The Bund in Shanghai is a one-and-a-half-kilometre waterfront promenade along the Yellow River. With its luxury restaurants and Italian racing cars, the view of Pudong from Bar Rouge on the Bund resembles the capitalist pinnacle of the communist utopia.
On 24 October 2020, Jack Ma, the founder of Alibaba, delivered his now-famous speech at the Bund Finance Summit in Shanghai. It was a powerful speech, albeit somewhat controversial. Ma advocated for global financial reform, including in China. He compared banks, including Chinese banks, to pawnshops, describing the system as outdated. In his view, the Basel Accord addressed an affliction of the elderly—specifically Alzheimer’s—and he pointed towards Europe. However, criticism of old age and authority is a sensitive issue in China, given the average age of the members of the Politburo.
According to Ma, innovation should not be stifled by risk aversion. He used the metaphor of transitioning from railway transport to air transport. Good innovations do not fear supervision, but they do fear applying yesterday’s methodologies to manage an airport. “We cannot run an airport using the same methods as a train station, nor can we manage the future with the methods of the past.”
This speech quickly led to the cancellation of Ant Group’s spin-off from Alibaba. Initially, Ant was set to be the largest IPO in Asia’s history, but shortly thereafter, Jack Ma disappeared from public view. Not only did this cost Alibaba billions, but it also triggered a broader crackdown on China’s technology companies. More importantly, it had profound implications for entrepreneurship within Chinese society.
Thanks to Deng Xiaoping, China began experimenting with free markets and capitalism in 1978. Historically, the Chinese have been known as the entrepreneurs of Asia, making it relatively easy to awaken the ‘animal spirits’ in China.
Animal spirits is the literal translation of spiritus animales, the breath that awakens the human mind. This concept was introduced by Keynes in 1936—the man who was a better investor than an economist. Animal spirits refer to the ways in which human emotions can influence financial decision-making in uncertain environments and unpredictable times. Even today, economists struggle to predict recessions and recoveries, largely due to the difficulty of modelling these animal spirits within an economic framework.
In China, these animal spirits play a crucial role in allowing capitalism to thrive within a communist state. American neo-conservatives are convinced that capitalism can only flourish within a democracy. However, many so-called capitalist nations today have morphed into a unique form of socialism—socialism for the rich—where the free market, a cornerstone of capitalism, is actively suppressed.
From 2020 onwards, China also began to suppress its animal spirits, threatening to undo Deng Xiaoping’s work and derail the capitalist experiment. The good news this week is that Xi Jinping is open to discussions with Jack Ma. This should be seen as a significant policy shift, one that could, by itself, reignite the animal spirits.
Many remain highly pessimistic about China. Yet, the economy continues to perform relatively well. Electricity consumption is currently 35 percent higher than pre-Covid levels. China is also the world’s fastest-growing economy after India. Its contribution to the global economy alone exceeds that of the entire G7 combined. This growth has been achieved despite a shrinking global population. At present, China’s real GDP growth is purely driven by rising productivity.
The biggest challenge for the Chinese economy in recent years has been the remarkably low confidence among both entrepreneurs and consumers. Among consumers, this was largely a consequence of China’s Covid policies. As a result, Chinese bank deposits surged by 90 percent in a short period (1.5 times the level of Japan), leading to insufficient consumption.
Given the undervaluation of Chinese equities, coupled with prevailing negative sentiment, China represents a true value trade: undervalued, under-researched, underloved. It may even be the ultimate Trump trade. A compelling litmus test is the news surrounding DeepSeek. Some outside China believe everything related to DeepSeek has been stolen from the Americans. Others claim that everything about DeepSeek is nothing more than communist propaganda, implying it is entirely fabricated.
Yet, others view DeepSeek’s emergence as the result of failing trade barriers. More likely, however, is that China’s entrepreneurial adaptability—the very essence of capitalism—has led to this success. If combined with a renewed embrace of animal spirits by Beijing’s leadership, this could create fireworks in the stock market. Welcome to the Year of the Snake.
Han Dieperink is Chief Investment Officer at Auréus Wealth Management. He previously served as Chief Investment Officer at Rabobank and Schretlen & Co.