China’s Xi battles fires at home and abroad

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China’s domineering leader appears to be fighting the fires on a variety of fronts. Abroad, President Xi Jinping faces a deepening anti-Beijing consensus in the West, as well as pervasive tensions with regional powers and neighbors. At home, Xi ushers in a pivotal moment for the Chinese economy. Its meteoric growth has slowed, a brief post-pandemic rebound has waned, and analysts are pointing to deep structural problems eroding China’s prospects for the future.

Xi and the ruling clique are struggling to cope with the new challenges posed by China’s maturing economy. The country’s population is shrinking and aging at the same time, and questions are emerging about the potential productivity of an aging workforce. At the same time, youth unemployment has reached such dramatic proportions that the government stopped publishing data on it this summer. China’s economy once seemed like the world’s new engine – and the country remains a world trade juggernaut – but there is a sense of stagnation emerging, reflected both in macroeconomic data and in the fading optimism of a younger generation only the boom times.

China’s one-party state cannot repeat the massive infrastructure and real estate stimulus that lifted China out of the 2008 global financial crisis and allowed Xi and his allies to haile the superiority of the Chinese model compared to troubled Western democracies. A decade and a half later, liquidity is tighter, the wounds of the pandemic’s draconian lockdowns are still painful, and China’s overheated real estate sector is particularly indebted, with some big developers teetering on the brink of collapse.

Xi’s ever-increasing authoritarian grip on virtually every aspect of life in China arguably makes matters worse. “The government’s quest for total control has set the country on a path of slower growth and created mounting discontent,” wrote Ian Johnson, senior fellow at the Council on Foreign Relations and longtime China observer.

As China’s economy slows, the responsibility rests with President Xi Jinping

There are repercussions on the world stage as well. “The current downturn underscores a shift in China’s global image,” said my colleague David Lynch. “For years, China’s vast domestic market lured multinationals with promises of huge profits. And it seemed certain that it would overtake the United States as the world’s largest economy.”

But now “the outlook is less rosy,” Lynch wrote, as China underperformed significantly in the second quarter given the pace-setting momentum of its economy over the past three decades.

This may not be a blip as Beijing weathers significant geopolitical headwinds. On a trip to China last week, US Commerce Secretary Gina Raimondo warned that the prevailing uncertainty, fueled by the Chinese government’s tough measures against foreign companies, makes China “uninvestable” in the eyes of US investors.

“China needs to realize that it can no longer rely on the sheer volume of its market to attract this type of foreign investment,” Naomi Wilson, vice president for policy, Asia and global trade at the Information Technology Industry Council, told my colleague Meaghan Tobin . “Even among Chinese companies, there have been moves to relocate outside of China.”

Recent polls of global public opinion show overwhelmingly negative views of China’s influence on international affairs, including in some middle-income countries outside the West. In Asia, the United States has steadily expanded a web of alliances and partnerships with China’s neighbors, with ties strengthened directly out of concern for China’s increasingly aggressive behavior.

Chinese officials resent the suggestion that their state – and not what they see as the overbearing US hegemon – poses a threat to stability and order. But Beijing doesn’t seem to be able to do otherwise. The recent government release of a map claiming territories in neighboring countries including India sparked a diplomatic row with New Delhi, which preceded news that Xi would not attend the Group of 20 major economies meeting in the Indian capital this week will attend .

China’s falling prices are a more serious problem than US inflation

Apparently, Xi’s approach to the moment is to reinforce his nationalist instincts. The visions of a decade ago, when some pundits believed that Chinese leaders would steer the country’s economy towards a more liberalized, market-oriented future, are long gone. Instead, Xi, a aloof supremo with a license to rule for life, has launched a series of radical purges and crackdowns that have impacted China’s political elites and the private sector.

Chinese tech companies have lost hundreds of billions of dollars in value in recent years. Skilled technocrats in prominent posts have been replaced by Xi loyalists. Managers and chief executives of state-owned companies are forced to study and expound the virtues of the “Xi Thought,” a nod to its more doctrinaire Maoist past. For Xi, centralized authority and control are paramount.

This reflects Xi’s weakness. “While Mao Zedong and Deng Xiaoping enjoyed prestige because of their revolutionary pedigree and their exploits in founding ‘New China,’ Xi has no personal legitimacy independent of the Communist Party,” says Chun Han Wong, author of Party of One: The Rise of Xi Jinping”. and China’s superpower future,” he said in a recent interview. “His right to rule is inseparable from the legitimacy of the party, and his power cannot be divorced from the party’s political machinery.”

China’s economic woes could leave the US and other countries nearly unscathed

But what’s good for the party may not be good for the country. “These economic problems are part of a larger process of political torpor and ideological hardening,” Johnson wrote in an essay in Foreign Affairs. “It’s hard for anyone who has watched the country closely over the past few decades to miss the signs of a new national gridlock, or what the Chinese call Neijuan. Often translated as “involution,” it refers to an inward distortion of life with no real progress.”

This malaise could have profound repercussions for years to come. “So far nobody can challenge [Xi] politically,” Ling Chen, an assistant professor at Johns Hopkins University’s School of Advanced International Studies, told my colleague Christian Shepherd. “But economic performance is always at the core of the regime’s legitimacy and it affects how well it can govern the country.”

“Things always fail slowly until they suddenly break,” William Hurst, a professor of Chinese development at the University of Cambridge, told Reuters, warning of the potential impending financial crises that could have high social and political costs. “At some point there will have to be a reckoning.”