Welcome to Foreign Policy’s China Brief.

The highlights this week: The war in Iran tests assumptions about the U.S.-China rivalry, the China-Japan clash intensifies, and China’s artificial intelligence boom is driving a compute shortage.

Who Comes Out Ahead From the Iran War?

As the United States flounders in its war on Iran, there has been a rush among analysts to declare China a winner of the conflict. Many argue that Chinese President Xi Jinping’s patience and restraint have strengthened Beijing’s long-term position over an increasingly distracted and unstable Washington.

There is some truth here, especially when it comes to U.S. credibility with allies. The decision to pull U.S. missile defense assets from South Korea, for instance, is a disaster for the alliance. As I’ve noted before, U.S. President Donald Trump’s volatility makes China increasingly look like a stable alternative.

Still, I’m cautious about claims that Beijing will emerge as a clear victor from the Middle East conflict, which rest on a zero-sum view of the U.S.-China relationship, where a defeat for one is automatically a victory for the other. This is, as the Chinese like to say—often while deflecting criticism of human rights abuses, to be sure—“Cold War thinking.”

During the Cold War, the Soviet Union tried to contest the United States on both geopolitical and ideological grounds. That ideological dimension is weaker in today’s U.S.-China rivalry, especially under a U.S. administration that shows little interest in promoting liberal values, human rights, or democracy.

China’s own ambitions, for now, are also more limited. Unlike the Soviet Union, it lacks a broad formal network, save for a de facto alliance with Russia and unreliable friendships with North Korea and Pakistan. Beijing wants to reduce U.S. influence in the Asia-Pacific, but it has been happy to benefit from Pax Americana’s effects on peace, security, and global trade elsewhere.

Whereas the Soviet Union became a superpower in the wake of global war, China rose during decades of relative peace. Beijing has a strong vested interest in long-standing U.S.-led norms such as freedom of navigation outside its own backyard. A U.S. retreat from the global stage would be undesirable for China, sticking it with responsibilities it has little appetite to assume.

The Iran war may prove a lose-lose scenario for China and the United States. Though China is more insulated from energy consequences than the rest of Asia, disruption in the Strait of Hormuz still means a huge hit to its oil imports. China also has no interest in a fully destabilized Middle East, even if some Gulf countries begin leaning toward closer ties with Beijing.

Above all, the Chinese leadership’s primary benchmark for success is domestic, not global. That lens shapes how it interprets U.S. actions. A U.S. failure that rattles the global economy means an angry Chinese public—and that’s a far more immediate priority than competition abroad.

What We’re Following

China-Japan clash. The bitter dispute between China and Japan—sparked last year by Japanese Prime Minister Sanae Takaichi’s comments over defending Taiwan in the event of a Chinese attack—escalated further this week. In response to a Japanese warship’s transit through the Taiwan Strait, China dispatched its own warships near Japanese territory.

Meanwhile, Japan’s parliament voted to lift long-standing bans on arms exports, prompting China to warn that its neighbor was moving “toward militarism.” There is little room for either side to de-escalate. Takaichi’s hard line on China plays well domestically, while Japanese nationalism and Taiwanese independence remain very sensitive to the Chinese public and leadership.

If the Xi-Trump summit goes ahead, Xi might pressure Trump to rein in Tokyo, as he did last year—but Takaichi would likely deflect such pressure again.

U.S. ship seizure. China has expressed concern over the U.S. Navy’s capture of the Touska, an Iranian cargo vessel, in the Gulf of Oman on Sunday. The ship had reportedly been used to transport goods from China, including possible dual-use items that would violate sanctions on Iran.

Trump and U.S. Defense Secretary Pete Hegseth previously dismissed intelligence suggesting that China was supplying arms to Iran, only to reverse positions on Tuesday, when Trump said the ship may have been carrying a “gift ” from China that “wasn’t very nice.”

A summit between Trump and Xi is still nominally scheduled for mid-May, according to the White House, though China has yet to confirm it. Trump has appeared eager to appease Xi ahead of the talks, but his erratic rhetoric risks derailing them.

FP’s Most Read This Week

• Why Did China Buy Up the World’s Ports? by Alexander Wooley and Lea Thome
• The Man Who Represents Post-Clerical Iran by Menahem Merhavy
• Order Without Order by Parag Khanna

Tech and Business

Compute shortage. China’s AI boom is placing growing strain on AI systems such as Moonshot and DeepSeek, thanks to an acute compute shortage—referring to the underlying processing power that these systems rely on, primarily driven by advanced chips.

There are compute shortages worldwide, but they are particularly severe in China, where U.S. export controls have restricted access to the most advanced chips. The widespread adoption of OpenClaw, an agentic harness AI tool, in recent months has only intensified demand.

The resulting outages, suspensions, and resource rationing have irritated the Chinese public, which has grown accustomed to easily available and cheap AI tools. As supply tightens and user prices rise, the public’s enthusiasm for the technology may dim.

Manus investigation. China’s security apparatus has long been prone to conspiratorial thinking, but ongoing internal purges appear to have pushed that tendency into overdrive, with technology firms and regulators now feeling the effects.

Last year, Manus, a Chinese AI company, carried out a relatively routine sale to Meta involving a relocation to Singapore that was approved by Chinese authorities. According to a Financial Times report, Chinese senior leadership then became convinced the deal was a conspiracy against national security.

Manus’s founders have since been banned from leaving the country and are under investigation—another reminder that wealth can offer protection against many problems in China but not the wrath of the leadership.