Commentary
China’s economy has suffered years of difficulties due to, above all, the regime’s lack of free market principles.
Draconian COVID-19 measures, outmigration, capital flight, the property crisis, deflation, military spending, international tensions and tariffs, technology subsidies, an aging workforce, low birth rate, lack of stimulus from Beijing, and extortionary fines levied by local governments against small businesses have all made doing business in China exceedingly difficult.
There are some supposed recent breakthroughs. The public advent of DeepSeek’s artificial intelligence (AI) contributed to a $1.3 trillion China stock rally over the course of a month after its release in January. Dozens of companies in China, including Lenovo, Baidu, and Tencent, have already incorporated DeepSeek into their products. Now, it wants to follow the success of its R1 model with an R2 model sometime before May. The Hang Seng Index rose approximately 25 percent between mid-January and Feb. 26. Alibaba’s major investment in its Qwen AI model led to its inclusion in Chinese versions of the Apple iPhone and helped boost Alibaba’s market valuation by over $90 billion.
Investors in China are also hoping for a general economic rebound based on greater liquidity promised by China’s central bank, the People’s Bank of China (PBOC), and a mid-February meeting between Xi Jinping and Chinese business leaders from the tech sector. Xi likely scheduled the meeting to bask in the glow of the DeepSeek and Qwen stock rallies and justify the regime’s tech subsidies.
In addition to DeepSeek’s founder, Liang Wenfeng, and Alibaba’s founder, Jack Ma, the meeting reportedly included leaders from Huawei, Tencent, BYD, Contemporary Amperex Technology, Meituan, Xiaomi, Unitree, and Yushu Technology.
Xi “promised to abolish unreasonable fees or fines against private firms and level the competitive playing field — a common complaint of entrepreneurs in a state-dominated system,” according to Bloomberg.
However, U.S. AI companies are reportedly still superior to DeepSeek and Qwen. Furthermore, far more market reforms will be needed to revive China’s economy. The percentage of Chinese A-share companies reporting a net loss has increased every year since 2019, and in the third quarter of 2024, it reached 23 percent.
Profits among publicly listed Chinese companies have been at their lowest since 2009. This is especially the case in the property sector, a former darling of state subsidies. Now, it is the hardest hit of any part of China’s economy. One real estate developer in China’s Changchun city could not pay its employees and created an internet sensation when it started paying them in company vouchers, which they could exchange for goods and services at the company’s shopping malls.
By Anders Corr
