Digital Socialism: Charting China's Path in the Xi Jinping Era.
The Decline of the China Old Economy (Real Estate), Tech Platforms Control, and the Emergence of the Eurasian Empire.
There is a prevailing narrative in the Western world suggesting that China is on the verge of collapse. However, what I find most intriguing is that while a portion of the Chinese economy faces challenges, a new economy is also emerging. We can divide China's history into three major periods: China 1.0, associated with Mao Zedong and communism; China 2.0, during the market opening and globalization era under Deng Xiaoping. Currently, we are witnessing the era of China 3.0, led by Xi Jinping, which marks a return to an imperial China and the aspiration to become a new empire in Eurasia.
Initially, Xi Jinping's intention was to establish an independent China by 2025, capable of competing with the United States in biotechnology and artificial intelligence. However, this has not happened as expected due to the underestimation of the problems of the old economic model, centered on the real estate sector and urbanization in China, which resulted in enormous debt. China is now in a process of readjustment and reconstruction of its economy, a process that has been prolonged, reaching its peak with the crisis of Evergrande and other real estate giants in 2021-2022.
In addition to facing challenges in the real estate sector, China has initiated a purge on technology platforms. These companies were affecting the state's ability to control credit in the Chinese economy, something that is unacceptable for a country seeking to project itself as a rising empire. The new China being shaped implies greater state control over technology companies, while restructuring the real estate sector. Despite concerns about a possible collapse similar to Lehman Brothers, what is really happening is a transformation towards a China that is becoming a leading exporter of machinery to the developing world.
China's globalization is no longer focused solely on developed countries, but also encompasses emerging ones, to which China plans to export machinery to aid in infrastructure development and credit restructuring. Additionally, China is forging strategic alliances with energy-exporting countries such as Russia and Saudi Arabia to ensure demand for yuan in the global energy market, as well as regional energy independence.
Xi Jinping's vision is for China to become a major player on the world stage, backed by a digital yuan and a strong presence in technology platforms. Today, companies like Alibaba or JD, although depressed in price, could represent a great opportunity if Xi Jinping's strategy succeeds. These companies could be a great asymmetric investment.
Thanks for reading,
Guillermo Valencia A
Co-founder of Macrowise
Miami, February 19th 2024