The True Reason China’s Economy Is In Crisis

Summary

The video discusses China's looming economic collapse, attributing the crisis to President Xi Jinping's top-down control approach. Despite reported growth, underlying issues like heavy investment masking true economic performance, a struggling property market, and declining manufacturing sector are highlighted. Xi's policies, including stringent anti-espionage laws and consolidation of power, have alienated foreign investors and destabilized local finances. The narrative questions whether Xi has a master plan or if his authoritarian rule is leading China into deeper turmoil, inviting viewers to share their thoughts.

Takeaways

• 📉 China faces potential economic collapse under President Xi Jinping.
• 📊 Despite official data showing 5.2% growth in 2023, underlying issues persist.
• 🔍 Heavy investment by Beijing inflates economic figures, masking true performance.
• 🔒 Xi’s top-down control stifles traditional collective decision-making.
• 🏢 Xi’s policies, like consolidating economic power, disrupt market stability.
• 🏠 Crackdowns on the property sector lead to unfinished homes and financial chaos.
• 💼 The manufacturing sector's decline since 2013 further weakens China’s economy.
• 💰 Anti-espionage laws deter foreign investment, causing economic isolation.
• 🌍 Global impact as weakened Chinese consumer market affects multinational companies.
• ❓ Uncertainty remains about China's economic future and Xi's long-term plans.

Q & A

What is the apparent economic growth rate of China in 2023 according to official data?

China's economy grew by 5.2% in 2023 according to official data from Beijing.

How does China's reported growth rate compare to that of the United States?

China's reported growth rate of 5.2% is almost double that of the United States, which had a growth rate of around 2.7%.

Why is the reported 5.2% growth rate considered disappointing by some economists?

Some economists consider the 5.2% growth rate disappointing because Beijing invests about 40% of its GDP annually, which is twice as much as the United States, suggesting the growth rate should be higher given the level of investment.

What approach has Xi Jinping taken towards China's economic policy?

Xi Jinping has taken a top-down control approach, consolidating power and centralizing decision-making rather than relying on collective decision-making as in the past.

How has Xi's control affected China's property sector?

Xi's crackdown on the property sector, intended to address developer debt, has led to a slowdown in construction, leaving many pre-sold homes unfinished and causing significant economic strain on developers and banks.

What impact has Xi's 'Made in China 2025' initiative had on China's manufacturing sector?

The 'Made in China 2025' initiative aimed to shift China from low-cost manufacturing to high-value goods production, but it led to foreign investors looking elsewhere and contributed to a decline in the manufacturing sector's contribution to GDP.

How have foreign investors reacted to Xi's economic policies?

Foreign investors have been deterred by Xi's policies, including the anti-espionage law, which has made it difficult for them to conduct due diligence and has led to significant capital outflows.

What has been the effect of Xi's policies on local government finances in China?

Xi's policies, including the reduction in land sale revenues due to the property market downturn, have significantly strained local government finances, exacerbating a long-standing issue of local governments bearing a disproportionate share of expenditure.

What are some of the systemic issues within China's economy as highlighted by experts?

Experts point to an over-indebted property sector, commercial banks with questionable loan books, and a lack of transparency in economic data as systemic issues within China's economy.

What potential positive aspect of China's economy does the script mention?

The script mentions that household deposits in China exceed the country's GDP, providing state-owned banks with a cheap source of money to fund loans to high-end manufacturing companies.

Outlines

00:00

📉 China's Economic Collapse Blamed on Xi Jinping

China's economy grew by 5.2% in 2023, surpassing the 5% target set by President Xi Jinping. However, this apparent success hides underlying issues. Despite impressive figures compared to the U.S.'s 2.7% growth, China's economy is facing a serious threat from within. The primary issue is Xi's top-down control approach, which has shifted away from collective decision-making and concentrated power into his hands. This has led to a distorted economic environment where heavy investment masks deeper problems.

05:04

🔍 Hidden Problems Behind China's Economic Growth

Xi Jinping's focus on top-down control means that the 5.2% growth touted as a success is misleading. China invests heavily, amounting to 40% of its GDP, which makes the growth rate less impressive. Xi's consolidation of power and sidelining of economic experts have led to a chaotic economic environment. Experts like Carsten Holz point out issues such as an over-indebted property sector and problematic loan books in commercial banks, painting a picture of instability despite official figures.

10:09

🏦 Xi's Overhaul of Financial Regulation

The establishment of the National Financial Regulatory Administration (NFRA) in March 2023, replacing the China Banking and Insurance Regulatory Commission (CBIRC), reflects Xi's control over the financial sector. The NFRA, led by Communist Party official Li Yunze, blurs the lines between the state and the CCP, allowing Xi to exert more influence. This shift towards governance through special CCP organs indicates Xi's desire for tighter control, despite the NFRA's surface-level intentions to address corruption and speculation.

15:09

🔍 Anti-Espionage Law and Its Economic Impact

China's new anti-espionage law raises concerns for international businesses involved in consulting and business intelligence. The $1.5 million fine against American firm Mintz Group for 'unapproved statistical work' exemplifies how the law can deter foreign investment. Xi's approach to control foreign investors, combined with the significant outflow of investment, signals a troubling future for China's economy. Xi's desire to control economic information is seen as a way to mask deeper economic issues.

20:09

🏠 The Property Market Crisis

China's property market, once a cornerstone of economic growth, is now in crisis. The market's downturn since 2021, driven by Xi's crackdown on developers' debt, has led to a significant drop in home prices and a stalled construction sector. The 'pre-sales model' allowed developers to sell homes before completion, leading to a surplus of unfinished projects. This has resulted in significant financial losses for families and developers, with the property sector's decline threatening millions of jobs and increasing debt burdens on state-owned banks.

🏭 Decline of the Manufacturing Sector

China's manufacturing sector has seen a decline since Xi took power, dropping from 31% of GDP in 2013 to around 27-28% in 2023. Competing countries like Vietnam and Mexico have attracted foreign investment that once flowed into China. Xi's 'Made in China 2025' initiative aimed to shift China from low-cost manufacturing to high-value innovation, but it has driven foreign investors away and contributed to trade tensions with key partners like the U.S. The policy has not resulted in the expected manufacturing renaissance, weakening the sector further.

💰 Local Government Financial Struggles

Xi's policies have exacerbated financial struggles for local governments in China. The reliance on land sales for revenue has diminished, with regional governments generating less income from this source by 2022. Despite attempts to clean up local government financing, debt related to local government financing vehicles (LGFVs) has surged, contributing to China's high debt-to-GDP ratio. Xi's centralization of power and control over local finances has left many cities, especially smaller ones, in financial distress.

🔍 Wealth Inequality and Economic Challenges

Xi's policies have failed to reduce wealth inequality in China. The income gap between the top 20% and the bottom 20% of urban households is at its highest since 1985. Economic growth is lackluster relative to GDP expenditure, and the property and manufacturing sectors are in decline. High youth unemployment and a weakening consumer market further compound the issues. Xi's top-down approach and focus on control have led to economic stress within China and negatively impacted foreign businesses reliant on Chinese consumers.

🔮 Future Prospects and Savings Cushion

Despite the economic challenges, household deposits in China exceed the country's GDP, providing a source of cheap money for state-owned banks. This has allowed for loans to high-end manufacturing companies, aligning with Xi's 'Made in China 2025' policy. However, the overall economic outlook remains bleak, with significant issues in property, manufacturing, and foreign investment sectors. The question remains whether Xi's approach will lead to recovery or further economic strain.

Keywords

💡Economic Collapse

Economic collapse refers to a severe and sudden downturn in the economy leading to financial instability. In the video, it suggests that China is on the verge of such a collapse due to internal issues exacerbated by President Xi Jinping's policies, despite official data showing economic growth.

💡Top-Down Control

Top-down control is a governance approach where decision-making authority is concentrated at the highest levels. The video argues that Xi Jinping's top-down control has disrupted China's traditional collective decision-making process, centralizing power and contributing to economic problems.

💡GDP Growth

GDP growth is the increase in the value of all goods and services produced by an economy over a period of time. The video highlights that China's reported 5.2% GDP growth in 2023 is misleadingly positive, given the high levels of government investment required to achieve it.

💡Common Prosperity

Common prosperity is a policy aimed at reducing income inequality and distributing wealth more evenly. Xi Jinping's push for common prosperity is depicted in the video as a contributing factor to his centralization of economic control and the ensuing economic instability.

💡National Financial Regulatory Administration (NFRA)

The NFRA is a regulatory body established in 2023 to oversee China's financial sector. The video suggests that its creation exemplifies Xi's increasing control over financial regulation, blending state and Communist Party oversight and further centralizing power.

💡Anti-Espionage Law

The anti-espionage law restricts foreign business activities and access to certain types of information in China. The video explains that this law has deterred foreign investment, as seen with the hefty fine on the American firm Mintz Group, illustrating Xi's tightening grip on economic activities.

💡Property Sector

The property sector involves the development, buying, and selling of real estate. The video discusses how Xi's crackdown on property development has led to significant economic distress, with many construction projects halted and significant financial losses for families and banks.

💡Made in China 2025

Made in China 2025 is a strategic plan to upgrade China's manufacturing capabilities to produce high-tech goods. The video argues that this policy has driven foreign investors away and failed to achieve its goals, contributing to the decline in China's manufacturing sector.

💡Local Government Debt

Local government debt refers to the financial obligations incurred by local authorities. The video points out that local governments in China are heavily indebted due to their reliance on land sales for revenue, a situation exacerbated by Xi's economic policies and leading to fiscal crises at the local level.

💡Wealth Inequality

Wealth inequality is the uneven distribution of assets and income among a population. Despite Xi's emphasis on common prosperity, the video indicates that the wealth gap in China has widened, with the top 20% earning significantly more than the bottom 20%, highlighting the failures of his economic policies.

Highlights

China's economy grew by 5.2% in 2023, surpassing the 5% target set by Xi Jinping.

Despite impressive growth figures, Beijing invests about 40% of its GDP annually, double that of the United States.

Xi Jinping's top-down control approach has consolidated power and centralized economic decision-making.

Xi's policies have led to an over-indebted property sector and commercial banks with questionable loan books.

The establishment of the National Financial Regulatory Administration (NFRA) signifies increased CCP control over China's financial sector.

Xi's anti-espionage law has made foreign investors wary, resulting in a significant outflow of foreign investment.

China's property market downturn started in 2021, with significant drops in home prices in Tier 2 and Tier 3 cities.

Xi's crackdown on the property sector has resulted in many unfinished homes and a struggling construction industry.

China's manufacturing sector has declined from 31% of GDP in 2013 to around 27-28% in 2023.

The 'Made in China 2025' initiative aimed to shift China to high-value manufacturing but has deterred foreign investment.

Xi's policies have perpetuated local government financial struggles, with local governments holding massive debt.

Wealth inequality in China has increased, with the top 20% of urban households earning 6.3 times more than the bottom 20%.

Youth unemployment is high, and China's consumer market is weakening, affecting global companies reliant on Chinese consumers.

Household deposits in China exceed the country's GDP, providing a cheap source of money for state-owned banks.

Xi's policies have created an insular China, alienating foreign investors and causing significant economic stress.

Transcripts

China is on the brink of economic  collapse and there’s only one  

man to blame – President Xi Jinping. It may not look like it on the surface.  

In January 2024, official data out of Beijing  showed that China’s economy grew by 5.2% in 2023,  

surpassing the 5% target Xi had set for the  country at the beginning of the year. That’s  

almost double U.S. growth – which Bloomberg  says hit around 2.7% – so all seems rosy in  

China, right? Not so fast. 

Lurking beneath the shiny surface of  China’s economic apple is a core that’s  

slowly rotting away. And making its way  through that core is a devastating worm  

– Xi himself – who threatens to leave China’s  economy in turmoil in the coming years. 

The question is simple: Why? 

Why is Xi the reason for China’s economic woes? After all, isn’t he the great savior of the  

country? The man who’s pushed China’s  military through rapid modernization  

efforts to the point where it’s now one of  the world’s strongest nations? How could he  

be killing the country’s economy? It starts with a couple of words: 

Top-Down Control. Let’s start with that announcement of  

5.2% growth for 2023. Official sources in Beijing  will tout that as a major success for the country,  

especially after a fairly lackluster 2022.  Xi Jinping could hang his hat on the fact  

that Chinese growth has outstripped America’s,  perhaps giving himself a nice little ego boost  

in the process. But what he may not tell  you – and what certainly isn’t mentioned in  

China’s official figures – is that Beijing invests  about 40% of its gross domestic product, or GDP,  

every year. That’s twice as much as the United  States, with such heavy investment even leading to  

economists saying that the supposedly impressive  5.2% growth rate is actually a “disappointing  

figure” when you dig deeper into it. So, 5.2% is less a great achievement for Xi,  

and more a little ego boost that hides what’s  really going on. And that’s where the concept  

of “top-down control” comes into play. Ever since he came to power, Xi has made  

it his life’s work to consolidate. Anything  that matters to China falls under his control,  

with the quote-on-quote President taking a  near-totalitarian approach to the country’s  

economic policy. That clashes with China’s  traditional approach. Rather than using the  

collective decision-making that  guided the country in the past,  

Xi worked hard to concentrate power into his  hands, essentially making the Chinese state  

and its ruling communist party one and the same. Just take his treatment of China’s premier – the  

second-highest-ranking official in China’s  governmental system – as an example. 

Before Xi took the reins, China’s premier  typically set the tone of the country’s economic  

policy. That setup saw the premier consulting  with a team of experts, with the quality of  

those experts ultimately determining the success  of the policies the premier implemented. The  

president – for their part – was more of  a figurehead in this realm. He’d relay the  

policies that the premier (and his team) developed  while focusing on the bigger picture for China. 

That’s not how it works anymore. Xi decided that China’s economic policy needed  

to shift when he came to power, bringing with it  the ideas of stability and “common prosperity.”  

In short – he wanted to close the gap between the  “haves” and the “have-nots,” by creating a policy  

that gave more Chinese people a chance to gain a  share of the wealth that the country generates. 

An admirable approach. But it’s one that saw Xi  

quickly lose faith in his premier and the team of  economic experts who informed policy-making before  

he came along. Unsatisfied with the answers they  were giving to his questions, Xi wrested power  

away from them, becoming a team of one expert  – answerable only to himself – on issues of  

economic policy. The result, according to some  experts, has been an almost anarchic economic  

environment within China that’s often hidden  by the official figures coming out of Beijing. 

Carsten Holz is one of those experts. He studies the Chinese economy as an  

expert at the Hong Kong University of Science and  Technology, and he says that Xi’s approach has  

made it extremely difficult to gain a clear  picture of the economic reality in China.  

He points to issues like an “over-indebted  property sector” and “commercial banks loan  

books of questionable quality,” essentially  painting a picture of a system that sees a  

lot of internal chaos even when it presents  itself as one of the strongest in the world. 

Xi is at the center of all of this. And a perfect example comes from his  

establishment of the National Financial  Regulatory Administration, or NFRA. 

On the surface, the NRFA seems like a step in  the right direction. Formed in March 2023 to  

replace the China Banking and Insurance Regulatory  Commission, or CBIRC, the new body represents what  

CNN calls “the biggest overhaul of the government  in decades.” The group will serve a similar  

purpose to the SEC in the United States, with  some of its key responsibilities being to oversee  

investor and consumer rights in the financial  sector while controlling the central bank. 

The problem? The NFRA represents the blurring of state  

and communist party lines we previously mentioned.  Look into its leadership, and you’ll discover a  

man named Li Yunze. Though he previously worked  for China Construction Bank and the Industrial  

and Commercial Bank of China, Li ascended to  the role of deputy governor of Sichuan in 2018. 

He’s a communist party official. And being an official means that, for all of his  

expertise, Li’s actions are ultimately governed  by Xi. The Financial Times puts this approach in  

perspective, stating that the formation of the  NFRA is really “the latest indication of how Xi  

is seeking to govern through special CCP organs,  over which he can more easily assert influence.” 

Again, it’s the top-down approach exemplified. The CBIRC certainly had its problems, particularly  

with corruption, but it was still a state  entity rather than a Chinese Communist Party,  

or CCP, one. With the NFRA, Xi demonstrates an  outward desire to solve the problems inherent  

to the CBIRC, while actually creating a  replacement over which he can exert even  

more control than he already had. Clamping down on  corruption and speculation is all well and good,  

but it comes at the cost of Xi strengthening  his control over Beijing’s financial sector. 

The message from Xi is clear: I know best. 

But the reality is that there are plenty of  issues in China that demonstrate the extent  

of his economic policy failure. Take the creation of China’s  

new anti-espionage law as an example. On the surface, that doesn’t seem like  

it should have anything to do with the economy.  But that law sees Beijing raising questions about  

international businesses handling consulting  work within the Chinese security sector,  

as well as business intelligence work conducted  by investors. Not long after that law came into  

effect, China levied a $1.5 million fine against  the American investment firm Mintz Group. 

The reason? Doing “unapproved statistical work.” 

That “unapproved” work would have been typical  of any investment firm. The company needs to do  

its due diligence before choosing where to  invest its money. But Xi has made it clear  

that foreign investors can essentially only work  from the statistics that China provides for them,  

with the need for approval from Beijing allowing  Xi to hide any economic issues that would cause  

an investor to be wary. It’s all about control. 

The $1.5 million fine combined an administrative  penalty for supposedly breaking the law with China  

claiming “illegal proceeds” from Mintz Group. This  could almost be seen as strong-arming the American  

firm. The raid was essentially a message to other  investment groups that any money they earn from  

China – especially if they try to take it out of  China – could be at risk through the application  

of Xi’s new anti-espionage rules. Like so many of Xi’s policies,  

there’s logic behind the policy. He believes that one of the causes of  

China’s economic woes comes down to international  investors taking money out of the Chinese economy.  

And he has a point. In the fourth quarter of 2023  alone, about $140 billion of long-term foreign  

investment left China, representing about 1% of  the nation’s GDP. Chatham House showcases why  

this is a problem, pointing out that just 10 years  before, China had actually attracted an influx of  

foreign investment equivalent to 2% of its GDP. It seems that Xi wants the money to keep flowing  

in, but is extremely hesitant  to allow it to flow back out. 

Unfortunately, the approach of using  anti-espionage laws to essentially claim  

money back from foreign investors will come  back to bite him. Investors are now rattled.  

Rather than seeing China as a place where they  can make money, which would encourage them to  

pump money into its economy, they now see it as  a place where they could be punished for simply  

conducting the due diligence expected of them. As Chenggang Xu – a senior research scholar  

on China’s economy and institutions at Stanford  Center – says, “It’s a communist totalitarianism.”  

The goal seems to be for the CCP to control  everything, from China’s regulatory bodies to its  

private firms – including foreign firms that have  invested so heavily in the country for decades.  

Xu goes on to say that Xi’s desire for control  will likely result in a purge of many of these  

foreign firms. Not because they don’t add value  to China. But because they won’t allow themselves  

to be controlled to such an extent by the CCP. Xi is cutting off his nose to spite his face. 

By attempting to exert so much control, he’s  actively dissuading the foreign investors  

who’ve played such a huge part in making China  an economic powerhouse in the 21st century. 

So, China faces a future where  foreign money won’t be flowing in. 

Now, let’s shift our focus a little closer  to home for Xi – the property market. 

For decades, China was practically dependent on  its property market to fuel its economy. As long  

as the population kept growing, Chinese developers  could rely on a near-constant influx of customers  

for their homes. And Beijing was more than happy  to stoke the fires of that industry growth. After  

all, the property sector created construction jobs  for millions, as well as tangible assets through  

which the country’s middle class could store their  ever-growing wealth. Even local governments loved  

the strong property market – they made a  fortune from selling land to developers. 

That’s all fine… Until the real estate sector goes pop. 

This approach to real estate led to the average  family having about 70% of their assets tied up  

in property, ultimately making those families  dependent on the strength of the industry. When  

house prices went up, all was well. But when they  started going down, it spelled pain both for the  

families and China’s economy as a whole. The downturn started in 2021. 

According to Bloomberg, the two years between  2021 and 2023 saw existing home prices in over  

half of China’s Tier 2 and Tier 3 cities drop by  at least 15% from their peak. For context, every  

5% decline in China’s house prices represents  a loss of 19 trillion yuan – approximately $2.7  

trillion – in housing wealth. So, 15% means just  over $8 trillion gone in the blink of an eye. 

The culprit behind these massive  losses: Xi’s property sector policy. 

In truth, Xi Jinping inherited many of China’s  property woes. The sector had been the crutch  

upon which China’s economy leaned long before he  came along, and he was happy to let it continue  

that way for several years after his ascension to  president in 2013. But about seven years later,  

Xi executed a crackdown on China’s property  development market, with that crackdown  

serving as his response to the debt being  accumulated by the country’s developers. 

Rewind to 2018 and you see a market in shambles. Bloomberg says that 2018 saw real estate account  

for nearly 20% of China’s GDP. But at the same  time, it only employed 2% of the country’s  

workforce. And this wasn’t glamorous employment.  Most of the 16 million people who worked in the  

industry were migrants spending long days  at construction sites while getting paid a  

pittance for their efforts. They were essentially  building houses that they could never afford,  

with those on top becoming billionaires on the  back of their hard work. The more cynical among  

you may say that’s essentially how capitalism  works, but it’s not conducive to a thriving  

economy. If the people in one of your most  important industries are barely being paid  

enough to survive, how can you expect them  to pump money into your country’s economy? 

To his credit, Xi recognized rampant  corruption – which he’d also allowed  

to continue – and decided to crack down. We  see that in the investigation of Hui Ka Yan,  

the founder of China Evergrande Group. In 2017,  he became China’s richest man. Three years later,  

he was under investigation after China Evergrande  Group defaulted on a huge number of dollar bonds. 

So, Xi is cracking down on  construction in development. 

Great. But it all came too late. 

Under Xi, property developers had spent the  time between 2013 and 2020 creating what  

Bloomberg calls a “pre-sales model.” The idea was  simple – sell apartments to customers up to two  

years in advance, allowing the developer to earn  operating cash early in the process. Using that  

money – which came from wiring the prospective  owner’s down payment and their mortgage into an  

escrow account – the developer could get to work  and deliver the home. The scheme incentivized  

developers to keep breaking ground, creating  a constant stream of new houses that could  

counteract the rising property prices that were  keeping many Chinese people out of homeownership. 

The scheme grew out of control. By 2020 – when Xi’s crackdowns finally came into  

effect – residential construction projects that  were under construction accounted for about 10  

times the actual amount of completed floor space.  The crackdowns came. Construction slowed. And now,  

many of China’s developers have simply run  out of money to build the homes that they’ve  

essentially already sold to customers. By 2023,  China found itself in a situation where there  

were 18 unfinished homes – most tied to  pre-sales – for every completed property. 

What we have here is anarchy. Xi’s early – some might call  

lackadaisical – approach to the property market  allowed developers to run rampant. The average  

citizen was priced out while the middle and  upper classes saw their assets skyrocket in  

value. Following the crackdowns, much of China  is becoming a sort of development hell. The more  

affordable homes that were meant to be coming  simply aren’t being built. And in many areas  

of China, property prices are plummeting so fast  that those who’d invested before are seeing huge  

portions of their family wealth wiped out. Bloomberg estimates that the correction of  

the market may affect over 5 million jobs. And it’s easy to see why. With developers  

more hesitant than ever to break ground (or  finish projects they’ve started) the poor  

migrant workers who relied on their construction  jobs to survive may see China’s most important  

industry wiped out from underneath them. And there are knock-on effects beyond that. 

Now racked with mountains of debt that they’re  struggling to pay back, Chinese developers are  

missing their loan payments. For instance,  Country Garden Holdings Company – previously  

one of China’s biggest developers in terms of pure  sales numbers – is in a $200 billion black hole,  

with half of that money relating to pre-sold  properties. That’s money that isn’t going to  

be paid back any time soon. So, not only do the  people who’d bought the homes that aren’t being  

built going to suffer, but so will China’s  state-owned banks that are now tied into this  

debt through the mortgages that they provided.  Add to all of that the failed loan payments,  

and you have a financial sector that’s  going to struggle under the weight of  

loans it perhaps should never have made. Xi knows that China needs to reduce its  

reliance on property. His mantra has always  been that “housing is to be lived in,  

not speculated on.” But the approach he’s taken  has created enormous problems for many in China,  

from regular citizens to developers,  banks, and the country’s middle class. 

Housing to be lived in is only effective  when that housing is actually being built. 

And property is far from the only problem. China’s manufacturing sector is also struggling  

massively, and its downfall happens to coincide  with the years in which Xi has held power. 

In the year that Xi took power, China was  the world’s factory. Its manufacturing sector  

accounted for 31% of China’s GDP, putting it  ahead of even the property industry. But by 2020,  

the sector’s contribution to GDP  had dropped so significantly that  

it was only accounting for 26%. Even now, in  2023, it hovers around the 27% to 28% mark. 

What happened? Part of the issue comes down to other  

countries emerging as more attractive propositions  for companies that need manufacturing. Vietnam  

and Mexico have emerged as major competitors  to China in the years since Xi took power,  

snatching away some of the foreign investment  into the sector from Beijing’s clutches. 

But perhaps far more damaging – as well as being  a contributing factor to other countries rising  

as manufacturing players – is Xi’s “Made in  China 2025” initiative. Announced in May 2015,  

the goal of this policy was to have China shed its  reputation as the world’s factory. No longer would  

China be the byword for cheap and low-quality  goods produced because it offered low labor  

costs to the rest of the world. Instead, China  would focus on the “innovation-driven” production  

of much higher-value goods. Again, this seems like a  

logical policy on the surface. Yes, China would lose some foreign  

investment from companies that previously  relied on it for low manufacturing costs.  

But Xi’s policy would supposedly turn  it into a manufacturing powerhouse, with  

Chinese goods making money for Chinese companies,  propelling the country’s economy in the process. 

We’ve already seen from the  statistics that this didn’t happen. 

Though many overseas saw this policy as  an attempt by China to first catch up  

to and then move past Western technological  prowess, the reality is that “Made in China  

2025” simply encouraged foreign investors  into the country’s manufacturing industry to  

look elsewhere. Just as Xi’s anti-espionage  laws from 2023 are warding off investors,  

so too is China’s shift toward trying to position  itself as a manufacturing innovator. In fact,  

the policy was so impactful overseas that it  became the impetus for the trade war that marked  

much of Donald Trump’s time as U.S. president. Xi’s approach was to provide governmental  

subsidies to companies that he believed would  be able to propel China’s manufacturing sector  

forward. However, according to the Center  for Economic Policy Research, or CEPR,  

Beijing has never made the list of companies  that got the nod from Xi publicly. We know  

that some Chinese manufacturers are receiving  subsidies from the CCP. We just don’t know who,  

or why. All of that information is controlled  by Xi, again demonstrating how his top-down  

economic policy is causing problems for China. Instead of strengthening Chinese companies,  

“Made in China 2025” sparked restrictions,  tariffs, and export controls from many of  

its key trading partners. Xi responded  with trade restrictions of his own,  

leading to the situation we see now – China isn’t  the manufacturing powerhouse that it once was. 

So, we see how Xi’s top-down approach has wreaked  havoc on China’s property and manufacturing  

sectors. We also see just how much he’s doing to  ward off foreign investment, making China more  

insular at a time when it could really do with  attracting solid injections of overseas cash. 

But Xi has done more than alienate foreign  investors and shatter China’s property  

development sector. He’s had a terrible  

impact on the local level, too. Prior to Xi implementing his 2020 property  

market crackdowns, regional governments generated  about a third of their income from land sales. By  

2022, the amount was closer to 10%, with ailing  developers no longer able to afford the land that  

local governments wanted to sell to them. During  the same time, local government responsibility for  

general expenditure reached 86% – a record high in  the 42 years of statistics available from China’s  

National Bureau of Statistics. This isn’t all Xi’s doing. 

Local government finances have been deteriorating  since the 1994 introduction of the Tax Sharing  

System, which kickstarted China’s economic burden  falling more onto local governments than national  

governments. At the time of that reform, local  governments’ collective share of China’s revenue  

was a little over 75%. In 1994, that plummeted  below 50%, and had only just managed to crawl  

above that 50% barrier since Xi took charge. Not great when these same governments have  

to deal with 85% of Chinese expenditure. But Xi has done little to solve the problem. 

Yes, he cleaned up 12 trillion yuan – about $1.67  billion – of local government financing vehicles,  

or LGFV, debt during his first  term as president. But by 2022,  

liabilities related to LGFVs had rocketed up  to 57 trillion yuan, or about $7.92 trillion. 

That’s 48% of China’s GDP, almost level with  national borrowing, and is one of the main  

reasons that China’s debt-to-GDP ratio has risen  to 360% compared to the 200% it was when Xi took  

over. And now, by taking away land as a means  to generate income for local governments, Xi has  

created a system that will see many of its cities  – especially its smaller ones – doomed to fail. 

There’s a saying in China: “Those in Beijing hold the purse strings,  

while local cadres hold dirty shovels.” The implication is that while all of the  

smaller cities and towns do the dirty work,  Beijing rakes in the money and, ultimately,  

controls how much of that money these smaller  locales receive. Xi may not have created that  

policy. But he has perpetuated it, much to  the detriment of local government finances. 

And all of this is in service  of creating a stronger China  

in which the wealth inequality gap is shortened. But even that noble ambition isn’t coming to pass. 

Though Xi goes to great lengths to talk about  how his policies are designed to prevent wealth  

inequality, the fact is that China’s elite  are richer than its low and middle-income  

households than ever before. The top 20% of the  country’s urban households earn 6.3 times more  

than the bottom 20% - the highest gap since 1985. All of this means that China has a cavalcade of  

problems. Its economic growth is unimpressive when  taken into context with its GDP expenditure. The  

property market is in shambles, with the  manufacturing sector also struggling. And  

given that these are China’s two most important  industries, it should come as no surprise that  

youth unemployment is high, according to the BBC. And all of this has knock-on effects  

for the rest of the world. Due to all of Xi’s failed policies,  

China’s consumer market is weakening. That’s  bad news for the global companies that sell to  

Chinese consumers – such as Apple – because that  means they’re receiving less revenue from China.  

Less money to these major multinationals  results in lower demand for supplies,  

affecting thousands of companies within  the supply chains of these major hitters. 

So, Xi’s failures don’t just lead to  unemployment and economic woes in China. 

They cause the same issues for many of the foreign  businesses that have relied for so long on Chinese  

consumers propping up their record profits. The question now is simple: 

Is there a light at the end of the  economic tunnel for Xi Jinping? 

One positive he can take from all of this is that  household deposits in China exceed the country’s  

GDP. That’s a symptom of the stock market crash of  2015 – which occurred during Xi’s stint – leading  

to more Chinese people choosing to save rather  than invest. These savings give the state-owned  

banks a cheap source of money, which they can then  use to provide loans to high-end manufacturing  

companies. And it’s certainly the case that  loans to these types of companies – which  

are intended to be the beneficiaries of Xi’s  “Made in China 2025” policy – have skyrocketed. 

But can one small win mean much when measured  against the devastation wrought elsewhere? 

Perhaps Xi is the only man who has the  answer. After all, he seems to believe  

he has the answers to everything in China. Still, what do you think? Are worries about  

China’s economic woes overblown? Perhaps you  believe Xi has some sort of master plan that he’s  

waiting to unleash? Or, are we simply watching a  totalitarian ruler who’s allowing his country’s  

people and financial institutions to be  placed under immense stress all in service  

of his political party gaining more control?  Tell us what you think in the comments below.