China 2025: The Big Picture & On-the-Ground Insights

China 2025: The Big Picture & On-the-Ground Insights

The global economic landscape is continuously shifting, and one of the most dynamic regions in this equation is China. This week, Chris Zhang, CIO of Interplay’s multi-family office , Ascend Interplay, and an expert in global financial markets, provided critical insights into China’s economic trajectory, its geopolitical positioning, and investment opportunities. Let’s break down the key takeaways.

China’s Economy: Stabilizing, Not Rebounding

China’s economy is currently stabilizing rather than experiencing a full-fledged recovery. GDP growth for 2024 came in at 5%, aligning with expectations and reflecting the steady, mid-single-digit growth trajectory China has maintained since 2015. While this may seem underwhelming compared to the 8% growth rates of the early 2010s, it’s a natural transition for an economy shifting from a developing to a developed status.

Industrial production, import-export data, and PMI metrics reinforce this stabilization narrative. However, two fundamental challenges remain: demographics and housing.

• Demographics: With a replacement rate of only 1.1 (far below the 2.1 needed to maintain population levels), China’s long-term workforce and consumer base are shrinking. This structural issue poses a significant challenge for future growth.
• Housing Market Woes: The real estate sector remains in distress, with residential property sales down 18% in 2024, continuing a downward spiral from previous years. Property investments have similarly declined, reinforcing concerns about an overbuilt housing market that lacks sufficient demand to recover naturally.

China’s Role in the Global Economic Order

Despite short-term challenges, the long-term trajectory of China remains clear. The nation has successfully transitioned from an industrial to a service-based economy, following the path of other global economic powers. More importantly, China’s role as a major trading partner remains dominant, ensuring its continued influence in global markets.

The common comparison of U.S.-China relations to the Cold War dynamic with the Soviet Union is misleading. Unlike the Cold War, where economic and military dominance were closely aligned, today’s landscape is different:

• Military Power: The U.S. remains the clear global leader.
• Economic Power: China is a top economic force but is now part of a multipolar world alongside the U.S., the EU, India, and emerging markets in Southeast Asia and Africa.

China is not disappearing. Instead, it is cementing its position as a crucial economic player, with strong trade ties across multiple regions.

The Impact of De-Globalization and Supply Chain Shifts

A significant trend shaping the future is regionalization rather than outright de-globalization. As supply chains shift, production is relocating to Vietnam, India, and other emerging markets. However, China remains the dominant low-cost manufacturing hub, a status that will take decades to erode fully.

The EU finds itself in a delicate balancing act—militarily reliant on the U.S. but economically tied to China. Recent geopolitical events, such as the U.S. reducing military commitments to Europe, could push the EU closer to China economically.

Tariffs and Trade Wars: A Game of Leverage

With the Trump administration’s past tariffs and the potential for renewed trade tensions, there’s concern about how the U.S.-China trade relationship will evolve. However, past patterns suggest a cycle of escalation followed by de-escalation, with both sides using tariffs as leverage in negotiations. The key industries at stake include:

• AI & Chips: The U.S. aims to maintain its lead, enforcing restrictions on China’s access to cutting-edge technology.
• EVs & Manufacturing: China leads in the global EV market, prompting U.S. tariffs on Chinese EVs to protect domestic industries.

China’s Technological Leap: The DeepSeek AI Moment

One of the most significant recent developments was China’s AI breakthrough with DeepSeek. Previously thought to be years behind the U.S., China demonstrated it is only months behind in AI development. This realization led to a massive rally in China’s offshore tech sector, boosting confidence in its innovation capabilities.

Beyond AI, China’s broader tech industry is regaining government support. The return of figures like Jack Ma and Xi Jinping’s direct engagement with tech leaders signals a policy shift toward fostering innovation, a reversal from previous crackdowns.

Geopolitical Moves: Russia, Taiwan, and Beyond

China’s geopolitical positioning is evolving rapidly. Key developments include:

• Russia: The U.S. distancing itself from Ukraine may lead to closer China-Russia ties, reshaping global power dynamics.
• Taiwan: China is likely playing a long game, leveraging economic dependency and geopolitical shifts to strengthen its influence over Taiwan without resorting to military conflict.
• Middle East & Africa: China continues investing in these regions, ensuring strong economic partnerships as Western alliances shift.

Investment Opportunities in China

Despite economic concerns, China remains a viable investment destination, particularly in:

• Tech & AI: The DeepSeek development has proven that China’s tech industry is competitive and backed by government support.
• EV Market: Chinese EV companies, particularly BYD, are outperforming global competitors, showing significant growth potential.
• Selective ETFs & Offshore Markets: While traditional real estate and industrial sectors may struggle, ETFs focused on China’s tech and consumer markets could provide long-term gains.

Final Thoughts

China’s economy is stabilizing amid structural challenges, but its role as a global economic leader remains secure. The country is not collapsing—it is evolving, and understanding these shifts is key to making informed investment and geopolitical decisions.

The long-term narrative is clear: China has transformed from an underdeveloped economy into a global powerhouse, and despite short-term fluctuations, its economic influence is here to stay.

FAQ

Is China’s economy in trouble?
No, China’s economy is stabilizing. While challenges like demographics and real estate persist, the overall trajectory remains solid.

How does China compare to the U.S. in global influence?
Militarily, the U.S. is dominant. Economically, China remains a top player in a multipolar world alongside the U.S., EU, and India.

Are China’s supply chains shifting away?
Partially. While some production is moving to Vietnam and India, China remains the leading low-cost manufacturing hub.

What is the significance of DeepSeek’s AI breakthrough?
It proves China is much closer to U.S. AI development than previously thought, boosting confidence in its tech sector.

Should investors consider China?
Yes, particularly in tech, AI, and EVs, as these sectors are growing rapidly and receiving strong government support.

How will the Taiwan situation play out?
China is likely to pursue long-term economic integration rather than military confrontation, making Taiwan increasingly dependent on the mainland.

How do U.S.-China tariffs impact trade?
Tariffs are used as negotiation tools. While some industries like AI and EVs will remain contentious, broader trade relations are unlikely to break down entirely.

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