Why Is Xi Not Fixing China’s Economy?

China’s economy is performing dreadfully. The post-pandemic bounce was far smaller and briefer than the Chinese government had anticipated. Despite recording a respectable, if diminished, official growth rate of 5.2 percent in 2023, the reality may have been much slower, with some analysts estimating growth was no more than 1-2 percent. Some indicators showed modest improvement in the first few months of 2024, but the economy still appears to be sputtering, with growth now highly dependent on exports.

Along with the economic slowdown has come a collapse in confidence in China’s trajectory, both at home and abroad. The quantitative data is stark, showing a sudden drop in confidence by consumers and producers in the spring of 2022 following the Shanghai lockdown. Consumers’ outlook improved briefly when the zero-COVID policies ended in late 2022 but has hovered in record-low territory since. Various indices for domestic business show a recent modest recovery, but the numbers are still far off their historic highs.

This data may understate the depth and breadth of the uneasiness that Chinese citizens have about the country’s present and its future—concerns I heard in person during an extended research trip this spring.

The struggling economy—and the collapse of the real estate sector—is the No. 1 issue, but I heard surprisingly frank complaints about zero-COVID and the messy exit, the extended attack on private tech firms, the heightened attention to ideology, an unrealistic pursuit of technology self-reliance, and growing tensions with the West. These fears translate into weak consumer demand, restrained business investment, and efforts to move wealth and family abroad.

One question came up again and again: Why hasn’t the leadership done more to boost the economy and restore confidence? And by leadership, many were actually implicitly referring to a single person, Xi Jinping. The end of term limits, the shift of governance to Chinese Communist Party (CCP) organs under his control, and the outsized attention he receives in official media give the Chinese populace (and the rest of the world) the impression that he is fully in charge.

Beijing has not stood still; it has expanded credit, put forth multipoint plans to reassure the private sector and foreign business community, reduced restrictions to buy a second home, and toned down the wolf-warrior rhetoric. But a substantial portion of people I encountered—which is not a scientific sample—have not been impressed, with these steps still adding up to too little, too late.

There were four views that commonly came up on why Xi and other top leaders haven’t taken a different approach, which we might dub “The Four Nos” in Chinese political style. The first is, “He doesn’t know.” Some have speculated that Xi is being kept in the dark about the sour state of the economy by cadres who do not want to give him bad news for fear that he would blame the messenger. And so, the thinking goes, they only provide him with sanitized, positive reports.

One source said they heard that working-level officials at Zhongnanhai have told outside researchers to only submit positive reports. Another said senior officials who control the paper flow to Xi are aligned with the security and propaganda apparatus, so his reading pile reflects their biases. But others with whom I spoke strongly disagreed that Xi and other leaders are not well informed. One expert who has submitted research to the party-state said they were told to provide unvarnished analyses because the leadership wants to receive contending views.

The second idea, “He doesn’t know what to do,” is based on the premise that Xi and other top leaders are well informed but they are facing a variety of problems that are not easy to fix. The list is long—the real estate crisis, ballooning local government debt, the plummeting fertility rate, rising inequality, disaffection in Hong Kong, and expanding tensions with the West and most of China’s neighbors—and solutions are far from simple.

Moreover, the leadership is now composed of the “B-team,” including many with limited central government experience, and policymaking has become so centralized in the CCP that coordination across the bureaucracy and between Beijing and the localities has become harder, not easier.

Multiple confidants said they have heard that on some issues, the leadership has had long debates about how to solve problems, delaying decisions and the rollout of new policies. For example, the leadership apparently identified a weak stock market as a problem in the summer of 2023, but new steps were not rolled out until early 2024, when the head of China’s securities regulator was replaced. Even more challenging is figuring out ways to address one problem that don’t worsen others or coming up with an overall plan that finds a balanced approach.

Solving the real estate mess—and the imbalances in the economy—may be the quintessential example, as it is visibly obvious how difficult it is to find a policy path that effectively navigates the conflicting interests among all of the stakeholders, including the central government, local governments, developers, homeowners, financial institutions, and other economic sectors. In the same vein, the Third Plenum was reportedly postponed from January 2024 to the summer because of a lack of consensus.

Some sources emphasized the drop in quality of top officials, negatively comparing Premier Li Qiang to his predecessor Li Keqiang, who died suddenly last fall. The vice premier in charge of the economy, He Lifeng, is viewed as less capable than his predecessor Liu He.

The third option, “He doesn’t care,” is rooted in the hypothesis that Xi’s top priority is strengthening the CCP’s monopolistic hold on power and his own personal political dominance. Although the media shows him visiting factories and holding discussion sessions on various economic challenges, his own daily schedule may be dominated by managing security and political issues, including personnel decisions, not the economy.

This was by far the least popular option among Chinese interlocuters, but those who held it believed it passionately. Their core impression was that Xi appears willing to sacrifice the economy for the sake of nationalism and CCP dominance. Moreover, Xi is not alone; he was selected as Hu Jintao’s replacement, as one said, “to not be Mikhail Gorbachev,” not to promote rapid growth. Tellingly, the holders of this view tended to be older (above 60); they highlighted apparent similarities in the personalities of Xi and Mao Zedong and parallels between the two periods in their common emphasis on ideological purity and class struggle, which resulted in substantial social and elite tensions.

The final answer, “He doesn’t agree,” speculates that the issue is not Xi’s insufficient access to information, indecisiveness and incompetence, or a lack of interest but rather that he and his lieutenants disagree with the criticism that the current policy line is incorrect and not up to the challenge. In fact, their view may be that given the loss of reliable access to Western technology, markets, and finance, China has no choice but to prioritize developing domestic technologies and gaining as much leverage over global supply chains as possible.

Even more important, Chinese leaders could point to some evidence that their plan is working—dominance in electric vehicles and batteries, the world’s longest high-speed rail system, the C919 single-aisle commercial jet, a series of highly popular internet platforms, the BeiDou satellite system, and more.

A plurality of informants chose this last option. They believe Xi has strong views about the centrality of controlling advanced technologies for both China’s economic and strategic needs and is intensely implementing this vision. Hence, the shift in investment from real estate to advanced manufacturing and intensive party-state support for emerging technologies that could both fuel growth and strengthen the country’s security. Where others see ignorance, incompetence, or disinterest, they see clarity of purpose and decisiveness.

Yet advocates of “He doesn’t agree” are split into two camps. Most who choose this option believe the Chinese leadership has made a strategic blunder by moving in a decidedly statist direction with massive industrial policy and betting so much on controlling the technologies of the future. The turn away from liberalization and insufficient attention to households and consumption, from this view, mean lower productivity, higher debt, slower growth, and, to boot, greater tensions with other advanced economies.

Others who landed on this choice have the opposite reaction. They, in fact, agree with the Chinese leadership’s approach and believe critics are neoliberal ideologues instinctively opposed to an activist state and unfairly dismiss major signs of technological progress. Perhaps not surprisingly, some—though far from all—in this latter camp whom I heard from work in government-based research organizations.

These beliefs matter. If one of the first two options—“He doesn’t know” or “He doesn’t know what to do”—is accurate, then the current path is the product of unintentional mistakes, and all that is needed to generate change is providing the leadership with better information and more effective plans to address the country’s economic woes. How those outside China see this also determines how China should be approached on other issues. It would support the notion held by some officials in Washington that it is important for President Joe Biden to have direct conversations with Xi to ensure he has an accurate understanding of U.S. foreign policy on issues such as Ukraine and Taiwan.

But if Xi and other top leaders don’t care about the economy or disagree with the criticisms, then the current trajectory is the result of an intentional plan, and new data and policy reports with alternative strategies won’t make much of a difference.

It’s possible the leadership will prove critics wrong, but if not, there are two potential sources of change. The first would be a major economic crisis that would create a political reckoning: The current leadership could recognize its mistakes and change gears, some other elite faction could crystalize and replace the current team, or, least likely, the public could rise up in protest and try to unseat the CCP entirely. While there may be more brewing under the surface than outsiders can see, none of these scenarios seem plausible in the short to medium term.

The second source of change would be for China’s leadership to be presented with a far more benign international environment in which the United States, and the West more generally, provided credible reassurances that it would return to being a reliable supplier of technology, markets, and finance; unconditionally recognize the CCP’s authoritarian system as legitimate; and accept Beijing’s sovereignty claims over the South China Sea and Taiwan. But the chances of this shift occurring are even smaller than any of the domestically driven scenarios.

One reason the West is unlikely to become more accommodating is because foreign business executives and officials, when surveyed in and outside China, usually picked “He doesn’t agree.” From the vantage point of overseas boardrooms and capitals, Xi appears in total political control and determined to press ahead with this strategy, with any adjustments being minor tactical shifts to minimally placate domestic and international critics. As a result, they believe they must be more, not less, resolute in standing their ground.

Though far from scientific, this informal survey suggests hardening divisions between parts of Chinese society and its leaders as well as between Beijing and other capitals. That means there’s little chance of bold new action—but the contradictions between the leadership and opposing domestic and international perspectives presage more tensions and conflict to come.