OPINION | China will enter the Year of the Fire Horse with confidence about its trajectory

China's President Xi Jinping will enter the coming lunar new year confident of his country's capacity to take on the  US.

Earlier this month, Chinese Foreign Minister Wang Yi addressed a special meeting marking the fifth anniversary of the establishment of the Xi Jinping Thought on Diplomacy Research Center in Beijing. Wang made two important declarations.

First, he told us that Xi “holds the future and destiny of humanity in his heart,” indicating that Beijing’s foreign policy agenda was global.

Second, he concluded that China had now “become a responsible major power with greater international influence, innovative leadership, and moral appeal, and its relations with the world have entered a new period.” These remarks are reflective of the confidence that Beijing appears to have drawn from developments this year.

The decisive factor, of course, is Beijing’s report card in handling the first year of Donald Trump’s volatile presidency. Over this period, Washington and Beijing have been locked in an intense cycle of economic competition and coercion. If this contest is imagined as a bruising bout between two heavyweight pugilists, there has been no knockout—but Beijing is ahead on points.

Trump’s electoral victory was greeted in Beijing with palpable anxiety. The initial weeks were marked by outreach mixed with uncertainty, as Chinese officials sought to identify the right interlocutors and decode the instincts of the new administration. But as the contours of the competition hardened, Beijing began to push back, drawing on tools it had deliberately accumulated over time.

This response was underpinned by a growing sense of confidence. China had already reduced its dependence on the US market, with exports to the United States falling from 19.2% in 2018 to 14.7% in 2024. Equally importantly, significant strategic thought had gone into the design of retaliatory countermeasures.

The message from Beijing was unambiguous, i.e., unlike other countries that might hesitate, absorb pressure, or ultimately yield to US coercion, China would respond in kind, and escalate if necessary, while still keeping the door to dialogue open.

The October 30, 2025 truce between Trump and Xi Jinping in Busan marked a clear inflection point in this competition. The agreement, which called on both sides to largely pull back for a year, would have reinforced Beijing’s belief that it could look Washington squarely in the eye and be treated as a peer power—at least in economic and technological terms.

This message has a ripple effect across the Indo-Pacific and the wider world. What further adds weight to it is the damage that the Trump administration’s policies have done to political trust between the US and its allies and partners.

It’s some coincidence that a week after Trump announced Liberation Day tariffs, alienating the world, the Communist Party held its first-ever Central Conference on Peripheral Work in Beijing. The meeting hinted at an ambitious agenda of integrated engagement, with the aim being to structurally tie countries across the Indo-Pacific close to China. Among other things, a key outcome that Beijing desires is ensuring that regional actors lean towards it in terms of the broader strategic competition with the US.

The two big dates in China’s diplomatic calendar for 2025 provided glimpses of the manifestation of the leadership’s broader geopolitical vision. At the Shanghai Cooperation Organisation summit, Xi unveiled the new Global Governance Initiative. This aligned with the message that was delivered during the subsequent commemoration of the 80th anniversary of the end of World War II in Beijing.

As American policy grapples with internal contradictions and the impulses of isolationism and national supremacism, China is positioning itself as the inheritor and reformer of the post-war institutional order.

The key to Beijing’s ability to shape the future of the global order, however, lies in its economic strength. China’s export engine has managed to weather the storm of Trump’s tariffs. In fact, the country’s trade surplus hit a record $1 trillion in the first 11 months of the year. In RMB terms, exports grew 6.2% year on year for the January to November period. However, deeper challenges remain.

Domestic consumption, which received an artificial boost through extensive subsidies in 2025, remains weak. The leadership clearly recognises this, given that boosting consumption has been listed as the priority task for 2026. However, there are questions around whether there exists political will to undertake the structural adjustments that are required to build a consumption-driven economy.

In addition, despite Xi’s outreach to entrepreneurs and tech industry leaders in February, overall private sector investment has declined. The property sector continues to remain sluggish, with home sales in the January to November period shrinking 19% year-on-year, and profitability for China’s real estate giants plunging. Finally, there is a brewing concern around weakening industrial profits and price-cutting and involution-style competition weighing heavy on overall development objectives.

Toward the end of the year, the Chinese leadership laid out the broad contours of the 15th Five-Year Plan, which will shape economic development through the end of the decade. Great power competition sits at the heart of this blueprint. But Beijing’s ability to compete, and ultimately prevail, will hinge less on diplomacy or resolve than on its capacity to stabilise and revitalise its economy. The leadership is clearly aware of this reality. The more consequential question is whether it can summon the political will and policy coherence required to deliver.