negotiations highlights an open question for the future of U.S.-China relations: does the United States continue to have escalation dominance in imposing economic restrictions on China? Growing evidence suggests that advantage may be eroding. Critical minerals are only one example of China’s leverage over essential supply chains, and the consequences of China weaponizing other chokepoints could be devastating. Chinese producers wield significant control over active pharmaceutical ingredients and key energy infrastructure equipment, and China is investing heavily to gain such leverage over foundational semiconductors. If China cut off access to these items, it could deprive Americans of lifesaving medicines and cause significant harm to the U.S. economy.
The prevalence of Chinese components—especially internet-connected devices with remote access capabilities—in U.S. critical infrastructure provide Beijing with yet another disturbing source of leverage over the United States. Chinese state-sponsored cyber actors such as Volt Typhoon pre-position assets inside of U.S. critical infrastructure, potentially enabling Beijing to disrupt U.S. power, communications, water, banking, transportation, and other vital systems in the event of a crisis or conflict. These intrusions amount to an operational rehearsal for coercion below the threshold of war.
Undermining Global Stability, Security, and Prosperity
Over the past year, China’s external propaganda has accused the United States of undermining international order and attempted to cast Beijing as a force for global stability. In fact, however, China has only intensified its destabilizing gray zone activities in the Indo-Pacific and around the world. China’s reckless maneuvers targeting the Philippines in the South China Sea—including one incident that ironically led to a collision of two Chinese vessels in August 2025—have come alarmingly close to killing a Filipino mariner and potentially triggering the U.S.-Philippines Mutual Defense Treaty. China has also globalized its gray zone operations—extending its coercive tactics beyond the first island chain by sabotaging undersea cables, conducting unannounced live-fire military exercises in the Tasman Sea, and launching cyberattacks targeting telecommunications networks across dozens of countries. These actions are designed not only to intimidate neighbors but also to test allied resolve, normalize Chinese coercion, and fragment collective responses. Besides its own malicious activities, Beijing continues to fuel violent conflicts in Ukraine and the Middle East by providing dual-use technologies to Russia and Iran. Beijing’s support enables Moscow and Tehran to prolong wars of aggression while refining methods of sanctions evasion and battlefield coordination with direct application to a future Taiwan contingency. In all of these cases, China attempts to cloak its actions beneath a thin veneer of plausible deniability or legal justification, enabling Beijing to present itself a source of stability even as it undermines the very international order it claims to uphold.
Advancing Preparations for a Potential Conflict
China has continued to rapidly advance its capabilities to launch a successful invasion of Taiwan. The People’s Liberation Army’s (PLA) intensifying military activities near Taiwan—along with its introduction of new platforms designed to support an amphibious attack—have made it so that the PLA could pivot from a routine exercise to an actual blockade or invasion with almost no advance warning. Moreover, a troubling divergence has emerged between China’s English-language and Chinese-language propaganda about Taiwan—a split that suggests Beijing may be taking initial steps to prepare its people for the possibility of war. Whereas Chinese statements aimed at international audiences downplay the possibility of an invasion, China’s domestic propaganda has stated that Taiwan’s “provocations” could justify military action in the near future. While there is no indication that China is planning an imminent invasion—and Beijing still hopes to pressure Taiwan to surrender without a fight—the United States and its allies and partners can no longer assume that a Taiwan contingency is a distant possibility for which they would have ample time to prepare.
Beyond its specific efforts to enhance capabilities for a Taiwan contingency, Beijing has continued to rapidly modernize its military forces across all domains with the goal of being able to fight and defeat “strong enemies” like the United States. China views space as a crucial warfighting domain, and the PLA is rapidly expanding space and counterspace capabilities that could be used to target U.S. forces in the Indo-Pacific and incapacitate U.S. space-based assets. Beijing’s investment in counterspace systems—including direct-ascent anti-satellite weapons and co-orbital interference platforms—illustrates its strategy of blinding and disorienting U.S. forces in the opening phase of a conflict. China also continues to pour significant resources into over-the-horizon technologies such as artificial intelligence and quantum computing that have dual-use purposes and could accelerate China’s military and intelligence capabilities.
In addition to modernizing its own capabilities, China’s deepening cooperation with Russia, Iran, and North Korea has enabled these pariah economies to withstand multilateral economic restrictions, undermining U.S. statecraft and providing China with a live testbed for sanctions evasion and wartime logistics. These countries cooperate in efforts to supplant the existing world order with one more conducive to their authoritarian, destabilizing regimes. The mutual support between these countries enables each to act more aggressively, providing Beijing with a network of partners capable of supporting it in a military crisis. Even if they chose not to intervene directly, these countries could assist Beijing through military technology transfers, diversionary regional pressures, or economic and energy lifelines, complicating U.S. and allied crisis response planning and stretching deterrence across multiple theaters.
Seeking Hegemony in the Indo-Pacific
While China seeks to undermine existing international institutions, norms, and U.S. global leadership, it has also been working to ensure its own authoritarian hegemony in the Indo-Pacific region. After decades of systematically expanding its economic influence in Southeast Asia and the Pacific Islands, Beijing is now wielding its economic leverage to secure greater military access and security influence. For years, Beijing has pursued access to bases and dual-use facilities in the region. Now, these efforts are converging into an integrated network of logistics hubs, ports, and surveillance outposts designed to support power projection and sustain operations far from China’s shores. Beijing has also used regional partnerships with internal security forces throughout Southeast Asia and the Pacific Islands to gain the allegiance of local leaders by helping them maintain power through authoritarian policing practices and high-tech surveillance. Beijing’s “inside-out” approach to expanding its security influence aims first to gain a foothold within the internal security apparatuses—which it can then use as a source of leverage to shape their external security behavior. Most recently, China has exploited the growing crisis of scam centers operated by Chinese crime syndicates—many of which spread throughout Southeast Asia with, at a minimum, implicit backing from elements of the Chinese government— as a pretext to further expand the presence of its internal security forces in the region. This blurring of criminal, commercial, and security activities allows Beijing to embed influence under the guise of law enforcement cooperation, normalizing its extraterritorial reach.
Beijing’s ambitions to convert its economic power into greater security influence do not stop in the Indo-Pacific. Rather, Beijing has explicitly referred to regions like Southeast Asia and the Pacific Islands as “pilot zones” for refining strategies it can use to expand its influence on a global scale. These pilot zones serve as laboratories for authoritarian governance exports, technology standards, and coercive finance practices Beijing is already applying n Africa, Latin America, and Central Asia. By perfecting its control model close to home, China is building the architecture for global authoritarian resilience.
Looking Ahead: The Global China Challenge
Countering China’s aggression is now a truly global challenge. Beijing’s increasing military power projection and technological capabilities—as well as its deepening coordination with Russia, Iran, and North Korea—demand that the United States work closely with allies and partners to address interconnected, cross-regional security threats in multiple geographic areas. Enforcing export controls and securing supply chains by preventing transshipment and reducing exposure to Chinese inputs are likewise global challenges that will require close coordination with allies and partners in every region of the world. Beijing’s recent actions demonstrate that a China-dominated world order would be less stable, less secure, less prosperous, and less free. Such an order would be defined by weaponized interdependence, state surveillance, and coercive control over global norms. It will be incumbent upon the United States to counter Beijing’s bid for hegemony with a positive vision for the future that promotes prosperity, security, and freedom at home and around the world. Meeting this challenge will require not only defensive measures but also a proactive strategy to rebuild U.S. industrial strength, shape international rules, and lead coalitions that can compete with China’s scale and ambition.
2025_Annual_Report_to_Congress 2025_Executive_Summary
To read the report as it was published on the U.S.-China Economic And Security Review Commission website, click here.