Japan’s government is framing its accelerating military buildup not only as a means of national defense, but also as a pathway to greater prosperity, with its latest defense white paper asserting that arms production can stimulate economic growth.

The document, an annual assessment of alleged threats posed by neighboring countries China, Russia, and North Korea, calls on Japan—long constrained by post-war limits on military activity—to leverage technology, fund ventures, and incorporate a higher proportion of commercial components into weapons manufacturing.

According to a Defense Ministry presentation document, the white paper “emphasizes that defense investments benefit the overall economy and the lives of the public.” That message aligns with Prime Minister Sanae Takaichi’s policy of utilizing broader strategic public spending to drive economic growth.

This approach is reflected in the document’s anime-style cover image. Departing from the soldiers, weaponry, and military insignia featured in many previous editions, the cover depicts a smiling family set against a glowing futuristic cityscape. A Defense Ministry official said the design was intended to convey a “futuristic image.”

The explicit link drawn between defense and future prosperity coincides with the Takaichi administration’s drafting of a new national security strategy. Military analysts anticipate that the strategy will outline further spending increases designed primarily to deter China.

“China’s military activities and other actions are a matter of serious concern for Japan and the international community, representing the greatest strategic challenge facing Japan,” the white paper states.

Remarks by Takaichi in November indicating that Japan would act militarily in the event of a potential Chinese intervention in Taiwan drew a sharp reaction from Beijing. China termed the statement “extremely grave” and demanded its retraction.

Tokyo has assembled a financing package combining tax increases, spending reforms, and one-off revenues to fund Japan’s largest military buildup since World War II, raising defense-related spending to 2% of gross domestic product. However, Takaichi has yet to clearly articulate how additional military expansion will be funded without imposing further strain on already heavily burdened public finances.

The Takaichi government secured approval for a record 122.3 trillion yen budget for the fiscal year ending in March 2027. An additional 3.1 trillion yen package was later added to shield households and businesses from rising energy costs, underscoring the competing demands placed on public resources.

To date, the bulk of the new defense spending has been directed toward missiles capable of striking targets at distances exceeding 1,000 kilometers. A significant portion of future spending increases is expected to be allocated to uncrewed aerial vehicles and other uncrewed weapons systems of the type deployed extensively by Ukraine in its war with Russia.

The mid-year meeting of the Communist Party of China (CPC) Politburo has long served as a critical evaluation point for Beijing. The session provides the central government with an opportunity to review developments from the first half of the year and steer the country toward a more realistic economic course in the months ahead.

The latest statement from the top leadership signals cautious confidence. The release indicates that policymakers are favoring a stable, targeted approach over the broad-based stimulus measures that characterized previous years. As China manages its economic transition, the post-Covid era of aggressive spending has clearly drawn to a close. In its place, a strategic and structural approach has taken hold, prioritizing resilience and stability over short-term capital injections.

According to the outcomes of the Politburo meeting, the policy orientation will continue to target specific sectors. Financial support will be directed away from the property market and toward high-tech emerging industries such as artificial intelligence and semiconductors. In the real estate sector, the objective remains stabilizing market confidence and keeping debt risks under control.

Infrastructure investment is likewise being reshaped around the concept of “new infrastructure.” The focus is no longer solely on concrete and physical structures; smart power grids, information technology networks, and data infrastructure have taken precedence.

This approach signifies an investment in future competitiveness rather than simply pumping capital into the economy’s more stagnant sectors. Serving as a new driver of growth, digital infrastructure fulfills a dual purpose: supporting domestic demand in the short term while safeguarding technological competitiveness over the long term.

Finally, Beijing is signaling a more conciliatory posture in international trade. The Chinese leadership aims to establish a more balanced trade framework to mitigate concerns voiced by trade partners such as the European Union over what has been termed “China Shock 2.0.”

As the administration prepares for critical leadership changes next year, its primary focus will remain on stability across both economic and social spheres.

China continues to strike a balance between realistic growth targets and systemic restructuring, maintaining policy leeway to absorb potential external shocks. Beijing’s economic strategy reflects a pragmatic assessment of both domestic and international challenges.

Struggling with weak demand, the domestic economy is not yet in a position to anchor national growth independently. Expansion continues to rely heavily on a record trade surplus alongside the impressive export performance of high-tech and clean energy sectors. However, this reliance has drawn pushback from several trading partners.

To stimulate domestic economic activity and ease trade tensions, Beijing unveiled its first standalone five-year plan focused on consumption. Released in July by the National Development and Reform Commission and the Ministry of Commerce, the plan targets an increase in retail sales to 60 trillion yuan (approximately $8.9 trillion) by 2030. This represents an increase of roughly 20% compared to 2025 levels.

To improve profit margins for small businesses, regulatory authorities are tackling the issue of “involution”—described as excessive internal competition—by curbing platform monopolies and preventing destructive price wars. While these structural adjustments may take longer to yield results, they are viewed as a more sustainable and effective alternative to direct cash handouts.

Major Chinese microchip manufacturers saw their profits surge by 2,579.5% in the first half of 2026, driven by unprecedented demand for artificial intelligence and computing capacity.

Data from China’s National Bureau of Statistics, cited by the South China Morning Post (SCMP), underscored the industry’s sharp upward trajectory.

Yu Weining, senior statistician at China’s National Bureau of Statistics, explained that this surge is directly connected to the accelerating integration of artificial intelligence across various sectors.

Yu noted that this process has increased the need for computing capacity. The demand for computational processes also lifted profits across the entire electronics industry by 97% year-on-year.

Profits of major Chinese industrial enterprises with an annual revenue exceeding 20 million yuan ($2.9 million) rose 18.7% in the first six months of the year, reaching 4 trillion yuan.

In the first half of 2025, before the global data center construction process had begun, industrial profits had dropped by 1.8% to 3.4 trillion yuan, while profit growth in the electronics sector remained at 3.5%.

The SCMP reported that the global AI boom has generated explosive demand for high-performance computing systems and memory chips, causing a structural pivot in China’s industrial landscape.

Data showed that integrated circuit production in the first half of the year grew by 23% year-on-year to reach approximately 280 billion units.

This figure means that the country produced an average of more than 1.5 billion chips per day.

The profit growth is also corroborated by forecasts from China’s leading chipmakers. Shenzhen Longsys Electronics, one of the largest memory module manufacturers, expects its profits to increase by more than 600-fold in the first half of the year.

Flash memory maker GigaDevice projects that its net profit will surge by approximately 1,099% year-on-year due to supply shortages and rising product prices.

Chinese companies in the AI chip segment are also demonstrating strong profit growth, albeit at a more moderate pace compared to the memory market.

Hygon Information Technology, which develops central processing units and computing units for artificial intelligence, projects that its profits will rise by up to 52.3%.

CXMT hits record high on Shanghai Stock Exchange

Shares of Chinese chipmaker CXMT gained more than 500% on their first day of trading on the Shanghai Stock Exchange on July 27, jumping from 8.66 yuan to 55 yuan.

As a result of this sharp surge in its shares, CXMT’s market valuation reached 3.65 trillion yuan ($539 billion), making the company China’s most valuable publicly traded firm.

At the peak of the rally—even though quoted prices underwent a slight correction toward the close of the trading day—CXMT surpassed Tencent, which was trading on the Hong Kong Stock Exchange with a market capitalization of $514 billion.