# China’s Economic Challenges During Xi Jinping’s Tenure

- Link: https://www.thailand-business-news.com/china/149058-chinas-economic-challenges-during-xi-jinpings-tenure
- Published: 2024-07-01T10:26:00+07:00
- Author: East Asia Forum

China is dealing with economic challenges due to a weak real estate sector and a
shift towards high-end industries, worsened by President Xi Jinping’s focus on national
security and lack of trust in market forces.

## Key Takeaways

 * China’s economic challenges stem from a struggling real estate sector and a shift
   towards high-tech industries under President Xi Jinping’s administration.
 * Xi’s skepticism of market forces and focus on national security is hindering 
   economic flexibility and stifling entrepreneurial innovation.
 * China faces the dilemma of reigniting economic growth while adhering to Xi’s 
   new economic model and preventing a recession, amidst a narrowing window of opportunity
   for recovery.

While some believe the situation is not too severe, there are concerns about China’s
ability to recover from a major economic downturn if it maintains its current policies,
suggesting a potential struggle to regain momentum.

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## China’s troubled real estate sector

China’s economic predicament is rooted in a struggling real estate sector and a 
strategy predicated on a shift towards high-tech industries. President Xi Jinping’s
prioritisation of national security and scepticism of market forces is exacerbating
the problem and leading to tensions between political will and economic imperatives.

China’s troubled real estate sector once accounted for an impressive [30 per cent](https://www.goldmansachs.com/intelligence/podcasts/episodes/11-28-23-ho-shan-wang-f/transcript-final.pdf)
of national GDP. Its [peak in 2018](https://sccei.fsi.stanford.edu/china-briefs/tier-3-cities-hotbed-trouble-chinas-property-sector)
gave way to a sharp downturn — which, further aggravated by the COVID-19 pandemic,
today functions at approximately [half of its former capacity.](https://www.businessinsider.com/china-economy-housing-market-real-estate-crash-investors-outlook-construction-2024-3#:~:text=Capital%20Economics%20forecast%20tumbling%20real,said%20in%20a%20note%20Wednesday.)
This decline has left a big mark on China’s economic fabric, with property sales
[plummeting by 20.5 per cent](https://english.www.gov.cn/archive/statistics/202403/18/content_WS65f7a8abc6d0868f4e8e5303.html)
in the first two months of 2024.

Historically, real estate was not just a financial powerhouse but also a catalyst
for ancillary sectors, driving employment in construction, stimulating retail development
and boosting banking through loans. This relationship fostered a dynamic cycle of
economic expansion.

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## China’s transition towards a middle class society

But as China transitions towards a middle class society, **Xi’s administration is
steering away from this growth model. **The government’s ‘[Three Red Lines](https://eastasiaforum.org/2024/02/08/a-bumpy-road-ahead-for-chinas-economy/)’
policy — designed to mitigate substantial risks among the many property developers
with mounting debt — was a lukewarm response that led to reduced residential investment.
The policy indicates Xi’s pivot towards more technologically advanced industries,
[such as AI](https://eastasiaforum.org/2024/03/27/chinese-ai-companies-a-perfect-match-for-domestic-chipmakers/),
big data, bioengineering, semiconductors and quantum computing.

This shift fits into a **broader agenda to reposition the Chinese economy towards
high-tech industries, mirroring global economic trends** that favour scientific 
innovation and smart technology. Most importantly, it aims to secure a win in the
US–China rivalry.

## Xi’s prioritisation of national security over economic flexibility

Xi’s [prioritisation of national security](https://thehill.com/opinion/international/4275496-how-xi-jinpings-obsession-with-security-derailed-chinas-rise/)
over economic flexibility complicates this transition. His deep-seated scepticism
of market forces, shaped by the experience of [corruption and ideological deviations](https://www.voanews.com/a/chinas-hu-issues-warning-about-corruption/1541717.html)
during former president Hu Jintao’s administration, continues to influence economic
policy. His cautious approach has placed increased scrutiny and [limitations on major tech firms](https://eastasiaforum.org/2023/05/22/china-keeps-tech-firms-on-a-short-leash/),
reflecting a strategy of [economic statecraft](https://www.brookings.edu/articles/chinas-economic-statecraft-under-xi-jinping/)
that favours firm state control over market-driven growth.

_Dr Seong-Hyon Lee is Visiting Scholar at the Harvard University Asia Center and
Senior Fellow at the George H. W. Bush Foundation for U.S.–China Relations._

Read the complete article

[https://doi.org/10.59425/eabc.1719741600](https://doi.org/10.59425/eabc.1719741600)