Dragoman Digest

China’s grid expansion faces challenges accommodating renewables boom

Progress in “hardware” needs to be matched by more comprehensive power market reform

China invested RMB 122.9 billion (US$17.8 billion) in its power grid in just the first four months of 2024 – nearly five times the US$3.5 billion of investments announced in the US over a comparable timeframe. This spending surge reflects Beijing’s race to accommodate its renewables buildout, which now represents 65 percent and 60 percent of global wind and solar capacity, respectively. Two state-owned companies control nearly all of China’s grid – China State Grid (SGCC) and China Southern Power Grid (CSG). Both grid operators have made significant progress in deploying ultra-high voltage (UHV) lines that connect western energy resources to eastern demand centres. In contrast, the US has built zero UHV lines, with its fragmented system of utilities and regional operators requiring five years minimum for new transmission projects.

Yet, China still faces considerable constraints in fully integrating renewables into the grid. Over 100 counties suspended new solar connections in 2024 despite record investment. National curtailment rates – wasted renewable energy that cannot be used or stored – rose sharply in the first half of 2025, with solar reaching 6.6 percent up from 3.9 percent a year earlier and wind hitting 5.7 percent up from 3 percent. This rate is significantly higher than in other jurisdictions with increasingly renewables-heavy grids. The fundamental challenge extends beyond physical infrastructure. Provinces prioritise using their own power plants to boost local GDP and tax revenues over importing energy from other regions. Though reforms are forthcoming, China’s grid relies on a patchwork of inflexible long-term bilateral contracts rather than a mature spot market, making it difficult to trade volatile renewable energy between provinces. This means surplus renewable capacity in western provinces cannot reach deficit regions despite massive transmission infrastructure.

Equipment bottlenecks are another compounding challenge. Transformer deliveries lag years behind orders. Leading suppliers Sieyuan Electric and Shanghai Huaming have seen share price rises of 600 percent and 300 percent, respectively, over the last five years as this scarcity drives up valuations. Growing electricity demand – up 7.4 percent in early 2024 versus 5.2 percent GDP growth – driven by AI, data centres, and EVs will intensify these pressures going forward. China’s massive US$800 billion grid commitment through 2030 won’t on its own resolve the misalignment between provincial self-interest and national renewable goals. Nevertheless, sheer scale means China is building the ‘greenest’ electricity network of any major economy by volume – and potentially by proportion – even amid these integration inefficiencies.

South Korea and Turkey exploit Western defence gaps to become major arms exporters

Traditional suppliers’ depleted inventories and production constraints create new opportunities

The war in Ukraine, threats of abandonment by the US, and growing regional instabilities have countries spending big on tanks, artillery, fighter jets, and drones. This has created openings for new suppliers. South Korea now ties with France as the second-largest arms exporter to European NATO members after the US, while outselling America globally in tanks and artillery. Turkey’s defence exports have swelled from nearly US$2 billion to over US$7 billion in five years. Both countries have capitalised on the urgent imperative for production-constrained European nations to deter Russia. South Korea’s US$22 billion deal with Poland in 2022, for the purchase of tanks, howitzers, rocket launchers, and fighters, marked Korea’s emergence as a major global arms exporter. Western defence inventories have been further drained by the donation of equipment to Ukraine. Growing doubts about US reliability as a defence partner – particularly after President Trump suggested selling allies “toned-down” jets because “someday, maybe they’re not our allies” – have reinforced the search for alternative suppliers.

Both countries bring distinct advantages that traditional exporters cannot currently match. South Korea maintains a healthy defence industrial base which coordinates closely with government on research and support for export orders. Korean companies can churn out NATO-standard equipment at competitive prices. The persistent threat of North Korea means that South Korea, unlike most European countries, has sustained robust military investment over decades. Turkey can deliver battle-proven systems from conflicts in Syria and Libya, also built to NATO standards, with no political strings attached. Turkish drone manufacturer Baykar has been successful in selling to more than 30 countries, outcompeting Chinese alternatives. Both countries have been more willing to share technology. Turkey has recently agreed to co-production deals with Spain and Saudi Arabia.

Both South Korea and Turkey are now developing weapons systems that compete directly with US kit, including fifth-generation fighter jets that may serve as alternatives to F-35s. Nonetheless, challenges persist. Both countries, particularly South Korea, remain reliant on US technology and inputs. Bureaucratic delays in US export approvals for critical components have already stalled Polish deliveries of Korean-made fighters, while Western firms threaten to poach engineers with higher pay. Despite these obstacles, the entry of Korea and Turkey into the ranks of major defence exporters means that traditional exporters must now increasingly compete on price, technology transfer, and delivery speed.

Vietnam pursues private sector champions to escape low-value manufacturing trap

Resolution 68 risks employing a different variant of the political favouritism that destroyed previous reform efforts

Vietnam is attempting to break free from its dependence on low-cost assembly through Resolution 68, adopted by Vietnam’s Communist Party leadership in May 2025. This positions the private sector as the “most important force” of the economy after decades of SOE dominance. The policy sets an ambitious target of developing 20 private companies capable of competing in global value chains by 2030. These firms will receive preferential credit access, priority in public procurement, and the ability to tender for infrastructure projects previously monopolised by SOEs. This is a marked shift in strategy from Vietnam’s “national champion” efforts in the 2010s, which focused on SOEs. These initiatives were a conspicuous failure, epitomised by shipbuilder Vinashin which collapsed with US$4.5 billion in debts after expanding through political connections rather than market discipline.

Communist Party General Secretary To Lam has warned that without urgent reform, Vietnam faces “economic subjugation” – permanent entrapment at the lowest end of global value chains. However, today’s leading private candidates for national champion status – including Vingroup, Thaco, and Hoa Phat – already exhibit troubling dependencies on political connectedness rather than innovative capacity. Of the top 50 private firms, 44 percent maintain significant property and resource extraction portfolios that thrive on political access rather than global competitiveness. Only 22 percent operate in manufacturing, predominantly in traditional sectors like steel and textiles rather than the high-tech industries needed for value-chain integration. Unlike Korea’s chaebols which began as manufacturers before expanding into finance, Vietnam’s conglomerates started with money and property. Vingroup, Vietnam’s leading private conglomerate, built its fortune in real estate before launching EV subsidiary VinFast.

The Politburo’s adoption of Resolution 68, bypassing normal Central Committee procedures, suggests either significant internal opposition or To Lam’s determination to accelerate implementation despite resistance. The centralised drive to create national champions threatens provincial leaders’ traditional discretion over local development and could face fierce pushback. Vietnam watchers have called for enforceable performance metrics tied to export targets – the discipline that initially drove Korean chaebols – to ensure Vietnam’s champions develop genuine competitiveness. The risk is that Vietnam is saddled with conglomerates powerful enough to capture state resources but too weak to compete globally, leaving the country trapped between its low-value present and high-tech ambitions.

Chinese AI wearables boom confronts manufacturing limits

Technical complexity and production challenges undermine ambitious market expansion plans

China’s tech giants and startups are aggressively pushing into the AI wearables market, particularly AI-powered glasses that enable features like real-time translation, video recording, and voice-controlled interaction with other devices. Chinese AI glasses shipments are projected to grow 178 percent to 2.2 million units in 2025. Major players including Xiaomi, Alibaba, and Baidu have all launched AI glasses within the past year, following Meta’s Ray-Ban series and Apple’s Vision Pro development. The sector’s momentum extends beyond glasses to AI-powered voice recorders and companion products, with Chinese companies leveraging their mature supply chains to rapidly develop diverse offerings. Global shipments of smart glasses are expected to reach 14.5 million units in 2025, with AI-powered glasses driving a 226 percent year-on-year increase to 8.8 million units worldwide.

This ambitious expansion is colliding with technical barriers that Chinese companies have drastically underestimated. Only a handful of contract manufacturers possess the necessary expertise to integrate computing chips, optical modules, sensors, and batteries into glasses frames weighing under 50 grams. These include Apple suppliers Lens Technology, GoerTek, and Luxshare. However, even these industry leaders remain in the “ramp-up phase”. The technical challenges extend beyond assembly. Integrating smartphone-level complexity into glasses requires specialised knowledge that generic manufacturers cannot provide, forcing companies to compete for limited production capacity. Power bank maker Sharge Technology’s high-profile failure to deliver promised products after launching presales in May 2024 is a case in point.

Technical compromises are already undermining product viability across the sector. The size constraints of glasses force developers into difficult trade-offs. Xiaomi, Alibaba, and Baidu have omitted displays entirely, relying solely on voice interaction. Some firms have avoided these manufacturing challenges altogether by choosing simpler products. Plaud.AI’s phone-attachable recorder succeeded in Western markets by solving iPhone call recording limitations. The retreat to more basic accessories underscores how China’s traditional manufacturing strengths – rapid scaling and cost efficiency – are not necessarily suited to the complexity of miniaturised AI wearables.