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In the Western tradition, the snake is a nasty piece of work symbolizing an evil unleashed on the world by a ditzy nudist sharing the wrong apple. The East is a little more nuanced about these things. Chinese New Year celebrations will continue until 12 February saying goodbye to the Year of the Dragon and ushering in the Year of the Snake: an auspicious period full of wisdom and transformation. Given the last decade, Beijing is going to need heaps of both. Mind, if Chinese New Years are anything like their Western counterparts, the country has about 10 days to affect this transformative wisdom before booze and carbs reassert themselves.

Which is exactly what President Xi was trying to do when he announced in the non-Chinese New Year address that the economy had hit its longstanding 5% growth target, again. There is Madoff-like consistency in Chinese growth numbers that, like the age of their Olympic gymnasts, is hard for a gweilo to sort out. He failed to mention the investigation into a local economist who suggested otherwise. Several estimates peg the actual rate growth closer to 2.4 to 2.8%. The inflation rate is 0.2% (well under the government’s 3% target) which is a hell of a thing given that the renminbi just hit a 16th month low against the dollar.

Enough about the Dragon, what can we expect from the Snake.

Theoretically, the sinking currency (and a stronger dollar) should make Chinese exports cheaper. They are going to need it: Neighboring Vietnam has just imposed a 97% anti-dumping levy on China’s low-cost wind towers; the EU is throwing up their own tariffs, with more on solar panels and EV’s; Chile is taxing low-cost Chinese steel before it shutters local producers and Donald Trump has slapped a extra 10% levy on everything China as is making noises about China plus One.

A weak currency, as well as Chinese retaliatory tariffs, will make foreign imports more expensive, which might spur the domestic consumption China needs. It might not: the country’s property sector, home to some 70% of household savings, has burned up some $18 trn of the country’s collective nest egg since 2021. Compounding that, Communist Party’s policy has been working against itself for years like one of those bamboo finger traps. For years now, Beijing has been trying to stimulate domestic consumption with one finger while President Xi is pulling in the opposite direction, demanding a grateful citizenry to work harder and (I’m not making this up) “eat bitterness” for the future of China. No doubt it builds character, but it’s hardly the thing to make someone splash out on a new car.

In short, the signs are not auspicious for the snake shedding it’s low-growth skin.

This is a precarious position for an economy managed by bureaucrats who don’t understand free market dynamics and are under the sway of a Maoist dictator who understands them even less. The Chinese model is folding in slow motion under the Queen Mother of demographic misalignments, as well as the fundamental flaws inherent in the system.

In 2018, China had roughly 50,00 tech start-ups. Then came the crack down on Hong Kong and the tech sector in 2020 leading to a drain in both talent and capital. In 2023, there were 1,200 start-ups. Still, policy missteps aren’t the real problem for China beyond 2025: Its innovation is funded by a single buyer, the Communist party. The chaotic wild-caters who make up the American economy may be sloppy as hell, but they also create a dynamic free market juggernaut that a single party clinging to power can’t replicate.

Chinese start-up DeepSeek’s “sputnik” moment not withstanding, dominating markets isn’t about single break-throughs, but what you do with them. During the Cold War, the USSR invested a larger share of its GDP in research and development, and employed about twice the number of scientists and engineers - but they just couldn’t tap into that innovation fly-wheel. The Chinese model has fared better, but its ability to build on innovations may be contracting.

Additionally, China is pricing itself out its phenomenally successful export-led model. It’s hard to argue that a country that became the third largest economy in the modern world in 2007, when it beat out Germany, and then eclipsed Japan for the number two spot three years later, is still a “developing economy” as Beijing likes to claim. To fund all this economic growth free from US dollar reserves, Beijing started buying massive amounts of gold while attempting to create a “super-sovereign reserve currency.” Yet, because of its explosive growth the banking system essentially grew faster its the economy, so Chinese banks and corporations became more, not less, integrated into the international dollar denominated system. They seem very chapped about it.

Economies, companies, governments, farms or families are scalable, but only up to a point. When they grow (or contract for that matter) enough their internal dynamic changes. It’s hard for an economy the size of China to export it’s way out of the doldrums with it’s cost of labor rising fast while smaller, poorer, neighbors are taking advantage of the global China pushback to engineer their own hyper-dynamic growth models to move up the value-add supply chain themselves. China is still a huge economy, but it is limited with what it can do with its Global South playbook

Behind all of this is an ocean of cheap and accessible oil. So it is a cruel irony that the country desperate to control the elements of the green transition has become the world’s single largest oil importer as well as greenhouse gas emitter. China was self-sufficient in oil until 1993. Not that they had a lot of the stuff, until about 1980, the place was pretty medieval. As its entry into the free market took off… well… they ran out.

In was less than auspicious timing. China watched the US Navy block the Persian Gulf in 1991, and again in 2003. That was when then President Hu Jinato outlined the problem in terms of national security as “the Malacca Dilemma.” The Strait of Malacca is a narrow waterway between Malaysia and Indonesia connecting the South China Sea and the Indian Ocean; through which flows nearly all of Chines oil imports. And Beijing is well aware how easy it will be for the US Navy, AUKUS forces, or the Quad to blockade the strait.

It may not even require a war. Thanks to tightened sanctions targeting not just ships, but the ports themselves, there is, at the time of this writing, some 20mm barrels of oil are stranded at sea, mostly in and around the Strait of Malacca. Iran is still shipping some 4mm barrels a day, vaguely in the direction of China, but the ghost ships no longer have a fixed port in mind. With China importing the equivalent of 70% of Saudi Arabian output, it explains their obsession with the South China Sea, and the other Strait we are hearing so much about these days.

China can’t really project power globally and 2025 won’t change that. They’ve got a naval base in Djibouti to keep an eye on the Persian Gulf, but they can’t do much about anything that actually happens there. Unlike the Japanese navy that ran amok in the 1940, China’s enormous fleet isn’t built for large naval warfare; it’s more fit for patrolling and, not to put too fine a point on it, piracy. Beijing had a terrible time with their stealth submarines: they seemed to sink smoothly, but coming back up without a crane is proving to be a real a bitch. With Russian technology transfers, they are improving.

Still, China is building up its military to back up a threat, but it is leaning into the cheaper and less risky tactics. Traditionally Beijing has been much better at the projection of economic, rather than military, power: It has absorbed the vast bulk of the Taiwanese manufacturing base – some 80% of Taiwanese ICT products are manufactured in China. Still, Big Panda is on a nationalist roll, and he wants to make it honest with Taipei. Which raises the question: Can he force the point?

Maybe. War over Taiwan in unlikely this year, at least on purpose. A few years back both the US and PLA navies war gamed Taiwan, and both naval forces came to virtually the same conclusion: If the Chinese navy stays in the Strait of Taiwan it will win. If it breaks out of into the South China Sea, it will lose. The other side of the coin more or less applies to the US navy: If it can draw China out of the strait, it wins, if it is drawn into the strait it loses. The whole conflict is a preloaded naval stalemate and both Washington and Beijing know it.

That might not be enough to keep the peace, things happen. The Chinese are playing a dangerous game with all its military drills and harassment of Taiwan and every fisherman in the South China Sea. Each international incident increases the opportunity for things to get out of hand. If they do, China has an asymmetrical advantage both logistically and mentally. If we’ve learned anything from Ukraine, or Israel for that matter, it is that motivation counts when fired up. For China, Taiwan is a fundamental national issue. For the US the whole thing is too abstract to get the blood up. Sure, China is an authoritarian Maoist dictatorship, but that’s their business. They aren’t a real threat to democracy, at least no more than any rowdy democracy is a threat to itself.

The US share of the global GDP is about 26% – pretty much unchanged from the unipolar moment in the 1990s. China’s economic growth may have exploded, but that’s at the expense of Europe and the fashionable global south, not the US. Now the rest of the world is pushing threatening China's export led-model right as its debt has ballooned to our 300% of GDP.

While it might be pretty to think so, China’s economy is not on the verge of collapse. It has economic problems that are essentially baked into an incoherent marriage of Maoism and market dynamics. Again we’re back to the Chinese finger trap: Maoism requires control and unity, innovation requires risk-taking and a healthy disregard for consensus. More importantly, innovation requires that risk-takers aren’t wiped out by failure.

DeepSeek may have been a sputnik moment for AI, but what is more crucial to the future is what is done with the moment. US firms generate over 50% of the worlds high-tech profits, where is China captures about 6%. There’s a good reason for this — for most of US history, the most glaring facet of Washington’s industrial policy was that we didn't have one. By contrast China's subsidy driven, centrally managed model creates isolated pockets of innovation, think DeepSeek, which remain siloed without enhancing broad-based  productivity improvements.

China’s EV industries have received $231 billion in state subsidy since 2009, and the industry can’t survive without them. Contrast this to the US, home to about half the venture capital total that gets spread out among different sectors.

Essentially, China’s political and economic systems are pulling in contrary directions. China’s centrally managed system may be doing better, with deeper market integration, but it is running out of options – politically, demographically, and economically.

The Year of the Snake will have to do more than wriggle out of last year’s skin to transform itself.