Forget the factory lines for socks, sneakers and T-shirts. U.S. President Donald Trump wants to boost the domestic production of high-tech products, and not apparel or footwear, he told reporters Sunday.

However, China is doubling down on its efforts to bolster advanced manufacturing, which could put both countries on a collision course.

Just last week, Chinese President Xi Jinping reaffirmed his plans for manufacturing-led growth during a visit to the northern province of Henan, pressing ahead with a strategy long criticized by the U.S. and major trade partners for deepening global trade imbalances.

Xi told workers at a state-owned ball-bearing factory that self-reliance in advanced manufacturing is “the right path” for China and the “backbone” of its economy, according to an official statement.

The manufacturing sector contributed to over 25% of China’s GDP in 2023, according to the World Bank. While China’s push to expand its manufacturing capabilities is part of its goal to achieve self-reliance, especially in high-tech sectors, this could run counter to the Trump administration’s core demands in the ongoing trade talks, experts warn.

Trump wants China to address the trade imbalances and has slammed Beijing for providing enormous amount of state subsidies to Chinese companies, thereby distorting competition.

However, there is “little scope” for China to budge and scale back its manufacturing-led strategy, which is closely tied to Beijing’s drive for self-reliance, said Allan von Mehren, China economist at Danske Bank.

“I’m not too optimistic on a big deal between the U.S. and China,” Mehren said, anticipating U.S. tariff rates on Chinese goods to hold at around 40%.

The “Made in China 2025” ten-year plan, released in 2015 — two years after Xi came into power — aimed to transform China into a leading high-end manufacturer, from electric vehicles and commercial aircraft to semiconductors and robots.

The Center for Strategic and International Studies estimated in a 2022 report that China’s spending in funding favored industries amounted to at least 1.73% of its GDP in 2019, significantly higher than the U.S., which spent 0.39% of its GDP on industrial support in 2019.

These include direct grants and tax benefits to its prized sectors, with nearly all large, listed Chinese firms receiving some form of state subsidies, according to economic consulting firm Rhodium Group.

Despite the support, China missed several key targets from its ten-year plan, including those for aerospace and high-end robots, and fostered unhealthy industrial competition that worsened global trade tensions, according to the European Chamber of Commerce in China.

U.S. Treasury Secretary Scott Bessent, in an interview with CNBC earlier this month, sounded optimistic about reaching a middle ground with China: “We need more manufacturing, they need more consumption, so there is a chance to rebalance together, we’ll see if that’s possible.”

But it remains unclear whether Bessent will make that a priority during the ongoing trade negotiation with Beijing as part of the 90-day trade truce.

The U.S. trade deficit with China is unlikely to “narrow substantially,” Jing Wang, China economist at Nomura, and the team said in a note. They expect Beijing to reduce its reliance on U.S. imports and for American manufacturers to take years to shift manufacturing onshore and find suitable alternatives.

“As the U.S. is the most buoyant consumer market worldwide, a sudden flood of cheaper Chinese goods to the rest of the world will inevitably spark global backlash,” Wang added.

China’s continued industrial push and ramped-up exports are stirring anxiety in non-U.S. markets and inviting fresh trade barriers.

As the specter of U.S. tariffs loomed at the start of the year, Chinese toy manufacturers in Yiwu city, a manufacturing hub, rushed to redesign Santa Claus figurines with rounder faces and blue eyes in hopes of appealing more to European consumers.

But their search for new markets to compensate for the opportunities lost in the U.S. is stirring anxiety in Europe, said Nick Marro, principal economist at Economist Intelligence Unit.

“By the end of this year, it’s not just U.S.-China tensions that we need to watch, it’s going to increasingly be EU-China tensions … And it’s no longer just going to be about electric vehicles [but] across a whole wide range of different products,” Marro added.

Top finance officials from G7 nations, led by the U.S., convened last week to discuss steps to address overcapacity and unfair trade practices — “with a clear aim of curbing China’s export saturation,” said Wang Dan, China director at Eurasia Group.

These moves could still be interpreted in Beijing as a “deliberate provocation” and prompt it to use other ways to create headaches for foreign businesses eyeing the Chinese market.

“Delays in licensing, exclusion from local incentive schemes, or tighter oversight may follow if tensions rise in other areas of the bilateral relationship,” Eurasia’s Wang said.

China’s grip on low-end manufacturing could also undercut manufacturing in developing nations, according to Leah Fahy, China economist at Capital Economics.

For example, India’s share of global exports in furniture, toys and games has stagnated in recent years, while garment exports declined. China widened its lead for these goods in the same period.

India, Vietnam and Indonesia have imposed various protectionist measures to provide some relief for domestic producers from intense price competition, particularly in sectors facing overcapacity, cheap imports.

That said, some argue that excess Chinese capacity could offer a silver lining for inflation-weary economies by easing price pressures.

“China is going to be exporting deflation to the rest of the world,” said Marro, noting that for markets with limited manufacturing bases, like Australia, cheap Chinese imports could ease the cost-of-living crisis and help bring down inflationary pressure.

Economists at home and abroad have called on Beijing to shift to a consumption-led model and reduce reliance on manufacturing, a strategy widely blamed for deepening deflationary pressure in the economy.

Chinese customs data in April offered a fresh reminder of the imbalance between China’s productive capacity and its domestic demand. Its trade surplus hit a record high of $992.2 billion last year, driven by persistent imbalances with major partners including the U.S., the European Union and Southeast Asia.

The Chinese leadership has stepped up its support, aiming to divert U.S.-bound goods to sell to domestic consumers. But convincing consumers, wary of income and job prospects, to spend again has proven to be a challenging task.

China’s retail sales growth slowed to 5.1% in April, missing economists’ expectations, with automobile sales lagging significantly, growing just 0.7% from a year earlier, compared with a 5.5% jump in March.

Beijing’s shift toward a more consumption-led model will see a “very slow reform momentum,” said Louise Loo, lead economist at Oxford Economics, forecasting consumption to account for half of China’s economy only by mid-century, well below the 70% shares seen in the U.S.

However, Xi’s focus on manufacturing is not entirely unjustified, as Washington is likely to maintain a firm grip, restricting Beijing’s access to more advanced technology.

“The Trump administration, by treating China as the most potent near-peer adversary, would make the yard bigger and fence higher,” Nomura’s Wang said. The “small yard, high fence” was a strategy adopted by the Biden administration aimed at safeguarding a narrow set of critical technologies (small yard) with tough and extensive restrictions (high fence), while maintaining normal economic exchange in other areas.

“Strategic decoupling remains inevitable on national security concerns,” Wang added.

— CNBC’s Evelyn Cheng contributed to this story.

This report is from the latest edition of CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary every week on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribe here.

Each weekday, CNBC’s “Inside India” news show gives you news and market commentary on the emerging powerhouse businesses, and the people behind its rise. Livestream the show on YouTube and catch highlights here. 

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U.S.: Sunday-Thursday, 23:00-0000 ET
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A top Indian official’s recent claim that the South Asian powerhouse has become the world’s fourth-largest economy has created a lot of buzz in the country’s social media, with an outpouring of self-congratulatory messages.

While India has taken giant strides in boosting its GDP — it was ranked No. 10 in 2014 — and continues to be the fastest-growing major economy, it’s best to take the latest claims with a fistful of salt.

Briefing the media on Sunday, B.V.R. Subrahmanyam, CEO of India’s state-run think tank Niti Aayog said, “we are the fourth-largest economy as I speak … and this is not my data. This is IMF [international monetary fund] data.”

“India today is larger than Japan,” Subrahmanyam said, adding that the nation will go on to displace Germany as the third-largest economy, just behind the U.S. and China in around three years.

IMF data, however, projects India’s economy to reach $4.187 trillion in 2025, marginally surpassing Japan’s $4.186 trillion. So while not already there, the country is very much on the path to becoming the fourth-largest economic powerhouse, preceded by Germany, China and the U.S.

Keeping the trajectory in focus, and putting aside the merits of the claim, what is it that’s working for the country — and what is holding it back?

“Long-term structural dynamic,” driven by India’s huge demographic and growing educated youth population, is enhancing India’s capabilities in technology and services, while also paving its ambitions to become a manufacturing hub, said Malcolm Dorson, senior portfolio manager at Global X ETFs — one of the largest foreign asset owners in India.

Dorson also sees “tactical tailwinds” from lower oil and higher gold prices, given India imports around 80% of its energy needs, while roughly 20% of the nation’s household savings in physical gold.

Collectively, these factors make India a “fine-tuned compounding machine,” he said, adding that the country gaining a spot in the top four by GDP ranking “is a done deal.”

Dhiraj Nim, foreign exchange strategist and economist at ANZ Bank agrees: It should not be surprising if India becomes the world’s fourth-largest economy around mid to end this year, aided by improving domestic consumption as demand in rural clusters improves.

Consumption constitutes over 56% of India’s economy — making it the top growth engine. Rural areas accounted for nearly 40% of overall consumer goods sales in the first quarter of 2025, data from market research firm NielsenIQ shows.

A sizable number of India’s rural population is farmers, so Nim expects a pickup in their spending in the upcoming quarters with better weather conditions facilitating higher crop yields and in turn stronger income and purchasing power, with falling inflation also supporting consumption.

He also expects urban consumption to grow, albeit at a slower pace, following tax cuts and stimulus doled out in the budget earlier this year, with more rate cuts by the Reserve Bank of India offering an added boost.

The benefits of India’s economic growth will translate into increased capital flows, as foreign investors would want to capitalize on it, Dorson said.

“This could lead to higher valuations, which inherently would translate into more supply, and deeper capital markets. We could also see Indian equities more prominently included in global exchanges, which would lead to more flows,” he said.

India has strong tailwinds supporting its economy, but it needs to undertake several reforms to ensure sustained growth.

While India is set to be the world’s fourth-largest economy, there is a “huge disconnect in the standard of living and the social, economic and physical infrastructural between India and Japan,” Shumita Deveshwar, chief India economist at TS Lombard said.

India’s current per capita GDP is $2,880, a fraction of Japan’s $33,960, IMF data shows.

“There’s so much work that really needs to be done in India to bridge this gap and it starts from increasing capital expenditure on infrastructure such as transportation networks, to improving access to education, workforce skills upgrading and jobs in general,” Deveshwar noted.

ANZ’s Nim calls India becoming the world’s fourth-largest economy merely a “natural course of events.”

“It really means not much to me. India is now the fifth-largest economy, but is not very prosperous, so more work needs to be done to increase the prosperity of citizens,” he said, flagging the need for India to be more open to foreign businesses which already have an incentive to be in the country given its cheap cost structures.

He suggests that policymakers strategically identify sectors India has a comparative advantage in, rather than try to manufacture everything. Focusing on select industries over a range of sectors will ensure that the workforce has the needed skills to make quality products that are competitive against those produced in other emerging markets with lower costs.

Deveshwar highlights that policymakers should ensure that reforms are meted out quickly, so that growth is sustained. Lack of capacity, manpower and physical infrastructure have historically held back policy rollouts, so effective execution is needed to meet quite aspirational and ambitious targets.

“There have been hurdles and lags in policy implementation such as in passing labor reforms, farm reforms and other incomplete reforms that have really delayed the productivity and output in many sectors. We need to fix that so India remains competitive and sustains its position as the world’s fourth — or eventually even third largest economy,” Deveshwar added.

A trade deal between India and U.S. could be reached in late June. Negotiations are progressing quickly and U.S. officials are expected to visit India soon to discuss the deal further, reported CNBC-TV18, which cited government sources. Imports of genetically modified crops from the U.S. will still be prohibited by New Delhi because of regulation, but non-modified agricultural products could see the green light.

India’s shipment of iPhones to the U.S. jumped in April. Market analyst firm Canalys, now part of Omdia, estimates that total shipment rose 76% year on year to around 3,000,000. By contrast, China’s iPhone shipments to the U.S. fell to 900,000 in the same month, plummeting roughly 76% from a year earlier. The huge shifts in numbers are because of harsh tariffs the White House imposed on China, Omdia said.

U.S. President Donald Trump told Apple CEO Tim Cook he wants iPhones built in America. Smartphones manufactured outside the U.S., whether in “India, or anyplace else,” wrote Trump on his social media platform Truth Social, will incur a “Tariff of at least 25%.” Analysts have said it would be a tall feat for Apple to shift production to America because of supply chain and cost issues. Apple is also continuing to expand its operations in India.

— Yeo Boon Ping

Indian stocks were trading flat Thursday even as most Asian markets rose after a U.S. federal trade court ruled that President Donald Trump exceeded his authority with his “reciprocal” tariffs. The benchmark Nifty 50 and the BSE Sensex were little changed as of 12.10 p.m. Indian Standard Time.

Since the start of the year, the 50-stock benchmark has risen 4.6%, while the BSE Sensex has gained over 4%.

The benchmark 10-year Indian government bond yield were down marginally at 6.171%.

On CNBC TV this week, Nikhil Bhandari, Goldman Sachs’ co-head of APAC natural resource and clean energy research, said the bank believes India’s oil demand will be the “fastest growing” among large economies over the next two decades because of income growth in the country. However, as India’s oil production is flat, the South Asian nation will have to rely on diversifying its import sources for energy security.

Meanwhile, Abrar Mir, managing partner at Quadria Capita, a private equity firm that focuses on healthcare companies, said that there’s “significant” innovation happening in India’s hospital sector. Businesses in the country are building high quality hospital systems that serve the underprivileged in rural areas, while doing it in a financially viable way, which is an “eminently exportable business model,” Mir said.

— Yeo Boon Ping

India’s first-quarter economic growth data, out Friday, will give an indication if the country’s economy can meet its growth target for the current fiscal year.

With four mainline initial public offerings the upcoming week, India’s IPO market seems to be picking up.

May 30: India gross domestic product data for FY25 fourth quarter

June 2: India HSBC manufacturing PMI, final reading, for May, Aegis Vopak Terminals IPO, Schloss Bangalore IPO

June 3: Prostarm Info Systems IPO

June 4: India HSBC services PMI, final reading, for May, Scoda Tubes IPO

— Yeo Boon Ping

South Korea’s central bank cut its policy interest rate by 25 basis points Thursday as the country faces a double-whammy of protracted political turmoil and Trump’s sweeping tariffs.

The Bank of Korea reduced rates to 2.5% from 2.75%, its lowest level since August 2022, in line with expectations among economists polled by Reuters. That marked the central bank’s fourth cut in the last six meetings.

The quarter-percentage rate cut came as the country continued to grapple with heightened political uncertainty following the botched attempt by former leader Yoon Suk Yeol to impose martial law in December.

South Korea was slapped with 25% reciprocal tariffs by the Trump administration, which were later suspended for 90 days. South Korean leaders are racing to strike a deal with the U.S. government before the July 8 deadline.

Both sides have stated that they aimed to agree on a package on tariffs and economic cooperation by then, but the South Korean minister for trade and industry said recently there was not enough time, and the upcoming election could delay it further.

South Koreans will head to the polls on June 3 to elect the next president. The snap election was called after Yeol was impeached as president and removed from office.

South Korea’s GDP growth unexpectedly contracted in the first quarter, shrinking 0.1% from a year earlier, according to advance estimates released last month. That marked its first contraction since the fourth quarter of 2020.

The BOK monetary policy board attributed the rate cut decision to its expectations that economic growth will “decline considerably” while inflation remains “broadly stable,” according to its statement.

“The board will maintain its rate cut stance to mitigate downside risks to economic growth and adjust the timing and pace of any further base rate cuts while closely monitoring changes in the domestic and external policy environment,” the statement said.

The central bank also slashed its full-year GDP forecast for 2025 to just 0.8%, considerably lower than the previous projection of 1.5%.

The election of a new president next week should lead to the introduction of “much-needed fiscal stimulus,” Gareth Leather, senior Asia economist at Capital Economics, said in a note, anticipating consumer spending to pick up.

Still, that boost may not be sufficient to offset the slump in the property sector and disruption in exports, dragging the full-year GDP growth to just 0.5%, Leather estimated.

The country’s Kospi stock index jumped 1.25% after the announcement, while the South Korean won weakened 0.71%, last trading at 1383.40 against the greenback.

Japan’s bond market is igniting fears of capital flight from the U.S. and a carry trade unwind as long-dated yields hover near record highs.

Yields resumed their move higher Wednesday as demand for 40-year government bonds reportedly dropped to its weakest level since July last year, according to Reuters’ calculations, hovering near record highs hit last week.

Japan’s 40-year government bonds yields hit an all-time high of 3.689% Thursday and were last trading at 3.318% — almost 70 basis points higher so far this year. Yields on 30-year government debt are up more than 60 basis points this year at 2.914%, also not too far from all-time highs, while for 20-year debt they are up over 50 basis points.

Higher Japan government bond yields could spark a wave of capital repatriation with Japanese investors pulling funds from the U.S. There could be a “trigger point” where Japan’s investors suddenly move their capital from the U.S. back home, Macquarie’s analysts said in a note.

Should Japanese government bond yields continue to climb, the move could “trigger a global financial market Armageddon,” said Albert Edwards, global strategist at Societe Generale Corporate & Investment Banking.

Higher yields and stronger yen will impact domestic appetite to invest abroad, he told CNBC. “Investing in the U.S. was as much currency gains as it was seeking superior interest rate returns.” Edwards singled out U.S. tech stocks, which have seen large Japanese inflows, as being particularly susceptible to a stronger yen.

Elevated yields spell trouble for global markets in general as they translate to increased borrowing costs, said David Roche, strategist at Quantum Strategy. Japan being the world’s second-largest creditor raises the stakes even higher. The country’s net external assets hit an all-time high in 2024 at 533.05 trillion yen ($3.7 trillion).

“Tightening global liquidity will reduce world growth to 1% and by raising long term rates it will tighten financial conditions and extend the bear market in most assets,” he said.

This repatriation of funds to Japan is synonymous with the “end of U.S. exceptionalism” and is mirrored elsewhere in Europe & China,” Roche added.

The steepening of Japan’s yield curve is largely due to a key structural factor: Japanese life insurance companies — a key source of demand for 30- and 40-year JGBs — have largely met their regulation-driven buying requirements, said Eastspring Investments’ portfolio manager in the fixed income team, Rong Ren Goh.

With the Bank of Japan scaling back bond purchases in a seminal monetary policy shift last year, and private players not stepping up, the demand-supply mismatch is likely to fuel higher yields.

“If sharply higher JGB yields entice Japanese investors to return home, the unwinding of the carry trade could cause a loud sucking sound in U.S. financial assets,” Edwards said. Higher yields tend to strengthen the currency.

Carry trades involve borrowing in a low-interest-rate currency like the Japanese yen and using those funds to invest in higher-yielding assets abroad. 

Last August, yen-based trades began to unwind sharply after the Bank of Japan raised interest rates, strengthening the Japanese currency and triggering a significant sell-off in global markets.

“Japan looks like a ticking time bomb. If confidence in one of the financial market’s traditionally safe assets has cratered, confidence in the global market could go with it,” said Michael Gayed, author of the Lead-Lag Report and portfolio manager at Tidal Financial Group, adding that people assume what happened in August was a “one-time” occurrence.

Gayed said that one of the current U.S. administration’s primary goals is to lower bond yields and weaken the dollar to address global trade imbalances, and if that happens at the same time Japanese bond yields are rising, it does damage to the cheap yen narrative that fuels the yen carry trade in the first place.

“That could lead to a lot of traders unwinding those short yen positions and then you’re looking at a potential repeat of last August,” he said.

The carry trade unwinding that is about to ensue will be worse than that in August, warned Alicia García-Herrero, chief economist for Asia Pacific at Natixis.

The strengthening yen, driven in part by capital returning home and investors cutting greenback exposure, is unsustainable for Japan’s economy, she added.

The yen has strengthened more than 8% since the start of the year.

Other analysts say the carry trade impact may not be as severe as witnessed last year.

“Big carry positions typically build up when there is a strong FX trend, or very low FX volatility, and [when] there is a big short term interest rate differential,” said Guy Stear, head of developed markets research at Amundi. 

In the second quarter of 2024, the gap between the U.S. 2-year Treasury yield and its Japanese counterpart was 450 basis points, compared to the 320 basis points now, data provided by Amundi showed. 

The advantage in shorting the yen is “less apparent,” he said, adding that a depreciating dollar means there are fewer short yen positions than last year.

While August was “a crater in one go,” what’s going to happen this time will most likely be a steady decline [in the carry trade unwind] because of the erosion in confidence on U.S. dollar, said Riccardo Rebonato, professor of finance at EDHEC Business School.

“Rather than an implosion, I see a progressive erosion over a long period of time,” he told CNBC.

Japan’s large holdings of U.S. Treasuries are structural, anchored in the broader U.S.-Japan strategic alliance encompassing economic, defense, and geopolitical cooperation, said Masahiko Loo, senior fixed income strategist at State Street Global Advisors.

“As such, we see little risk of divestment or ‘dumping’ of foreign bonds by Japanese investors,” Loo said.

Additionally, foreign holdings of U.S. assets are concentrated in U.S. equities, rather than Treasurys, data provided by State Street showed.

A larger chunk of foreign U.S. asset holdings is concentrated in equities at close to $18.5 trillion, followed by U.S. Treasurys at $7.2 trillion, according to Apollo’s chief economist Torsten Slok.

“While we cannot rule out some degree of foreign capital outflows from risky assets in the event of a severe US recession or an intensified “sell America” narrative, we think it likely the outflow will come from equities first with corporate bonds next, and unlikely to start with Treasurys,” Loo added.

Clarification: This story was updated to reflect Reuters’ revised calculations on Japanese bond demand.

This report is from this week’s CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. Each week, we’ll explore the biggest business stories in China, give a lowdown on market moves and help you set up for the week ahead. Like what you see? You can subscribe here.

Hearing about artificial intelligence from Chinese businesses paints a very different picture of how the tech can be applied than is commonly understood.

After a stint as a data scientist at Meta, Caltech alumnus Jerry Ye returned to China in 2017 at the behest of an investor, with the goal of starting a global AI company.

The startup, Whale, sells AI software tools and related hardware to help retailers. It now claims clients such as Starbucks, Xiaomi and Unilever. Last week, Whale announced that it had raised $60 million in a Series C funding round that included Bosch Ventures, Singtel and MDI Ventures. The startup counts Hangzhou as its China headquarters and Singapore as its global base.

I caught up with Ye in Beijing this week as he passed through the city, where he has a small team. This interview has been condensed and edited for clarity.

What’s the impact of the U.S.-China trade war?

We still think there’s a global opportunity even if there are U.S.-China tensions. Business is business. Our customers are global: Procter & Gamble, Watsons, Starbucks.

Who will win the AI race?

The largest two markets are still the U.S. and China. The application layer will take off in both, in different ways: marketing and sales in China; very, very small vertical sectors in the U.S., such as in transportation or legal. Southeast Asia is more likely to adopt scenarios from the U.S. or China markets.

What’s restricting AI development? Advanced semiconductors?

For China, we don’t see any shortage in AI computing power. All the cloud [companies] have a lot of training power. A lot of AI companies don’t actually train [models] a lot anymore.

Ultimately, on-device chips [often associated with edge computing, or processors built into devices like smartphones, home appliances, etc] are becoming powerful enough to run AI models and can ensure data privacy. In the long run, most of the competition will happen on the edge, instead of at data centers.

Where will AI make money for businesses first?

Marketing and sales, because they are very close to the money, and the return on investment is easier to calculate. If you adopt AI in marketing and sales over seven days, on the eighth day, you will see results.

What does that mean for the future of content?

The basic concept of marketing is communication, narrowing the gap between the customer understanding the product and the brand selling the product.

We talk a lot about personalization. But traditionally, we didn’t have sufficient content, sufficient power to give each person personalized content. With AI’s richer understanding and algorithms to bridge the content and the customer, the decision-making is faster and easier.

Generative AI definitely gives us a lot of opportunities to generate a huge amount of videos.

AI also enables us to send unique slices of live-shot photos and videos to social media. This has become the way ads are increasingly produced.

But if you use a lot of generative AI, they convey a lot of fake information. Most platforms are mostly anti-generative AI videos. My personal opinion is that real-life videos are still needed. It’s very hard for generative AI to [convey] real emotions, real human touch.

How are companies using AI today?

Our company services Starbucks in China and Southeast Asia.

Each time you purchase a Starbucks coffee, huge amounts of AI are used to make the customer experience better. Right now, consumers can get their coffee order within 5 minutes, 98% of the time. If one location is too busy to handle online orders on top of in-store orders, AI analysis may send those online orders to a different location nearby.

How much money is Whale making? What are your costs?

Over the last three years, we have grown by about 100% [a year], and for the next two to three years, we will maintain 100% annual growth. We made revenue of 230 million yuan ($31.39 million) last year, and expect 400 million yuan in revenue this year. We have around 500 enterprise customers.

We spend about 1 million yuan a month in China on operating costs — outside China, it’s more expensive, so the total is around 3 million yuan a month [36 million yuan a year].

Our biggest challenge is complying with local data privacy and security needs in every region.

Which AI large language model is best?

Different models have different capabilities. For Claude, they are really good at generating websites, PDFs. Gemini, video. It’s like having PhDs in different domains. For most of our business customers, they don’t want to be fixed into one model.

A lot of businesses want to keep their data private. That’s why they use open-source models, deployed in their own data centers.

Is there potential for an AI device, such as glasses?

The biggest challenge for most hardware is the battery, not the AI itself.

Most of the hardware has been here for a long time.

Maybe a new cellphone. The most important thing is the application. The application will take over the large margin of the AI. Cloud has 5% to 10% of the margin, then hardware. There’s a huge software layer [of which AI applications] can take 90% to 95% of the margins.

What do you think about former Apple designer Jony Ive’s deal with OpenAI?

It will be hard. There’s a camera on it. It’s good to have large companies trying different AI. They have more potential to try different things.

Theodore Shou, CEO of Yiyi Capital, discusses the recent strong performance of the IPO market in Hong Kong and says that the valuation premium between mainland China and Hong Kong stocks would narrow if more Chinese companies list on the Hong Kong Stock Exchange.

Ramón Barúa Costa, CEO and director of Aclara Resources, discusses global demand for rare earths, China’s dominance in critical minerals, and the strategic importance of rare earths in the energy transition.

Lihan Zhou, CEO and Co-Founder of Mirxes, a Singapore-based biotech company, discusses the company’s Hong Kong IPO and growth prospects.

The U.S. and China are talking. Chinese Vice Foreign Minister Ma Zhaoxu and U.S. Deputy Secretary of State Christopher Landau had a call last week, and both sides agreed to keep lines of communication open, according to readouts on Friday. While no specifics were announced, the call was the first since the U.S. and China agreed this month to pause most tariff increases.

China’s industrial profits rose in April. Official figures out Tuesday showed profits climbed 3% year on year in April at major industrial companies, faster than the 2.6% recorded in March and growing despite U.S. tariffs. But margins at electric car companies are facing more pressure after BYD this month announced a slew of discounts.

Xiaomi targets Tesla and Apple at the same time. The Chinese smartphone company on Thursday revealed a new chip that it claims beats Apple’s on certain metrics — and comes inside a phone far cheaper than the iPhone 16 Pro. Xiaomi also teased a new SUV called the YU7, which analysts predict will amp up the competition for Tesla in China.

Chinese and Hong Kong stocks traded mixed Wednesday as investors continued to assess the U.S.-European Union trade optimism.

Mainland China’s CSI 300 added 0.11% while Hong Kong’s Hang Seng Index — which includes major Chinese companies — slipped 0.4% as of 11 a.m. local time.

The benchmark 10-year Chinese government bond yield is at 1.672%.

The offshore Chinese yuan last traded at 7.1971 against the greenback.

— Lee Ying Shan

May 31: Official Purchasing Managers Index for May

June 2: Mainland China markets closed for the Dragon Boat Festival holiday

June 3: Caixin China General Manufacturing PMI for May

Shipments of iPhones from India to the U.S. rose 76% in April year on year, estimates from a technology market analyst firm shows. The surge comes as Apple accelerates its “made in India” plans, which analysts say will meet pushback from President Donald Trump and Beijing.

The data from Canalys, now part of Omdia, showed that U.S. iPhones shipped from India in April reached roughly 3,000,000. That’s a stark contrast to shipments from China over the same period, which fell about 76% from last year to just 900,000. 

According to Le Xuan Chiew, a research manager at Omdia, the April numbers show the aggressive measures Apple has taken to adapt to Washington’s tariffs against China, where Apple manufactures most of its iPhones.

“This latest trade war with China, is the type of disturbance that Apple has long been trying to prepare itself for,” he said, adding that the country had first started investing heavily into supply chains in India during the Covid-19 pandemic. 

India also surpassed China in iPhone shipments to the United States in March, according to Omdia’s estimates. The uptick came ahead of Trump’s first iteration of “reciprocal tariffs” on April 2. The amount of shipments that month was unusually high and appeared to be the result of the company’s stockpiling, according to Chiew.

The Trump administration’s decision to exempt iPhones and other consumer electronics from his reciprocal tariffs on April 11 did not reverse those trends, with Apple CEO Tim Cook in early may reiterating plans for most iPhone’s sold in the U.S. to be manufactured in India. 

IPhones imported from China under Trump’s current term tariffs still face an additional 30% of duties, while the baseline tariff rate is currently 10% for most other countries, including India. 

While the jump in India’s iPhone shipments in March and April showed the adaptability of Apple’s supply chains, that growth is expected to slow down for the rest of the year, according to Omdia’s Chiew.

“India’s manufacturing capacity isn’t expected to grow fast enough to take the entirety of U.S. demand. It’s still too early,” he said, noting that the company recently began shipments of Apple’s most cutting-edge iPhone 16 Pro.

Omdia estimates that U.S. iPhone demand is about 20 million a quarter, with India expected to be able to match that level only by 2026. 

Meanwhile, Daniel Newman, CEO and principal analyst at research firm Futurum Group, noted that shipment numbers reflect final assembly, but are not representative of the entire supply chain and manufacturing process. 

“It was actually a very low lift for them to migrate more and more of the final assembly from China to India,” he said, adding that a vast majority of the sub-assemblies are all still in China.

Analysts said India’s ability to expand its iPhone capacity could be curbed by protectionist measures from Washington and Beijing, which both have issues with Apple’s reaction against tariffs.

According to Newman, while this is the smart thing for Apple to do, it’s also playing a “dangerous game” with Trump, as it doesn’t meet the objectives of his administration’s tariffs. 

On Friday, Trump threatened to slap a 25% tariff on all iPhone shipments in a social media post, reiterating that he expects iPhones sold in the U.S. to be manufactured and built domestically, “not India, or anyplace else.”

China, for its part, is not expected to make it easy for Apple to diversify out of the country, Newman said, adding that the company has served as trade leverage for Beijing.

According to reports from local outlets in India, Beijing has tried to make it harder for the country to access the high-tech machinery and talent from China needed to further support Apple’s suppliers in India. 

Dan Ives, global head of technology research at Wedbush Securities, told CNBC that Apple’s India plans will pose some challenges regarding logistics, distribution and navigating complex supply chains in the country. However, India is nevertheless expected to remain a “life raft” for Apple under the tariff situation.

“Producing iPhones in the U.S. is a fairy tale in our view and Apple will continue to plow ahead on the India path. Cook will look to negotiate with Trump but India is the focus and not changing.”

The ultra-wealthy are increasingly moving their gold offshore as economic and geopolitical uncertainty roils markets — and Singapore is emerging as a favored destination.

Not far from the city-state’s airport sits a six-story facility covered in onyx and fortified by tight security. Tucked behind its steel doors are gold and silver bars amounting to about $1.5 billion.

Known as “The Reserve,” the storage facility features scores of private vaults and a towering storage chamber lined with thousands of safe deposit boxes reaching three stories high.

From the start of the year to April, the precious metals repository has received an 88% increase in orders to store gold and silver in the vault from the same period in 2024, said its founder, Gregor Gregersen. The Reserve, which also sells gold and silver bars, saw sales for precious metals bars skyrocket 200% year on year in that time, data provided by The Reserve showed.

A growing sense of unease is driving the surge, according to industry watchers.

“A lot of very high net worth clients are looking at tariffs, looking at the world changing, looking at the potential of geopolitical instabilities,” Gregersen told CNBC. 

“The idea of putting physical metal in a safe jurisdiction like Singapore with parties they can trust is becoming a big trend nowadays,” he said, adding that 90% of the new orders are coming from outside of Singapore.

The rise of gold has been meteoric in recent months, with bullion prices notching consecutive record highs. That was fueled in part by its safe haven appeal in the face of the volatility brought about by U.S.-China trade tensions and a mass U.S. asset sell-off in April.

Though gold prices recently cooled after investors’ risk appetites improved following a thaw in trade tensions between the two economic superpowers, some market watchers still believe they could climb to as high as $5,000 per ounce next year. Spot gold prices are currently trading at $3,346.32 per ounce, near historic levels.

The wealthy are also increasingly opting for physical gold bars instead of paper because they do not want as much counterparty and geopolitical risks, Gregersen said. While storing and owning physical gold isn’t completely free of price exposure, it limits exposure to certain risks that paper gold carries.

For example, counterparty risks are lower if one owns the asset directly. The Silicon Valley Bank crisis that unfolded in 2023 fueled investors’ preference for physically owning or securely allocating specific gold bars, instead of relying on paper claims or owning just a stake in a pooled reserve — which could be put at risk if a bank collapses, said Nicky Shiels, head of research and metals strategy at MKS Pamp, a precious metals refining and trading firm.

The World Gold Council’s chief market strategist John Reade likewise noted that this is especially the case for those who are worried about the health of the global financial system.

“Some holders of physical precious metals are wary of storing gold within the banking system, even in allocated form, so they prefer to hold gold with entities that are not banks,” Reade said.

Lack of trust in some domestic banks is also a key driver, said Jeremy Savory, founder of Millionaire Migrant, a Dubai-based consultancy that provides citizenship-related services to high-net-worth individuals.

“If you’re in a country where you don’t trust the banking system, for example, Lebanon or Egypt or Algeria … they don’t want to put it in the bank,” said Savory, whose clients include high-net-worth individuals around the world who are trying to move physical gold to vaults in Switzerland, Singapore and Dubai.

That said, vaulted gold may be less attractive for short-term investors, given that the transaction costs for purchasing and moving physical gold is higher than that of paper gold, said World Gold Council’s Reade.

But why store them in Singapore specifically?

“Singapore is viewed as the ‘Geneva of the East’; it has a reputation as a safe jurisdiction with relative political and economic stability,” Shiels said.

The Southeast Asian nation’s role as a key transit hub also makes it an attractive and convenient place for the wealthy to park their gold.

“Singapore is a transit hub. Anywhere that is a transit hub, usually makes sense that there’s a gold vault,” said Savory. “You can bank, you can store your gold there, but you can also pick it up [easily] because it’s a transit hub. And this is where Switzerland is losing out,” he added.

China’s industrial profits rose for a second straight month in April, official data showed Tuesday, despite prohibitive U.S. tariffs and persistent deflationary pressures.

Cumulative profits at major industrial firms climbed 3% in April after returning to growth in the first quarter of this year, rising 0.8% from a year earlier, reversing the trend of declines since the third quarter of last year.

In the first four months this year, industrial profits rose 1.4%, year on year, the data showed.

U.S. President Donald Trump slapped eye-watering tariffs of 145% on imports from China last month, drawing Beijing to retaliate, effectively amounting to a mutual trade embargo between the world’s two largest economies.

Both sides agreed to lower most of those levies earlier this month, following a trade truce struck during a meeting between the Trump administration and Chinese leadership in Geneva, Switzerland.

U.S. tariffs on goods imported from China have fallen to 51.1% while China’s levies on U.S. imports stand at 32.6%, according to think tank Peterson Institute for International Economics.

China’s manufacturing activity fell more than expected to a 16-month low in April, with the official purchasing managers’ index coming in at 49.0, sliding into contractionary territory for the first time this year.

Retail sales growth slowed to 5.1% from a year earlier while industrial output expanded 6.1% on year, underscoring the persisting supply-demand imbalance in the economy.

Exports to the U.S. plunged over 21% from a year earlier as the triple-digit tariffs kicked in, while overall exports surged 8.1% on the back of a jump in shipments to Southeast Asian nations.

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Despite incurring a higher tariff rate than Tesla, Chinese electric vehicle maker BYD sold more pure battery electric vehicles in Europe for the first time ever last month — a “watershed moment” for the region’s car market, according to a report from JATO Dynamics.

New car registrations data from the automotive intelligence firm shows that BYD’s Europe volumes rose 359% in April from last year as the company continues its global expansion efforts.

Over the same period, Tesla reported yet another monthly drop, with total volumes down 49%, JATO said. That follows protests against CEO Elon Musk and the company in the region. JATO’s data comes from 28 European nations.

BYD’s success in the EU comes despite the economic bloc’s imposition of punitive tariffs on battery EVs made in China last October. The EU attributed the move to unfair trade practices.

The punitive tariffs appeared to be favorable to Tesla, assigning its made-in-China vehicles a 7.8% duty compared with BYD’s 17%. Other Chinese EV makers were given tariffs as high as about 35%. The EU also has a standard 10% car import duty.

Felipe Munoz, global automotive analyst at JATO, said the difference between the two EV makers’ April sales was relatively small, but that the implications of BYD beating out Tesla “are enormous.”

JATO added that BYD is also beating well-established European car brands across the region, outselling Fiat and Seat in France, for example.

“This is a watershed moment for Europe’s car market, particularly when you consider that Tesla has led the European BEV market for years, while BYD only officially began operations beyond Norway and the Netherlands in late 2022,” Munoz said.

BYD’s growth comes even before production begins at its new plant in Hungary, which is expected to become the center of European production operations.

“Europe is emerging as a central battleground between BYD and Tesla,” Liz Lee, associate director at technology market research firm Counterpoint Research, told CNBC. She added that the region is expected to experience higher electric vehicle market growth this year than China, which already has high EV penetration.

The tariffs have provided more impetus for Chinese EV makers like BYD to localize manufacturing in the region, according to Lee. Tesla is also reportedly working on plans to expand its manufacturing base in Germany.

JATO’s report said that while tariffs had an initial impact on the sales of Chinese automakers, the companies have mitigated it by expanding and diversifying their European line-ups with the introduction of plug-in hybrids.

“China is not only the world leader in BEVs; its automakers are global leaders in plug-in hybrid vehicles too,” Munoz said. 

Battery EVs run entirely on electricity, while hybrid vehicles combine an electric battery with an internal combustion engine. Hybrid vehicles have not yet been targeted by EU tariffs.

Meanwhile, there has been growing demand in the region’s EV segment, with JATO data showing that registrations of battery EVs and plug-in hybrid electric vehicles are up by 28% and 31%, respectively, despite declines among internal combustion engine vehicles. 

Registrations of all electric vehicles made by Chinese automakers in April rose by 59% year on year, reaching almost 15,300 units in April, the report added.

Ahead of the EU’s tariff decision last year, Rhodium had predicted that tariffs would need to be as high as 55% for the European market to be unattractive for Chinese EV exporters.

In March, it was revealed that Tesla, which only sells pure battery vehicles, fell behind BYD in total annual sales. 

Tesla’s shares have fallen over 10% over the same period amid blowback from Musk’s involvement with the administration of U.S. President Donald Trump. The CEO recently committed to leading Tesla for the next five years. 

BYD shares were up 3.9% in Hong Kong trading on Friday and have surged about 78% year to date.

The U.S. and China agreed to keep lines of communication open, following a call between senior officials Thursday, signaling continued high-level engagement as both sides work toward a broader deal.

Chinese Vice Foreign Minister Ma Zhaoxu and U.S. Deputy Secretary of State Christopher Landau exchanged views on a range of key issues during the call, both sides said in closely aligned statements released Friday, without specifying whether tariffs were among the topics discussed.

While the call may not indicate a breakthrough in the ongoing trade talks, it is a “positive sign” that Beijing now knows who to talk to on the U.S. side, said Dan Wang, China director at political risk consultancy Eurasia Group, adding that “the communication channel established in the Geneva talks is working.”

Following the high-level talks in Geneva, Switzerland, earlier this month, both sides issued a rare joint statement to temporarily lower most tariffs on each other’s goods, while working toward a broader agreement.

The last time both sides issued a joint statement was in November 2023, which focused on climate cooperation.

The call between Ma and Landau was the second diplomatic-level call between the U.S. and China during U.S. President Donald Trump’s second term, said Xinbo Wu, director of the Center for American Studies at Fudan University. Chinese Foreign Minister Wang Yi had spoken with U.S. Secretary of State Marco Rubio in January after Trump returned to the office.

The Thursday call signals that both sides are “reconnecting” on the diplomatic level and may be preparing for upcoming talks on Beijing’s cooperation in curbing fentanyl flows, Wu said.

Earlier this week, Ma had met with the new U.S. Ambassador to China, David Perdue, signaling that Beijing hopes to align more closely with the U.S. in the ongoing trade discussion, according to a readout of the meeting.

In that meeting, Perdue said he had shared Trump’s priorities for the bilateral relations, according to a post on his X account. “I look forward to working with the Ministry and counterparts to achieve concrete outcomes for the American people,” he said in the post.

Trump has made it a priority to curb the flow of fentanyl precursors from China, which are used to make the deadly opioid. He has also urged Beijing to open up its markets to the U.S.

Perdue’s arrival in Beijing came as a trade war between the world’s two largest economies had stoked fears of a broader “decoupling.”

Chinese exporters are looking to diversify away from the U.S. market, according to industry surveys and economists, undeterred by the temporary tariff truce, while American firms accelerate efforts to shift production out of China.

In a separate meeting with JPMorgan Chase Jamie Dimon on Thursday, Chinese Vice Premier He Lifeng said the negotiations with the U.S. on economic and trade issues have “made substantial progress,” stressing Beijing’s stance of intending to further open up the market for American businesses to operate in China.

Yuyuantantian, a social media account affiliated with Chinese state media CCTV, claimed Dimon said in meetings with Chinese officials that the U.S. government does not want to decouple with China.

Despite the recent de-escalation following the Geneva talks, Beijing and Washington have continued to trade barbs, underscoring the fragile state of the relations.

Chinese authorities have pushed back against a U.S. decision that warned companies not to use Chinese-made artificial intelligence chips, particularly those provided by Huawei Technologies.

China’s Ministry of Commerce earlier this week called the move “unilateral bullying” and blamed the U.S. for undermining trade talks, vowing to take resolute measures to protect its rights and interests.

Correction: This story has been updated to reflect that the call was with U.S. Deputy Secretary of State Christopher Landau.