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 phenomenal pace since then. With an average annual growth rate of 6.7% since 2012, China has seen one of the fastest sustained expansions for a major economy in history. In 2021, its GDP hit nearly $18 trillion, constituting 18.4% of the global economy, according to the World Bank.
China’s rapid technological advances have also made it a strategic threat to the United States and its allies. It’s steadily pushing American rivals out of long-held leadership positions in sectors ranging from 5G technology to artificial intelligence.
Until recently, some economists were predicting that China would become the world’s biggest economy by 2030, unseating the United States. Now, the situation looks much less promising.
As Xi prepares for his second decade in power, he faces mounting economic challenges, including an unhappy middle-class. If he is not able to bring the economy back on track, China faces slowing innovation and productivity, along with rising social discontent.
“For 30 years, China was on a path that gave people great hope,” said Doug Guthrie, the director of China Initiatives at Arizona State University’s Thunderbird School of Global Management, adding that the country is “in deep trouble right now.”
Economic slowdown and rare dissent
While Xi is one of the most powerful leaders China and its ruling Communist Party have seen, some experts say that he can’t claim credit for the country’s astonishing progress.
“Xi’s leadership is not causal for China’s economic rise,” said Sonja Opper, a professor at Bocconi University in Italy who studies China’s economy. “Xi was able to capitalize on an ongoing entrepreneurial movement and rapid development of a private [sector] economy prior leaders had unleashed,” she added.
Rather, in recent years, Xi’s policies have caused some massive headaches in China.
A sweeping crackdown by Beijing on the country’s private sector, that began in late 2020, and its unwavering commitment to a zero-Covid policy, have hit the economy and job market hard.
“If anything, Xi’s leadership may have dampened some of the country’s growth dynamic,” Opper said.
More than $1 trillion has been wiped off the market value of Alibaba and Tencent — the crown jewels of China’s tech industry — over the last two years. Sales growth in the sector has slowed, and tens of thousands of employees have been laid off, leading to record youth unemployment.
What are Xi’s options?
Analysts say the current problems don’t yet pose a major threat to Xi’s rule. He is expected to secure an unprecedented third term in power at the Communist Party Congress that begins on Sunday. Priorities presented at the congress will also set China’s trajectory for the next five years or even longer.
“It would likely take an economic catastrophe on the scale of the Great Depression to create levels of social discontent and popular protest that might pose a threat to Communist Party rule,” said Thomas from Eurasia Group.
“Moreover, growth is not the only source of legitimacy and support for the Communist Party, and Xi has increasingly burnished the Communist Party’s nationalist credentials to appeal to patriotism as well as pocketbooks,” he added.
But to get China back to high growth and innovation, Xi may have to bring back market-oriented reforms.
