In today’s great-power conflict, many observers cast China as almost a mirror image of the Soviet Union, shaping the narrative that we are living through a “Second Cold War.” Yet one crucial difference between the Soviet Union then and China now is almost never acknowledged: China enjoys a far more favorable image among Western publics than the Soviet Union ever did. Throughout the Cold War, positive views of the USSR rarely exceeded 20% in Europe, whereas in 2025 favorability toward China in some European countries is approaching 50%. A shift is especially pronounced among younger generations, with major social media influencers such as Hasan Piker and IShowSpeed traveling to China in 2025 and telling a positive story about China to their tens of millions of followers – despite accusations of propaganda – focused on China's cutting-edge innovation in robotics and vehicles.
There has been a lot of discussion in recent weeks about the financial markets’ concentration in AI-related companies, with the question whether AI can fulfill its promise at the center of the debate. However, the concentration in AI is only one of five elements in a much bigger and more extreme concentration in the global financial system, reflecting how vulnerable the system has become in the past few years. First, the share of the US stock market as a percentage of the global stock market is at a record high (65%), making many investors, including pension funds, extremely sensitive to a correction in the US stock market. Second, the size of the US stock market relative to the size of the US economy is also at a record high (221%), suggesting that much of the recent growth is based on financial speculation rather than ‘real’ economic value. Third, the share of the top 10 companies in the US stock market is at a record high (41%), indicating that the rest of the economy is growing at a much slower pace (without investments by AI-related companies, the US economy was in recession in 2025). Fourth, US households have never been more invested in the stock market (43% of their wealth), implying that a correction would hit households’ finances relatively hard. Finally, the top 10% of US households (measured by income) own around 90% of the US stock market (a record high) and account for 34% of US consumption (also a record high), suggesting that a market downturn could slow consumer spending and trigger a recession—an unprecedented scenario, as historically it is usually the recession that triggers the market downturn, not the other way around.
Since this year, central banks hold more gold than US Treasury bonds for the first time since 1996. This trend is driven by two mechanisms. The first is a new type of US foreign policy: as the US seeks to reshape the world order through escalating international conflicts, gold serves as a safer asset compared to US dollars, especially for foreign central banks. Last week, The Financial Times reported that the Chinese central bank may have purchased up to ten times more gold in recent years than official figures suggest. The second mechanism is the fear of a “debasement” of the US dollar, a scenario in which the United States tolerates a higher level of inflation to deflate its large government debt. This fear grows as long as the US president pressures the Federal Reserve to cut interest rates while inflation remains unstable. In the period after 1945, such monetary debasement accounted for at least half of the reduction in government debt in many Western countries, particularly the United States, the United Kingdom, and France.
Amid the focus on Europe’s new defense projects, Germany’s own investment plans have received surprisingly little attention. By removing its budget deficit limit in March of this year, Germany opened the door for government spending that rivals some of history’s largest investment projects. It is set to far exceed the Marshall Plan to rebuild Europe after 1945 and come close to the spending for Germany’s reunification after 1990. It is also expected to surpass US government spending since 2020 (relative to their domestic GDP), which significantly boosted the American stock market over the past five years. Recent reports suggest that nearly 90% of Germany’s investments will flow directly to German companies—a move that could put Berlin at odds with the EU.
The debate around import tariffs often centers on their short-term impact on inflation. But the long-term impact receives far less attention. As the United States and Europe raise trade barriers against Chinese technology, their populations miss out on large cost advantages. Today, domestically-produced electric cars and -buses from the United States can cost up to three times more than their Chinese equivalents. Given the political unrest over the cost of living across the Western world, it is possible that public opinion will turn against these protectionist policies.
The Western image of China as merely the world’s factory for cheap goods has been dismantled step by step, but the final realization has yet to sink in. In 2020 the pandemic exposed China’s dominance in pharmaceutical ingredients, and in 2025 the West has discovered its control over rare earth metals. In the meantime, China became a global leader in producing high-end batteries and electric vehicles. Still, one shift remains underestimated: China’s ability to push the frontier of innovation. A clear example is biotechnology, where China has emerged as a world leader in developing new medicines — capturing 31% of the global market after starting from zero just a few years ago.
China’s export controls on rare earth metals are part of a broader strategy. Since 2024 the BRICS-countries (Brazil, Russia, India, China and South-Africa) have reportedly been working toward the launch of a new metals trading platform - covering everything from gold and silver to rare earths - that will operate independently of Western exchanges in Chicago and London, as well as Western payment systems like SWIFT. Together, the BRICS control roughly 84% of the world’s rare earth reserves. Much like the Arab OPEC countries during the 1973 oil crisis, the BRICS could use their dominance in critical resources to exert pressure on the United States and Europe.
