Dragoman Digest

China’s stock market revival masks unresolved governance tensions

Domestic-driven rally has yet to warrant more than a shrug from foreign investors

China’s MSCI China index has surged 35 percent in 2025, outpacing global peers by the widest margin since 2017 – a remarkable turnaround after years of uncertainty saw many fund managers brand the market “uninvestable”. Beijing’s governance reforms are credited with the renaissance. These include: tying SOE managers’ performance indicators to share prices and return on equity, financing share buybacks, and mobilising insurance companies alongside state institutions to actively invest more in the market. Although there is no replacement for the wealth-generating role once played by China’s property market, improved market quality has helped redirect household savings towards equities. Of more than 5,000 listings, 2,504 firms now exceed US$1 billion in market capitalisation.

Domestic success has not translated to foreign confidence. Mainland equities attracted just US$1.2 billion in net foreign investment this year. According to the World Bank, despite China’s GDP representing 16.8 percent of the global total, its stock market accounts for only 10.3 percent of global capitalisation. Overall, international investors remain unconvinced that the reforms have gone far enough. They view recent initiatives as evidence that Beijing prioritises maintaining control over corporate decision-making rather than genuine movement toward shareholder primacy. The appointment of Wu Qing, nicknamed the “broker butcher”, as securities regulator was intended to signal Beijing’s commitment to market stability and attracting foreign capital. However, this move has not overcome persistent concerns that industrial policy priorities will subordinate shareholder interests when conflicts emerge.

This tension matters less for domestic investors, whose participation reflects both improved sentiment and limited alternatives given capital controls and the property sector’s moribund state. Industry observers suggest meeting the higher threshold for attracting sustained international flows will require two to three years of steady returns alongside evidence that shareholder value takes precedence over strategic state control. Such a reversal would defy both historical precedent and the increasingly muscular nature of Beijing’s industrial policy.

Finland breaks the ice with US$6.1 billion Arctic shipping deal

The US wants to revitalise its shipbuilding and beef up its presence in the Arctic

Last week, Finland and the US signed a deal for Washington to acquire 11 Arctic Security Cutters for the US Coast Guard. Under the pact – which is subject to ongoing negotiations – the initial four cutters will be constructed in Finland, with first delivery occurring in 2028. After this time, the US will leverage Finnish expertise and technology transfer to build up to seven additional cutters at domestic, US shipyards. The deal is anticipated to create up to 6,000 jobs and builds on the foundation of the Biden-Era Icebreaker Collaboration Effort, a trilateral initiative between the US, Canada, and Finland.

Finnish president Alexander Stubb, an excellent golfer who has already built a reputation as a “Trump whisperer”, is hoping the shipbuilding pact will further solidify Finland’s strategic partnership with the US. Finland is the world leader in icebreaker production, having designed and built up to 80 percent and 60 percent, respectively, of the global icebreaker fleet. Other countries, such as Japan and South Korea, are also leveraging their shipbuilding prowess to deepen industrial ties with Washington. After having once dominated global shipbuilding, the US shipbuilding industry has atrophied to the extent that China now builds over 200 times more ships than the US.

President Trump has consistently emphasised the need to expand the US icebreaker fleet to counter the growing influence of Russia, which currently operates around 40 icebreakers. Today, the US Coast Guard maintains only two functional Arctic icebreakers. As melting sea ice continues to transform the Arctic, the Northwest Passage and the Northern Sea Route are becoming increasingly navigable for both commercial and military actors. Russia currently holds a clear strategic and geographic advantage, backed by heavy investments in Arctic bases as well as advanced ground, air, and naval systems. The most direct route for Russia to launch missiles at the US is over the Arctic. Despite Russia’s strong position, Western countries are seeking an opening as Russia remains bogged down in Ukraine.

China’s silicon wafer offensive forces global leaders toward advanced segments

Collapsing margins will put pressure on the R&D funding needed to maintain advantage

Chinese silicon wafer manufacturers – producers of the thin disc-shaped substrates on which chips are fabricated – are projected to supply 45 percent of domestic demand for 12-inch wafers by 2025. Chinese producers already supply 80 percent of domestic demand for (smaller, less advanced) 8-inch wafers. Backed by considerable state largesse and government directives ‘encouraging’ the use of domestic materials, China’s domestic wafer champions are undercutting established foreign rivals on cost. China’s largest producer of 12-inch wafers, Xi’an Eswin Material Technology, sells wafers at US$40 each. This compares to the US$60-$80 typically commanded by Japan’s Shin-Etsu Chemical and Sumco, and is below the US$50 price that these companies need to break even. Most Chinese firms remain unprofitable, prioritising market share over financial viability. Eswin posted a US$104 million loss in 2024 despite 44 percent revenue growth.

Established wafer makers in Europe and Japan face added pressure from a glut of Chinese-made legacy chips downstream. Amid this intensifying competition, Taiwan’s United Microelectronics, a mature chipmaker competing against Chinese chip producers, demanded that all suppliers, including wafer manufacturers, cut prices by 15 percent starting in 2026. This customer pressure, combined with direct competition from Chinese wafer makers, has damaged financial viability. Shin-Etsu’s net profit fell from US$4.4 billion in 2023 to US$3.6 billion in 2024, while Sumco and other rivals saw profits collapse toward break-even.

Established players face narrowing strategic options as their traditional market erodes. Industry analysts argue the only feasible response is focusing on advanced wafers and developing new technologies. Competing on price in mature wafer segments has become futile. Cutting-edge chips require wafer quality and precision that Chinese firms have not yet demonstrated. Reflecting this, relevant foreign chipmakers in China are believed to use domestic wafers mostly for test runs rather than mass production. Yet, the financial cushion needed to maintain this technological advantage is disappearing as mature wafer markets, which historically funded R&D, become unprofitable.

Challenges emerge to Russia’s African presence

Russian influence in the “Coup-Belt” declines as local resentment intensifies

Since 2022, a series of military coups across West and Central Africa has forced both French and US troops to withdraw from major military bases. For example, a coup in Niger forced the withdrawal of both US and French troops across 2023 and 2024. Most of the instigators of coups in Africa’s “Coup-Belt”, a broad swathe of sub-Saharan Africa stretching from Guinea in the west to Sudan in the east, have displayed a distinctively anti-Western bent. Many in these mostly former French colonies have come to pitch foreign military bases as unwanted vestiges of colonialism. This power vacuum enabled Russia, primarily through the Wagner group (a state-backed private military company formerly led by Yevgeny Prigozhin), to expand its presence in the region.

What appeared to be entrenched Russian influence is proving to be more superficial. One case study is Mali, where around 1,000 Wagner mercenaries first arrived in late 2021. As part of a deal struck with the government, Wagner was paid US$10 million per month in exchange for counterinsurgency support. However, brutal and poorly coordinated raids on civilian areas and Wagner’s failure to prevent jihadist attacks, quickly eroded local trust. In June, Wagner forces were sent packing. A similar story has played out elsewhere on the continent. In Sudan, Russia appears to have failed to secure its long-coveted Red Sea base. After repeated airstrikes, Russian forces guarding mines belonging to rebel leader Mohamed Hamdan Dagalo have left the country. In the Central African Republic (CAR), Wagner forces initially entered under the pretext of stabilising government forces, but by 2020, the group was involved in business ventures ranging from gold mining to presidential security. Now, local resentment has left most operatives confined to their barracks.

Russia’s missteps have presented an opportunity for both France and the US. Western engagement channels have already begun emerging. In July, US advisors visited Mali to propose US counterterrorism assistance. After a visit from a senior French military official, French security forces are now training local troops in the CAR. Russia’s diminished presence in Syria will also complicate its logistics in Africa.