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Tom Rogan, National Security Writer & Online Editor


NextImg:China's self-defeating economic policy

Xi Jinping has vast ambition but perhaps less strategic intellect. Consider the Chinese leader's economic policy.

Xi sees increased economic growth as critical both for his global political influence and for improvements to Chinese living standards. Unfortunately for Xi, China's economy is not in good shape. It grew at just 3% in 2022, hamstrung by Xi's COVID lockdowns. But that's just the short-term source of Xi's problems.

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The major looming catastrophe is China's demographic trajectory, defined by an aging population and very low birthrate. Efforts to resolve this crisis have been tentative and utterly ineffective. But other problems abound. The competitiveness of China's once dominant export market has declined relative to other nations. Rural poverty remains a sustained challenge, as do youth unemployment rates. Then there's escalating Chinese public concern over poor government services and cronyism, a dynamic that is eroding China's third rail of public protests.

China's weak consumption economy presents another deep challenge, a function of its broken real estate market and declining productivity. And declining productivity flows from Xi's obsessive state control over private enterprise. Facing escalating Western tech restrictions, China desperately needs more domestic economic dynamism. Xi does not appear to recognize, however, that neutering his most successful businesses might not strengthen the economy. This week, Xi's communist apparatchiks launched yet another crackdown on business.

As the South China Morning Post reports, China's top anti-corruption body will further confront business leaders. New guidance calls for officials to "clamp down on hedonism and extravagance, such as the excessive pursuit of elegance and sophistication." The guidance continues, "We should look at discipline violations in the areas of financial sectors and central-level state enterprises with the lens of politics to discern and identify the political roots and risks behind the violations at the surface." Investigators will also be judged on whether they are sufficiently aggressive in pursuing suspected violators. The nature of the Communist Party bureaucracy means that this will encourage reflexive crackdowns, further damaging business confidence.

Business leaders know what's about to follow. Newly incommunicado investment banker Bao Fan is only the most recent of Xi's disappearance acts. Whether you're a businessman, a star tennis player, or a cheeky writer, Xi's China bears very little tolerance for individual freedom. It's a reality that bleeds Xi's economic agenda. The crackdown culture has already seen a Chinese exodus to Singapore and beyond (belying the absurd notion that necessary U.S. counterintelligence efforts will stop talented Chinese from relocating here).

China's crackdown extends even to the Western investors that remain crucial to its global financial footprint.

Hong Kong officials are desperate for growth after the city's economy shrunk 3.5% last year. Yet, amid Xi's shredding of his Sino-British Joint Declaration obligation to maintain Hong Kong's democratic character until at least 2047, investors are more cautious about their long-term presence. True, amoral Western investors such as Larry Fink's BlackRock and others remain committed to making a quick buck. Still, Beijing's fear of declining foreign investment is real. Just this week, a communist official warned the U.S. Consul in the city against crossing three "red lines." One of these being the need "not to slander or damage Hong Kong’s development prospect."

Xi's central economic problem is at once basic and catastrophic. The Chinese leader can see the risks of what he's doing, but his paranoid need for obedience means that his first and enduring impulse is to exert visible, unquestioned control. History teaches that once state control subsumes an economy, the consequences are rarely positive.

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