China Decode: Ballistic Missile Test, Europe's AC Addiction, and China's AI Coding Challenger

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**James Kynge** (1:14)
My concern is that because the Chinese models are open source, it will not be Chinese models used in China and US models used in the US. It will be Chinese models used in China and everywhere else in the world and US models used in the US. It's possible the US may try to corral European countries into using only US models.
But that would be a big heavy lifting operation if the US was to try to do that.

**Alice Han** (1:48)
Welcome to China Decode. I'm Alice Han.

**James Kynge** (1:50)
And I'm James King.

**Alice Han** (1:52)
In today's episode of China Decode, we're discussing China test firing a ballistic missile with a dummy warhead into the Pacific, a Chinese AI model that rivals Anthropic and a new ethnic unity law drawing criticism. That's all coming up, but first, let's do a quick check-in with how the markets in China are starting the week. On Monday, the CSI 300 was mostly flat, while the Shanghai composite was down slightly 0.06 percent. The Shenzhen component, however, fell 1.16 percent to a three-week low. Bank stocks saw gains, with the industrial and commercial bank of China up 1.14 percent, and the agricultural bank of China up 1.19 percent. Notable falls were with Eopter Link technology down 3.6 percent, and Victory Giant technology down nearly 5 percent. All right, let's get into it. On Monday, China test-fired a ballistic missile with a dummy warhead into the Pacific Ocean. Only the second time it has done so in two years. The launch coincides with Australia and Fiji announcing a new mutual defense treaty, showing how China's growing missile capabilities are accelerating a broader regional defense buildup.
Meanwhile, in China-Europe relations, the EU's ongoing attempts to balance the trade deficit with China have hit a new hurdle, soaring temperatures. The bloc's worst-ever heat wave is driving unprecedented demand for imports of Chinese-made air conditioners, which was making serious inroads at undercutting the deficit reduction push. Cooling demand has been pushed to its highest level in at least 45 years. James, I'm in Spain at the moment, which is quite sweltering. It's in the 35 region, but the UK a few weeks back, we were both based there, I was so close to 40, was seeing record temperatures across Europe, and I was just looking at some of the figures of Chinese air conditioners being imported by the Europeans. So the first five months, we saw a 10 percent rise in household air conditioners imported from China to Western Europe, and apparently 70 percent year-on-year rise on that same period of portable fans, a portable air conditioners from China to Europe. I see a lot of those on the trains in the UK, I have to say on the London trains, they're very much needed. But the reason this image is so startling is that on the one hand, you have Europe undergoing blistering heat, but also undergoing record trade deficit with China.
We just saw the Chinese Commerce Minister, Wang Wentong, in Brussels, a bit of a nothing burger in terms of what came out of it, but they're apparently engaging a strategic dialogue for a framework that will probably be unveiled in October. But it seems like the Europeans haven't really been on the offensive in terms of trying to seriously address these deficit concerns. James, we'll go to the Europe and heat dimension in just a bit. I want to start firstly in terms of this ballistic missile launch with the dummy warhead that China has just made.