Summary

Li Feng’s core geopolitical call for 2026 is that, from China’s perspective, “the most turbulent phase is behind us” (“最动荡的阶段过去了”), although the world itself may not become more stable. The US is strategically shrinking its military footprint, using Japan, the Philippines and Europe for offshore balancing while tightening control over its “backyard” in the Americas, taking tougher action against Venezuela and reviving the Greenland issue. Li Xiang asked whether a power vacuum could instead increase regional conflict. Li Feng acknowledged that “it might,” but believes the biggest uncertainty around direct or indirect US-China conflict has declined.
What China can absorb is not the military space vacated by the US, but room for trade ties, purchasing power and RMB settlement. With the surplus at $1T and the RMB near 6.97, the exchange rate must balance four objectives at once: import purchasing power, export competitiveness, RMB internationalization and domestic RMB assets. Li Feng expects no one-shot appreciation, but “small, gradual and cautious” gains, while guarding against capital outflows once appreciation expectations are realized.
The resilience of China’s surplus comes from “surplus transfer”: supply-chain value has shifted further from Japan, South Korea and parts of European manufacturing into China. China has moved from relying on Japanese and Korean intermediate goods, assembling them and exporting to the US, to generating surpluses even with Japan and South Korea—evidence of a materially more complete supply chain. The cost is that “you can’t just sell; you also need to buy.” Argentina is Li Feng’s example: even with Milei politically aligned with the US, Chinese goods have helped contain local prices, while Chinese demand for minerals and agricultural products has supported the country’s fiscal and trade position.
The domestic baseline is not a return to boom conditions, but a period in which the hardest phase of structural adjustment and external shocks may have passed. Since the proactive adjustment began in 2015, China has absorbed US rate hikes, a trade war, the pandemic and a new tariff war. As the enormous existing stocks of property and infrastructure declined, growth in technology manufacturing and services consumption was initially too small to offset the hit to jobs, GDP and fiscal revenue. Li Feng now sees the two sides “growing and shrinking against each other” toward mutual offset, while stressing that this “doesn’t mean the adjustment is complete today.”
The clearest property call is that some core cities could bottom and stabilize during 2026, possibly in the first half, but “stabilization is not a rally.” Transaction volumes in Shanghai and Beijing, along with high-ticket homes, have shown early signs of stabilization. Easing hukou restrictions in cities with fewer than 5M residents, integrating social security for permanent residents, cutting provident-fund rates to the low-2% range and exempting homes held for more than 2 years from VAT are reshaping demand and the rent-versus-buy relationship. Li Feng does not expect a synchronized national rebound or a sudden surge in volume and prices.
Whether consumption and CPI turn depends on simultaneous improvement across a five-layer “sandwich”: property, social security, jobs and wages, population flows, and long-term expectations. “Investing in people” means shifting fiscal spending from roads, bridges and airports toward education, healthcare and eldercare, but moving workers from legacy industries into higher-value manufacturing and services still faces frictions in skills, willingness and job capacity. December PMI led Li Feng to expect visible improvement in consumption and CPI in the first half, while the bigger medium-term variable is whether taxation shifts from production-side VAT toward end-consumption tax.
Kweichow Moutai is the clearest company-level case where the unified national market, weak consumption and tax reform intersect. iMoutai sells standard Feitian directly at RMB1,499, with the daily purchase limit cut from 12 bottles to 6, while distributors pay just over RMB1,100. The strategy is “distribution to direct sales, direct sales to e-commerce, and e-commerce kept in-house”: it captures channel economics while directly protecting a high-premium brand. If consumption tax ultimately falls at the point of sale, keeping the selling entity and more transactions in Guizhou could benefit local fiscal revenue, but Li Feng explicitly framed this as a hypothesis rather than enacted policy.

Deep dive

1. The Premise Has Changed Three Years On: Development, Reform and Opening Are No Longer the Main Questions

Li Feng revisited the original premise of the macro podcast, launched at the end of 2022. At the time, Chinese society was deeply uncertain about whether China intended to develop its economy, pursue reform or open up. After moving through 2023-2025, he believes at least “some, or more than half, of people” no longer hold the same doubts.
That is why the 2026 outlook leads with conclusions: state the firm judgment first, give the simple reasons, then unpack the complicated logic. The shared keyword for international relations and the domestic economy is not “already better,” but that the most turbulent and hardest-to-read turning phase may have passed.

2. The US Is Shrinking Its Military Perimeter While Still Managing Eurasia Through Offshore Balancing

Linking Japan, Venezuela and US national-security documents, Li Feng concludes that over the past 2 years the US has mainly been narrowing its military-strategic footprint internationally while pursuing localization in economic, industrial and defense terms.
Retrenchment does not mean abandoning intervention. Li Feng uses Britain’s historical practice of balancing Germany, France and Russia to explain “offshore balancing”: the US will seek to prevent a single power from establishing dominance across Eurasia rather than continue bearing the full cost of security itself.
Japan will be the first partner to absorb this role in Asia, with the Philippines potentially providing some disruption as well. Extending the US-Japan security framework from the Obama era, Washington will likely “quietly support or quietly allow” Japan to expand its defense capabilities to balance China’s influence in Asia.
In Europe, the combination could be Britain’s offshore position and the military constraints imposed on the continent by the Russia-Ukraine conflict. The countries concerned will be pressed to build more autonomous defenses, but the first economic result will still be more purchases of US military equipment.

3. Retrenchment Is Not Withdrawal: The US Is Reasserting Control Over Its “Backyard”

Li Feng uses the Monroe Doctrine and “backyard” to describe the other side of US strategy: as its global military perimeter contracts, it will tighten control around the Americas. The renewed focus on Greenland and tougher action against Venezuela fit this direction.
Venezuela also has a direct energy rationale. Despite its longstanding anti-US stance since the Chávez era, the program noted that the US still approved Chevron’s extraction of local heavy oil in 2025. Even with the US now the world’s largest fossil-fuel power, oil and regional control can coexist.
Li Feng also sees the operation as a display of military power. Several new Chinese weapons have appeared over the past 6 months, while US strategic documents have signaled retrenchment, creating some “uncertainty” about American military strength. The US therefore needs to reassert its deterrence.
Canada is the unresolved variable in this framework. Trump previously discussed making Canada part of the US, but Li Feng observes that Canada is at least temporarily moving closer to emerging countries including China and India.

4. The More Autonomous Europe and Japan Become, the More Cooperation and Friction With China Will Rise Together

Li Feng says that if Europe is forced to shoulder more of its own security burden, it must demonstrate autonomy on equal footing with the US. The same posture will require it to appear independent or even tough toward China, so public disputes will not disappear automatically as the US pulls back.
The economic need, however, will become clearer. Li Feng’s policy implication for 2026 is that China should “do everything possible” to strengthen economic cooperation with Europe: the more autonomous Europe becomes, the more it needs independent sources of trade, industry and growth. Room for cooperation and diplomatic friction will coexist.
Japan is different but follows a similar logic. China’s economic influence in Asia—especially East Asia, Southeast Asia, ASEAN and the RCEP-related region—still needs to expand, but Japan and the Philippines will continue to create friction. The genuinely sustainable increment remains stronger trade ties, not a military-style contest for power.

5. RMB Appreciation Must Serve Purchasing Power, Exports, Internationalization and Domestic Assets at Once

When the RMB reached around 6.97, Li Feng linked the exchange rate directly to the $1T surplus: “You can’t just sell; you also need to buy.” To turn US retrenchment into more favorable trade relations across Asia and Europe, China must increase its ability to buy goods and services globally.
The first balance is purchasing power. Moderate RMB appreciation would increase the ability to import, travel abroad and consume. He cited cherries: in 2023 the discussion was whether even the middle class could afford them; now prices are down by more than half. Both international trade and purchasing power are at work.
The second balance is export competitiveness. Foreign trade still grew reasonably well in 2025 despite tariffs and a complicated environment, suggesting structural changes have reduced exports’ sensitivity to the exchange rate. RMB appreciation therefore needs to avoid materially damaging exports.
The third balance is RMB internationalization. Trade partners must be willing to hold RMB and settle trade through direct conversion between the two currencies. That requires preserving a reasonable expectation of appreciation.
The fourth balance is domestic RMB assets and capital flows. Appreciation supports RMB wages, assets, consumption and property stability, but an excessively rapid move would realize expectations all at once, attracting arbitrage capital that later exits. Li Feng therefore expects no one-shot move, but “small, gradual and cautious” appreciation.

6. Argentina Shows That Political Alignment Does Not Exclude Economic Ties With China

After Milei took office, he was seen as fully pro-US, moving closer to Washington and pushing dollarization. But Li Feng’s summary of 2025 is that inflation fell from more than 110% in 2024 to around 30%, while unemployment, household income and inequality also improved slightly. Economic change cannot be explained by political alignment alone.
He highlights 2 Chinese links. China became Argentina’s largest trading partner, and large volumes of Chinese-made daily necessities helped contain local prices. Argentina’s greater exports of minerals and agricultural products to China also supported its economic improvement and fiscal surplus.
Could Venezuela replicate the relationship? Li Feng’s answer is “I don’t know.” China has investments there in oil, electricity, freshwater and infrastructure. The program also noted that Brazil first recognized the vice president’s succession to the presidency. Whatever happens politically, trade ties may prove stickier than ideological alignment.

7. “Surplus Transfer” Shows China Has Absorbed More Supply-Chain Value

The supply-chain framework Li Feng cites is “surplus transfer.” In the 1980s and 1990s, Japan and South Korea ran large direct surpluses with the US. Later, they exported intermediate goods to China, which assembled and shipped the finished products to the US. Part of the original Japanese and Korean surpluses with the US thus became China’s surplus with the US.
Over the past few years, a second shift has emerged. China’s longstanding deficits with Japan and South Korea began turning into surpluses, while its deficits with some European manufacturing economies narrowed toward surpluses. Li Feng sees this as evidence that China’s reliance on external intermediate goods has fallen and that supply-chain completeness and sophistication have increased.
This explains why China’s surplus can continue to expand, but also exposes the next constraint: other countries have strong demand for Chinese products, while China may not need enough overseas goods beyond raw materials. If China only sells and does not buy, neither trade relations nor RMB settlement can expand much further.
Li Feng’s medium- to long-term direction is supply-chain globalization: Chinese industry creates jobs, technology and products abroad for local markets, then imports some of those goods back into China, like Nike shoes made in Southeast Asia entering China. When Li Xiang asked about insufficient demand, Li Feng acknowledged that this cannot be completed in a single year, including 2026.

8. A Power Vacuum Could Bring More Disorder, but May Not Push China Back to the Center of Conflict

Li Xiang’s key challenge was that as US power contracts, the world’s public-service provider weakens and regional power vacuums could mean “the turbulence is only beginning,” not ending. Without a hegemon or empire maintaining order, local conflicts could increase materially.
Li Feng did not deny it: “It might.” His qualification was from the “China perspective.” First, few countries are likely to directly challenge China proactively at this stage. Second, as the US gives up some space, more countries will seek China’s support, even if that support is mainly economic and diplomatic rather than military.
This is different from the US-Soviet zero-sum contest in which “if you lose one piece, I must take it back.” China is not seeking military power space, but it is both a military and economic power. Other countries will move closer to China while also keeping their distance to demonstrate autonomy.

9. China Seeks “Legitimacy” Through Governance Propositions Rather Than Military Alliances

Li Feng compares US global influence to a layered pie: military power at the bottom, technology and the economy in the middle, finance above that, and a final layer of ideological “cream.” Since China does not base its role on global military deployments, it must offer another governance rationale for countries to accept that role.
He could not accurately recall the “4 directions” of global initiatives he had previously proposed, summarizing them instead as economic development, equality, independence and self-determination, mutual respect and green development, with a “community of shared future for mankind” as the overarching framework. Li Feng called this “governance legitimacy” in the sociological sense; Li Xiang added that China needs a legitimate and reasonable posture for others to accept its role.
The United Nations, WTO, World Bank and IMF promoted by the US after World War II, followed by the evolution from the G7 to the G20, helped Washington expand its influence and win the Cold War. Today, the US is in a state of “semi-withdrawal or limited engagement” with many of these organizations, while China is defending the UN and WTO. The World Bank and IMF remain mainly controlled by Europe and the US.
Li Feng also mentioned a national favorability survey allegedly conducted by the United Nations, in which China reportedly exceeded the US for the first time, with China in the 30%-plus range versus the US in the 20%-plus range. He immediately added, “I didn’t check it,” and Li Xiang had not seen it either. It therefore remains an unverified report, not a factual foundation for this episode’s argument.

10. Domestic Structural Adjustment May Have Passed Its Riskiest Turn, but That Does Not Mean It Is Complete

China began proactively adjusting its economic structure in 2015, then encountered the US rate-hike cycle, a trade war, roughly 3 years of pandemic and the tariff war after Trump’s return. Li Feng’s summary is that over nearly 10 years, China has faced a major and difficult-to-predict external shock almost every 3 years.
Internally, the transition is from old foundations such as property and infrastructure toward technology manufacturing, new services consumption, healthcare, eldercare and education. For households, it can be roughly understood as moving “from buying homes to buying services.”
Li Feng stressed: “The hardest phase is over; that does not mean the adjustment is complete today” (“最难的时候过去了，并不是指它今天调好了”). The real difficulty is replacing the foundation beneath “one house” from A with part of B: legacy industries are enormous existing stocks, while new industries start from small bases. Even rapid early growth cannot offset the decline in the old sectors.
Capital markets, policy direction, public debate, GDP and the structure of foreign trade now all show a mix of old and new. Higher-value industries are growing at roughly double-digit CAGRs and can absorb tariffs, swings in international relations and modest RMB appreciation. Li Feng sees this as evidence that the transition is near the bottom-right of a U-shaped curve.

11. New Industries Must Grow Large Enough to Offset the Fall of the Old Foundations

Property and infrastructure affect far more than one industry: jobs, economic scale, fiscal revenue and a vast set of vested interests. Even if China’s higher-value industries maintain rapid growth, their bases are still too small to withstand the decline of old capacity. That is the pain point of the “one side rises as the other falls” phase.
Micro-level losses do not disappear automatically. The demand gap facing jobs in property construction, planning and design is far larger than the volume that renovation of old housing can absorb. Moving into industrial design, robotics or indoor-environment services also requires new skills, while the number of new positions remains insufficient for now.
Li Xiang raised another concern: many advanced-manufacturing sectors are government-led, and workers outside the state system may not find it easy to enter. Li Feng believes the main constraints remain labor skills, job volume and the speed of adaptation—not a simple state-versus-private divide.
External shocks mainly damage expectations. Trade wars, the pandemic, exchange rates and foreign-capital shifts may not hit every person directly or simultaneously, but they have shortened corporate and household planning horizons from 3-5 years to 6 months or 1-2 years. One significance of stabilization is that long-term planning may become viable again.

12. Consumption and CPI Are Determined by a Five-Layer “Sandwich”

Li Feng breaks down consumption stimulus into 5 layers. At the bottom is the household balance sheet represented by property; above it are social protections such as eldercare, education and healthcare; then employment and wage income; population flows and lifestyles; and finally expectations for the future economy.
Property does not need to rise, but at minimum it must “stop falling significantly.” Social protection provides the livelihood floor, jobs and wages provide income, and population flows change lifestyles. Long-term expectations are what allow households to decide whether to marry, buy a home, move to a large city or change jobs.
Li Xiang argued that ordinary people feel the trade war far less than the pandemic. Li Feng’s response was that macro shocks transmit with a lag. Online-education workers in 2021, property-sector employees and the investment industry during its severe chill in 2023-2024 ultimately felt the impact through layoffs, pay cuts, career changes and delayed major decisions.
The 2026 call therefore remains qualified: consumption is not already booming, but the 5 factors may cross their inflection points in sequence. As the new economy increasingly offsets the old economy’s decline and external variables diminish, households and companies may gradually lengthen their decision horizons.

13. The 2026 Property Call Is Stabilization First in Core Cities, Not a National Rebound

Li Feng had long been uncertain about when property would bottom, but has moved his forecast forward to sometime in 2026, possibly the first half. Foreign reports point to the next 1-2 years; he leans toward core cities confirming a bottom in transaction volumes and prices first.
Micro signals are coming from Shanghai and Beijing. November and December transaction volumes were not poor, and Beijing crossed the roughly 15,000-unit “boom-bust line.” Typically, high-priced homes and overall transaction volumes stabilize first, before the effect reaches broader prices.
He compares this phase with Hong Kong from late 2024 to early 2025 and believes Shanghai is already very close. Beijing has added fewer hukou residents than Shanghai, but its special status as a city could allow it to stabilize relatively early as well.
Stabilization means only that transaction volumes and prices stop falling significantly—it “is not a rally.” Cities nationwide will not bottom on the same day, and a sudden surge in volumes and prices is unlikely. The better prospects remain core cities, cities that can attract new residents and their surrounding urban clusters.

14. Integrating Hukou and Social Security Is Rewriting Housing Demand

China’s urbanization rate is about 67% by permanent residence but below 50% by hukou registration. Li Feng sees that gap as an important source of medium-term housing demand. The latest urban-rural integration document proposes resolving hukou access and education, healthcare and eldercare coverage in cities with fewer than 5M residents.
The logic is that people who live somewhere long term but lack hukou-based protections are often unwilling to buy homes where they work, preferring to buy back in their hometowns. Reforms involving rural homestead-use rights, transfers and farmers’ property income are also linked to expanding urban housing demand and narrowing the urban-rural income gap.
The Shanghai example comes from an article whose author Li Feng could not recall. It cited an indicator called “310,” whose exact definition he had not verified and which he guessed, literally, might relate to the share of old Shanghai residents among new homebuyers. The figure fell from the 40%-plus range to the 30%-plus range, implying a rising share of new Shanghai residents. Shanghai added fewer than 100,000 new hukou residents annually over the past 2 years, already providing part of the base for transaction stabilization.
Financial and tax policies are also improving the rent-versus-buy relationship. First-home provident-fund rates have fallen to the low-2% range, close to the average rent-to-price ratio. Commercial and second-home provident-fund rates are around 3%, still slightly above that ratio. Homes held for more than 2 years are exempt from VAT. Beijing’s easing of purchase restrictions outside the Fifth Ring Road is a local tactic; integrating hukou and social protection is the structural change in supply and demand.

15. “Investing in People” Can Support Consumption, but Labor Reallocation Will Not Be Painless

Li Feng contrasts China’s “investing in people” with the US. During the Biden administration, the US first distributed about $1,400, creating excess savings, then subsidized education and healthcare. Under the Trump administration, related subsidies are expiring; as Li Feng recalls, one low-income health-insurance subsidy could affect tens of millions of people.
China is instead trying to shift fiscal attention from roads, bridges, subways, high-speed rail and airports toward education, healthcare and eldercare. The urban-rural integration document also requires cities expanding hukou access to increase these investments, making social protection both the foundation for consumption and a prerequisite for population mobility.
There is debate over the employment capacity of new industries. Li Feng believes higher-value sectors such as technology manufacturing offer better average wages, while the experience and services economy can absorb more workers. Li Xiang noted the tension between technological sophistication and employment: high-end industries may not be enough to absorb the enormous labor force released by legacy sectors.
Li Feng’s response was not to deny the pain, but to emphasize that every productivity revolution ultimately brings job reshuffling. Print media moved online, then to self-media, video and podcasts; the core creative skills remained, but transition required willingness. “People don’t come down from the trees because they want to; they do it because the vegetation is disappearing.” Most people really are pushed along by the times.

16. If CPI Turns in the First Half, the Real Medium-Term Variable Is Still Tax Reform

December PMI led Li Feng to feel that CPI was “pretty okay.” Based on his earlier quantitative forecast, capital markets might turn in 2-3 quarters. Whether consumption and CPI respond by the first half of 2026 remains the key observation point.
The larger institutional variable is whether government revenue can shift from production-oriented VAT toward a consumption tax collected at the end point. This would change not only where tax is collected, but also how local governments view industry, consumption and the local economy—essentially “replacing the government’s fiscal stool.”
At the end of 2025, more than 50 cities across China restarted trials of “receipt lotteries,” reminding Li Feng of scratch-off paper receipts from 20 years ago. He repeatedly qualified the point: this is only “a very small news item,” and it is unclear whether it is genuinely a leading indicator of consumption-tax reform.
His reasoning is that digitization has lowered the cost of tax collection, but moving taxation to the point of consumption would still require stronger invoicing awareness among merchants and individuals, along with broader coverage of small merchants, e-commerce and other channels. The unified national market, consumption and population flows are all related to the discussion, but the fiscal “stool” has not yet fully turned.

17. Moutai Makes the Key Leap From Distribution to Direct Sales During the Downturn

Li Feng first disclosed his interest: “We hold a tiny bit of its stock, although very little.” He chose Kweichow Moutai not to make a large secondary-market bet, but as a case study at the intersection of weak consumption, changing brand channels and the unified national market.
From January 1, standard Feitian Moutai has been sold directly on iMoutai for RMB1,499. The daily limit was initially 12 bottles and was later cut to 6, with news reports often showing inventory selling out within seconds. Distributors historically paid less than RMB1,200, or just over RMB1,100, while the retail price reached around RMB2,300 before 2023. In theory, it had been “a pure money-making business.”
Li Feng repeatedly uses the channel framework: “distribution to direct sales, direct sales to e-commerce, and e-commerce kept in-house.” Luxury brands gradually reclaimed their Chinese distribution rights from roughly 2008 to 2014. In his view, for some sports and casual brands, direct e-commerce may have accounted for half or more of consumption by 2018 or 2019.
His view of consumer history is that high-premium brands ultimately have to reach consumers directly to protect the experience, brand education and pricing power. Moutai historically relied on regional distributors because of legacy interests as well as local taxes on tobacco and alcohol, licensing and market barriers. This is precisely the structure the unified national market is gradually dismantling.

18. iMoutai Is Both a Brand Rebuild and a Test Case for the Unified Market and Consumption Tax

Direct sales mean Moutai no longer ships only to distributors at just over RMB1,100; it can sell directly at RMB1,499. Excess demand has not disappeared for now, but intermediary margins and part of the scalping chain have been compressed, while the brand has regained its consumer relationship.
Li Feng speculates that the RMB1,499 standard Feitian could become a luxury-brand-style “basic model,” with premium, zodiac and other series extending the ladder upward and downward, using scarcity or bundle allocation to preserve the hierarchy. On the example of a friend trapped by inventory of zodiac Moutai, he said only that it “might” improve once the consumption cycle recovers, without making a firm call.
Weak consumption has actually created a window to change the channel. Distributors are no longer as willing to hoard inventory as they were during the boom, and multiple chairman changes may also have weakened the burden of historical interests. In Li Feng’s view, Moutai is “without a doubt, the Chinese liquor company with the greatest pricing power,” enabling it to complete the shift to direct sales while prices are under pressure.
If a consumption tax is imposed at the end point, the separately registered iMoutai e-commerce company, which deals directly with consumers, combined with the fact that the vast majority of end sales currently take place in Guizhou, could benefit the province. Li Feng even imagines direct channels reaching 60%-70% if they choose to, but this remains a conditional scenario. The bigger question is whether the unified national market can realign local fiscal interests, national distribution and brand pricing.

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