2025 has been a year of dramatic twists in global trade, technology, and geopolitics, with one lesson standing out: never underestimate China. At the beginning of the year, the world’s second-largest economy appeared to be in steep decline. Economists predicted lost decades reminiscent of Japan in the 1990s, as China faced the so-called “3D problems” — deflation, debt, and demographics.
Manufacturing dominance was being challenged by Trump’s trade policies, and exporters were aggressively diversifying supply chains abroad. Investors largely abandoned the market, convinced that China’s structural problems were insurmountable.
By the year’s end, the narrative had completely reversed.
President Xi Jinping emerged as the foreign leader most capable of standing up to U.S. trade pressures, forcing Trump to retreat by strategically leveraging Beijing’s control of rare earth materials. China retained its status as the world’s premier manufacturing hub, even as some European businesses acknowledged they had little to sell to the Chinese market. Foreign investment has surged back, buoyed by an AI-driven boom that lifted Hong Kong’s stock market to a four-year high.
So how did China pull off such a dramatic turnaround in technology, biotech, and even defense? The answer lies in a combination of foresight and underappreciated potential.
First, Xi’s long-term focus on education is finally bearing fruit. Today, roughly 40 percent of Chinese high school graduates attend university, compared to just 10 percent in 2000. Engineering dominates postgraduate studies, producing a talent pool of unprecedented scale. Between 2000 and 2020, the number of engineers rose from 5.2 million to 17.7 million. By 2022, nearly half of the world’s top AI researchers in the 20th percentile of influence had completed their undergraduate studies in China, compared with 18 percent in the U.S.
The implication is clear: with such numbers, innovative breakthroughs are statistically inevitable. China retains its cost advantage in advanced manufacturing, and the demographics reinforce its competitiveness. Nearly 44 percent of engineers are under 30, versus 20 percent in the United States, and research salaries are roughly one-eighth of those in the U.S. Even major corporations like Apple find it difficult to leave China without losing access to this talent and manufacturing infrastructure.
Second, China’s approach to AI is pragmatic rather than theoretical. While the United States chases the elusive goal of artificial general intelligence, Xi has pushed the sector to focus on applied AI, particularly solutions that enhance manufacturing efficiency. Across the country, “dark factories” employ industrial robots that operate with minimal human supervision, while AI accelerates logistics, product design, and development cycles.
These efforts are paying dividends. China’s trade surplus reached a record US$1 trillion in 2025, surpassing Germany and Japan, with the fastest growth in advanced manufacturing sectors such as automobiles, integrated circuits, and shipbuilding. Productivity gains are tangible, and the nation’s industrial base is as robust as ever.
Third, China’s deflationary environment, often seen as a weakness, has created unique advantages for certain domestic brands. Local companies that successfully cater to consumers’ preferences have managed to charge premium prices, enhancing competitiveness on the global stage. A case in point is Guangzhou-based Pop Mart, whose popular Labubu figures boast a 70 percent gross profit margin — more than double that of a typical toymaker.
Looking ahead, Chinese brands are expected to gain increasing global recognition for their design, aesthetics, and innovation. From quiet luxury designer bags to high-end appliances, fragrances, and artisanal foods, the so-called “China chic” is poised to influence markets worldwide. The U.S. remains a notable exception, as Chinese exports there fell by 19 percent this year.
The question that remains is how Western thought leaders so profoundly misjudged China’s trajectory. The country’s pandemic-related lockdowns until late 2022 undoubtedly obscured its potential, but there is also a broader reluctance among elites to engage fully with China. Political and regulatory differences, coupled with concerns over investment exit risks, discouraged some from exploring opportunities firsthand.
Yet, one fact stands unchallenged: China cannot be ignored. In 2025, it has demonstrated not only resilience but also an ability to innovate and assert global influence in ways that reshape the economic and technological landscape. As the world enters the next decade, Xi Jinping’s China stands ready — a fully recharged economic superpower with a sharp edge in AI, manufacturing, and consumer innovation.
