(MENAFN- Asia Times)
The most interesting thing about the DeepSeek-driven stock reckoning is what this moment says about the globe's two biggest economies.
To dispense with the obvious, neither Donald Trump's 2017-2021 trade war nor Joe Biden's more targeted curbs these last four years halted Chinese leader Xi Jinping's tech ambitions. While encountering some speed bumps here and there, Xi's“Made in China 2025” extravaganza arguably just scored its biggest public-relations win.
The shockwaves that Chinese artificial intelligence startup DeepSeek sent through global markets generated the best headlines Xi's economy has had in a long while.
Its promise of a cost-effective AI model using less-advanced chips has America's Nvidia and Dutch giant ASML reeling. It also knocked the chips off the shoulders of Silicon Valley bros cozying up to US President Trump. Suddenly, US tech dominance is in question as rarely before.
DeepSeek's arrival also managed to relegate Trump's big AI moment below the fold. On January 21, Trump stood with OpenAI's Sam Altman, SoftBank's Masayoshi Son and Oracle's Larry Ellison to declare an AI victory for America. Now, that US$500 billion Stargate AI infrastructure project looks like old news and a potential monumental boondoggle.
Yet it's the economic takeaways that stand out most. In China's case, Xi's big win should provide an even greater incentive to accelerate moves to build trust in the Chinese economy. For Trump, this moment is a stark reminder that tariffs won't revitalize US tech innovation in ways that equalize the China threat – only bold policy moves can do that.
On the same day DeepSeek was shaking global markets, new data showed that China's factory activity shrank unexpectedly in January, ending three consecutive months of expansion.
China's official purchasing managers' index slid to 49.1. The non-manufacturing PMI gauge, which includes services and construction, 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.
“The disappointing PMI data underscores the difficulty policymakers face in achieving a sustained recovery in growth,” says Zichuan Huang, China economist at Capital Economics. Despite hints in late 2024 that stimulus efforts were gaining traction, China is struggling amid intensifying headwinds – and those to come as Trump mulls tariffs, Huang said.
Risks emanating from abroad are colliding with numerous pre-existing conditions at home. China's property crisis resulted in the longest deflationary streak since the 1997-98 Asian crisis. Weak household demand and near-record youth unemployment are slamming confidence.
“To even have a chance to improve inflation and confidence,” says Hui Shan, chief China economist at Goldman Sachs, Beijing must deploy“a large stimulus from the government” to generate a real“turning point.”
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