As communist China turns 75 can Xi fix its economy

As the People's Republic of China celebrates its 75th anniversary in 2024, the nation faces significant economic challenges under the leadership of President Xi Jinping. Once a rapidly growing economy, China has recently encountered slowdowns, rising debt, and a complex global environment. The question many are asking now is: Can Xi fix China’s economy, or is the nation set to endure long-term economic stagnation?

For decades, China’s economic growth was nothing short of remarkable. Following economic reforms introduced by Deng Xiaoping in the late 1970s, China transitioned from a planned economy to a more market-oriented one, lifting millions out of poverty and becoming the world’s second-largest economy. Between 1980 and 2010, China's GDP growth averaged nearly 10% annually, positioning it as a global manufacturing hub and economic powerhouse.

However, in recent years, growth has slowed considerably. In 2023, China’s GDP growth fell below 5%, well below the expectations of many experts. Several factors have contributed to this deceleration, including a shrinking working-age population due to decades of the one-child policy, rising labor costs, a reliance on debt-fueled growth, and a global shift away from Chinese manufacturing as supply chains diversify.

One of the most pressing challenges for Xi is the ongoing real estate crisis, which has wreaked havoc on China’s economy. For years, property development was one of the country’s key growth drivers, but the market is now teetering on the edge of collapse. Property giant Evergrande’s default in 2021 sent shockwaves through the financial system, leading to fears of a wider collapse. Numerous real estate firms are struggling to service their massive debts, leaving unfinished projects and unpaid workers in their wake.

In tandem with the property crisis, China’s overall debt levels have skyrocketed. The country’s debt-to-GDP ratio is now over 300%, including government, corporate, and household debt. This massive debt burden limits the government’s ability to engage in large-scale fiscal stimulus to reignite growth.

Since assuming power, Xi Jinping has shifted China toward a more centralized and controlled economy, advocating for a "dual circulation" strategy that aims to reduce reliance on foreign markets by boosting domestic consumption while continuing to engage globally. However, Xi’s policies have often conflicted with market liberalization, a key component of China’s earlier economic success. Crackdowns on major tech companies, like Alibaba and Tencent, and efforts to curtail the influence of private enterprises have dampened business confidence and innovation.

Xi has also emphasized "common prosperity," aiming to address wealth inequality and social imbalances. While this initiative is laudable in principle, its implementation has caused uncertainty among investors and businesses, raising questions about the future role of private capital in China’s economy.

China’s economic slowdown is exacerbated by an increasingly hostile international environment. Trade tensions with the U.S., growing distrust of Chinese tech companies, and geopolitical tensions in regions like Taiwan and the South China Sea have put China in a difficult position. The decoupling of Western economies from China is underway, with countries like the U.S., Japan, and members of the European Union seeking to reduce their dependency on Chinese goods and services.

Moreover, the COVID-19 pandemic has highlighted vulnerabilities in global supply chains, leading companies to diversify their manufacturing bases away from China. This shift poses a long-term challenge to China’s traditional manufacturing-driven growth model.

The road ahead for China’s economy is fraught with challenges, and it remains to be seen whether Xi Jinping’s policies will succeed in steering the country back toward sustainable growth. On the one hand, Xi has immense political power, which could allow for decisive action in addressing key economic issues like debt and inequality. On the other hand, his policies have increasingly emphasized state control and ideological conformity, which could stifle the innovation and entrepreneurial spirit that drove China’s previous growth.

Ultimately, whether Xi can "fix" China’s economy will depend on his ability to balance control with reform, navigate the challenges of an increasingly interconnected global economy, and make difficult decisions about China’s future economic direction. As China turns 75, its economic fate hangs in the balance, with global implications that will reverberate for years to come.