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Opinion | Xi Jinping is putting a strain on China's economy. This is bad for the USA

For a decade, Americans have become increasingly concerned about China, not least because Chinese President Xi Jinping has centralized power, silenced critics, stalled private sector reforms and taken an increasingly combative stance toward the rest of the world. China will overtake the United States as the world's largest economy by 2035, Mr. Xi predicted. China would then resume its rightful position at the center of world affairs.

Instead, Mr. Xi's China is less free, less prosperous and less competently governed than it would have been had he charted a different course — one not inspired by rivalry with the West or fear of his own people . Economic and demographic data show that a world dominated by China is even more unlikely than ever before. Economists have begun revising their forecasts about when China might overtake the U.S. economically — and whether it ever will.

Despite Mr Xi lifting the world's most draconian Covid-19 restrictions at the end of 2022, construction activity in China has slowed, manufacturing prices have fallen and consumer spending has fallen. China's stock market has lost $6 trillion in value in three years. A dozen cities and provinces have been ordered to halt construction of infrastructure projects – cutting off their main source of income.

The biggest economic threat comes from the slowdown in the real estate market. Construction has slowed and more than 50 major developers are either out of cash or insolvent. There are concerns that bankruptcies could leave millions of housing projects unfinished. Buyers who pay in advance fear losing their money.

China's demographics also pose a huge challenge. China had 500,000 fewer babies in 2023 than the year before and recorded 11.1 million deaths last year. The total population has fallen by 2 million and the decline is expected to continue. China has one of the fastest-growing elderly populations in the world and a shrinking workforce. Many Western countries and Japan are also aging. But the problem is occurring more quickly in China and at a much earlier stage of its development – the country is getting old before it gets rich.

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China recorded a respectable economic growth of 5.2 percent last year, but adjusted for falling prices, the real rate is lower. Rather than being an economic juggernaut, China is more likely to enter a period of deflation, the kind of conditions that led to Japan's “lost decade.”

Faced with these challenges, China's leadership appears paralyzed. The country's economic politicians were once highly respected. But Mr Xi's centralized rule appears to have hampered decision-making.

China has tools it can use. A stabilization fund could help shore up struggling stock markets (an idea that was floated and then abandoned). The state could take over unfinished properties to ensure their completion and secure advance payments from potential buyers. They could announce new measures to restructure local government debt. To boost consumer spending, they could launch a stimulus program to pass more money directly to people.

To accommodate its aging population, China could also expand its meager social safety net for the elderly, including now meager pensions, and increase health insurance. This could help the economy now; Due to the lack of government support, people prefer to save rather than spend money. China should also reconsider its official retirement age, which is now a low 60 for men and an even lower (and unfair) 55 for women.

But Mr Xi refuses. He rejects an economic stimulus program with cash transfers to people as “welfare policy”. A staunch communist, he has an aversion to the private sector and prefers to direct state support to inefficient state-owned enterprises. Security concerns and ideological purity outweigh economic growth. In order to curb the decline in birth rates, he prefers to urge young women to stay at home and have more children as a patriotic duty. He seems to prefer to surround himself with yes-men and communist loyalists rather than solid economic technocrats who understand markets.

Some Americans may be relieved by China's efforts; The country will be less able to finance its military buildup, wage trade wars or capture key global markets. That would be short-sighted.

Instead, the United States and the world should hope that Chinese leaders drastically change course. China remains an important trading partner of the USA (along with Canada and Mexico). The US agricultural sector is particularly dependent on a strong Chinese market, including for soybeans, corn and, increasingly, beef. Many trade-dependent U.S. allies, particularly in Asia, also need Chinese consumers.

But the necessary course correction would require Mr. Xi and the Chinese Communist Party to acknowledge that they have failed in their efforts to prove that belligerent authoritarianism and long-term prosperity are compatible. Because they treat Western countries as enemies, they perceive liberalism as chaotic and threatening. In fact, they believe that, to paraphrase Winston Churchill, this is the worst option, barring all the others.

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