Xi Sticks to His Guns As Economy Teeters

Some are calling it a "Lost Decade." More than 10 years into the Xi Jinping era, it has become clear that much of China's growth under his watch was driven by unsustainable borrowing, real-estate speculation and investments in factories and infrastructure the country didn't really need.

- LINGLING WEI

Difficult overhauls that could have unlocked more-durable growth, such as steps to lift consumer spending, were neglected in favor of policies designed to bolster Communist Party control.

Now, China is drowning in debt, reeling from a property bust that wiped out trillions of dollars of household wealth, and verging on a deflationary spiral. Growth has slowed, Western investment has collapsed and consumer confidence is near a record low.

And yet, as China squares off with the U.S. for a second showdown over trade, Xi is digging in. He is convinced his top-down approach to managing China's economy, with plans to make it an even-bigger industrial power, offers the best path for China to surpass the U.S. in economic might.

People close to Beijing's decision-making say nothing that has befallen China in recent years has changed Xi's belief that the U.S. is fading as the singular superpower.

"Xi still believes that the East is rising and the West is in decline," a foreign-policy adviser in Beijing said, referring to a pronouncement the leader made three years ago when China's economy, driven by Western demand for its exports, experienced a shortlived recovery from the Covid pandemic. "It might just not be a straight line in his view." To achieve his vision, Xi is building out a sweeping industrial supply chain intended to make whatever China needs, including semiconductors, to withstand more conflict with the U.S.

His government is also drawing up plans to hit back at any tariff increases by President-elect Donald Trump, through retaliatory measures such as restrictions on sales of raw materials the U.S. needs to make chips, car engines and defense-related products. He is cultivating allies in the developing world to try to add pressure on the U.S.

What Xi hasn't done, many economists argue, is take hard-but-necessary steps to fix China's wounded economy.

'Race against time'