CWA # 2158
The World This Quarter
China’s Domestic Landscape (April-June 2026):
Reforms, Regulations, Reinvention and Risk Management
The second quarter of 2026 has brought the central paradox of China’s contemporary governance into sharp focus: how to consolidate centralized state authority and guarantee internal security while simultaneously sustaining economic dynamism.
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Anand V
30 June 2026
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The second quarter of 2026 witnessed events that both strengthened and posed challenges to domestic stability in China. On one hand, the initiation of the long-pending reforms in the household registration system, the consolidation of innovative approaches to industrial self-sufficiency in the high technology sector, and the introduction of new regulations in China’s minerals sector added to the socio-economic and techno-industrial momentum towards high-quality, secure and sustainable growth during a period of intense conflict-driven disruption across the world. On the other hand, large-scale industrial accidents, tightening of internet controls and cyber surveillance, the continuation of political purges within the Communist Party of China (CPC), and the securitization of social movements such as “lying flat" demonstrate growing tensions within China’s domestic sphere.
1. The removal of Hukou restrictions
China undertook a long-awaited reform of the decades-old household registration system (Hukou), which links social welfare schemes to its population. The opportunities created in big cities in the post-reform era in China led to an influx of labour from the countryside towards urban areas. However, the Hukou system has blocked migrants from accessing social welfare in their new locations – as these services were tied to their place of Hukou registration, which they no longer live in. This has adversely affected the living standards of migrant populations in big cities across China, especially those who have migrated from interior villages for manufacturing jobs. Therefore, over the past few decades, there have been debates in China about reforming the Hukou system, albeit with little progress. In May this year, the State Council issued new guidelines for the household registration system, allowing social welfare schemes to be implemented regardless of the location of Hukou registration. This would not just enhance rural-to-urban mobility, but also the labour productivity as well as consumption levels spurred by savings accrued.
2. Achieving self-reliance through innovation
In June, the People’s Daily urged the Chinese high-tech industry to pursue a strategy of “changing lanes to overtake” – which implies taking an alternative path to gain dominance in the global technology competition, rather than following the conventional sequence of technological advancement. The best example of this strategy in action has been the development of AI chips by Chinese companies like Huawei when it was denied access to advanced Graphics Processing Units (GPUs) from the US, specifically from the top American GPU firm Nvidia. The ascent of China’s LineShine to the world’s most powerful supercomputer, as ranked by the Top500 in June, also demonstrates this recent trend. This supercomputer, unlike the rest, is purely based on an innovative Central Processing Unit (CPU) architecture, avoiding the use of GPUs. Such a strategy of technological growth is also popularly termed the “Tau Law” by Huawei, where architectural innovation is the focus. In this context, China made some very significant steps towards pioneering new pathways in its techno-industrial sector.
In April, China took a major step forward in a lucrative new sector – space computing. As the world witnesses a rapid growth of data centres catering to the revolution in Artificial Intelligence, there is a growing concern about the scale, cost, safety, security and sustainability of this critical and strategic piece of infrastructure. Shifting data centres to the Earth’s orbit as a constellation of satellites provides a way out of this conundrum. Given the growing discussions internationally in this regard, during the 2026 Space Computing Industry Conference held in April, China established the Space Computing Professional Committee – an industry-wide coordinating body which would strategize and oversee the growth of China’s space computing infrastructure over the next few years. This body brings together the government, industry, academia and finance; and at the same time integrates the strengths of China’s outer space and AI capabilities.
In May, China unveiled the world’s first agent-driven quantum computing platform, demonstrating the merger between AI and Quantum Computing. The UnitaryLab 2.0, created by Shanghai-based Youshu Quantum Technology, enables users to communicate with a quantum computing system using only natural language, without coding knowledge. The AI agent, which is integrated to the quantum computing system, converts the users’ requests, which are in plain language, into the corresponding code for the quantum computing system. This mediation widens access of quantum computing from tech elites to common people, and thus offers immense potential for the growth of China’s industry and economy.
3. Regulations on strategic minerals
China unveiled stringent regulations on its mineral resources in May, covering five major areas: strengthening the mining rights system, refining exploration and extraction rules, enhancing ecological restoration requirements, improving mineral reserves and emergency response mechanisms, and upgrading oversight and enforcement. The regulations cover the entire value chain from extraction to sale and give the government the authority to manage the production of specific minerals. The control over minerals like Lithium and rare earths has become critical for China as they have applications ranging from sustainable development to national defence. The regulations had also become inevitable with the rise of disruptive technologies, the scramble for critical minerals, environmental concerns and the resurgence of major power competition.
4. Accidents and industrial safety concerns
China was rocked by two major industrial accidents in May. The blast at the Liushenyu coal mine in the north-interior Shanxi province led to 82 fatalities, making it the deadliest mining accident in a decade. The other accident was a massive explosion at the Huasheng fireworks factory in the central Hunan province, which killed 26 and injured 82 people. The scale of these accidents was large enough for Xi Jinping to order investigations, and there were calls for intensified measures to prevent such incidents from happening again. Rather than being seen as isolated technical failures, these disasters have also been interpreted as products of systemic, long-standing issues rooted in political dynamics.
5. The progression of military purges
The former Defence Ministers of China, as well as former members of the CPC’s Central Military Commission (CMC) who were investigated for corruption and political disloyalty – Wei Fenghe and Li Shangfu – were sentenced to death with a two-year reprieve. Meanwhile, the CMC, chaired by Xi Jinping, issued 26 new measures to ensure that the senior military officials are subjected to intensified supervision. The objective of these regulations seems to be to ensure that the top military leadership adheres to and remains subservient to the Party under Xi Jinping’s leadership. The recent political purges within the People’s Liberation Army (PLA) have led to the expulsion and investigation of the effective second-in-command of the military – Zhang Youxia – a supposed ally-turned-rival of Xi Jinping. The CMC, in the meantime, continues to have only two members – Xi Jinping and Zhang Shengmin. The deepening of the purges demonstrates the continuing political rivalry within the CPC, which has severely affected the functioning of one of the most important institutions of the Party State.
6. Strengthening of censorship and surveillance
China in April initiated a stringent crackdown on the usage of tools such as unauthorized Virtual Private Networks (VPNs) to evade the state internet censorship system – the Great Firewall. The Cyberspace Administration of China as well as the Ministry of Industry and Information Technology conducted unprecedented, coordinated campaigns to implement a nationwide ban on all unauthorized cross-border internet access and traffic. This is seen as an urgent measure to strengthen the country’s information security and internet sovereignty. The measures were seen as successful, with stable VPNs becoming increasingly difficult to find post the crackdown.
Meanwhile, leaked screenshots of a social media analysis dashboard in April, supposedly used by China’s public security authorities, have shed light on a new trend in China’s mass surveillance. The so-called “Social Media Account Information Analysis System” demonstrates the state's increasing focus on tracking users rather than monitoring content, and is seen as a radical step toward correlating online identity with real-world identity. Such a capability could undoubtedly strengthen China’s ability to anticipate political and public security risks and thereby manage domestic security in a predictive rather than mitigatory dimension. However, such moves may eventually also cripple the domestic innovation engine required to build China’s “New Quality Productive Forces” in the “New Era”, ultimately trading long-term economic resilience for short-term political control.
7. “Lying Flat” as a national security threat
For the past several years, there has been a growing disenchantment among the Chinese youth with the domestic work environment. The infamous “996” work culture – where employees are expected to work for 12 hours a day and six days a week – has led to resentment from certain sections of the youth in China. This has manifested in a subdued form as a movement which is popularly termed “lying flat”. It involves detaching oneself from the grueling, ambitious work routine and cultivating a minimalist, non-aspirational mindset. The informal movement among youth has been identified by the government as having the potential to weaken the economy’s drive towards demand creation and the nation’s quest for techno-industrial dominance on the international stage. The withdrawn nature of “lying flat” among China’s youth contrasts starkly with Xi Jinping’s ambitious exhortation of “striving for achievement”. In April, the Ministry of State Security claimed that the “lying flat” movement is being actively promoted by “foreign forces” out to derail China’s growth story and its critical national momentum by targeting the youth. This securitization of a social movement in China has to be contextualized against the growing unemployment amid an economic slowdown, a demographic downturn, and an increasingly hostile international environment.
To conclude: China in the second quarter (April-June 2026)
The second quarter of 2026 has brought the central paradox of China’s contemporary governance into sharp focus: how to consolidate centralized state authority and guarantee internal security while simultaneously sustaining economic dynamism. While attempting to prevent and mitigate the risk, further instability is being unleashed. Such contradictions are nothing new for China, as seen in its post-reform history. However, what is new is the overall systemic context, marked by a plateauing socio-economic trajectory domestically and a fragmented international system that is more guarded than ever in the post-Cold War era, for doing business with China. In such a situation, maintaining domestic stability remains an increasingly difficult proposition for China.
About the author
Dr Anand V is an Assistant Professor (Senior Scale) in the Department of Geopolitics and International Relations, Manipal Academy of Higher Education, Manipal, India. The views expressed are personal.
