China: Has Xi-Jinping decided to make enough concessions?
This column was previously published in l’Opinion on February 24, 2025
Faced by major economic difficulties, the Chinese president has sent out a positive message to the private sector, local authorities and foreign investors.
For the third time only since coming to power, President Xi Jinping has resigned himself to having a public meeting with the leaders of the Chinese private sector. In openly recognising that the “Japanification” of the economy is speeding up because of increased deflation, Beijing has sent out a message to three specific audiences, so as to tackle last December’s collapse in Treasury yields.
Firstly, there is a message to the private sector, as a preamble to a future law dealing with the “Promotion of the private economy.” After two years during which private capital was under state control, it is now been declared persona grata again and indispensable in the technological battle with the United States. The delegation to the symposium was carefully selected to display the success of Chinese “Tech” over Washington over the past two years: DeepSeek, Tencent and Alibaba for AI, Huawei and Xiaomi for telecommunications, BYD and CATL for electric cars. However, this burying of the hatchet — which had been wielded since the 20th Party Congress of October 2022 — comes with certain conditions attached: the need to “embrace entrepreneurship AND patriotism” whilst “cultivating a deep sense of national responsibility”. This time, Jack Ma, who was returned to favor for the occasion, cannot complain that he hasn’t been warned!
The most immediate concrete effect of this meeting has been to trigger the sudden rebound of the Chinese stock exchange, trading at a rock-bottom valuation.
The second message is to local authorities. They have to stop putting any obstacles in the way of the development of the private sector. For the last two years, this has led to the overall stagnation of the stock of private capital. However, no progress has been announced with regards to the much-needed reform of local public financing, which has been bled dry by the real estate crisis and, for two years, has seen private companies constantly being ripped off by local authorities. For example, in Hong Kong, government revenue from real estate has plummeted by 90% in only two years whereas, before the pandemic, it accounted for over a quarter of total revenue. This slump shows the extent of the problem to be dealt with.
The third message is to foreign investors, whose direct investment dropped alarmingly in 2024 to a mere 5 billion US dollars. For the first time since 1986, it has been announced that a “plan to stabilise foreign investment” is in preparation, with the promise of favorable measures, particularly in the sectors of telecommunications, healthcare, bio-pharmaceuticals and education. But the absence of any mention of excess industrial capacity — still denied by Beijing — will not reassure multinationals that the upturn needed to make their operations in China profitable will occur.
The most immediate concrete effect of this meeting — called historic in government propaganda — has been to trigger the sudden rebound of the Chinese stock exchange, trading at a rock-bottom valuation. The months to come will show whether this is just a short-lived “dead cat bounce” as seen in Japan on several occasions in the last three decades, or whether, on the contrary, China has once again decided to surprise us by asking its neo-Marxist-Leninists to take their fingers off PAUSE and place them on the STOP button.
