Xi Jinping Faces an Economic Test of Will in 2024
If the most important development of 2024 will be the wave of elections sweeping the democratic world, the second-most important story to watch is China’s economy. It boils down to two questions: What is it that has steeled Xi Jinping’s nerve to drive China into this—possibly necessary—economic turmoil, and can he keep his resolve over the next 12 months? The deterioration of the Chinese economy is, perhaps surprisingly for anything involving China, reasonably well understood. The country has never recovered from the twin shocks of a Beijing-induced property-market slowdown and the draconian (and failed) zero-Covid policy of the pandemic era.
China’s Covid lockdowns (not to mention the global economic consequences of the pandemic) broke many supply chains that passed through the country’s exporting industries. That experience, and geostrategic concerns around Taiwan, is prompting a growing number of foreign firms to rethink their trade ties to China. Beijing also is a victim of policy mistakes in the U.S.
and Europe, where post-pandemic inflation and awful tax and regulatory measures are suppressing the demand that normally fills Chinese factories’ order books. One consequence is that the Chinese economy has lost some of the activity that might otherwise have helped it through the far more significant ructions in the property market. Starting in August 2020, Beijing has cracked down on credit in a real-estate industry that previously accounted for roughly one-third of annual economic output.
This was a necessary step to correct serious imbalances in the financial system and Main Street economy, but a painful and dangerous one. Mission accomplished. Property prices have plummeted, large developers have gone bankrupt, and
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