Joseph Belbruno Blog

Hi, this is Philip Glamann in Beijing, where the word of the week is a heavy one: purge.

That’s because Chinese leader Xi Jinping’s long-running anti-graft campaign ensnared none other than the nation’s top general, Zhang Youxia, and the joint chief of staff, Liu Zhenli.

Zhang’s downfall was stunning because until recently he was considered closely linked to Xi. He’s been described as a “sworn brother” to China’s president and his siblings, and Xi kept Zhang on past retirement age. That retained a rare war veteran, as Xi focused on getting the military ready for combat while it modernized.

Well, no more.

An official military newspaper suggested political loyalty and corruption were behind the downfall of both Zhang and Liu. An editorial accused the pair of having “trampled on” a system that ensures Xi’s authority over the world’s largest army by number of troops. Read more about the ouster of Zhang and Liu here.

Underscoring how deep Xi’s anti-graft blade has cut, China’s top military body began this term staffed by seven men, and now has just two. That would be Xi and an official who oversaw corruption-busting.

Zhang Youxia, on the podium, during the NPC in 2023. Xi Jinping sits two rows behind. — Zhang Youxia, front, during the NPC in 2023. Xi Jinping sits two rows behind.

The exact details behind the latest purge will likely never be known, so we’re left with speculation over possibly purloined funds or some kind of disloyalty Xi found intolerable. In the absence of answers, Beijing becomes something of a rumor mill, hence the wild speculation this week that a coup was afoot.

The Wall Street Journal reported that Zhang was accused of leaking secrets about the country’s nuclear weapons program to the US and taking bribes in exchange for promotions. When asked about that, China’s Defense Ministry warned against “subjective conjecture.”

The US ambassador to China, David Perdue, said in an interview with Bloomberg Television that he took Xi “at his word that there’s a corruption effort underway.”

Yet Perdue also said he thought Xi was “making sure that he has total control of his military,” and added that the US was closely watching the situation.

WATCH: US ambassador to China says Xi Jinping seeks “total control” of military

While Zhang’s ouster has gotten most of the attention this week, the investigation into Liu worries Western officials. He has been the most effective point of contact for managing risks and preventing miscalculation, they said, comments they made on condition of anonymity to discuss security matters.

For example, in recent months he has met representatives from the US, Australia and Britain. Now, the worry is that the latest purge would make Chinese military officials and diplomats even more leery of speaking to Western counterparts for fear of running afoul of Xi, increasing risks in the already tricky relationship between the West and China.

Zhang and Liu’s purge came just before another high-profile event in Beijing this week: The return of a British prime minister to the capital for the first time in eight years. Read about Keir Starmer’s visit here.

China is also entering a rough-and tumble period of political jockeying before a leadership reshuffle in 2027, when Xi is expected to seek a fourth term leading the world’s second-biggest economy. Zhang, the country’s most powerful general, was one of the few people with the clout to potentially mobilize opposition to Xi and his plans.

Whatever the case, the scandal casts doubt on the PLA’s capabilities now, and Xi’s goal of completing military modernization by 2027.

That year gets mentioned a lot in the context of Taiwan. The US has said that China aims to be ready to take the democracy of 23 million people by 2027, and Taiwan marked it as the potential year for an invasion during drills a while back.

China batted away suggestions that the corruption investigation would hamper the military’s preparedness vis-à-vis Taiwan. “Eventually China will be reunified,” Senior Colonel Jiang Bin said at a Defense Ministry briefing.

He also said that “the harder the people’s military fights against corruption, the stronger, purer and more combat effective it becomes.”

Maybe.

But integrating army, navy, air force and missile forces is key to making big military operations a success. It’s seen as a major strength of the US armed forces.

Making sure various forces work together well is the main job of the military commission that Zhang and Liu sat on. Jiang may be right that rooting out problematic officers is good for the armed forces. But it’s hard to see how a military can thrive given the repeated scandals.

Jennifer Welch, chief geoeconomics analyst for Bloomberg Economics, said that Xi’s purges won’t stop his military from flexing “its muscles in the Taiwan Strait, South China Sea, or elsewhere.”

“But it does suggest that Xi will think twice before giving that order,” Welch wrote in a note. “Not only do the purges imply Xi lacks confidence in the military, they will also require him to rebuild its upper ranks — which will take time.”

What We’re Reading, Listening to and Watching:

Listen to a Podcast that explains Japan’s bond market crash ... and one on Europe weighing pushback to Trump
Listen to a Live Q&A on how AI is reshaping jobs, hiring and workplaces
Read a Big Take on babies getting sick from formula that mimics mother’s milk ... and one on how the son of Iran’s supreme leader has built a global property empire
Here’s an Explainer on how the US is abandoning joint climate action under Trump
Read an opinion piece by John Authers on them yo-yos making your money worth nothing ... and one on how China’s carmakers should take a page from Xiaomi
And last but not least, the world is drowning in tourists so who should pay the price

Split-Screen Economy

China’s stock market made a strong comeback last year, and as the world’s second-biggest economy becomes more clearly split, investors appear content to just roll with it for now.

On one side, manufacturing and technology are booming. On the other, domestic consumption remains stubbornly weak. With little sign that Chinese consumers are about to splurge — and even less evidence that Beijing plans to pivot away from its industry-first playbook — Wall Street analysts are sticking with what’s working. Read more about the bifurcation (a solid word of the week runner-up) here.

Morgan Stanley and JPMorgan Asset Management recommend that investors keep riding the industrial theme with bets on heavy machinery makers and companies that build out AI infrastructure.

The data help explain why. Industrial production and exports have been holding up, while retail sales have been wobbly. This week’s figures showed China’s industrial enterprises logged their first annual profit increase since 2021, with earnings edging up 0.6% last year as producer deflation eased following government efforts to rein in excess competition and cut capacity.

Households, meanwhile, look in no mood to rescue the economy. A recent central bank survey shows more households want to increase saving and spend less than before the latest trade war with the US. Income expectations have deteriorated, even as views on employment and prices stabilized. That’s hardly the backdrop needed for a consumption-led rebound.

“There are clearly two very different Chinas at the moment,” said William Bratton, head of cash equity research in Asia Pacific at BNP Paribas Exane, noting a clear preference for materials, industrials and technology over consumer-facing sectors.

The danger is that this divide widens. An economy overly reliant on manufacturing and exports is more exposed as trade frictions rise and foreign governments push back against cheap Chinese goods. The outlook for industrial firms could also come under pressure if demand weakens.

Even tech has its limits. Gains in AI-related stocks are starting to look frothy, prompting China’s so-called national team to sell some holdings to drain speculative excess. Read about that $68 billion exit here.

For now, though, policy still favors factories and chips over shoppers — and investors are paying heed. If Beijing eventually finds a credible way to revive consumption, that would only broaden and strengthen the rally in China’s stock market.

Leveling Up

$4.3 billion

That is a recent valuation of Alibaba-backed Moonshot AI. This week Moonshot released an upgrade of its flagship model, Kimi, heating up a domestic AI race before an expected rollout by DeepSeek. The latest version of Kimi can process text, images and videos simultaneously from a single prompt, the company says, aligning with a trend toward omni models pioneered by industry leaders like OpenAI and Google.

Behind the Great Firewall

A weekly look at the big water cooler news in China.

It’s tough being a livestreamer in China.

Unless you’re as well known as Lipstick King , you’re probably working long and odd hours, while talking nonstop to compete with hordes of other hosts all in the hope of convincing some couch potato to buy something they may not necessarily want.

To make matters worse, Chinese authorities are clamping down on what probably were some of the more fun aspects of the job.

Livestreamers in Hangzhou. Photographer: Qilai Shen/Bloomberg — Livestreamers hard at work in Hangzhou.

This week, a performing arts association released its first national standard for group livestreaming. Among the new rules drafted in conjunction with major platforms like Douyin, China’s version of TikTok, livestreamers can no longer wear heavy makeup, use beauty filters too much or create distorted body images to attract viewers.

Moreover, suggestive actions and fake intimate relationships were banned. There are also new unusual “talent requirements” so dance performances have certain beats and lengths. Violators face warnings, suspension or even permanent bans.

State media suggested the changes came after consumers complained that some misbehaving livestreamers were fueling irrational spending and scams.

The reaction to the government’s move has been mixed.

“The group broadcasting industry has finally returned to reality and the era of relying on talent has come,” wrote one Weibo user with the interesting handle Evil Girl’s Principles.

But others worry about the impact the new rules will curtail the creativity of livestreamers, something that has helped create the biggest such industry in the world with more than 800 million users.

“Supporters believe that the new rules are conducive to the healthy development of the industry,” said Buyer Zhang Jun, who has 1.83 million followers on Weibo.

Buyer Zhang Jun called on the government to provide more details on how the rules will be implemented so they won’t disproportionately impact some groups, while letting livestreamers show off their artistry and authenticity.

Hey, it’s a tough business after all.