Good morning. While few expect a radical policy shift to result from the U.S.-China state visit, as my Hong Kong-based colleague Lee Williamson noted yesterday, it’s an opportunity to reflect on the stakes for business. President Donald Trump’s ongoing tariff war cut U.S.-China trade in goods by 29% last year to $415 billion without dentingChina’s record trade surplus. Even Canada has now opened its doors to Chinese products like BYD, which surpassed Tesla as the world’s top EV seller last year. But China, like the U.S., is an innovation leader that’s also facing significant challenges at home, such as high youth unemployment, rising energy prices, and falling fertility rates.
A tale of two debtors: Yes, the U.S. Treasury is paying $3 billion in interest a day to service almost $39 trillion in debt, but China’s level of indebtedness is “in a league of its own,” according to Mark Williams, chief Asia economist at Capital Economics, with a debt-to-GDP ratio topping 300%. Unlike the U.S., China owes most of that money to its own banks and citizens. The risk is not borrowing costs but bad loans to zombie firms. That stifles competition at home and, with China’s dependence on global consumption, raises concerns about dumping and deflation abroad. While Xi Jinping need not worry about voters, the Chinese leader’s legitimacy rests in part on stoking growth, prosperity and social stability.
Keep an eye on Boeing: Shawn Tully reports that America’s struggling aerospace manufacturer is likely to be a big winner on the deal front, with rumors of a sale of 500 aircraft to China’s major carriers. Boeing CEO Kelly Ortberg is one of the 17 high-profile CEOs accompanying Trump on this trip. It would be a big feat for Boeing to regain its foothold in China, and revive faith in the 737 MAX, which China was first to ground seven years ago after a series of fatal crashes.
Innovation is borderless: China can’t compete on new AI models like Anthropic’s Mythos and GPT-5.5-Cyber from ChatGPT, but it’s racing to catch up. I spoke about the impact of the latest advances yesterday with Fabricio Bloisi, CEO of Dutch e-commerce and investment giant Prosus, which owns 23% of Tencent. “Everyone is now doubling or tripling their expectations,” he told me. “In China, they talk 10 times more than here.” And China’s cheap open-source language models, such as Qwen and DeepSeek, now account for nearly 30% of global AI usage. If everyone has the same tools, winning may be determined by factors like distribution, data, differentiation, and the ability to dream big. Nobody has a monopoly on that.
Contact CEO Daily via Diane Brady at diane.brady@fortune.com
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CEO Daily is curated and edited by Joseph Abrams, Jason Ma, Claire Zillman, and Lee Clifford.
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