How China Defied the Odds in 2025

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. At the start of 2025, China's economy was under strain and its outlook was daunting. You had property in China doing terribly. You had weak consumer spending. John Liu is Bloomberg's executive editor for Greater China, based in Beijing. Donald Trump had come into office saying that he was going to put up tariffs. And so there was this expectation that exports were going to suffer, China was going to suffer, and there was going to be a lot of tension between the world's two foremost powers. Economists warned of a potential lost decade, drawing parallels with Japan's stagnation in the 1990s.

1:43At the beginning of the year, global investors accelerated their exit of the Chinese market, with some investors calling the stocks uninvestable. The sense in the investment community is overwhelmingly pessimistic, right? Shuli Ren is a Bloomberg Opinion columnist covering China markets based in Hong Kong. There was also talk of investing in emerging markets ex-China. Basically, people just left China for dead. But by the year's end, the perception of China couldn't be more different. The release of DeepSeek AI from a Chinese company should be a wake-up call for our industries. Tech stocks in China, up again.

2:24Because China, throughout this process, has learned that it has a very critical leverage tool of its own, and that is those rare earths that the United States... At the start of 2025, I think the question was, how bad is China going to get beat up by Trump? And now it seems like the general sense is China won.

2:49This is the Big Tech Asia from Bloomberg News. I'm Wan Ha. Every week, we take you inside some of the world's biggest and most powerful economies, and the markets, tycoons, and businesses that drive this ever-shifting region. Today on the show, we dive into China's dramatic 2025, from dire predictions to technological breakthroughs. How was China able to navigate this year's turmoil largely unscathed? And looking ahead to 2026, what dangers could derail its growth?

3:25Over the past year, I've sat down with John Liu and Shulie Ren more times than I can count. When we talk, it's mostly about China. We've tracked Beijing's response to President Trump's tariff war, its efforts to boost domestic spending, and its push to become the dominant player in artificial intelligence. We even made room for LeBubu, long before those little monsters were peeking out from under your Christmas tree. I asked John and Shulie to join me again earlier this month to make sense of what's been a chaotic year for China. Going into 2025, the mood on the ground was one of apprehension.

3:59China's economy was battling challenges on multiple fronts. Persistent deflation, a crippling property crisis, and a stock market sell-off. Then there was a cloud that loomed over everything else. 2025, it felt like the quiet before the storm. And the storm being named Donald Trump, of course. And quite a storm it was. The U.S. took China and the rest of the world on our tariff roller coaster. The U.S. raised levies on Chinese goods first to 10 percent, then 20 percent, then 145 percent before landing back at 10 percent. Shuli, I want to start with you. It's been a wild ride for China this year.

4:37But as we close the book on 2025, how is China looking? What surprised you the most? Just the fact that the animal spirit is starting to come back in China. That's just so surprising because we just didn't feel that way at the beginning of the year, right? Like when you talk to global investors, what they're saying is that at the beginning of the year, there was the sense that, OK, China does have the world's most powerful factory. It has manufacturing locked. But if AI manages to come along and develop further, there's a chance that, you know, in the future, all the manufacturing will be automated and China will lose its biggest edge.

5:15And it turned out at the end of the year, actually, you know, China is still the world's most powerful factory, despite Trump's tariffs. Now, AI, as you mentioned, was a big win for China. It started the year with that big win in January. DeepSeek came out of nowhere, right? And emerged as this low-cost AI breakthrough. And that triggered a massive sell-off in U.S. stocks. China's DeepSeek is freaking out the AI world right now. What does it say about China that it's managed to clock so much progress in high tech, even as the U.S. was trying to hold it back by restricting sale of these advanced chips that they need to develop AI with?

5:54I think the seeds of success were sold a long time ago. And it's only by the law of large numbers that innovation comes out in China. Let's start with like higher education. To President Xi Jinping's credit, he has fostered higher education during the last 10 plus years. In 2000, basically 25 years ago, only 10 % of high school graduates, they will go to universities. These days, close to half they will go to universities. And engineering is by far the most popular graduate school studies for Chinese students. And if you look at like global rankings of top AI researchers, close to 50 percent graduated from universities in China versus only 18 percent in the U.S.

6:44Now, John, you and I talked in March during the National People's Congress about how the export sector was really at that point the only bright spot in China's economy. And it was facing serious threats from Trump's tariffs. I wonder now, you know, as we look back, what kind of report card grade does China get in navigating this trade war? I would say it gets a B plus. And the reason it doesn't get an A is instead of shipping all those goods to the United States, they're still getting shipped out of China. They're just getting shipped to other markets. But China has a trade surplus of over a trillion dollars for a second year.

7:24And it's not a sustainable way to run an economy. What does that, though, say to you about China, that it's managed to pull off a record trade surplus of a trillion dollars, that it's emerged unscathed, really, from this trade war? Economic central planning has its advantages, right? Like, you cannot pull this feast of blocking rare earth exports if you do not have a powerful central planner. It's pros and cons. And in the way, you start to see a little bit more central planning even coming out of the U.S. The Trump administration, they are trying to adapt somewhat China's industrial policy because they do recognize its advantages.

8:09Trade war winds aside, we're also seeing China's tech industry drive the stock market revival after a couple of really rocky years. We're now seeing tech rallies and markets rebound. And I guess that raises the question, is China investable again? So this is a little bit processy, but, you know, every morning we get together as a newsroom and we decide what are going to be the biggest stories of the day. And when we have a exciting IPO coming to market, as we had today, the company called MetaX, which makes chips, people are hoping it might one day be China's answer to NVIDIA. For a company like this, for an IPO, we set a bar for how much the stock has to go up before we send alerts and read flashy headlines everywhere to let people everywhere know something big has happened.

8:56And as we were talking about it, our colleague on the stock market team said the bar would be a 50 % increase in the stock. And I had to stop. I said, five, zero? And she's like, yes, 50%. I know our expectations are very high. When I looked before I came back, the shares were up 755%. Wow. That's crazy. That's something that would not have happened in 2024 in China. And I think it speaks to greater confidence, more optimism about technology and the investability of China. But that's primarily a local Chinese investor base we're talking about getting into that stock. I don't know that investors in the U.S.

9:38or Europe, their minds, I don't think, have changed as much. So then what do you think in terms of the broader picture? I mean, are we seeing that fundamental shift in how foreign investors are now looking at the Chinese market as well? This year, in 2025, AI is a huge theme. And any market that doesn't have the AI exposure, they're just not going to do as well. And I'm talking about India. Whereas China, right, now we have this AI exposure. And you just cannot stay out of this market at this point, because we all know this theme is going to continue into 2026. And there are two competing forces fighting for the crown jewel, right?

10:18Who wins the AI race? And you cannot invest in the U.S. without investing in China somewhere as well, just as diversification. Now, to the extent that China's navigated this year's turmoils so well, how much of the credit goes to President Xi Jinping? and what that says about his leadership? I think, you know, in a system like China that is so top-down, there has to be a lot of credit given to Xi Jinping and the way that he not only executed his strategy, but his decision to use the strategy to stand up to the United States by putting up tariffs every time Trump put up tariffs, to put an emphasis on technology, to be willing to spend the billions and billions of dollars that Beijing has thrown at chips and AI, not knowing if ultimately it would pay off.

11:08I think a lot of credit goes to him. Shuli, you have any thoughts on that? I think it cuts both ways. This year, we are seeing a very strong China standing up to a bully, basically President Trump, right? But three years ago, we also saw a very iron-fisted China refusing to exit COVID-0 and locking down a big chunk of the nation. So I think it all depends on the narrative, right? Like maybe in 2026 or 2027, the narrative will shift back. It's just the nature of China's political system, I suppose. I think Shruling makes a very good point. And I would add that like on certain fronts, the success that President Xi has had vis-a-vis Trump, vis-a-vis tech, vis-a-vis markets, belies the fact that actually the domestic economy in China is in many ways still suffering and in many ways probably in a worse condition today than it was at the end of 2024.

12:07Coming up after the break, how China's domestic challenges from rising deflation to youth unemployment could undermine the gains it made this year.

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13:30Going into 2025, China's top priority was to get its population spending again. That push hasn't had much success. Consumption was soft throughout the year, and China's leaders have again made consumer spending the top priority for 2026. It's an uphill battle. Chinese consumers are increasingly price sensitive. That's prompting businesses to roll out steep discounts to lure buyers. But Bloomberg's Shuliren and Zhang Liu say the price wars don't seem to be helping much. I just don't see Chinese people consuming at all. I mean, this whole deflation thing, it's a mindset, right? If you expect a cup of coffee to cost 10 yuan this year, next year it might just be 8 yuan, right?

14:17Like, it's so ingrained. Like, it's very common for consumers to go to a restaurant and ask for deals at this point. Like, before people start ordering, they will open their Dianping or Meituan app and start looking for online deals. What does it feel like for you, John, on the ground there in terms of spending and deflation? You know, I can feel the prices going down because I am enjoying a lot of discounts. So in some ways, not bad. But the other thing that I've noticed is how much people are saving. Chinese households have always been big savers. But during the pandemic, it got really outsized.

14:59I think at some point, people were saving a third of their incomes. And I think that reflects the sense that, you know, if you're getting ready for retirement, you're getting ready for old age and maybe needing medical care, you are depending on yourself, you're depending on your family, you are not expecting very much help from the government. So with all that saving that's going on, what does it mean for China on whether it's on track to meet the 5 % growth target that it had set earlier this year? I think China will meet the 5 % GDP target. That I believe is pretty clear. But I think what's interesting there is the 5 % GDP target is real GDP growth.

15:39So real GDP growth is nominal. So you take the actual dollar terms of GDP this year and you subtract what last year was and you get the difference. And then you account for inflation or in China's situation, deflation. And so actual nominal GDP is actually, it may not even hit 4 % this year. But because there's deflation in China, you know, we're adding on another percent of growth to compensate for that, which is how you get to 5%. So yes, we'll get to the target, but no, it may not feel like we're growing that fast on the ground. With prices falling all across the board, China is experiencing its longest streak of deflation since the 1990s.

16:26Economists worry that if deflation persists, China could end up experiencing its own version of Japan's lost decades of economic stagnation. One of the biggest issues China has to deal with, John says, youth unemployment. Youth unemployment is much higher, multiples higher than the rate of unemployment for other segments of the population. And I think that reflects both a stagnation with corporates because of deflation. They're not growing, so they're not hiring more. I think it's probably also starting to reflect the prevalence of AI. And so companies just in their hiring, their behavior has changed.

17:09Other than that, I think property is still a big issue. Falling home prices makes everybody feel a little poor, even if their incomes are not changing. There's talk about providing subsidies for people's mortgage payments. And so that could help. But, you know, we're still watching prices go down. China's real estate sector has been declining since 2021. Both investment in property and sales of real estate have fallen since their peaks that year. Local governments, which rely on property sales to fund their budgets and invest heavily in real estate, are trillions of dollars in debt. All of these domestic issues are leaving the Chinese economy vulnerable to risks abroad.

17:52China shifted its economic strategy to a reliance on foreign demand to drive growth for much of this year. That created a trillion-dollar trade surplus that John says could create a problem for China down the line. You cannot have the livelihoods of your people based on your ability to sell a trillion dollars more stuff than you buy from other people. That sort of statistic means that there's just going to be endless trade tensions. And we've seen that between China and the Europeans, Latin America, even with some African countries. Just the flood of goods coming from China, you know, they're cheap.

18:28And companies in those other jurisdictions find it very hard to compete. For example, recently, there was a spat with the EU trying to put tariffs on European pork imports. The EU put tariffs on Chinese cars. And actually, just this week, China actually lowered the tariffs that it was putting on European pork to somewhere between 4 % to 14%. And it had been as high as over 60%. And in turn, you saw the French president, Emmanuel Macron, saying that, you know, putting up tariffs would not be the cooperative way to deal with these differences. And so I think you see both China and its trading partners trying to find a way to get through this.

19:12However you slice it, 2025 has been a big year for China, an uncertain start, a mountain of opposition. But the country has stuck to its principles and done a good job of resisting a double-barreled onslaught in the form of tariffs and verbal abuse from Donald Trump. But that resistance hasn't come without a cost, and there are plenty of challenges ahead for China. If you speak to business people in China, people still talk about Taiwan. It's still an issue that has not been resolved. So this kind of tensions might flare up. And again, the interaction with the White House, I mean, that is still a question mark.

19:53So in 26, I think there's a very interesting phenomenon where President Trump says he's going to visit China in April and that he wants President Xi to then visit the U.S. But then at the end of the year, China is hosting APEC in the middle of November in Shenzhen. And then the United States is hosting G20 in Miami. And so you have the situation where the two presidents could meet each other face-to-face four times in 2026. That could provide pillars of support, stability for the relationship. But it could also, as we've seen ahead of these meetings, you have the potential for flare-ups to happen.

20:31People are trying to put themselves in the best bargaining position by putting out this tariff or that export control. And so it could also be that next year we're going to see four flare-ups before we see four solutions. And so it could be more tumult, if anything. So as we wrap up, music for thought. What do you think is a good theme song for China as it steps into 2026? I will pick Beatles' Yellow Submarine.

21:02We just have no clarity into the future, right? Like we just have a glimpse of this and that. And then we're just hidden under the water. And I feel like 2026 is going to be like that. And John, what about you? One of the big issues for China at the moment is there is a lack of money for a lot of local governments. And to some extent, even the central government. And you see a lot of local governments, because the property market is so bad, they used to make so much money selling land. That money's gone. They're finding it hard to finance the projects they want to do. And so the song I would pick is, there's an old Motown song called Money.

21:39The best things in life are free. I think it goes, but you can keep them for the birds and bees. I want money. What I want, that's what I want. That's what I want. That's how it goes. That's Bloomberg's John Liu, ladies and gentlemen. John truly, you guys have been fantastic. Happy holidays to you all.

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