This week, developments from China spanned the strategic, economic, and cultural spheres, highlighting its complex geopolitical stance, domestic economic challenges, and a potential cultural thaw with South Korea. Key events included a pointed US Department of Defense report, retaliatory sanctions, worrying industrial data, and signs of K-pop's possible return to mainland Chinese screens.
Strategic Posturing: US Report and Sanctions on Defence Firms
China's defence and security strategy remained in sharp focus. The US Department of Defense's annual report on China, released this week, stated that Beijing considers Arunachal Pradesh among its "core interests." China promptly rejected the findings of this report.
In a related move demonstrating its stance on territorial integrity, China imposed sanctions on several US defence companies. The sanctioned firms include a branch of Boeing and the Northrop Grumman Systems Corporation. The official reason, given by state media Xinhua, was their involvement in weapons sales to Taiwan worth over $11 billion, which China said violated the one-China principle and joint communiques.
The impact of these sanctions is largely symbolic, as China has limited direct dealings with American defence contractors, though it maintains significant commercial ties with Boeing's civilian aviation division. The action underscores the ongoing tension around Taiwan, which the US acknowledges under its One-China policy but continues to supply with arms, maintaining a policy of strategic ambiguity.
Domestic politics in Taiwan added another layer to the situation. On Sunday, December 28, reports indicated that a plan for a $37 billion special military spending package in Taiwan faced political hurdles in parliament, reflecting internal disagreements on how to approach relations with Beijing.
Economic Headwinds: Industrial Profits Tumble
On the economic front, official data revealed persistent weaknesses. According to figures from China's National Bureau of Statistics (NBS), profits at China's industrial firms fell by 13.1% year-on-year in November 2025. This decline marked the fastest pace in over a year and accelerated from a 5.5% drop recorded in October.
The data points to a stuttering economic recovery, where resilience in exports is being offset by persistently weak domestic demand. This scenario strengthens calls for additional policy stimulus from Beijing. The profit crunch is partly a result of companies engaging in intense price competition to attract cautious consumers, a race to the bottom that erodes profitability.
Sectors like real estate, still reeling from a crisis that intensified during the pandemic, exemplify this trend with continuously falling prices. The Chinese government has been encouraging companies to scale back production to avoid unsustainable profit levels, a move that may challenge its traditional manufacturing-led growth model but could be necessary for long-term financial health.
Cultural Diplomacy: The Potential Return of K-Pop
In a significant cultural development, a Korean pop (K-pop) music label announced plans for a concert in Hong Kong in February 2026, which is slated to be aired across mainland China by a state-run broadcaster. This signals a potential warming after years of severely limited cultural exchanges between South Korea and China.
The chill in relations dates back to 2016-2017. It was triggered by South Korea's decision to deploy the US Terminal High Altitude Area Defense (THAAD) system following North Korean missile tests. China, concerned the system's radar could peer into its territory, responded with an unofficial boycott of Korean cultural exports, including K-pop, and trade restrictions.
Nearly a decade later, signs of a thaw are emerging, driven by mutual economic and cultural benefits. Earlier this year, Hybe, the Korean entertainment giant behind groups like BTS, opened an office in Beijing. Other Korean companies have also ramped up business activities in China. An opinion piece in China Daily around the APEC summit in South Korea noted a shift towards "healthy cultural competition" between Korean and Chinese content.
This week's developments collectively paint a picture of a China firmly asserting its strategic red lines, grappling with internal economic pressures, and cautiously re-engaging with soft power influences from its neighbours.
