Chinese President Xi Jinping delivered a speech at a symposium of entrepreneurs this morning. Among those in attendance was Alibaba’s co-founder Jack Ma who perhaps previously became the face of China’s tech crackdown in 2021.
Xi’s presence at the event is noteworthy and comes after the country unleashed a flurry of economic stimulus to revive its sagging growth. While the country hit its 2024 GDP growth target of 5%, most analysts believe that the growth this year might be lower than last year.
Xi Jinping speaks at a symposium of Chinese entrepreneurs
According to You Chuanman, senior lecturer at the School of Law, Singapore University of Social Sciences, “This is the strongest signal China could release to boost social confidence. The fact that Xi Jinping himself shows up to meet with the entrepreneurs highlights the political significance of this meeting.”
You, who termed it an “‘enabling policy’ rather than a 180-degree shift,” added, “China has been pivoting from over-regulation on the property market and private sector before Covid to releasing positive policy signals to the private economy. We’ve seen a continuing shift in tone from Beijing towards the private sector: tolerance, improvement, and encouragement.”
China’s tech crackdown
Jinping meeting Chinese entrepreneurs is indeed a positive sign especially as the Chinese president is known for his hard communist credentials. Under his leadership, China cracked down on its burgeoning tech sector, especially edtech companies. The crackdown began in late 2020 when the country scraped Ant Financial’s IPO.
Ant Financial was set to raise over $34.5 billion from the IPO that received a frenzied response, especially from retail investors who bid for 872 times their allocated shares. In absolute terms, it received bids over $3 trillion. To get a sense of that number, it’s more than India’s GDP which is the world’s fifth largest economy. Alibaba and its subsidiaries own almost a third of Ant Financial.
Ahead of the IPO, Jack Ma had made some comments critical of Chinese regulators. Ma wasn’t seen in public for a couple of months after his comments while Alibaba agreed to pay a $2.8 billion fine in 2021 to settle an antitrust case in China.
US investors have warned up to Chinese shares
Chinese ride-hailing giant Didi also bore the brunt of the crackdown and the company had to delist from the US markets within months of its IPO. Chinese shares became “uninvestible” for several US investors after the tech crackdown but they have been warming up since last year’s stimulus.
Peiqian Liu, Asia economist at Fidelity International told CNBC, “It (Xi meeting Chinese entrepreneurs) could potentially be even more powerful than fiscal stimulus, should policymakers show more decisive support towards the development of tech sector in China.”
According to Liu, it signals a “very clear signal of top-level support” to the private sector and “will likely reignite the animal spirit and optimism about renewed growth momentum in China.”
Lynn Song, chief economist at LNG also echoed similar views and termed it “a symbolic turning point for Chinese tech sector after years of heightened scrutiny.”
According to Bloomberg Intelligence analyst Robert Lea, “Such a high-profile endorsement sends a clear message of support from China’s government, which views the tech sector as a future driver of economic growth.”
AI tech rally in Chinese shares
Notably, while the rally driven by AI euphoria has subsided in the US markets, we have seen some upward price action in Chinese AI plays over the last few weeks after Chinese startup DeepSeek said that it developed an AI model for less than $6 million. The model offers a much better value proposition as compared to those from US giants like OpenAI which spent billions of dollars developing their AI models.
However, some are advising caution towards Chinese shares. “The recent developments align with our expectation of a short-term trading opportunity in the Chinese stock market, rather than signaling a structural shift,” said Nenad Dinic, an equity strategist at Bank Julius Baer in Zurich.
Dinic added, “Nevertheless, without fresh catalysts from earnings, liquidity flows, or policy signals, the risk of a pullback is increasing.”
China’s structural slowdown
There seems to be no easy remedy for the structural slowdown in the Chinese economy. China’s industrial sector has been plagued by a massive overcapacity and with many countries clamping down on imports from China, Chinese companies are struggling to export their overcapacity.
Moreover, the bulk of the wealth of Chinese households is tied up in the real estate sector which is under massive stress. This is prompting Chinese consumers to hold back on their purchases. National People’s Congress meeting is set to be held in March where the country will announce the growth targets for 2025. Goldman Sachs meanwhile believes that the Chinese economy will grow by around 4.5% this year.
Analysts believe that China’s yuan which has anyways been depreciating against the US dollar, could slump even further if Trump goes ahead with the 60% tariffs that he has talked about.
Notably, in Trump’s first tenure, the US Treasury Department designated China as an official currency manipulator. For long, the US and other countries have alleged that China’s currency is artificially low which makes its exports competitive in global markets.
All said, by meeting Chinese entrepreneurs, Jinping seems to have warmed up to the country’s private sector amid the AI war with the US. DeepSeek’s AI model showcases China’s AI capabilities and raises doubt over the dominance of US tech giants in AI models. Incidentally, the US barred exports of Nvidia’s high-end AI chips to China over concerns that they might also be used for military purposes. However, DeepSeek managed to achieve the feat despite US sanctions. We saw something similar with Huawei which not only survived US sanctions but has now emerged as Apple’s biggest competitor in the Chinese market.
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Mohit Oberoi
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