Xi digs in with top-down economic plan even as China drowns in debt

Xi Jinping is bracing for a showdown, sticking with economic policies aimed at making China the world's most powerful country

- Lingling Wei

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. Difficult reforms that could have unlocked more durable growth, such as steps to increase 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's convinced that 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 eventually 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, and that China's importance is rising on the world stage. "Xi still believes that the East is rising and the West is in decline," said a foreign-policy adviser in Beijing, referring to a pronouncement the leader made three years ago when China's economy, driven by Western demand for its exports, experienced a short-lived recovery from the Covid pandemic. "It might just not be a straight line in his view."