For the past decade, Americans have worried increasingly about China, not least because Chinese President Xi Jinping has centralized power, silenced critics, stalled private-sector reforms and taken an increasingly combative posture toward the rest of the world. China was set to overtake the United States as the world’s largest economic power by 2035, Mr. Xi predicted; China would then retake 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 taken a different course — one not inspired by rivalry with the West or fear of his own people. Economic and demographic data show that a China-dominated world is even less likely than it ever was. Economists have started revising their predictions on when China might overtake the U.S. economically — and if it ever will.
Despite Mr. Xi lifting the world’s most draconian Covid-19 restrictions at the end of 2022, construction in China has slowed, manufacturing prices have declined and consumer spending has flattened. China’s stock market has lost $6 trillion in value in three years. A dozen cities and provinces have been told to halt construction of infrastructure projects — cutting into their main source of revenue.
The biggest economic threat has come from the slowdown in the property market. Building has slowed, and more than 50 major developers are either out of cash or have defaulted. Fears abound of insolvencies leaving millions of unfinished housing projects. Buyers who prepaid fear their money might be lost.
China’s demography also poses a daunting challenge. China had 500,000 fewer babies in 2023 than the year before and recorded 11.1 million deaths last year. The population overall dropped by 2 million, and the decline is expected to continue. China has one of the world’s fastest-growing elderly populations, with a shrinking labor force. Many Western countries and Japan are also aging. But the problem is happening faster in China and at a much earlier stage of its development — the country is getting old before it has gotten rich.
China recorded a respectable 5.2 percent economic growth rate last year, but the real rate is lower when adjusted for falling prices. Rather than being an economic juggernaut, China seems likely to be entering a period of deflation, the sorts of conditions that led to Japan’s “lost decade.”
In the face of these challenges, China’s leadership appears paralyzed. The country’s economic policymakers were once well-respected. But Mr. Xi’s centralized rule appears to have stymied decision-making.
China has tools to use. A stabilization fund could help shore up lagging equities markets (an idea floated, then abandoned). The government could take over unfinished properties to ensure their completion and to guarantee the prepayments of prospective buyers. It could announce new measures for restructuring local government debt. To bolster consumer spending, they could launch a stimulus program to pass more money directly to people.
To deal with its aging population, China could also widen its meager social safety net for the elderly, including pensions — now scant — and increase health insurance. This could help the economy now; people save rather than spend because of the lack of government support. China should also rethink its official retirement age, now a low 60 for men and an even lower (and unfair) 55 for women.
But Mr. Xi refuses. He rejects a stimulus program of cash transfers to people as “welfarism.” A committed Communist, he has an aversion to the private sector and channels government support preferentially to inefficient state-owned enterprises. Security concerns and ideological purity trump economic growth. To reduce the falling birthrate, he prefers exhorting young women to stay home and have more babies as their patriotic duty. He seems to prefer surrounding himself with yes-men and Communist loyalists than sound economic technocrats who understand markets.
Some Americans might feel relieved at China’s travails; the country will be less capable of funding its military buildup, conducting trade warfare or cornering important global markets. That would be shortsighted.
The United States and the world should instead hope that China’s leaders sharply adjust course. China remains a top U.S. trading partner (alongside Canada and Mexico). The U.S. agricultural sector is especially 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 needed course correction would require Mr. Xi and the Chinese Communist Party to acknowledge that they have failed in their effort to prove that bellicose authoritarianism and long-term prosperity are compatible. Since they treat Western countries as adversaries, they see liberalism as chaotic and threatening. Indeed, they are finding that, to paraphrase Winston Churchill, it is the worst option, except for all the others.
