What this second says about the world’s two biggest markets is what makes the DeepSeek-driven property judgment most intriguing.
To supply with the clear, neither Donald Trump’s 2017-2021 trade conflict nor Joe Biden’s more precise limits these last four years halted Chinese leader Xi Jinping’s technology ambitions. Although there are a few speed bumps occasionally, Xi’s” Made in China 2025″ feast is undoubtedly its biggest public relations triumph.
The most positive headlines Xi’s market has had in a while came from the shockwaves that Foreign artificial intelligence company DeepSeek sent through international markets.
Its claim of a cost-effective AI type using less-advanced cards has America’s Nvidia and French huge ASML , reeling. Additionally, it removed the burden of Silicon Valley executives who were warming up to US President Trump. Immediately, US tech supremacy is in question as often before.
DeepSeek’s appearance also managed to confine Trump’s great AI instant below the fold. On January 21, Trump stood with OpenAI’s Sam Altman,  , SoftBank’s Masayoshi Son and Oracle’s Larry Ellison to consider an AI triumph for America. The US$ 5 billion Stargate AI infrastructure project seems to be outdated and a probable huge boondoggle at this point.
However, it’s the financial lessons that stand out the most. In China, Xi’s victory may give the country an even stronger incentive to make more strides toward fostering confidence in the country’s economy. This is a stark warning for Trump that tariffs won’t revive US digital technology in ways that equalize the China danger; only daring policy choices you accomplish that.
New data revealed that China’s stock activity surprisingly decreased in January, ending three months of expansion at the same time DeepSeek was sputtering global markets.
China’s standard purchasing managers ‘ score slid to 49.1. The non-manufacturing PMI test, which includes companies and design, slowed to 50.2 from 52.2 in December. Industrial profits, meanwhile, are now down for three consecutive years, dropping 3.3 % in 2024 alone.
According to Zichuan Huang, an economist for China at Capital Economics,” the disheartening PMI data highlights the challenge that policymakers face in sustaining a sustained treatment in growth.” China is struggling as Trump considers taxes and intensifying challenges, Huang said, despite hints that were made in late 2024 that trigger attempts were taking off.
Many pre-existing conditions at home are bringing in new risks from abroad. China’s home crisis resulted in the longest negative run since the 1997-98 Asian problems. Poor family demand and , near-record , children poverty are slamming confidence.
” To even have a chance to boost prices and confidence”, says Hui Shan, chief China scholar at Goldman Sachs, Beijing has install” a big stimulus from the state” to generate a real “turning stage”.
Zhiwei Zhang, president of Pinpoint Asset Management, notes that “part of the decline may be expected to weaker outside requirement, as the new import orders score dropped to its lowest level since March last time.”
If Trump fulfills his threats to impose 60 % tariffs on all domestic goods, things could start to get worse. Trump’s implementation of trade restrictions has been much slower than anticipated by international investors.
According to analysts at Singapore-based UOB Global Economics &, Markets Research,” a lot of what Trump pledged to do was carried out on day one with the absence of concrete tariff measures are a significant relief.” ” There is, after all, another four years of Trump to go”.
These dangers only make Xi’s team’s task more pressing to stabilize China’s financial system. Immediate priorities include repairing a weak property sector fueling deflation, building more vibrant capital markets, reducing youth unemployment, addressing runaway local government debt, curbing the dominance of state-owned enterprises and increasing transparency.
Team Xi also must create a vibrant network of social , safety , nets , to encourage consumption over saving. Last week, Xi’s government intensified efforts to support China’s volatile stock markets. That included encouraging mainland households to buy more shares and encouraging pensions and mutual funds to make more domestic stock investments.
According to Wu Qing, the head of the China Securities Regulatory Commission,” This means that at least several hundred billion yuan of long-term funds will be added to A-shares every year.”
Such steps are only necessary, though, because Team Xi has been too slow to address the economy’s pre-existing conditions. In financial circles, is it a hot button whether Beijing should use a yuan-sheen deflation strategy to boost growth?  ,
The pros are obvious. Exports, which were a major factor in China’s 5 % growth in 2024, would be further boosted by a weaker exchange rate. In December alone, overseas shipments jumped 10.7 % year on year.
However, the disadvantages prevent Team Xi from choosing the less effective yuan route. For one thing, it might make it more difficult for highly indebted property developers to pay off offshore bonds. That would increase , default , risks  , in Asia’s biggest economy. Seeing# ChinaEvergrande or# ChinaVanke , trending again is the last thing Xi’s Communist Party needs in 2025.
Another is that deleveraging efforts could be wasted due to the monetary easing required to lower the yuan. Beijing has made significant strides over the past few years in reducing China’s financial woes and raising the standard of its gross domestic product. As a result, Xi and Premier Li Qiang have been reluctant to let the People’s Bank of China ease more assertively, even as deflation deepens.
The yuan’s use in trade and finance might be Xi’s biggest reform accomplishment over the past dozen years. In 2016, China won a place for the yuan in the International Monetary Fund’s” special drawing rights” basket, joining the dollar, yen, euro and pound. Since then, the currency’s use in trade and finance has soared. Excessive easing now might damage trust in the yuan, slowing its progression to reserve-currency status.
It also might trigger a broader , Asian currency war , that’s in no one’s best interest. Tokyo might be all-in on a much weaker yen, entice South Korea into the fray.
Memories of 2015 are clearly entering into Beijing’s equation. A destabilizing capital flight that still lingers among party bigwigs was caused by China’s decision to devalue the yuan by nearly 3 % ten years ago. Over the next year, Xi’s team had to draw down Beijing’s foreign exchange reserves by , US$ 1 trillion , to restore calm.
However, Trump World should also take a wake-up call about its top economic policy initiatives this week. A massive trade war, like that one in Exhibit A, might have worked better in 1985, when a select few industrialized nations had more economic power.
This same stuck-in-1985 , problem , helps explain why Japan’s efforts since 2012 to increase competitiveness and rekindle innovation came up short. The enterprise, led by former Prime Minister Shinzo Abe, is largely about bringing back the trickle-down economics of the 1980s Ronald Reagan era.
Abe backed up his wager that monetary easing and currency depreciation would cause a rise in corporate profits and initiate a virtuous cycle. The intention was for boom stocks to spur CEOs on to fatten their paychecks, thereby boosting consumer spending and accelerating economic growth.
The plan for Japan was correct about the stock boom. The Nikkei 225 Stock Average reached its highest point last year thanks to aggressive Bank of Japan easing, a plunging yen, and some efforts to improve corporate governance.
Yet wages didn’t surge as hoped, ending the year on average or below the roughly 2.5 % inflation rate. Reaganomics is even less effective at raising living standards today than it was 40 years ago, according to all so-called Abenomics.
This is the way Trump 1.0 went, too. A$ 1.7 trillion tax cut, which primarily targeted the top 1 %, was the centerpiece of Trumponomics. More importantly, the maneuver made it more advantageous to reduce income inequality and put the national debt on track to reach the current$ 36 trillion level.
Now, Trump 2.0 is angling to make the$ 1 , trillion-plus tax cuts from his first term permanent while adding new ones to the books that will inevitably exacerbate Washington’s already serious debt woes.
The US net foreign investment position, or the difference between foreign assets owned by Americans and those owned abroad, is now nearly twice the size of the US gross domestic product. It’s negative$ 24 , trillion compared with negative$ 18 , trillion , when Biden entered office in 2021.
A big dilemma now faces Trump: widen Washington’s investment imbalances or reduce its addiction to imports and capital inflows. For now, Trump’s new economic team is more interested in protecting the status quo than disruption.
Washington’s budget would be reliant on the savings of both Japanese and Chinese households as well as the world’s developing countries as more tax cuts are proposed. Trump’s tariffs and trade restrictions would increase US inflation and reduce domestic consumption.
Many economists believe that Trump should concentrate more on boosting domestic economic stoke. Biden, for all his policy missteps, paved the way for the US to compete with China more organically.
Biden’s 2022 CHIPS and Science Act, for example, deployed$ 300 , billion  , to strengthen domestic research and development. Biden took other steps to incentivize innovation, raise America’s semiconductor capabilities, improve infrastructure and increase productivity.
It was only a start, though. Despite his deregulation comments, Trump has not yet come up with a strategy to replace Biden’s tech upgrade policies.
As Trump prioritizes old-school tariffs, lower Federal Reserve interest rates and a weaker dollar, Xi’s China is engaged in a multi-trillion-dollar effort to lead the future of electric vehicles, semiconductors, renewable energy, robotics, biotechnology, aviation, high-speed rail and, of course, AI.
This last priority is now paying, and this has never before been a positive outcome for China. And serving as a wake-up call for both Xi’s party and Trump 2.0 that it’s time to raise their games.
Follow William Pesek on X at @WilliamPesek