When Xi Jinping came to power a decade ago, China had just overtaken Japan to become the world’s second largest economy.
It has grown at a tremendous pace since then. With an average annual growth rate of 6.7% since 2012, China has enjoyed one of the most sustained expansions of a major economy in history. In 2021, its GDP reached almost 18 trillion dollars, making up 18.4% of the world economy, according to the World Bank.
China’s rapid technological advances have also made it a strategic threat to the US and its allies. It is constant Displacing American rivals from long-standing leadership positions in sectors ranging from 5G technology to artificial intelligence.
Until recently, some economists predicted that China would become the world’s largest economy by 2030, overtaking the United States. Now, the situation is much less promising.
As Xi prepares for his second decade in power, he faces mounting economic challenges, including an unhappy middle class. If it is unable to get its economy back on track, China faces slowing innovation and productivity, along with growing social discontent.
“For 30 years, China was on a path that gave people a lot of hope,” said Doug Guthrie, director of China Initiatives at Arizona State University’s Thunderbird School of Global Management. adding that the country is “in deep trouble right now.”
Although Xi is one of the most powerful leaders China and its ruling Communist Party have ever seen, some experts say he cannot claim credit for the country’s astonishing progress.
“Xi’s leadership is not the cause of China’s economic growth,” said Sonja Opper, a professor at Italy’s Bocconi University who studies the Chinese economy. “Xi was able to take advantage of the rapid development of a constantly entrepreneurial and private movement [sector] the economy was unleashed by previous leaders,” he added.
Rather, in recent years, Xi’s policies have done so It caused massive headaches in China.
Beijing’s massive crackdown on the country’s private sector, which began in late 2020, and its firm commitment to a zero-Covid policy have hit the economy and labor market hard.
“If anything, Xi’s leadership may have dampened some of the country’s growth dynamics,” Opper said.
More than a trillion dollars have been wiped off the market value of Alibaba and Tencent – the crown jewels of China’s tech industry – in the past two years. Sales growth in the sector has slowed, and tens of thousands of workers have been laid off, leading to record youth unemployment.
The real estate sector has also been hit, hitting some of the country’s biggest house developers. The real estate collapse – which accounts for 30% of GDP – has been widespread and strange. middle class dissent.
Thousands of angry homebuyers refused to pay mortgages on stalled projects, fueling fears of systemic financial risks and forcing authorities to pressure banks and developers to quell unrest. This was not the only demonstration of disagreement this year.
In July, Chinese authorities violently dispersed a peaceful protest by hundreds of depositors demanding the return of their life savings to rural banks that had frozen millions of dollars in deposits. The banking scandal not only threatened the livelihoods of hundreds of thousands of customers, but also highlighted the deteriorating financial health of China’s smaller banks.
“Many middle-class people are disappointed with recent economic performance and disillusioned with Xi’s rule,” said David Dollar, a senior fellow at the Brookings Institution’s John L. Thornton China Center.
According to analysts, the Weaknesses in the financial system are the result of the country’s debt-fueled expansion without expansion in the previous decade, and the model needs change.
“China’s growth in the decade under Xi is largely due to the overall economic approach adopted by his predecessors, which focused on rapid expansion through investment, manufacturing and trade,” said Neil Thomas, senior China and Northeast Asia analyst at Eurasia Group. . .
“But this model had reached the point of significantly diminishing returns and was increasing economic inequality, financial debt and environmental damage,” he said.
While Xi is trying to change that model, he is not doing it the right way, experts say, and is putting the future of Chinese business at risk with tighter state controls.
The 69-year-old leader launched his crackdown on “disorderly” private businesses that were growing too strong to contain them. It also wants to redistribute wealth in society, under its “common prosperity” goal.
Xi hopes for a “new normal” where consumption and services become more important engines of expansion than investment and exports.
But so far, these measures have plunged China’s economy into one of its worst economic crises in four decades.
The International Monetary Fund recently cut its growth forecast for China to 3.2% this year, a sharp slowdown from 8.1% in 2021. Better than the second lowest growth rate in the country in 46 years When the initial outbreak of the coronavirus hit the economy in 2020.
Under Xi, China has not only become more insular, but also seen a deterioration in US-China relations. Moscow’s condemnation of the invasion of Ukraine and China’s latest attack on Taiwan could alienate the country. Farther away from Washington and its allies.
Analysts say the current troubles do not yet pose a major threat to Xi’s rule. He is expected to secure an unprecedented third term at the Communist Party Congress starting on Sunday. The priorities presented at the Congress will also determine China’s course for the next five years or even longer.
“It would likely take an economic catastrophe on the scale of the Great Depression to create the level of social discontent and popular protest that could threaten Communist Party rule,” said Eurasia Group’s Thomas.
“Furthermore, growth is not the only source of legitimacy and support for the Communist Party, and Xi has increasingly betrayed the Communist Party’s nationalist credentials to appeal to patriotism and even pockets,” he added.
But to return China to high growth and innovation, Xi may need to roll back market-oriented reforms.
“If he was smart, he would have liberalized things quickly in his third term,” Guthrie said.