Why is Xi not fixing China's economy?

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 neighbours—and solutions are far from simple.

An administrative morass

Moreover, the leadership is now composed of the "B-team," including many with limited central government experience, and policymaking has become so centralised 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. China is likely to pick security over prosperity.

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 emphasised 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.

Sacrificing the economy?

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.

Ever the optimists

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.

A turn to statism

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 liberalisation 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 organisations.

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.

Improved or removed

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 recognise its mistakes and change gears, some other elite faction could crystalise 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 recognise 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.

Plates pulling apart

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.