“Optimism isn’t really appropriate if you’re a realistic person, and most people are pretty realistic,” said Yang Aha, a 24-year-old accounting graduate who has been living with her parents in Guangzhou for months while she searches for work. “Everyone is just trying to muddle through.”
The Chinese government expects the economy to grow by 5 percent this year — only half the rate recorded in 2008, when Xi Jinping became vice president — but economists are warning that target is looking unachievable because of a looming property market bust and local government debt crisis.
With growth expected to slow further over the coming decade, it will be difficult for China’s gross domestic product to overtake the United States or hit its target of doubling by 2035.
Even if Xi is not in power then — he would be 81 by then, but could theoretically serve for life — it will still be difficult for Xi to make good on his more immediate promises to deliver “common prosperity,” his catchphrase for curbing inequality by sharing China’s newfound wealth evenly across society.
Already, the economic slowdown is fraying the weak, implicit understanding with ordinary Chinese people that has allowed the Communist Party to remain in power throughout decades of economic opening: Accept Communist Party rule without protest, and we will deliver a better future for you and the country.
The Chinese Communist Party’s legitimacy still relies heavily on ordinary Chinese feeling their lives are improving, and Xi knows that, said Ling Chen, an assistant professor at the School of Advanced International Studies at Johns Hopkins University.
“So far nobody can challenge him politically. But economic performance is always the very core of the regime’s legitimacy and that affects how well he can govern the country,” Chen said.
Now Xi has replaced promises of material wealth with demands for political loyalty, and told young people to suck it up and “eat bitterness” for the good of the nation.
The good thing about being an authoritarian leader is that there are few people to dissent. A decade of intense campaigns to instill discipline and oust corrupt or disloyal officials means there are no obvious challengers to Xi, or even any obvious naysayers in the system.
The bad thing, however, is that the buck stops with Xi.
“The economy is in a tough place right now,” said Randal Phillips, a former CIA station chief in Beijing who now runs HFBB Associates, a strategic consultancy focused on China. He estimated it was in the worst shape in 35 years.
“That is an Achilles’ heel politically for Xi,” Phillips said, because Xi has ultimate responsibility for China’s economic predicament — and coming up with the solution.
Because he has amassed so much personal power and has stacked the top echelons of the Chinese Communist Party with loyal lieutenants, Xi bears more personal responsibility than his predecessors when things go wrong. Although Premier Li Qiang is technically in charge of the economy, he was appointed to the position because he is close to Xi.
If he cannot steward China out of this situation, and avoid the stagnation many emerging economies face when they run out of cheap labor, that could undermine Xi’s credibility as a tough but effective custodian of China’s rise.
While an earlier-than-expected end to China’s economic miracle is unlikely to shake Xi’s iron grip on power, close observers of Chinese politics say, a loss of faith in China’s future could snowball into a form of quiet resistance.
The general despondency among young Chinese is already hamstringing the economy.
Huge numbers have stopped working. Youth unemployment figures reached a record 21.3 percent in June before the government suspended monthly releases, citing a revision to the surveying methodology. Some economists think the actual number could be closer to 50 percent.
Although they aren’t shouted in the street, this passive protest movement has its own slogans.
Recent graduates talk about “lying flat” by doing as little work as possible to get by. They become “full-time children” who live at home with their parents. To respond to Xi’s call to work hard for the good of the nation is a recipe for “involution,” meaning you’ll put in a lot of effort but end up with nothing to show for it.
In one sign of how bleak many young people feel about the future, China’s birthrate has plummeted to a record low and the population is shrinking.
Xi doesn’t, however, have the tools to deal with the current economic slump that his party has used previously. In the past, when downturn loomed, the response was a massive stimulus of debt-fueled property and infrastructure construction.
This approach dragged China’s economy out of the 2008 global financial crisis. It also gave the Communist Party leaders a newfound sense of confidence that the United States and its market liberalism were broken and Beijing’s model of state-guided development worked.
Xi took things further by regularly voicing his belief that the “East is rising as the West declines” and accusing the United States of being the largest source of “chaos” in the global economy.
But those policies that appeared to be successful in 2008 have now come back to haunt China. The cash crunch facing local governments and real estate developers is a direct result of overinvestment, analysts say. Returning to the old approach could alleviate immediate pressure only to risk a spiral of indebtedness and an even larger later crisis.
Furthermore, foreign companies aren’t feeling so bullish about China any more. Direct investment fell to a record low last quarter, in a sign of deep concern about economic head winds and politically motivated policy under Xi.
Executives point to a drumbeat of recent moves by the Chinese authorities that have made them feel unwelcome.
Police raids on international consultancies timed to coincide with an expanded national security law. Unpredictable disruptions from coronavirus lockdowns that continued long after the rest of the world had moved on. Sudden regulatory crackdowns on growth sectors like mobile payments or private tutoring that wiped out over a trillion dollars in technology companies’ market value.
“Xi Jinping did not create all the current economic problems,” said Zongyuan Zoe Liu, a fellow for China studies at the Council on Foreign Relations. “But the timing, where suddenly all these crises manifest across so many different issues simultaneously, the explanation for that really is politics and geopolitics.”
Xi has made clear that Communist Party control and national security should be prioritized as much as — or sometimes more than — growing the economy.
Now, he appears to be looking for an economic response that avoids additional financial risks. The policy response has so far been tepid, even as China’s central bank acknowledged that the economic recovery was proving “tortuous.”
This is especially true for real estate, which accounts for about a quarter of economic growth and two-thirds of household savings.
“The problem is that they know it’s dangerous, but they can’t keep pushing up prices,” said Chen of Johns Hopkins. “Now that the bubble is starting to burst, the more that they try to persuade people to buy houses, the more people realize the situation is serious.”
Liberal Chinese economists have recommended that China consider direct cash transfers to boost spending and confidence. But analysts say that this idea of going all-in on a shift to consumption runs counter to Xi’s ideal vision of a state-dominated economy built around advanced manufacturing.
Li, the Chinese premier, has been focusing on introducing new support measures for businesses. But many leading private entrepreneurs remain cautious.
“The question,” said Phillips, “is how many bricks can be pulled out of the structure before it becomes unstable?”
Pei-Lin Wu in Taipei, Taiwan, and Theodora Yu in Hong Kong contributed to this report.
