A slowing economic system meets a quick future

This report is from this week’s CNBC’s The China Connection publication, which brings you insights and evaluation on what’s driving the world’s second-largest economic system. Every week, we’ll discover the most important enterprise tales in China, give a lowdown on market strikes and enable you to arrange for the week forward. Like what you see? You’ll be able to subscribe here.

Life in China lately is a narrative of stark contrasts.

If in a single dialog, my counterparts are wringing their fingers over a sluggish economic system, the following reveals how shortly synthetic intelligence is revamping industries.

Living proof: Chinese language smartphone firm Honor advised CNBC its latest foldable set for launch Wednesday would be the thinnest telephone in the marketplace so far at simply 8.8 millimeters when folded — undercutting even the rumored thickness for Samsung’s forthcoming foldable — thanks largely to its AI manufacturing instruments.

Honor mentioned it discovered the optimum mixture of slimness and energy by utilizing its “1-billion parameter AI industrial mannequin” to simulate greater than 125,000 choices for system meeting. The corporate mentioned AI-powered 3D scanning allowed it to attain precision management of 0.003 millimeters, or about 1/twentieth of a human hair.

In all, that is a 1.1-millimeter slice off its first foldable launched in July 2023, when Honor made waves within the smartphone market with a tool that folded up to be nearly as thin as an iPhone.

Nevertheless it was additionally two summers in the past after I recall that a lot of the post-Covid financial pleasure was fading in China.

Conversations shifted from celebrating the tip of lockdowns to bemoaning lackluster consumption. The pessimism additionally created a home market problem for Honor’s foldables, which generally begin on the equal of over $1,000 every.

Trying again, Honor just isn’t the one main Chinese language firm to have made strides during the last two years. Chinese language smartphone firm Xiaomi has launched two electric cars to instantly compete with Tesla. DeepSeek was formally registered as an organization in July 2023, in response to information, earlier than launching its breakthrough AI mannequin in January this yr.

AI’s pervasiveness has additionally began to penetrate the “much less flashy” components of China’s economic system.

In July 2023, Huawei launched a devoted AI mannequin for industrial mining with mining firm Yunding Expertise and state-owned Shandong Power Group. The mannequin, based mostly on its foundational “Pangu” model, allowed employees to function mine gear remotely from an workplace and develop different tech options extra shortly.

Quick-forward to 2025, and the AI tech has been integrated in more than 100 mines, in response to Huawei’s annual report launched in March. In Might, the corporate’s consumer in Internal Mongolia launched 100 self-driving electric trucks for a neighborhood coal mine.

Huawei final month revealed a brand new, 5.5 model of its Pangu basis mannequin, and on Monday, launched an open source version for developers.

International corporations are additionally spurring technological innovation on the mainland, equivalent to German industrial big Siemens.

Out of 18 AI-integration associated merchandise Siemens simply launched, 16 had been developed in China in simply 9 months, Peter Koerte, the corporate’s chief expertise officer and chief technique officer, mentioned final week through the World Financial Discussion board convention in Tianjin. He described functions equivalent to AI-powered vitality financial savings methods for buildings.

These technological breakthroughs are the results of years or months of painstaking improvement, but it surely’s solely extra not too long ago that companies are reaping the rewards.

“AI is remodeling from remoted technological innovation into one thing that’s core or embedded in the entire enterprise course of,” Janet Tang, Hong Kong-based companion and managing director at AlixPartners, advised me final week on the sidelines of the convention in Tianjin.

She acknowledged that the numerous integration of AI with enterprise operations started roughly 12 months in the past, following in depth trial and error over the previous few years.

Whereas China’s largest cities are but to see a return to the pre-Covid increase days, there are indicators that the fast city development has as a substitute unfold to smaller cities and even rural areas.

Malipo, a Yunnan county as soon as so poor it has acquired focused help from the overseas ministry, began revamping its “Tianbao” land buying and selling port on the border with Vietnam in 2023. The county even courted Hong Kong’s Sunwah Group to take a position 50 million yuan to open a tea processing plant in the identical yr.

The port has since seen a surge in durian commerce, whereas plans are underway to open a vacationer attraction with Sunwah within the county, permitting guests to see tea timber that county head Xiao Changju claims are a number of hundred years outdated. She was talking to reporters throughout a state-organized journey to the area in Might.

Augmented actuality glasses startup Xreal invested in its personal manufacturing facility within the southeastern “tier 2” metropolis of Wuxi and earlier this yr introduced a new glasses product running Google’s XR working system.

The corporate can be transferring its headquarters from Beijing to Shanghai this summer season to be nearer to its specialised factories in Wuxi that make optical components and different elements, CEO and founder Chi Xu advised me on the sidelines of the World Financial Discussion board’s occasion in Tianjin final week.

Xu hopes that his merchandise can attain customers by the tip of this yr, whereas noting the U.S. stays the highest marketplace for Xreal.

“I am at all times impressed by the extent of vitality, hardworking and openness of the enterprises right here in China,” AlixPartners’ Tang mentioned. Regardless of protectionism or different challenges, “everybody remains to be so motivated, so desirous to study new issues and to attach with the remainder of the world.”

Grant Pan, Group CFO of Noah Holdings, mentioned that buyers wish to diversify their property away from simply the U.S. and China markets.

Tolga Oncu, COO of Ingka Group, which manages IKEA, mentioned the competitors and alternatives he sees in China, particularly within the ‘silver’ economic system.

Aditi Rasquinha, CEO of DHL World Forwarding Larger China, acknowledged that the area’s export development has remained resilient regardless of a slowdown in U.S.-China commerce.

Mainland China and Hong Kong shares inched increased amid combined buying and selling within the area, as buyers digested the drama feedback from U.S. Federal Reserve Chair Jerome Powell.

The CSI 300 index, which tracks the highest 300 shares traded on the Shanghai Inventory Trade and the Shenzhen Inventory Trade, closed flat at 3,943.68, whereas Hong Kong’s Hang Seng Index — which incorporates main Chinese language corporations — gained 0.62%. The mainland benchmark is up 0.22% yr so far, information from LSEG confirmed.

— Lee Ying Shan

July 2: Honor to launch its subsequent foldable telephone

July 3: Caixin Providers PMI

July 5: Legoland opens its first China resort in Shanghai

July 9: CPI and PPI for June