Vol.152 Macro Talk 73 | Year-End Special: “How the World Got Here” Determines “Where We’re Going”
Summary
Li Feng’s core judgment is that China’s economy is not simply slowing; it is shifting from horizontal growth through scale expansion to vertical growth through higher value added. Real estate is moving from growth engine to stabilizing foundation, while the financial system must shift from funding land, factories and capacity to absorbing R&D cycles and growth risk. Services consumption, public services for permanent residents and metropolitan clusters will provide incremental demand over the next 10 to 20 years: roughly 300M people who “live in cities but lack urban hukou” could move from temporary labor to genuine urban households.
Low interest rates are rewriting how Chinese household savings enter capital markets, with passive index money potentially becoming a more stable base than active capital. Public funds totaled about RMB32T in 2024; passive index funds added more than RMB1T, taking total assets above RMB3T. Household deposits stood at roughly RMB140T, increasing by nearly RMB19T during the year, with a savings rate of about 45%. If low rates persist, Li Feng guesses index funds could expand to at least RMB6T–RMB10T: “That money becomes a stabilizer.” Raising the cost of illegal conduct and tightening delisting rules, meanwhile, is intended to “dredge the riverbed” of the market.
Rolling out individual pensions nationwide and allowing ETF allocations could matter more than a single market rally because it changes the duration of the money. The individual pension system has moved from a 36-city pilot in 2022 to nationwide coverage, with an annual contribution limit of RMB12,000. Based on an average working-age participant of about 32, the money could remain invested for roughly 25 years. Citing the launch of the US 401(k) in 1978, Li Feng explains why Buffett accumulated most of his wealth after age 50: “It wasn’t because he only became Buffett after turning 50.” Long-term investment methods became compatible with the capital structure only after long-duration money appeared.
China’s manufacturing edge is not that a particular end product suddenly pulled ahead, but that accumulated industrial capabilities have stacked the high-value-added layers one by one. CATL inherited ATL’s phone-battery capabilities; BYD moved from phone batteries into EV batteries; power electronics benefited from high-speed rail; Inovance’s motor capabilities came from elevator controls developed during the property boom; and Hesai and RoboSense had previously served robot-vacuum makers. Northvolt’s bankruptcy after raising more than RMB100B and Boeing’s delays across multiple complex programs both suggest, in Li Feng’s view, that “if you want to keep only the top block and pull out every block underneath it, you may find that difficult.”
Whether cars ultimately become electric depends on whether countries choose autonomous driving, because digital control naturally requires an electrical architecture. Combustion engines convert heat into motion with an upper limit of about 45%, while electric motors achieve conversion rates above 90%; sensor signals can control motors in just milliseconds, with four-wheel independent drive as a further step. Range extenders are still simply “oil supplying electricity.” The same battery, sensor, algorithm and control supply chain will also upgrade into robotics and low-altitude aircraft. Solid-state batteries may be optional in cars but could approach a safety requirement in passenger aircraft and household robots.
China’s AI opportunity lies not only in foundation models but in the world’s largest application market defining models, chips and scientific tools from the demand side. Chinese computer vision went from being viewed as unable to catch up to producing large numbers of leading papers at top international conferences and journals around 2018–2019, powered by smartphones, digital infrastructure and high-frequency use in government, finance and commerce. Games, Douyin and TikTok followed the same path. The next phase includes ASICs that rebalance compute, data transfer and memory, as well as a scientific paradigm of “predict first, then find causality.” But Li Feng stresses that AI is only a tool and still requires extensive wet-lab work and a closed data loop.
The US-China energy position swap is first and foremost about their respective industrial interests, while the long-term winner will still be determined by the next energy transition. The US is now the world’s largest crude-oil producer, natural-gas exporter and crude-oil exporter, producing roughly 14M barrels of crude per day, importing about 8M and exporting more than 5M. China’s share of crude imports once stood at about 75%; its energy self-sufficiency rate reached roughly 80% in 2024, even as electricity consumption rose 7% and crude imports fell 1%. From horses and stirrups, to coal and steam engines, to oil and internal combustion engines, Li Feng’s long-cycle conclusion is: “Whoever owns each new energy source and its energy converter becomes the most powerful country for the next one or two centuries.”
Chinese companies going abroad should not treat overseas expansion as an escape hatch from domestic competition, but export industrial efficiency after being tempered by extreme competition at home. Infrastructure and digital capabilities fit growth markets in Africa and Central Asia; mature consumer products are more likely to make money in Southeast Asia; innovative consumer products mainly target Europe and the US, where margins are higher. Europe’s demand that Chinese companies transfer technology also signals a rotation in the “market for technology” bargain. Li Feng uses Starbucks, McDonald’s, Walmart and Luckin to show that every generation of global brands begins as a domestic “competition king”: “As long as you haven’t lost the competition in China, you can win it everywhere else.”
Deep dive
1. “How the World Got Here” Is the Starting Point for Judging the Future
Facing a difficult 2024 and a 2025 that may be no easier, Li Feng framed his annual talk as a review: Views may differ, but the exercise records how he moved through anxiety, confusion, learning and practice rather than offering a confident forecast.
Two books by Hsu Cho-yun provided the framework for the talk. The early investor’s daily question is Where Are We Going?, but after more than a year Li Feng has become increasingly convinced that answering How Did the World Get Here? comes first: “How we arrived at today probably determines where we may go next.”
The method runs through capital markets, industrial chains, energy and globalization. Short-term events look unrelated, but repeated mechanisms emerge over a longer horizon; history cannot remove immediate difficulties, but it can strengthen the “desire and confidence to face them.”
2. China’s Economy Is Shifting from Horizontal to Vertical Growth
Li Feng uses a “house” model to explain the economic structure: The foundation is the basis of growth, the pillars are the main growth engines, and the roof is the economic scale and boundary ultimately visible above ground. Most policy over the past year or more is still delivering this structural adjustment.
Real estate has moved from a growth pillar to a stabilizing foundation, which is why the policy language is to “stabilize the property market.” Bank lending is also better suited to the old horizontal expansion model: Borrow RMB10M this year to build 2 factories, then RMB30M next year to build 4 more. Scale growth is predictable and assets can be pledged.
The new growth model is vertical: Output grows far faster than headcount, land or factory space, with value coming from R&D and higher value added. Li Feng invokes Huawei: If the company had borrowed RMB2B from a bank to fund R&D 20 years ago, it would have worried about annual reviews and loans not being renewed the following year. Vertical growth therefore requires a new financial structure.
3. Services Consumption Could Repeat the 20-Year Expansion of Goods Consumption
Over the past year, opening up brought 2 major changes: Manufacturing removed access thresholds and negative-list restrictions, while services opened further to foreign capital, allowing wholly foreign-owned brokerages, banks, insurers and even medical businesses.
Li Feng uses the gap in aggregate scale to frame the opportunity. China’s goods consumption is worth more than RMB40T, roughly comparable to the US; but China’s 2023 GDP was about $18T, with services accounting for slightly more than half, versus roughly $27T for the US, where the tertiary sector accounts for more than 80%. The services gap remains larger than 2x.
Taobao was founded around 2003, and the following 10 to 20 years saw China’s goods consumption rise to the $6T–$7T range. Even with consumption downgrading today, Li Feng expects a similar expansion in services consumption over the next 10 to 20 years, along with systematic growth in chain-based service brands.
4. Public Services for Permanent Residents Could Change the Household Decisions of 300M People
China’s urbanization rate is about 66% by permanent residence but only about 48% by hukou. The gap of nearly 20 percentage points means roughly 300M people live in cities without local hukou or the public services attached to it.
The Third Plenum of the 20th Central Committee called for cities to provide public services to permanent residents, which Li Feng found “extremely unexpected.” His view is that in many cities over the next 10 to 15 years, this could materially weaken the hukou constraint that has persisted for more than 2,000 years.
Even after becoming a team leader or manager, a delivery rider or courier may avoid buying a home in the city because their children cannot enroll in local schools, sending income back home instead. If their children can attend school and their parents can move in, they may buy a small home on the urban fringe and move from temporary labor to stable households.
This will not solve the current year’s consumption problem overnight, but over a 3-, 5- or even 10-year horizon it could simultaneously change housing, education and services consumption. “Add their parents and children,” and the affected population could exceed the original 300M permanent residents.
5. Metropolitan Clusters Will Carry China’s Last Major Wave of Urban Differentiation
The previous shift in the lives of roughly 300M people came after the 1990s, when migrant workers moved from rural areas into factory dormitories on the urban fringe. After more than a decade of accumulation, China became the world’s largest manufacturing economy around 2011, but that generation never truly entered urban life.
The next phase concerns services workers and their families. Li Feng believes populous developed economies typically urbanize around core cities first, then form metropolitan clusters or belts. The areas around New York and the Tokyo–Osaka–Nagoya corridor were shaped by commuting ranges of 1 to 1.5 hours.
China’s form will be connected more heavily by high-speed rail, intercity rail and subways. In 2024, central and local authorities established regional coordination bodies covering the Yangtze River Delta, Northeast China, western and central regions, the Yangtze River basin and the southwest. Which cities can attract and accommodate these families will determine the next urban rankings.
Shanghai offers one data point. Despite the unfavorable backdrop of a surge in second-hand listings, second-hand transactions still reached about 20,000 units in November 2024, a roughly 2.5-year high. Li Feng makes no causal claim, but guesses that looser hukou policies may have been one of the earliest variables stabilizing demand.
6. What Venture Capital Really Lacks Is M&A Exits and a Common Valuation Language
Since 2023, “invest early, invest small, invest in technology” has been repeatedly written into policy. Early-stage investors have “felt the warmth of policy, but it still feels cold,” because the core obstacles in fundraising and exits remain.
Li Feng’s global exit breakdown is roughly 60% of venture investments exiting through mergers and acquisitions, about 30% through S funds or secondary transfers, and less than 5% through IPOs. China, by contrast, has relied excessively on the last route.
The obstacle is an inconsistent valuation language. Public markets price listed companies mainly on earnings and net assets, while technology companies in the private market are typically asset-light, R&D-heavy and loss-making, with growth as the valuation basis. A listed company judged on profit will struggle to pay a high premium for a growth company that “doesn’t even have a home” and is not yet profitable.
7. Growth Valuations and 14-Year Money Are Preconditions for Patient Capital
Allowing loss-making companies to list effectively requires capital markets to understand growth valuations. Only when the valuation logic of the primary and secondary markets gradually converges can M&A become a standard exit. Li Feng notes that the largest high-premium technology acquisitions in China over the past 10 years were mostly completed by internet companies listed in the US.
For the primary market, state-owned capital often comes with an investment-attraction mandate. But the key to “patient capital” is not the identity of the fund; it is the duration of the underlying money. If the term is too short, a manager cannot match a project that may still have no exit after 10 years, even with the right intentions.
In the first 11 months of 2024, the average issuance maturity of government debt was about 14 years. Li Feng believes that, aside from life insurers, government debt is almost the only source of Chinese capital with a duration longer than 10 years, making its maturity unusually close to the venture-capital cycle.
8. Falling Deposit Returns Are Pushing Money Toward Bonds and Public Funds
In a low-rate environment, time deposits yield only slightly more than 1%. Regulators have also eliminated “manual interest subsidies,” under which banks would ask companies to keep large balances in demand deposits while paying extra interest above time-deposit rates. Once risk-free excess returns disappear, money must find a new home.
After November 2024, large deposits held by non-bank financial institutions such as insurers and brokerages were also subject to market-based deposit rates. The extra interest previously available to custodial funds, insurance capital and large-denomination certificates of deposit was compressed further.
Some money moved into bonds, helping push government bond yields close to and below 1.6%; another portion entered public funds. Total public-fund assets reached about RMB32T in 2024, with clear growth in bond, equity and passive-index products.
9. Passive Index Money Could Become a New Stabilizer for A-Shares
Starting in the second half of 2023, regulators required listed companies to increase dividends. For households, when deposits yield only slightly more than 1% while a low-valued blue-chip company with manageable operating risk offers a dividend yield of around 3%, holding it for 2 or 3 years begins to look relatively attractive.
Passive funds allocate according to the constituents of indexes such as the 50, 200, 300, 500 and 2,000. They do not depend on a fund manager’s frequent market timing. As long as there is no unusual or major latent risk, dividend-seeking money will not enter or exit aggressively, making it more stable than foreign capital and actively managed funds.
Passive index funds added more than RMB1T in 2024, taking total assets above RMB3T. If low interest rates and low wealth-management yields continue, Li Feng guesses the category could eventually reach at least RMB6T, RMB7T, RMB8T or even RMB10T, while stressing that this is only a conditional judgment.
The potential migration is supported by roughly RMB140T in household deposits. Net additions approached RMB19T in 2024, with a savings rate of about 45%. Meanwhile, penalties for market making, financial fraud, insider trading and stock-price manipulation, together with strict delisting rules, amount to digging out the sludge from the riverbed before opening the sluice. “I call it dredging.”
10. Individual Pensions Could Bring China’s Capital Markets to a “401(k) Moment”
Before the US launched the 401(k) in 1978, retail investors held roughly 70% of secondary-market trading and tradable shares. Once individual annuities could invest in mutual funds and receive tax benefits, a pool of money with an average holding period of more than 20 years entered markets continuously. After 2000, institutional trading rose to roughly half of the total.
China’s individual pension system began in 36 cities in 2022, then expanded nationwide, adding ETFs to the investment universe alongside low-risk assets such as government bonds. The current annual limit is RMB12,000 per person, both constraining the scale of tax avoidance and providing personal-income-tax deductions and tax deferral on investment gains.
With the average working-age participant around 32, the money could remain invested for roughly 25 years until retirement. Li Feng believes this would add a commercial-insurance pillar to the pension system as the population ages and could become the capital market’s largest source of incremental money in the future.
“Long money matches long-term investment methods; short money matches short-term speculative methods.” Li Feng uses this to reinterpret the claim that Buffett earned roughly 95% of his wealth after age 50. The key was not that he learned value investing at 50, but that around age 50 the US capital structure began allowing that method to work.
11. China Favors Moving Higher Value Added Within Long Industrial Chains
Despite the cooling primary market, Fengrui Capital invested in roughly the same number of new projects each year from 2022 to 2024 as before, though the amounts were somewhat smaller. Li Feng therefore judges that early-stage companies have become cheaper than in 2020–2021, but teams have not turned pessimistic or stopped investing.
China’s most suitable industrial upgrading model is not to abandon existing industries, but to shift the higher-value-added links within long industrial chains. A car contains roughly 30,000 components. As combustion vehicles move to new energy, the value of the powertrain migrates from the engine and transmission to the battery, motor and electronic controls, lifting the entire chain.
The same path appeared in the transition from knockoff phones to precision smartphone manufacturing. Companies able to move from old structural components into new-energy vehicles, or from feature phones into smartphones, become key links in the new industrial chain and continue absorbing the next layer of demand from robotics and the low-altitude economy.
12. New Industries Do Not Appear from Nowhere; They Stack Old Capabilities Block by Block
Li Feng says he only truly understood this point in recent months. CATL inherited ATL’s accumulated phone-battery capabilities; ATL was later acquired by TDK for about $100M. BYD moved step by step from nickel-metal-hydride phone batteries and BYD Electronic’s manufacturing capabilities into EV batteries.
Some of the IGBT capabilities used in power electronics came from the post-2006 medium- and long-term railway plan, high-speed rail and railway electrification. Inovance’s motor and control capabilities scaled during the property boom through elevator-controller decoupling, which lowered installation and maintenance barriers; they have now moved into automotive controls.
Before smart cars reached scale, Chinese lidar companies Hesai and RoboSense had supplied single-line scanning lidar to robot-vacuum makers. Large security-camera and other machine-vision markets also prepared the manufacturing and algorithm blocks needed for automotive vision sensors.
Li Feng’s conclusion: “These high-value-added or emerging technology chains did not obtain that block out of thin air.” Moving only the top layer of technology while removing the scale manufacturing and application system below often fails to reproduce the full capability.
13. Northvolt and Boeing Expose the Cost of Broken Industrial Stacks
Swedish battery maker Northvolt was once viewed as Europe’s next CATL, yet declared bankruptcy after raising more than RMB100B. Li Feng cites an unverified industry anecdote in which Zeng Yuqun said its “process was wrong, and its equipment was wrong.” The point is not whether the assessment is true, but that process accumulation cannot be purchased directly with capital.
Boeing’s problems span the 737, crewed spacecraft and presidential aircraft. Two astronauts originally scheduled to stay for 2 weeks remained for months because of mechanical failures and leaks in the spacecraft. A roughly $3B order for 2 Air Force One aircraft placed in 2018 has also slipped from delivery in 2020–2021 to potentially 2029.
US aerospace manufacturing emerged from the peak of wartime mass production, when companies including Ford participated in aircraft manufacturing. Li Feng uses the delays to ask whether, if foundational manufacturing blocks have been lost over time, a country can preserve the most complex products at the top while retaining only world-class brands and design capabilities.
14. The Choice of Autonomous Driving Will Ultimately Push Cars Toward Electrical Architectures
On whether new-energy vehicles are a genuine long-term proposition, Li Feng’s test is not any single year’s sales but whether a country or company wants autonomous driving over the next 10 years: “If you want intelligence, you can only base it on an electrical architecture.”
A combustion engine must pass through fuel injection, combustion, piston movement and power transmission, with an upper heat-to-motion conversion limit of about 45%. Li Feng says the process from input signal to drive takes “roughly 10-plus seconds to several dozen milliseconds,” while electric motors theoretically convert more than 90% and need only a few milliseconds to respond to an input signal. Digital and electrical signals are nearly synchronous.
BYD’s Yangwang vehicles demonstrate the direction of further decoupling: Motors can be placed at the wheel or even inside the hub, with all 4 wheels receiving independent control signals rather than a single engine delivering unified output through a driveshaft. Control speed, action space and precision all improve.
Range extenders do not contradict this conclusion because the structure remains “oil supplying electricity.” The control base of the car is still electrical. Li Feng therefore sees electrification as the infrastructure of intelligent driving, not merely an independent choice based on energy costs versus combustion vehicles.
15. Robots and Low-Altitude Aircraft Will Lift the New-Energy Vehicle Chain Another Level
Fengrui’s solid-state battery investment QingTao Energy illustrates the next block in Li Feng’s framework. Solid-state batteries may be optional in cars, but using a potentially flammable liquid battery in a small passenger aircraft carries a higher safety cost. Placing 3 household robots with liquid battery packs in the home would be like “putting 3 small bombs there.”
Low-altitude aircraft cannot simply be scaled-up drones. Rotors must continuously push air downward, consuming substantial energy and limiting speed; once widely deployed, the noise would be unacceptable. Fixed-wing aircraft are more efficient but require runways, making them unsuitable for household use.
Li Feng uses the Coandă effect to explain a potential hybrid design: Air follows a curved wing surface, allowing roughly 1 kilogram of engine thrust to generate about 13 kilograms of lift. Future products would also need autonomous driving, because training the entire population of pilots would be far more difficult than obtaining a driver’s license.
China happens to possess drone, autonomous-driving, battery, sensor and consumer-electronics supply chains at the same time. Low-altitude flight and robotics are not isolated tracks, but the result of stacking the intelligent new-energy vehicle blocks upward.
16. China’s Global Products Must First Survive Extreme Domestic Competition
China has both the world’s largest and most fiercely competitive consumer market, and complex long industrial chains with rapidly expanding technology links. Li Feng therefore believes robot vacuums, drones, action cameras and future robots are more likely to have their products defined in China first.
Based on conversations with Insta360, he says almost every innovative consumer-electronics brand with international capabilities will emerge in China, because companies must first be “beaten mercilessly” at home by supply chains, channels, pricing and product iteration.
The conclusion is condensed into one line: “As long as you haven’t lost the competition in China, you can win it everywhere else.” The prerequisite is not simply low prices, but the simultaneous presence of complex industrial chains, sensors, chips, algorithms and innovative consumer demand.
17. Computer Vision Shows How Application Scale Can Drive Technical Leadership
Around 2015–2016, one of the hot areas in AI investment was visual recognition. China broadly believed it could not catch the technical path pioneered by US institutions such as Google. Then smartphones and digital infrastructure spread, and facial recognition began seeing high-frequency use in identity verification, airport boarding, business-registration changes and bank-account opening.
From 2018–2019 onward, Li Feng observed that the best papers in international top conferences and journals in computer vision were largely coming from China. His explanation is that once underlying technology stops changing rapidly, whoever has more applications, data and infrastructure is more likely to drive innovation in both technology and usage.
Foundation models are still not widely used by 90% of people today. The real mass-adoption point may come when watches, glasses, earbuds, phones, computers and household appliances embed models directly. To get there, models must first connect with specific industrial chains rather than remain standalone chat interfaces.
18. Games and TikTok Were Born from Hardware Adoption, Not from Nowhere
Chinese gaming initially focused on Shengda’s licensing of Japanese and Korean products. Around 2005–2006, broadband reached homes at scale, players moved from internet cafés into their homes, and China became the largest online-gaming market. That created the conditions for homegrown MMORPGs and, later, Black Myth: Wukong.
Li Feng puts the Chinese online-game market at close to RMB300B, with game exports worth more than RMB100B in 2024. Demand scale first supported in-house development, then domestic competition produced products and business models that could be exported.
Douyin and Kuaishou likewise rested on China first becoming the largest smartphone supply chain and then, around 2016, the largest single sales market. Once low-cost cameras, screens and a mass user base had spread, video apps competed through 2 rounds domestically before producing TikTok, an unusually global media product.
19. ASICs and Optical Chips Offer a Path Other Than Catching Up in Leading-Edge Processes
Broadcom’s entry into the trillion-dollar market-cap club is, in Li Feng’s view, a signal that AI chips are expanding from general-purpose products toward customized ASICs. Companies are no longer taking a standard chip and searching for a use; they are starting with a defined function and working backward to the chip architecture.
For phone image processing, voice or translation, the process begins by defining the function to solve, then deciding how to allocate compute, data transfer and memory. Even with process-node constraints, architecture can be rebuilt to optimize a specific task.
Future AR, VR, display and optical applications will also involve controlling light on silicon. Relevant dimensions are often above 1,000 nanometers and do not necessarily require the most advanced process nodes; mature processes at around 28 nanometers and above may be suitable. That gives China an application-led route into chips.
20. AI Is Adding a Scientific Discovery Paradigm of “Predict First, Explain Later”
AI-related work received that year’s Nobel Prizes in Physics and Chemistry, with AlphaFold’s protein-structure prediction central to Li Feng’s discussion. He does not yet judge whether the awards were “chasing the trend,” but asks why AI is beginning to enter fundamental science.
One precondition for the scientific explosion of the 19th century was progress in microscopes, telescopes and precision measurement. Science moved from smart people “sitting there and thinking hard” to a loop of proposing hypotheses, testing them experimentally and revising them after failure.
Gene sequencing, electron-diffraction microscopes and cryo-electron microscopy can now provide protein sequences and folded structures simultaneously, but may not explain why they fold that way. The facts presented by data have temporarily outpaced humans’ ability to build causal hypotheses.
AI can therefore first predict outcomes from large datasets, after which scientists gradually search for causality. Li Feng defines this as an additional paradigm, not a replacement for science: “It is a tool. It is not science itself.”
21. If AI Drug Discovery Works, China’s Wet Labs and Data Could Form a New Loop
Data prediction has 2 prerequisites: Large amounts of wet-lab work for rapid verification, because models do not know true causality; and a continuous increase in high-quality data to improve predictive accuracy. Without either link, AI cannot directly become a scientific conclusion.
China’s innovative-drug sector is constrained by centralized procurement and reimbursement capacity, and lacks the mechanistic knowledge accumulated over decades by large Western pharmaceutical companies. But China’s CRO system and companies such as WuXi AppTec provide relatively low-cost wet-lab work, large equipment and personnel bases, and comparatively fluid, inexpensive data.
Li Feng’s judgment remains conditional: If the loop of “data prediction—large-scale wet-lab work—more data” can work, China may bypass the path of simply imitating imported drugs and produce innovative medicines in batches at lower R&D cost. It would be a different route, not a head-on chase along the old one.
22. The US-China Energy Position Swap Reflects Changing Industrial Interests
China first overtook the US as the world’s largest carbon emitter in 2007. When Obama pushed the Paris Agreement at the end of his presidency, emissions cuts carried an element of constraining manufacturing in developing economies. Today China is pushing decarbonization while the US may withdraw, almost completely reversing their positions at the negotiating table.
The first reason is industrial. China exports the “new 3”—new-energy vehicles, batteries and solar modules. The US has become the world’s largest crude-oil producer, natural-gas exporter and crude-oil exporter; oil and gas have overtaken defense manufacturing as its largest export category.
The US produces roughly 14M barrels of crude per day, imports about 8M and exports more than 5M. It buys cheaper energy from Canada and Mexico, then sells into higher-priced markets such as Europe, Japan and South Korea. Li Feng uses this to explain its tariff threats toward Canada, Mexico and the European Union.
China’s crude-import share once stood at about 75%. Its energy self-sufficiency rate reached roughly 80% in 2024; while electricity consumption rose about 7%, crude imports fell about 1%. As for whether Trump might demand that China buy more US energy, Li Feng called that “a very irresponsible guess,” not a forecast.
23. Every Energy Hegemony Comes from the Combination of New Energy and a Converter
Li Feng reduces human development to a continuous rise in per-capita energy use and total energy scale. The earliest new energy source to surpass human power was the horse. Horse domestication, together with conversion tools such as saddles and stirrups, allowed cavalry to break through the heavy armor systems of the Han and Roman empires and later supported Mongol expansion.
Coal initially served as a heating substitute after Britain cut down its forests. The need to drain coal mines led to the Newcomen steam engine; about 60 years later, Watt separated heating from cooling, pushing coal and steam engines into mass application. Railways and steamships followed, while the military layer was represented by ocean-going fleets and the concentrated movement of troops.
The US combined oil resources in Pennsylvania and Texas with the internal combustion engine to form the next generation. Cars, tanks and aircraft became the consumer, industrial and military platforms, allowing the US to inherit global leadership from Britain.
“Whoever owns each new energy source and its energy converter becomes the most powerful country for the next one or two centuries.” Transitions are never smooth and are not necessarily designed by states, but resources, demand and industrial accumulation ultimately select the leading power.
24. Solar Energy’s Scale Determines Why New Energy Is Not a Short-Term Theme
From horses and coal to oil, Li Feng argues that the essence of human energy use is solar energy at different levels of concentration. What changes is not only the source, but also the efficiency of storage, transport and conversion.
The global population rose from more than 2B in the 1950s to more than 8B, while per-capita energy demand continued to increase. At current consumption levels and based on proven reserves, oil will last less than 50 years and coal less than 200. Old energy sources cannot support growth forever.
If humanity used just 1% of the annual solar energy reaching Earth, the amount would equal roughly 100x current total energy demand. Wind and hydropower can likewise be viewed as converted solar energy. This order of magnitude is the basis for Li Feng’s view of the energy direction.
Losses at solar companies, tariffs on new-energy vehicles and periodic demand fluctuations may persist, but those are problems of “today” and “this year.” Li Feng is discussing the longer direction indicated by 2,000 years of energy history, not making a short-term call on prices or an industry bottom.
25. China’s Overseas Expansion Will Follow 3 Routes Unlike Japan’s
After becoming developed economies, Japan, Germany and South Korea still had manufacturing accounting for roughly 20%–30% of GDP, which Li Feng sees as a possible structural reference for China. Agriculture may fall to 4%–5%, while services continue to rise materially.
After Japan’s 1985 Plaza Accord, the yen roughly doubled against the dollar within 3 years, sharply increasing purchasing power and inflating an asset bubble. At the time, Japan’s stock-market capitalization was about 1.5x that of the US, representing 45% of the global total versus roughly 30% for the US. Today the US accounts for about 25% of global GDP but roughly 60% of global market capitalization.
China will not follow a single route. Southeast Asia offers lower labor costs and mature consumer markets; Europe, the US, Latin America and Central and Eastern Europe offer capacity-building opportunities tied partly to labor costs and partly to other market factors; Africa and Central Asia offer infrastructure and digitalization opportunities corresponding to their “build big and fast” development stage.
Most overseas projects among Fengrui’s portfolio companies have exceeded expectations. Infrastructure digitalization fits growth regions, mature consumer products are more likely to make money in Southeast Asia, and innovative consumer products mainly target Europe and the US, where margins are higher. Europe’s demand for technology transfer also means it is beginning to ask for the “market for technology” trade China pursued in the 1980s.
26. Globalization’s Leading Actors Are Often Pushed onto the Stage by Circumstances
After 2008, global trade growth was generally no longer faster than global economic growth. Li Feng believes China has become a major driver through the BRICS, the Global South and RCEP, while the US has shifted more toward deglobalization. But the 2,000-year direction remains an expansion of the range of exchange: “Even in chaotic eras, globalization moves forward with difficulty.”
Zhang Qian was sent west to ally with the Da Yuezhi against the Xiongnu, but his mission uncovered Eurasian trade routes. Alexander, Rome and the Han Empire provided relatively unified corridors; the Tang and Yuan dynasties later drove renewed expansion. Zhang Xin-gang’s idea of a revival roughly every 700 years is an interesting “number game,” not a law of history.
The Abbasid Caliphate translated Greek and Roman works, absorbed Indian numerals and developed algebra, while connecting the Mediterranean, Red Sea and Indian Ocean. War captives spread papermaking; Mongol expansion spread gunpowder, the compass and printing. Conflict repeatedly expanded knowledge and trade networks.
Portugal went to sea after being squeezed by Spain over land routes. Spain became the next leading power after Portugal rejected Columbus’s and Magellan’s proposals. Britain turned toward the sea after setbacks on the continent and religious separation. Li Feng is not praising expansion; his point is that leading actors are often “not chosen actively, but made into leading actors by various forces.”
27. Excess Capacity Once Created Global Brands; China’s “Competition Kings” May Repeat the Pattern
In 1945, the US alone accounted for roughly 50% of global capacity, and economists feared the end of the war would trigger a collapse. Instead, the US created the World Bank, IMF, GATT and the Marshall Plan to export capacity, while housing, automobiles and the baby boom absorbed domestic supply.
By the 1970s, the oil crisis, unemployment above 6% and saturation in domestic durable goods brought overcapacity back into view. Hippies became that generation’s “lying flat” culture. Under Reagan, manufacturing gradually moved offshore while services and finance rose, creating the US structure of the following 40 years.
Starbucks standardized artisanal coffee with industrial espresso machines. McDonald’s turned grilled patties into a semi-assembly-line process. Walmart used “everyday low prices” to harness the scale of US manufacturing. All began as domestic competition kings before becoming international brands.
Luckin layered mobile ordering, delivery, pickup, reservations and GPS store selection onto industrialized coffee, using China’s consumer-side digital infrastructure and habits to out-compete Starbucks. Li Feng believes digitalization, automation, standardization and value-for-money will continue producing new equipment and global brands. “The world is a slapdash operation” may be true, but history often selects its next leading actor through the noise according to its own patterns.