Vol.192 Macro Talk 95 | The New China-US Tariff Accord and the 15th Five-Year Plan (Recorded Nov. 5)
Summary
- The new China-US accord is a one-year truce that is in line with market expectations but slightly below 李峰峰’s more optimistic call. The market had almost universally expected a deal; special port fees on Chinese vessels and the escalation of “301 investigations” above 50% were removed, while fentanyl tariffs were reduced but not eliminated as 李峰峰 had initially anticipated. The real discount is the term: both sides need to “catch their breath,” but renegotiation every year limits sustained accumulation of Chinese assets by long-duration capital.
- The recent synchronized selloff across global assets looks more like a tightening in dollar liquidity triggered by the US government shutdown than a repricing of the tariff accord. 李峰峰 noted that the renminbi subsequently moved from 7.12 to 7.13, which he sees as evidence of a sudden increase in dollar demand; since markets with very different degrees of froth fell together, the short-term common variable may be volatility in dollar supply after federal fiscal operations were disrupted.
- Both China and the US need a one-year truce to create room to address domestic economic problems. China’s September subcomponents excluding real estate had already “turned up at the margin,” but October PMI failed to extend the recovery; 李峰峰 suspects that, beyond the sudden escalation in the trade war at the start of the month, local governments may have run short of fiscal resources after midyear. Beijing subsequently topped up funding and allocated RMB500B in October, but the money may not translate into physical work until late November.
- The most structurally meaningful signal in the 15th Five-Year Plan is not which hot sectors it names, but its call to maintain a reasonable manufacturing share. Finance and new-energy vehicles were not highlighted, but that does not make them less important; 李峰峰 reads the plan as a reminder to focus on tasks that “should start today but only pay off a decade from now.” He and 李翔 estimate that manufacturing will account for roughly 25%–27% of GDP, agriculture will fall below 5%, and services will rise to around 66%–68%; manufacturing, however, cannot be preserved for its own sake and must rely on global demand and medium- to high-value-added products.
- AI compute and data centers are productive investment, but circular commitments among leading US companies are amplifying valuation and execution risk. OpenAI, Oracle, Amazon and three or four other companies are investing in and buying from one another; 李峰峰 likened the structure to “stepping on your left foot with your right foot to fly upward,” a form of “Cloud Ladder” kung fu. Amazon’s simultaneous growth and roughly 30,000 layoffs suggest that capex may be shifting from labor toward compute. The two disagree on whether AI will be a net destroyer of jobs, but both acknowledge that labor reskilling will be the main cost.
- 李峰峰 sees bilateral military conflict as constrained by high costs on both sides, rather than by one side simply backing down. His framework is that if the US cannot ensure victory in a non-nuclear conventional war, entering directly—even fighting to a draw—would shake the credibility of the dollar and Treasury system underpinned by US military dominance; China, meanwhile, must assess the sanctions and cost of disengaging from the external system that Russia has endured since the war in Ukraine, and be prepared for a shock lasting at least “three years.” Negotiating space exists because “both sides have red lines they cannot accept.”
- Hong Kong home prices have risen for 4 consecutive months, providing a policy-free example of the chain that could stabilize housing in China’s tier-one and tier-two cities. Financial activity and the Top Talent Pass Scheme may initially lift rental demand; falling prices improve rent-to-price ratios, lower US rates reduce mortgage costs, and luxury homes stabilized roughly a year earlier. The rent-to-price ratio in China’s 50 largest cities is about 2.2%; if resale prices in tier-one cities continue to fall faster than rents, the same convergence could gradually occur, although further cuts in commercial mortgage rates remain constrained by banks’ net interest margins.
- The key asset-side developments to watch are the return of style discipline in public funds, consumption bifurcation and the jump in innovative-drug BD. New rules require fund holdings to match their fundraising mandates, meaning healthcare funds cannot chase chips and consumer funds cannot buy Cambricon, potentially weakening crowded positions in policy-favored sectors; baijiu quarterly results suggest consumers are choosing either “the best or the best value,” with Moutai and Fenjiu relatively stronger. The larger structural shift is in China’s innovative-drug licensing: deal value rose from more than 30% of the global total in 2024 to about RMB93.7B in the first 9 months of 2025, nearly half of the global total of more than RMB190B, and may translate into services FDI and greater R&D investment in China by multinational pharma companies.
Deep dive
1. A One-Year Tariff Accord Sets a Baseline for Competition but Leaves Term Risk Intact
李峰峰’s read was that the result was “a little better than the bearish expectation,” but slightly below his own cautiously bullish forecast: he had expected fentanyl tariffs to be eliminated entirely, but they were not. The base-tariff range most people had predicted on Polymarket was broadly correct, and the market had almost universally believed from the outset that new tariffs would not actually be triggered on Nov. 10.
Special port fees on Chinese vessels and high-risk measures such as escalating “301 investigations” above 50% were ultimately removed. Fentanyl tariffs were also reduced but not eliminated, meaning the worst case did not materialize. 李峰峰’s summary was that the upside and downside surprises offset each other, leaving the accord “not far from the original expectation.”
The genuinely new information is that the accord lasts only 1 year. 李峰峰 sees this as a practical necessity for both sides: “Everyone needs to catch their breath first—or, put differently, each side needs a deal to solve its own problems first. We’ll talk about what happens after 1 year.”
2. Narrow Renminbi Moves Show the Accord Was Priced In; 7.13 Looks More Like a Dollar-Liquidity Signal
After the tariff talks ended, the news was released and the two leaders met, the renminbi moved roughly from 7.10 to 7.11 and then to 7.12 against the dollar. 李峰峰 took this as evidence that global markets had not materially repriced risk because of the accord: “The world is still operating in a relatively rational way.”
The subsequent move from 7.12 to 7.13 was, in 李峰峰’s view, difficult to attribute to tariffs on timing alone. He linked it to the record US government shutdown: disruption to federal fiscal operations may have caused short-term volatility in dollar supply, tightening global demand for dollars.
His cross-check is that assets with very different degrees of froth, some of which could hardly be called bubbles, all sold off at the same time. That looks more like a common liquidity variable than a simple bursting of valuation bubbles.
3. The Tariff Baseline Helps Offshore Capital Return, but Annual Renegotiation Blocks Long-Duration Money
Since around 2022, offshore active funds had posted net outflows from Hong Kong for nearly 3 years; after August, they had only just turned to net inflows. 李峰峰 stressed that global capital also needs a reason, a process and internal consensus to leave dollar assets.
He cited an executive at a large fund: China’s fundamentals may not be as bearish as institutional positioning suggests, but every proposal to increase exposure faces layers of risk questions. As long as nobody can guarantee that an extreme event will not occur, the decision can be pushed back “indefinitely.”
A one-year accord at least draws a floor under China-US economic competition and gives investors a reason to consider China. It is not suitable for long-term allocators, however. As 李峰峰 put it, long-duration money cannot spend 3 months buying this year and then another 2 months reducing the position as the 1-year deadline approaches; “it is too much hassle.”
4. October PMI Interrupted September’s Recovery; RMB500B of Incremental Funding Targets Year-End Physical Activity
李峰峰 had expected multiple September subcomponents excluding real-estate investment to have “started turning up at the margin,” with the trend continuing in October. Actual PMI came in below his expectation. One possible reason is that the sudden escalation in trade frictions at the start of October made companies cautious again.
A deeper constraint may have come from local government finances. Annual debt resolution converted debt from “short to long and high-cost to low-cost,” while special bonds and trade-in subsidies were front-loaded and executed well from May through August. But 李峰峰 suspects that by mid-August, some local governments may already have “run out of money.”
On the same day PMI was released, the government allocated RMB500B in special support for major infrastructure, special bonds and debt resolution, and distributed it in full within October. 李峰峰 believes Beijing saw the weakening investment impulse earlier than the market and moved to add volume preemptively.
Cash reaching local governments does not mean projects begin immediately. It may first show up in October financial data, while the money may not “form physical work” until late November. With external tariff uncertainty easing, whether its impact appears in November and December will be a key year-end growth signal.
5. Investment Still Contributes Roughly One-Third of GDP, with the Government Acting as the “Lender of Last Resort”
The program uses a rough estimate that investment still contributes about one-third of China’s GDP, with manufacturing or the secondary sector also accounting for roughly one-third. Real-estate investment remains a drag, while FDI was negative through the first 8 months and only grew roughly 11% year on year in September, leaving the year-to-date figure negative.
When private, real-estate and foreign investment are all weak, the government becomes the actor with the greatest capacity to pull investment higher. 李翔 summarized 顾朝明’s view: “The government should become the lender of last resort.” When the private sector is unwilling to borrow from banks to invest, the government has to borrow and initiate projects.
李峰峰 cited the framework in The Rise and Fall of Nations: manufacturing is relatively stable in terms of supply, demand and employment, which strengthens an economy’s resilience across financial cycles. Investment is also more likely to generate durable returns when it expands productive capacity rather than buying pure services or relatively luxurious goods.
The book’s empirical threshold is that investment contributions above 35% may see efficiency fall rapidly, while below 20% indicates underinvestment. China is around one-third, toward the high end and close to 35%; the question is not simply how much more to invest, but whether government funds can be converted into higher-productivity projects.
6. AI Is Productive Investment, but Leading Companies’ “Cloud Ladder” Is Not a Healthy Signal
李翔 asked whether buying compute cards and building data centers should count as physical or virtual investment. 李峰峰 clearly classified them as productive investment: like land, factories and equipment, AI infrastructure need not generate a positive return immediately, but is theoretically intended to support future productivity.
The risk lies in the financing and order structure. OpenAI sits at the center of a network of mutual investment and procurement commitments with Oracle, Amazon and three or four other companies. 李峰峰 compared it to a martial-arts character “stepping on his left foot with his right foot to fly upward”—a “Cloud Ladder.”
His judgment was blunt: several companies are supporting one another on the basis of high valuations. “Is that a good phenomenon? If you ask me, I don’t think it is.” This does not invalidate AI’s long-term productivity potential, but it suggests that capex, orders and valuations may not be fully validated by independent end demand.
Amazon’s simultaneous growth and roughly 30,000 layoffs illustrate capital reallocation. The explanation cited by 李翔 is that the company may have decided to “buy more compute rather than hire more people”; growth does not necessarily mean parallel growth in traditional white-collar or operating roles.
7. The Net Employment Impact of AI Remains Disputed; Skill-Conversion Costs Will Rise
李峰峰 relayed last year’s Nobel economics laureate’s distinction between technologies: the steam engine, internal-combustion engine and automobile expanded the overall economic pie and created large numbers of blue-collar and middle-class jobs; another category of technology may only make its own industry prosper while eliminating more jobs elsewhere. 李翔 asked whether AI might be closer to the second type and expressed concern that it is.
李峰峰’s rebuttal is that technological revolutions destroy existing occupations but usually create new jobs that could not have been imagined beforehand. Cars replaced carriage drivers and industrial robots replaced assembly-line positions, while creating jobs for drivers, robot manufacturers, parts suppliers, data collectors and systems integrators.
李翔 insisted that the supplier perspective cannot be obscured by consumer welfare. Internet portals improved information efficiency but destroyed advertising, printing, distribution and local newspapers; consumers gained convenience, but workers did not necessarily benefit to the same extent—or only a small number of workers did.
李峰峰 added that after US manufacturing moved offshore, some entry-level manufacturing jobs became restaurant-service jobs. Their common ground is that labor units will become more fragmented: newspaper editors, reviewers, printers and distributors become social-media operators, streamers, ad buyers, and image and video producers. The real challenge is whether entry-level workers can keep acquiring new skills.
8. The Canton Fair Shows a Broader Order Base, but Single-Customer Value Has Not Recovered
The Canton Fair and CIIE provide the next set of trade clues after the tariff accord. But the stocking season from Thanksgiving through New Year has already passed, so the fairs are more likely to map trade performance from year-end through the first half of next year.
After reconciling different measures, 李峰峰 believes the Canton Fair saw increases in both scale and traffic, with participation broadening materially across countries and regions—a richer mix of “skin colors,” as he put it. Large concentrated orders from Europe and the US remain well below earlier levels, though they have improved from last year.
李翔 used internet metrics as an analogy: roughly, “DAU is up, but ARPU is down.” 李峰峰 agreed with the description—more participants, fewer concentrated orders than before, but still acceptable aggregate volume. The micro-level impression ultimately needs to be confirmed by macro trade data.
9. The Constraint on Direct Conflict Is the Systemic Cost Neither Side Can Afford After Failure
With tariff uncertainty temporarily settled, 李峰峰 believes the market’s main question has shifted to whether China and the US could “accidentally spark a conflict.” He interpreted the military parade’s display of unmanned systems, hypersonic weapons and intercontinental missiles as a signal that, after war-gaming, the US may no longer be certain it would win a conventional war.
His argument is not that “China will definitely win,” but that “the US cannot be certain of winning.” If the parade displayed only roughly 75%–80% of China’s capabilities, the US would struggle to bear the consequences of direct involvement and the use of superior equipment without victory; in his view, even a draw would be unacceptable.
李峰峰 went further, treating military strength as the foundation beneath the dollar’s credibility, Treasuries and the upper layers of the US financial system. During the Korean and Vietnam wars, there were still constraints from gold, Soviet competition and bases in Japan and South Korea; today, damage to the only superpower’s image of conventional superiority would carry a larger financial cost.
李翔 posed the counterquestion: if the US does not participate directly, could China act? 李峰峰 pointed to Russia’s experience since the war in Ukraine: China would have to prepare for sanctions and a shock involving at least “3 years” of separation from the external system. “Both sides have red lines they cannot accept,” so the issue may ultimately return to bargaining chips and negotiation.
10. The 15th Five-Year Plan’s Limited Mention of Finance and New-Energy Vehicles Does Not Reduce Their Strategic Status
李翔’s initial impression was that consumption and the unified national market were priorities, but with less force than some had expected. 李峰峰 saw the first priority as closer to hard technology and technological self-reliance. Financial-sector participants repeatedly asked why the plan said relatively little directly about finance.
李峰峰 responded with the example of new-energy vehicles: the plan does not highlight them, yet they account for close to 50% of China’s new-car consumption and support exports, consumption, batteries and motor supply chains. “Not mentioning them” more likely means they have entered routine execution, not that policy has abandoned them.
He sees five-year plans as emphasizing tasks that “people may not take as seriously if they are not stated.” More than a decade ago, the plan promoted new-energy vehicles; only after 10 years did they develop global-market and export competitiveness. The value of planning is to start early, not list every business already on track.
Alibaba going “all in on AI” while participating in food delivery and instant retail is 李峰峰’s corporate analogy: AI can be a 3- or 5-year strategy, but hundreds of thousands of employees cannot all work only on AI. Likewise, a plan need not repeatedly name mature pillars that still have to be operated every day.
11. Manufacturing Could Settle at 25%–27%, while Services Gain a “Double Beta”
“Maintain a reasonable manufacturing share” is the phrase 李峰峰 considers most worth unpacking. Services currently account for about 56% of GDP, agriculture less than 10%, and the secondary sector a little over 30%. By comparison, services exceed 80% in the US while the secondary sector is only in the low teens, making its structure far more polarized.
李翔 estimates manufacturing at roughly 25% in 5 years; 李峰峰 puts it at about 25%–27%. If agriculture falls below 5% through mechanization, scale and automation, services could rise to roughly 66%–68%. These are their estimates, not explicit targets in the plan.
Services benefit both from total GDP growth and from a rising share of GDP, giving them 2 “betas.” Digitalization also creates demand that did not previously exist: food delivery does not merely replace dining in; it converts some household cooking into commercial orders while adding delivery and other service layers.
李翔 stressed that the key to food delivery is not merely more riders, but that convenience itself expands demand for restaurant food. 李峰峰 cautioned that service-sector expansion will combine with AI, platforms and automation, so future employment will not simply replicate traditional offline services.
12. China Cannot Keep Every Factory; It Can Keep Only High-Value-Added Segments Recognized by Global Markets
李峰峰’s central judgment is that “manufacturing is not something you can keep just because you want to.” A factory without profits will eventually stop operating even if it does not relocate. The reasonable share therefore depends on demand, supply-chain efficiency and product value added, not administrative slogans.
李翔 sees external markets as the first variable. Japan and Germany maintained relatively high manufacturing shares after becoming advanced economies because they targeted global demand. China’s push for RCEP, the Belt and Road and new regional trade cooperation likewise aims to find broader markets for manufacturing.
Low-value-added segments such as apparel have already moved to Bangladesh, Pakistan, Vietnam and other South and Southeast Asian markets. Cars and phones remain largely in China, while chip exports have reached roughly $100B, close to the scale of auto exports. The segments that stay must be medium- to high-value-added finished products or key intermediate goods.
李峰峰 sees China’s combined advantage in a complete manufacturing chain, an increasingly complete sensor and chip chain, plus algorithms, data and software. “Manufacturing cannot be preserved by preserving manufacturing”; it must rely on new products such as phones, new-energy vehicles and autonomous driving to keep lifting end-product value.
13. China’s Price Decline Combines Demand-Driven and Technology-Driven Deflation
李峰峰 cited The Rise and Fall of Nations’ distinction between 2 types of deflation: one caused by falling purchasing power, future uncertainty and weak consumption intent; the other caused by technological change lowering the average price of comparable products. China may be experiencing both, so all price pressure cannot be assigned to a single cause.
New-energy vehicles are his best example. A mid- to high-end BMW, Mercedes-Benz or Audi once cost roughly RMB500K on average; today, a high-spec electric vehicle barely reaches RMB400K, while the price band for mid-market NEVs has moved down to RMB200K–RMB300K and even toward RMB200K.
Technology-driven deflation does not necessarily shrink a market. Mechanical watches becoming electronic watches and optical SLRs becoming digital cameras were both cases of lower unit prices, higher penetration and larger markets. Durable goods may also gradually become ordinary consumer products bought more frequently.
李翔 worried that someone may eventually make cars “something you replace every year.” They discussed US leasing, where more than 30% of new cars may be used through leases and, after 3 years, can be bought back or replaced. If car prices continue falling and software keeps improving, leasing rather than buying could change replacement cycles, but this remains a scenario, not a conclusion.
14. “Investing in People” Is Both a Livelihood Program and a Labor-Reallocation Policy
“Invest more in people as well as in physical assets” has 2 layers in the program. The first is the livelihood and social-security system for the elderly, children and women, so households retain a sense of security after moving into a higher-consumption phase. The second is managing skill migration during technological change.
李峰峰 focused particularly on female labor-force participation. Longer marriage and maternity leave, together with workplace-rights protections, should not be viewed only as welfare spending; under demographic and labor constraints, they also determine whether women can remain in the labor market after reaching their 30s.
AI, robots and digital platforms will continue changing entry-level jobs. Investment in people therefore includes converting labor skills and capabilities, as well as adapting to new media and manufacturing processes. This is not a separate policy from maintaining a reasonable manufacturing share; it is the same productivity-upgrade agenda.
15. Hong Kong’s Four-Month Recovery Reflects the Combined Effect of Rents, Rent-to-Price Ratios and Rates
After a prolonged decline, Hong Kong residential prices rose month on month for 4 consecutive months from June through September. Last year’s removal of cooling measures produced only a short-lived rebound, while this time there was no new major stimulus. 李峰峰 therefore prefers to explain the move through the market’s own chain.
He does not see large-scale home buying by Top Talent Pass participants as the primary cause, but returning foreign capital, a stronger offshore financial-center role, improved fundraising activity and temporary housing demand from the talent scheme may together have increased the pool of renters with the ability to pay.
A recovery in rental demand made rents stronger relative to home prices, while falling prices improved rent-to-price ratios. Because the Hong Kong dollar is pegged to the US dollar, US rate cuts directly lower Hong Kong financing costs. 李峰峰 summarized the chain as 3 conditions being met in sequence, after which “in principle, prices should stabilize.”
Luxury homes stabilized roughly 1 year earlier, followed by the broader residential market. A recovery in Hong Kong’s financial market lifted rental demand, which then passed through to sales—a concise and reasonable explanation in 李峰峰’s view.
16. Tier-One and Tier-Two Housing in China May Be Reproducing Hong Kong’s Natural Stabilization Chain
李峰峰’s rough estimate is that the rent-to-price ratio in China’s 50 largest cities is about 2.2%. Mortgage costs after combining commercial loans and provident-fund loans remain above 2.2%, while the 10-year government-bond yield is below it. Further cuts in commercial mortgage rates are uncertain because banks’ net interest margins are already at historical lows.
Another adjustment path is continued home-price declines. If older resale homes in Beijing and Shanghai and some resale homes in Shenzhen accelerate price cuts during the “Golden September and Silver October” season while rents fall more slowly, rent-to-price ratios will improve faster.
李峰峰 believes some investors may be disappointed that the 15th Five-Year Plan did not deliver new real-estate policy expectations. The fading of those expectations may reduce temporary interference and allow the natural chain among rents, prices and interest rates to run its course more smoothly.
Luxury and high-end homes may stabilize first because high-income buyers can better absorb short-term volatility and identify trends earlier. “Looking at China’s ultra-tier-one cities, it will definitely be the same: the expensive properties stabilize first.” This remains a judgment based on the Hong Kong analogy, not a firm forecast.
17. Baijiu Quarterly Results Reduce Consumption Bifurcation to Two Samples: Moutai and Fenjiu
Third-quarter baijiu results were broadly “a complete mess,” with very few companies posting year-on-year growth in both revenue and net profit. Moutai remained “double-positive,” but growth was only a few tenths of a percentage point, and its non-core baijiu lines also performed poorly.
Outside Moutai, Fenjiu was the other company with relatively strong overall performance. The 2 represent, respectively, the strongest brand equity among premium brands and a mass-market choice combining brand recognition with value for money.
李峰峰 summarized the current consumption pattern as: “Either it is the best, or it is the best value, or it is the branded option within the best-value segment.” This is not simply another way of saying “consumption downgrade”; it shows that the strongest brands and high-value choices have greater resilience across consumer goods and restaurants.
18. Public Funds Must Return to Their Mandated Themes, Potentially Forcing Crowded Hot Sectors to Unwind
New rules on public-fund performance benchmarks require evaluation standards and holdings to match a fund’s stated purpose. 李峰峰 used the clearest examples: a healthcare fund cannot chase chips for performance, and a consumer fund cannot buy Cambricon; both should return to the healthcare or Moutai exposure specified at launch.
The previous reform required funds to generate excess returns over their benchmarks, otherwise “if you cannot even beat the market, why should you receive performance fees?” 李峰峰 believes this instead encouraged stronger crowding during the year: buying policy-supported, politically safe themes together made it easier to push valuations higher and outperform the index collectively.
The new rules may reflect regulatory concern about style drift and high-valuation volatility, forcing capital gradually back into its original sectors. The potential impact is not simply bullish for healthcare and consumption; it is a reduction in the ability of a few technology sectors to absorb the market’s active capital.
李峰峰 returned the policy logic to economic structure: China cannot rely solely on a “technology bubble driving a financial bubble” to solve growth. Every industry needs fundamental expansion, or the capital market will detach from the broader economy.
19. China’s Innovative-Drug Licensing Is Near Half the Global Total, Making R&D Efficiency an Export Capability
In 2024, China’s outbound innovative-drug licensing value accounted for more than 30% and close to 40% of the global total. Based on the public data cited by 李峰峰 for the first 9 months of 2025, global pipeline licensing totaled more than RMB190B, with China at RMB93.7B, close to half.
李翔 had initially guessed 30% and was surprised to hear roughly 50%. 李峰峰 sees this as evidence that China’s full-chain drug R&D system has both enough choices and enough efficiency; otherwise global pharmaceutical companies would not be willing to buy Chinese pipelines at an early stage.
A normal transaction’s upfront payment may account for roughly 10% of the contract value, while the upfront share in this batch of Chinese deals may be only about 5%. 李峰峰 suspects the projects may be earlier-stage and that buyers may be acquiring multiple pipelines at once. Conversely, the willingness to bet on more early-stage projects reflects confidence in discovery and development speed.
He does not rule out China’s share holding or rising further: “It will compete outward.” Once licensing provides a larger monetization outlet for R&D, companies will invest in more projects and improve efficiency, allowing the chain to accelerate. The main ceiling may come from political backlash rather than industrial supply.
20. The 2018–2021 Investment Bubble Is Converting into R&D FDI and High-Value-Added Services
李峰峰 traces the capability build-out to Hong Kong’s 2018 Chapter 18A listing regime, the STAR Market’s admission of unprofitable biotech companies, and the concentration of capital in innovative drugs during the pandemic. The successive boom from 2018 to 2021 expanded R&D directions, talent density and supply-chain breadth, while also producing clear overinvestment.
The healthcare-investment freeze from 2022 through 2024 completed a “painful consolidation.” Weaker projects and teams were eliminated, while the survivors began to monetize licensing results. 李翔 agreed that bubbles can be productive: money and talent move quickly into a sector only after a bubble—or signs of one—appears.
李峰峰 believes pipeline-licensing revenue will be counted as services FDI because foreign pharmaceutical companies are directly spending money to buy those pipelines. The roughly 11% year-on-year increase in foreign investment in September may therefore reflect more than traditional factory construction; financial opening and high-value-added services such as drug licensing are raising the share of tertiary-sector activity in FDI.
Multinational pharmaceutical companies are cutting some production and sales staff while expanding R&D and support functions in Beijing and Shanghai. The apparent contradiction is actually a shift in function: they used to produce and sell drugs in China, while now they want to stay close to an efficient R&D chain and secure earlier insight, pipeline partnerships and economic returns.
李峰峰 compares this with the growth in auto and chip exports and stresses that roughly RMB100B in biopharma contracts is already a significant scale in China’s foreign trade. Future investment may gradually shift from roads, bridges, factories and equipment toward “investment in people” and medium- to high-value-added services, while in turn supporting the manufacturing chain’s retention in China.