China might be off to a good start in the Year of the Snake. Three recent events could set a positive tone for the next twelve months: AI, Myanmar, and Hong Kong. The future remains highly volatile because of Beijing’s adversarial relationship with Washington, an open war in Ukraine, and massive instability in the Middle East.
AI
First up is the promising debut of the AI company DeepSeek. Thanks to some clever engineering, it’s performing as well as, or better than, American AI companies. DeepSeek’s success has reportedly knocked some $600 million off competitor Nvidia’s stock value. Nvidia produces top-of-the-line microchips, previously considered essential for AI. DeepSeek’s success without these chips suggests they aren’t as vital as the US press has made out.
This suggests American attempts to maintain a tech lead over China have fallen short. Beijing has caught up, and possibly even outmaneuvered, the US in a crucial tech area with significant military implications. Years of trying to cut Beijing off technologically might have backfired spectacularly.
The US is likely to spend some time figuring out why China made such strides, and its response is uncertain. Whether the US will continue its technological decoupling strategy or adopt a new approach remains to be seen. In the meantime, DeepSeek’s success might be a much-needed boost to China’s flagging domestic confidence at a sensitive time. It’s a significant win for Xi Jinping, though the long-term effects remain unclear.
Myanmar
The second development involves regional geopolitics. China recently announced it brokered a deal between Myanmar’s government and rebel groups. It’s early days, and past peace deals have often fallen apart after a few weeks or years of apparent success. This one might, too, but for now, it opens up some essential logistical and political opportunities.
Crucially, it reopens China’s land route through Myanmar to the Kyaukphyu deep-sea port in Rakhine State, on the Bay of Bengal, linking Yunnan Province to the Indian Ocean. It also potentially creates a land route from Mumbai to Ho Chi Minh City, intersecting north-south routes to China. This puts Thailand in a powerful position. Thailand is a key transit hub for east-west and north-south routes, connecting the Malay Peninsula, Kunming, and Beijing. Thailand is currently at odds with China over a railway project that could run through Laos and Cambodia and bypass Bangkok and the Malacca Strait, ending in the port of Ream in Cambodia. Ream could replace Ho Chi Minh City in Cambodia. The new peace in Myanmar could influence the railway’s route and Bangkok.
Hong Kong
The third piece of good news concerns Hong Kong. Beijing plans to inject serious life into the city’s struggling stock market with a wave of new listings. Reports suggest at least $20 billion worth of new listings this year. This could revitalize Hong Kong and its market, offering an alternative to what some see as an overvalued and crowded Wall Street.
The Uncertain Future
It’s still anybody’s guess how these three developments will play out. DeepSeek might have hidden flaws and fail to gain traction. Myanmar’s decades-long conflict could quickly reignite. The Hong Kong listings might not be popular with a global market uncertain about the city’s future. China’s attempts to control regional land routes fully without broader agreements could further isolate Beijing politically.
A crucial element could be how they play out with the internal economy, which has never fully recovered since Covid. Domestic confidence is weak, and the IMF thinks China’s deficit this year could exceed 13% of GDP[i]. It would indicate that with a 5% growth its economy is underperforming compared to the investment. China may have much to ponder in the future and not just be satisfied with the year’s onset.
Nonetheless, for now, these are positive developments for China, and they offer Washington much to consider. On the other side of the Pacific rim, Washington might need a more comprehensive, long-term strategy toward Beijing. Technological and trade decoupling alone may not be enough.
[i] See https://www.economist.com/china/2025/01/09/does-china-have-the-fiscal-firepower-to-rescue-its-economy
