Trade War

Newsletter 248 - February 23, 2025

Welcome to the 248 edition of Trade War.

A look at the entrepreneurs invited to the Xi Jinping meeting reveals Beijing’s priorities. Don’t assume that private business is out of the cold for good. And China’s top leader tells executives to “fulfill social responsibilities” and “give more love to society.”

In his “America First Investment Policy” memorandum, Trump announces new curbs on Chinese investment. And the US State Department fact sheets on Taiwan and China are changed, raising ire in Beijing.

With JD Vance’s patronizing speech in Munich, the US continues to alienate Europe, pushing it closer to China. Japanese diplomat warns US-Russia talks on the fate of Ukraine could lead to war in Asia. And China wins ever more global supporters of its goal of dominating Taiwan.

Notable/In depth

• .What’s behind the seeming contradiction between China’s tech successes and its struggling economy?

• Legal expert Jerome Cohen explains how Deng Xiaoping’s economic goals drove Chinese legal reforms

• TikTok parent ByteDance expected to easily weather any TikTok ban

What’s behind Xi’s meeting with entrepreneurs?

Some quick thoughts on the meeting last Monday between Xi Jinping and a group of China’s top entrepreneurs. Many are heralding it as signaling a long-awaited shift in Beijing’s fraught relations with the private sector. I don’t buy it ~

Why did it happen now?

—It has everything to do with the global environment confronting China. Just as when Xi last called a meeting with entrepreneurs in 2018, Beijing is facing the prospect of a trade war with Washington under a Trump presidency. That means it’s time to circle the horses and ensure all economic players are pulled in to help the country withstand the hard times ahead.

—China has been heavily reliant on exports for growth in recent years, something that will become become much more challenging going forward. To find new drivers of economic growth at home, the country needs the contribution of its private companies.

—Private sector investment and household consumption have been very weak. Xi needs to reassure entrepreneurs that they are once more a valued part of the Chinese system and get them to start investing, hiring and lifting incomes; that has the potential to kill two birds (investment and consumption) with one stone (a more confident private sector).

—China just saw its largest-ever drop in net foreign direct investment—a record $168 billion—since it started keeping records in the 1990s. While that is in part due to Chinese investors going abroad, it is also because foreign investors are putting very little money into China, only $4.5 billion last year—and China needs the private sector to help pick up the slack at home.

Why was the gathering largely made up of the heads of tech companies?

—High-tech production is what Xi has decided will be the future of China, its primary source of productivity and innovation. Remember the “new three” of photovoltaic cells, lithium-ion batteries and new energy vehicles? And of course, Beijing’s priorities in high-tech extend far beyond that trio to include semiconductor chips, robotics, AI and quantum computing.

—Meanwhile, a strong argument can be made that China desperately needs to find new growth drivers after the collapse of the property market; it once accounted for up to 25% of GDP but has been falling. High-tech industries contributed to 15% of gross domestic product last year and are expected to reach a 19 percent share and overtake the housing sector by 2026.

What comes next?

—Probably lots of surprises. Don’t forget what happened last time following the 2018 meeting: after promising entrepreneurs that they were valued members of China’s economy, Xi launched a sweeping crackdown on companies including Alibaba’s Ant Group, halting its much-anticipated global listing, banned the private tutoring industry slamming companies like TAL Education, and launched a data security investigation of ride-sharing giant Didi Global and anti-monopoly probes of food delivery platform Meituan, Alibaba, and Tencent. Companies paid steep fines and some $1 trillion in market value vanished as investors backed off.

Who was at the table?

Studying who sits where at formal meetings in China reveals a lot about official priorities.

“Xi and other members of the Politburo Standing Committee sat at a long green table in the Great Hall of the People in Beijing. At least 31 business leaders were organized around them in two rows, and observers can tell a lot from the seating chart. Front and center, for instance, was Ren Zhengfei, founder of telecoms firm Huawei, and Wang Chuanfu, founder of carmaker BYD. The two companies represent China’s all-out push to cultivate homegrown technology in chips and electric vehicles and together raked in a reported $150 billion in global revenue in the first three quarters of last year—even despite far-ranging sanctions and tariffs by several western countries,” reports The Wire China.

“Just as interesting, of course, were the companies that were left out of Xi’s meeting. For instance, Robin Li, CEO of Baidu, a leading force in China’s AI efforts, was conspicuously absent: the company’s shares dropped 7 percent on Monday as investors interpreted the absence as a sign that Baidu has lost political favor.”

Interestingly, no one from TikTok parent ByteDance or e-commerce giants Shein and Pinduoduo, parent company of Temu, were in attendance. And no surprise, there were no representatives from China’s struggling property industry.

“The exclusions weren’t necessarily a snub—but inclusion was a clear signal of relevance and alignment with Beijing’s vision for the future.”says Lizzie Lee, a fellow at the Asia Society Policy Institute.

“If you’re a semiconductor, AI or robotics company, or an electric vehicle battery maker—one of those areas that is seen as high-tech that Xi Jinping and the party have blessed—then benefits will come your way,” says Dexter Roberts, a nonresident senior fellow at the Atlantic Council’s Global China Hub and author of this China newsletter. “But does that mean there’s been a 180-degree turn and [these companies] don’t have to worry? I would say absolutely not.”

Guess who was sitting at the end of the table, away from the power zone, even if he got a handshake from Xi, Alibaba’s Jack Ma (same with DeepSeek’s Liang Wenfeng and Tencent’s Pony Ma.)

Also notable: the fact that state television mainly showed the entrepreneurs from the back, minimizing their importance, and keeping the focus instead on Xi. Check out this video (Chinese) from state broadcaster CCTV on the meeting.