China 2024 will definitely not go as planned

Few world leaders will be happier to see the end of 2024 than China's Xi Jinping.

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To say that this year has not gone well for Asia's largest economy is an understatement of historic proportions. The economy limps out of 2024, hobbled by a deepening housing crisis, deflationary headwinds, a fragile stock market and increased protest activity.

And this is even before Donald Trump returns to the White House to start the mother of all trade wars.

Yet 2025 will pose its own challenges for embattled Xi Communist Party. This includes a historical bookend as we approach the 10th anniversary of the Xis Made in China 2025 extravaganza. It will certainly be a slew of report card analyzes that Beijing will not appreciate maybe not particularly.

By 2015, Xi was a few years into China's longest-serving leader. He took power in late 2012 promising to let market forces play a decisive role in Beijing's decision-making.

A big step in this direction was made in 2015, when Xi charted a course through 2025. The plan was to shift an economy fueled by cheap exports and low wages toward niche, high-tech sectors. This meant dominating the future of semiconductors, renewable energy, electric vehicles, aerospace, biotechnology, artificial intelligence, robotics and green infrastructure.

This transition is essential to increase competitiveness and reduce the risks of boom-bust cycles. Xi has made clear progress on most of these ambitions. A decade later, however, it is difficult to say that China is getting closer to what Xi had predicted.

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Certainly, some big challenges have slowed things down. One of them was the Shanghai stock market crash in the summer of 2015. After the market lost a third of its value in three weeks, the Xi team appeared to lose confidence to continue its efforts. disruptive reforms.

Trump's rise to power in 2017 shook the global economy chaotically. His giant China-centered trade war has dampened the party's tolerance for supply-side improvements. The Covid-19 pandemic too.

Then there were the self-inflicted wounds. One of the most damaging occurred in late 2020 when Beijing have cracked down on giant internet companies, starting with those founded by Jack Ma. As the crackdown intensified, investment banks began to question whether Xi's exploits made China uninvestable.

As we approach 2025, the biggest sums of money won't be about to help give Xiconomics ratings. And even the most generous critics will have to wonder why Xi has not achieved much more in terms of transforming China's economy.

The yawning gap between what was promised and China's current situation boils down to Xi prioritizing security over change. What's the point of being the most powerful Chinese leader since Mao Zedong if you can't unleash a dose of Deng Xiaoping every now and then?

Today's China is significantly less open and transparent than the one Xi took charge of 12 years ago. The media and internet climate, circa 2024, is moving in the wrong direction by all available indicators. And rather than learning from Hong Kong's famous capitalist model, Team Xi has sought to remake this once-prosperous city in Beijing's image.

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At the same time, the domination of inefficient and opaque state-owned enterprises, another issue Xi has pledged to tackle, remains a clear and present danger to society. China's capacity to level the playing field.

On the positive side, it is impressive to see Xi resisting the urge to weaken the yuan. Given the deflationary forces building up in China, many are surprised that Beijing is not following Tokyo's lead in pursuing a beggar-thy-neighbor exchange rate strategy.

One of Xi's real reform victories was the internationalization of the yuan. Wisely, Xi has seen how the United States takes its status as a reserve currency for granted. As Washington's debt tops $35 trillion, it seems the time has come for a new currency to make its mark.

Given China's size, it is an obvious candidate to rival the dollar. Beijing's policies are of course a speed bump. The lack of convertibility of the yuan is a problem, as is the lack of autonomy of the central bank.

However, long-term inertia does not depend on the dollar. American policies could accelerate this dynamic by assuming China I cannot present a credible challenge. Or that the BRICS countries, Brazil, Russia, India, China and South Africa, could create a strong alternative to the dollar.

But China finds itself in a difficult situation. It's all the more difficult as the stories surrounding 2025 go wrong.

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