This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
Despite U.S. containment, China’s manufacturing competitiveness has soared Emerging as a top-tier player in autonomous driving and electric vehicles Preparing next-generation strategy… fostering semiconductor equipment
Ten years after the launch of the 'Made in China 2025' strategy in May 2015, China has significantly enhanced its manufacturing competitiveness. Despite strong U.S. sanctions and export controls, China has achieved technological self-reliance through its own capabilities. The government is now formulating the next phase of its industrial policy, focusing on semiconductor manufacturing equipment and other critical technologies.
According to the manufacturing industry on May 27, China has leveraged the 'Made in China 2025' strategy over the past decade to attain substantial manufacturing competitiveness. Notably, in sectors such as electric vehicles (BYD), EV batteries (CATL), solar energy (LONGi Solar), 5G communications (Huawei), drones (DJI), high-speed rail (CRRC), power equipment (State Grid Corporation of China), and new materials (Baowu Steel), China has produced at least one global leader in each field.
This rapid growth is underpinned by robust government support. According to market research firm Rhodium Group, tax incentives provided by the Chinese government to key industries increased by an average of 29% annually from 2018 to 2022. In 2022 alone, Chinese companies benefited from USD 185 billion in tax incentives. Direct investments through national funds also surged, reaching USD 52 billion in 2020, more than five times the amount in 2015.
The government has also focused on regulatory innovation. For instance, in 2021, China overhauled laws and regulations related to autonomous vehicles, designating 16 regions—including Beijing, Shanghai, Guangzhou, and Wuhan—as pilot cities for the joint development of connected cars and smart cities. In 2022, fully unmanned (Level 4) autonomous taxi services were authorized in areas like Wuhan, Chongqing, and Beijing. These policy initiatives have enabled technologically and cost-competitive autonomous driving companies to significantly enhance their market competitiveness.
The market is paying close attention to China's technological rise despite U.S. containment efforts. Over the past several years, the U.S. has attempted to hinder China's manufacturing development policies, primarily through technology export restrictions. U.S. companies have been prohibited from exporting advanced semiconductors, equipment, and software to Chinese firms. Since 2020, major Chinese companies like Huawei and SMIC have been blacklisted, effectively severing technological collaborations.
Additionally, the U.S. has sought to isolate China by strengthening supply chain cooperation with allies. It has built close relationships with semiconductor powerhouses such as South Korea, Taiwan, and Japan and promoted the formation of technology alliances that exclude China. The U.S. has also restricted China's overseas technology acquisitions. When Chinese state-owned enterprises or investment funds attempt to acquire advanced technology companies in the U.S. or Europe, the Committee on Foreign Investment in the United States (CFIUS) intervenes to block such deals. CFIUS has the authority to review, restrict, or block foreign investments in U.S. companies that could impact national security.
However, these U.S. sanctions have yielded limited results. Instead, they have heightened China's sense of urgency and motivated its push for technological self-reliance. A market insider noted, "Confronted with U.S. sanctions, China strengthened its localization strategy under the slogan 'self-reliance and self-strengthening.' While U.S. regulations may have caused short-term setbacks for China, they have inadvertently accelerated China's technological independence in the medium to long term."
Having successfully concluded the 'Made in China 2025' strategy, China is preparing a new growth plan. On May 26 (local time), Bloomberg reported, citing informed sources, that Chinese authorities are developing a next-generation version of the 'Made in China 2025' policy, a key initiative of President Xi Jinping. This new policy will focus on nurturing core technologies, including semiconductor manufacturing equipment, over the next decade. China also aims to maintain a consistent proportion of manufacturing in its GDP over the medium to long term.
President Xi has consistently emphasized the need to strengthen manufacturing competitiveness. During a visit to Luoyang in Henan Province on May 19, he stated, "We must continuously strengthen manufacturing and achieve innovation in key technological fields." At a symposium for the 15th Five-Year Plan held last month, he stressed the goals of "scientific and technological innovation, upgrading traditional industries, developing emerging industries, fostering future industries, and building a modernized industrial system." The 15th Five-Year Plan outlines China's economic strategy from 2026 to 2030.
Bloomberg analyzed that China's focus on bolstering manufacturing could complicate U.S. efforts to "rebalance the Chinese economy." While the U.S. is encouraging China to boost domestic consumption to reduce the trade deficit, Chinese authorities are concentrating on maintaining an export-dependent, manufacturing-centered economy. Currently, consumption accounts for about 40% of China's GDP, a relatively low figure compared to the 50–70% typical in developed countries. In contrast, investment, including manufacturing, accounts for about 40% of China's GDP, nearly double the proportion in the U.S.
Missile Batteries and Amphibious Assault Units Bolstered China Greatly Enhances Surprise Attack Capabilities on Taiwan Simultaneous Sea and Air Pressure Tactics
Reports from foreign media suggest that China has significantly improved its capabilities to launch a surprise attack on Taiwan. Analysts say the Chinese military is effectively maintaining a constant state of war readiness by frequently deploying forces in the Taiwan Strait and airspace near Taiwan.
On May 26 (local time), the Financial Times (FT) quoted a senior Taiwanese military official as saying, “The capabilities of the Chinese Air Force and missile units have advanced to the point where they can shift from peacetime to wartime operations at any moment.” Other Taiwanese defense officials told FT that the People's Liberation Army (PLA) regularly conducts training near key ports for a potential amphibious landing on Taiwan, and that Chinese Army aviation units are continually performing airborne assault drills.
According to Taiwan's Ministry of National Defense, PLA fighter jets now enter Taiwan's Air Defense Identification Zone (ADIZ) more than 245 times per month—an enormous increase from fewer than 10 monthly incursions five years ago. FT reported, “Chinese aircraft now cross the median line of the Taiwan Strait—long considered a de facto boundary—over 120 times a month.” Citing U.S. defense sources, it noted this is clear evidence of growing aerial pressure on Taiwan.
In a show of strength, China dispatched 153 fighter jets near Taiwan in a single day last October. A Taiwanese defense official said China has expanded its aerial combat range by deploying new fighter jets like the J-10, J-11, J-16, J-20, and Y-20 aerial refueling aircraft. These aircraft can now operate over Taiwan from inland bases without needing to refuel at coastal installations.
China’s naval power has also surged. Since 2022, the PLA Navy has frequently deployed forces through the Miyako and Bashi Straits—China’s main maritime gateways to the Pacific. On April 1, China conducted its first Taiwan encirclement drill since October of the previous year. Though not a direct military attack, a string of incidents—including undersea cables being cut in Taiwan's region and a collision between a Taiwanese landing ship and a Chinese fishing vessel in March—are raising suspicions of Chinese sabotage aimed at destabilizing Taiwan. The U.S. Department of Defense has described these activities as "a rehearsal for a reunification war."
China is also heavily reinforcing its ground forces. Under President Xi Jinping’s command structure reforms initiated in 2015, large ground units were broken into smaller, more mobile ones—six amphibious brigades now reportedly stationed along China’s coast facing Taiwan. Professor Joshua Arostegui, a China expert at the U.S. Army War College, said, “This demonstrates China’s increasing focus on Taiwan and the foundation being laid for real warfighting capability.”
Security experts now widely believe that a Taiwan Strait conflict in 2027 is no longer just a possibility—it is becoming an accepted expectation. The theory of a 2027 Chinese invasion of Taiwan began circulating in U.S. media around the time of the 20th Communist Party Congress in October 2022, when Xi Jinping secured a third term as leader. The belief is that Xi may attempt to achieve “national reunification” with Taiwan by the final year of his current term to justify his extended rule.
This theory gains traction considering Taiwan’s next presidential election is set for early 2028 and Donald Trump, should he be re-elected, would be entering a potential lame-duck phase in 2027. These factors suggest 2027 may appear to Beijing as the most strategic time for reunification.
A recent warning from a top U.S. commander further supports this projection. Admiral Samuel Paparo, Commander of U.S. Indo-Pacific Command, stated at a recent event in Hawaii with representatives from 20 Asia-Pacific allies:
“Last year, China executed an aggressive maneuver by deploying 152 warships, three-quarters of its amphibious assault force, and dozens of brigades around Taiwan in just one day. This was not a drill—it was a rehearsal. China is on a very dangerous path.”
Paparo acknowledged that while the U.S. maintains superiority in space and submarine warfare, China is outpacing the U.S. in weapons manufacturing, including naval vessels. He also noted that Chinese warships conducted live-fire exercises in February off southeastern Australia, saying “China is evolving into a global military power.”
He concluded with a stark warning:
“2027 is not necessarily the invasion date—it’s the target year for full preparedness. In areas such as rocket forces and satellite surveillance systems, China has already achieved some of its 2027 goals.”
Trump Tariffs Shake the Shale Industry Crisis Deepens Amid Shrinking Investment and Falling Output U.S. Oil Production Expected to Drop 1.1% Next Year
A decade-long energy boom triggered by the U.S. "Shale Revolution," which helped elevate America to a global energy superpower, is showing signs of coming to an end. The warning comes as global oil demand shrinks due to recession fears fueled by the tariff war initiated by President Donald Trump. In addition, rising costs from high tariffs on drilling equipment are prompting shale companies to scale back production. Despite Trump’s pledge to revitalize the fossil fuel industry and restore American energy dominance, the opposite appears to be unfolding.
On May 26 (local time), the Financial Times reported mounting concerns within the U.S. shale industry that the "decade-long shale boom is over." With declining oil prices eroding profitability, shale companies—responsible for about two-thirds of U.S. crude production—are shutting down drilling rigs and tightening spending.
According to global energy research firm Enverus, Chevron has announced a major restructuring plan to cut 15–20% of its global workforce. Aside from ExxonMobil and Chevron, the top 20 U.S. shale oil producers plan to slash capital investment budgets by USD 1.8 trillion this year. Herbert Vogel, CEO of Denver-based SM Energy, summed up the mood at a recent conference: "The current slogan is ‘Hold on.’"
Drilling activity is rapidly declining. Oilfield services company Baker Hughes reported that the number of active rigs in the U.S. fell to 553 last week, down 10 from the previous week and 26 fewer than a year ago. In Texas, the number of operating rigs has dropped to levels not seen since the early COVID-19 pandemic. Even Trump administration officials have not escaped the fallout. Liberty Energy, the second-largest fracking firm in the U.S. founded by Energy Secretary Chris Wright, has seen its market value nearly halved since Wright joined the Trump administration.
Energy and commodities analytics firm S&P Global Commodity Insights forecasts that U.S. oil production will fall 1.1% next year to 13.3 million barrels per day. If realized, it would mark the first annual production decline in a decade, excluding the 2020 pandemic shock.
President Trump once championed the slogan “Drill, Baby, Drill,” envisioning a surge in fossil fuel production to solidify America’s energy supremacy. The shale industry has long been a key political backer of Trump, donating USD 75 million to his campaign during the last election alone.
However, his tariff policies have had the opposite effect. Tariffs have driven up the prices of steel and aluminum, causing the cost of casing—a critical and expensive component of drilling operations—to spike 10% in the first quarter alone.
To absorb these rising costs, oil prices need to remain high. But concerns over a slowing economy due to the tariff war have pushed prices downward. According to the New York Mercantile Exchange, West Texas Intermediate (WTI) crude dropped below USD 65 per barrel within just three months of Trump’s second-term inauguration. As of May 26, WTI was trading at USD 61.53 per barrel—down 23% from its annual peak on January 15. Typically, shale companies require a minimum of USD 65 per barrel to cover production, operations, and interest expenses. Recent prices have consistently fallen below this breakeven level.
Trump’s public calls for lower oil prices from OPEC have backfired. OPEC+ (OPEC and allied producers including Russia) has not only reduced planned output cuts since last month but is now accelerating production increases. Bill Farren-Price, a senior analyst at the Oxford Institute for Energy Studies, commented, “President Trump mistakenly views falling energy prices as a way to offset inflation caused by high tariffs.”
Experts increasingly agree that declining output signals the end of the shale industry’s growth trajectory. Thanks to the Shale Revolution, the U.S. produced cheap oil and gas at scale, energizing the economy and improving the trade balance through increased exports. Shale oil also reduced U.S. dependence on foreign energy and gave Washington leverage to impose sanctions on oil-producing nations like Russia, Iran, and Venezuela. But if oil prices fall to USD 50 per barrel, U.S. output could drop by another 300,000 barrels per day.
If the shale boom that elevated the U.S. to the world’s top oil producer collapses, control of the global oil market could swing back to the Middle East. OPEC+, sensing an opportunity, is stepping up production to reclaim lost market share. Over the past decade, OPEC’s global market share has dropped from 40% to below 25%, while the U.S. share rose from 14% to 20%. OPEC+ currently holds about 48% of the market.
According to Bloomberg, OPEC+ is discussing plans to raise output by 411,000 barrels per day starting in July—triple the amount initially scheduled. A final decision is expected at their June 1 meeting. While OPEC+ claims the increase is to meet rising demand, observers cite market share recovery, punishing over-producers, and appeasing Trump as underlying motives.
"Temporary Pause in EV Transition" Declared Triple Pressure from Chinese Imports, etc. Prompts Strategic Shift Lack of In-House Capabilities in Technology, Batteries, and Software
Volkswagen, the world’s largest automobile group, has effectively abandoned its electric vehicle (EV) transition strategy by investing USD 67.9 billion into the development of internal combustion engine (ICE) vehicles. Amidst triple pressures—rising energy costs, reduced subsidies, and an onslaught of Chinese EVs—the German automotive industry is grappling with growing difficulties. For Volkswagen, which has failed to internalize key technologies such as batteries and software, a strategic pivot appears inevitable. This move is not merely a pause in the pace of transition, but rather a signal revealing the structural limitations of the auto industry’s overall capabilities.
On the 26th of May (local time), according to foreign media, Volkswagen Group CFO Arno Antlitz attended the “Future of the Car” summit hosted by the Financial Times in the UK and stated, “The future may point to electric vehicles, but the past isn’t over yet.” He revealed that Volkswagen Group will invest at least USD 67.9 billion to continue manufacturing internal combustion engine (ICE) vehicles. According to Antlitz, most of Volkswagen’s key brands—such as Audi and Skoda—are already preparing next-generation ICE versions of existing models, with some projects nearing the final stages of development.
Industry observers note that this trend was widely anticipated. As early as late 2023, Volkswagen had already scaled back its EV launch plans and begun restructuring its business to focus on hybrid and premium ICE models. At the time, there was growing criticism that Volkswagen’s EV transition was progressing too rapidly. With mounting sales slumps and technology delays, the company faced increasing pressure to overhaul its strategy.
With the announcement of this new investment, Volkswagen signaled a robust push to develop next-generation ICE vehicles, applying high-efficiency, low-carbon engines and powertrains compatible with eco-friendly fuels. The company aims to roll out models that can adapt to evolving EU CO₂ emissions regulations.
This move marks an effort to reframe the role of combustion engines, moving beyond the binary thinking of “ICE equals phase-out.” Instead, it reflects a survival strategy in response to intensified competition in the European automotive market. Volkswagen appears to be refocusing on technologies that can generate profits now, rather than relying solely on the longer-term EV transition.
This challenge is not unique to Volkswagen. The entire German automobile industry has been hit hard by a triple blow: soaring energy prices in Europe, reduced government subsidies for EVs, and the rapid expansion of low-cost Chinese EV manufacturers. In particular, the Russia-Ukraine war has caused industrial electricity prices to skyrocket across Europe, significantly increasing the production costs of EVs. This has severely undermined the price competitiveness of Germany’s premium car-centric auto industry.
Adding to this burden, European governments have been scaling back or terminating EV subsidies, weakening consumer incentives to purchase eco-friendly vehicles. Germany, too, drastically reduced its EV subsidies at the end of 2023, making EVs significantly less accessible to middle- and lower-income consumers. As demand shrank and inventory pressures mounted, automakers had little choice but to revert to ICE-centered strategies to restore profitability.
The most powerful disruptive force, however, has been China. Chinese EV brands such as BYD, XPeng, and Geely have rapidly penetrated the European market by leveraging their superior price competitiveness. German automakers now face unprecedented levels of competitive pressure, as even German consumers are beginning to favor cheaper, faster-to-market Chinese electric vehicles. This trend is spreading to neighboring countries such as France and Italy. The uncomfortable truth now being laid bare is that German carmakers no longer lead the global automotive market.
Industry analysts suggest that Germany’s struggle with the EV transition reflects not just a strategic recalibration but a fundamental structural retreat caused by a lack of capability. While manufacturers outwardly cite changing market conditions and shrinking policy support, the real underlying issue lies in their failure to internalize core technologies and infrastructure needed for the transition.
A prime example is the battery sector. German-developed battery cells lag significantly behind global competitors in terms of energy density, efficiency, and price competitiveness. This technological gap has significantly weakened Germany’s ability to compete in the EV space.
Germany’s glaring software deficiencies have also been a major roadblock. EVs require highly sophisticated software architecture and vehicle control systems—far more complex than those in ICE vehicles. However, German automakers remain deeply entrenched in mechanical engineering–oriented production cultures. For example, Volkswagen’s in-house electronic software development projects have repeatedly failed, causing multiple delays in vehicle launches. The company has had to partner with U.S. EV startup Rivian to compensate for its software shortcomings. This underscores that the transformation into a "mobility company" requires more than a public pledge.
A lack of charging infrastructure has further exposed the limitations of the EV transition. With insufficient physical infrastructure to support widespread EV use, pushing ahead with electrification carries substantial risks. The industry consensus in Germany is that the EV shift is not yet viable, especially for commercial vehicles and long-range highway models. As many observers note, Volkswagen’s return to ICE strategy stems not from a lack of willingness, but from a lack of ability.
North Korea Sends Skilled Defense Technology Workers to Russia Dispatched to Russian Defense Contractors and Aerospace Industry Active Exchanges Also Underway in Economic, Cultural, and Health Sectors
As the Russia–Ukraine war continues to drag on, North Korea is reportedly expanding its military support for Russia by sending personnel. Analysts say that Pyongyang is now going beyond arms shipments to directly bolster Russia’s war capabilities by supplying industrial labor essential to sustaining its war effort.
On May 26 (local time), Ukraine’s Foreign Intelligence Service (SIFU) revealed in an interview with state-run news agency Ukrinform that North Korea has officially begun dispatching skilled workers to Russia’s defense and aviation industries. Oleh Ivashchenko, Director of the Foreign Intelligence Service, stated, “North Korea has begun supplying experts with suitable experience to work in the defense industry sector, particularly in aircraft manufacturing.” He added, “The Democratic People’s Republic of Korea (DPRK) is also providing labor for agriculture, housing construction, and highway development.”
According to Ukrainian intelligence, North Korea sent a total of 13,800 workers to Russia last year. What has now been newly confirmed is that, in addition to agricultural and construction workers, technicians are being sent to work in the defense and aircraft manufacturing industries.
Earlier Ukrainian media reports indicated that North Korea had supplied Russia with ammunition, 170mm M1989 Koksan guns, 240mm M1991 multiple rocket launchers, and military personnel. When asked whether North Korean troops were engaged in direct hostilities on Ukrainian soil, Ivashchenko responded, “They are stationed in the Kursk region, which borders southern Russia,” and added, “There are no confirmed records of North Korean troops in occupied Ukrainian territory, but artillery units of theirs have appeared in several regions, including Kherson.”
Ukrainian intelligence believes that Russia might provide North Korea with nuclear weapons-related technology in exchange for North Korean labor deployment. The reported goal of the North Korean delegation is to upgrade MiG-29 and Su-25 fighter jets, as well as to acquire capabilities for aircraft assembly and radar development. If these technologies are transferred, North Korea is expected to enhance its missile defense and evasion capabilities. This would also help narrow the air force power gap and strengthen its reconnaissance abilities.
North Korea had reportedly requested technology transfers from Russia in February last year to bolster its air force capabilities. According to sources, once the transfer is completed, North Korea aims to complete an aircraft assembly line by the end of the year. Additionally, it is reported that North Korea plans to deliver hundreds of short-range ballistic missiles to Russia by the end of next month, including several hundred 152mm and 122mm artillery shells, KN-23 tactical guided missiles, and K-24 super-large multiple rocket launchers.
North Korea and Russia are actively expanding their cooperation not only in the military sphere but also in areas such as the economy, culture, and healthcare. According to the Korean Central News Agency (KCNA), a North Korean government economic delegation—led by Minister of External Economic Relations Yun Jong-ho, who also serves as the North Korean chair of the "Intergovernmental Commission for Trade, Economic, and Scientific-Technical Cooperation" (hereafter referred to as the Economic Joint Commission)—visited Russia in March. While the specific purpose of the visit was not reported in detail, it is known that both sides discussed strengthening economic cooperation.
Previously, in November of last year, the North Korea–Russia Economic Joint Commission held its 11th meeting in Pyongyang, during which the two countries discussed specific areas of cooperation in energy, agriculture, science and technology, healthcare, and tourism. At that time, Chairman Kim Jong-un personally welcomed and saw off Alexander Kozlov, Russia’s Minister of Natural Resources, outside the building—an unusually warm gesture reflecting strong bilateral ties.
Earlier that same month, a Russian Foreign Ministry delegation led by Andrey Rudenko, Deputy Foreign Minister in charge of Asia-Pacific affairs, visited Pyongyang, prior to the North Korean delegation's visit to Russia. During their visit, the Russian delegates reportedly held talks with North Korean Foreign Minister Choe Son-hui and had vice-ministerial-level meetings with Deputy Foreign Minister Kim Jong-kyu.
Rudenko’s visit appears to have been aimed at reviewing the implementation of the "Treaty on Comprehensive Strategic Partnership" signed between North Korea and Russia last year. Additionally, it is suggested that the delegation may have discussed Russia’s position on ceasefire negotiations with Ukraine, as well as potential cooperation from North Korea in the form of additional troop dispatches or prisoner repatriation.
This article was independently developed by The Economy editorial team and draws on original analysis published by East Asia Forum. The content has been substantially rewritten, expanded, and reframed for broader context and relevance. All views expressed are solely those of the author and do not represent the official position of East Asia Forum or its contributors.
This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
This article is based on ideas originally published by VoxEU – Centre for Economic Policy Research (CEPR) and has been independently rewritten and extended by The Economy editorial team. While inspired by the original analysis, the content presented here reflects a broader interpretation and additional commentary. The views expressed do not necessarily represent those of VoxEU or CEPR.
