Xi lyfter Kinas storhet – men ekonomin går på knäna

Government pours money into AI, electric cars and military power, while consumer confidence sags and job market grows bleak

More than a decade into Xi Jinping’s rule, China’s military has grown more formidable, its factories dominate global manufacturing and its technology pioneers are closing the gap with Silicon Valley.

Yet big parts of its economy are a mess. A colossal property bust has destroyed trillions of dollars in wealth, consumer confidence has been gutted and the job market has grown bleak.

The disconnect shows how Xi has made China’s security a priority over its economy. He is steering hundreds of billions of dollars into pursuing self-sufficiency in artificial intelligence, semiconductors, electric cars and other strategic sectors, while holding back on economic reforms that would help create more jobs and lift the country’s middle class.

It is all in service of his vision for “national rejuvenation” grounded in military might and industrial strength, a strategy likely to be on full display when President Trump travels to Beijing to meet Xi.

In Xi’an, a city about 600 miles southwest of Beijing famed for its ancient terracotta warriors, the government last year slashed spending on maintaining roads and running courts, while increasing it by about 80% on science and technology. As city revenues shrank, spending on elementary and middle schools alike dropped by more than 10%, though local military forces received millions of dollars in special funding.

In Foshan, near Hong Kong, residents said in interviews that a sense of crisis has descended over the once-booming manufacturing hub, where the economy grew by only 0.2% last year. Officials want to transform the city into a center for robotics, but that industry is too small to save Foshan’s economy. Today, many factories are vacant, with for-rent signs hanging on their facades.

“Right now, everyone is scared that next year there will be no more money left to earn,” said Yang Guolü, a hiring agent for local factories.

Since the death of Mao Zedong, China’s leaders have largely focused on growth, which has fueled the nation’s economic rise. These days, political messaging often conflicts with economic reality. Farmers living off a few dollars a day are urged to make China a great power of agriculture. Students memorize Xi quotes about restoring China’s greatness, though millions are likely to end up unemployed and relying on their parents.

China’s economy is smaller than many Western economists predicted it would be when Xi took over. Even when adjusting for purchasing power differences between the two countries, China’s per capita gross domestic product was less than one-third the size of the U.S.’s in 2024.

Under Xi, China “can make the economy a victim for his political considerations,” said Guoguang Wu, a scholar of Chinese politics at Stanford University. “But it can actually never make political considerations a victim of economic development.”

In his latest annual New Year’s address, Xi avoided almost any mention of economic problems. Instead, he stressed that China’s national strength had “reached new heights.” As evidence of the nation’s advances, he pointed to last year’s launch of China’s most advanced aircraft carrier and new kung-fu-performing robots.

China’s belief that its power is rising—and that the West is declining—has made it more willing to push back when challenged. Beijing moved to limit exports of critical minerals to the U.S. last year during the countries’ trade war, an escalation that threatened American factories. Its aggressive military maneuvers near Taiwan have increased concerns about a global crisis over the island.

In its latest annual assessment of countries’ power in Asia, the Lowy Institute, an Australian think tank, still ranked the U.S. as more powerful, but concluded that China had narrowed the gap. The analysis was based on 131 indicators, in areas such as economic and military capability, defense partnerships and diplomatic influence.

By focusing on political and security interests more than his predecessors, Xi has signaled that China faces more imminent threats today than in the past. U.S. military operations against Venezuela and Iran, both close partners of China, have deepened Beijing’s mistrust of Washington.

Xi has argued that security is a prerequisite for development, justifying a stronger role for the state in the economy as well as hundreds of billions of dollars spent pursuing self-sufficiency in technology, agriculture and other areas.

“Even though reasserting party control over the economy is costly, this is a price he considers worth paying if not doing so would risk the erosion of the party’s power,” said Minxin Pei, a Chinese politics scholar at Claremont McKenna College.

Military spending has more than doubled since Xi took power, including rising 7% in 2024, according to government data. China has added hundreds of nuclear weapons, according to the U.S. Defense Department, and two aircraft carriers under his watch. By comparison, education spending by central and local governments rose just over 1% on a per-student basis in 2024.

Economists don’t dispute that China needed to curb the real-estate economy that had become so risky in recent years, and Xi’s push for China to become more self-reliant looks prescient as the war in Iran sows chaos in global energy markets.

China’s recent focus on AI, robotics and other technologies is helping shore up its position as the world’s biggest manufacturer—and creating pockets of relatively strong growth in technology-focused cities such as Shenzhen and Hangzhou.

The problem now is that Xi’s strategies aren’t generating enough jobs or investment to keep overall economic growth from slowing further. The end of the property boom was especially damaging, wiping out jobs that haven’t been fully replaced and hurting consumer sentiment as home values tumbled. It has forced the country to rely even more on exports, angering Western trading partners that are having to absorb Chinese overcapacity.

Research firm Rhodium Group estimates that property and residential construction in China fell to 11% of GDP last year, from 16% in 2023. Over the same period, the combined output of six of Xi’s strategic sectors—including lithium-ion batteries and robotics—rose to 6.3% of GDP, from 5.5%.

Last year, China’s overall economy grew by 5%, hitting the government’s growth target, but that was a big slowdown from China’s boom years. The government is aiming for growth not to fall below 4.5% this year.

Vast government spending on the sectors that Xi contends will boost national security has contributed to China’s rising debt levels while hurting productivity growth. Researchers at the International Monetary Fund have estimated that market distortions from state aid such as cash subsidies and tax breaks for businesses have reduced China’s GDP by as much as 2%.

Amid all the spending on technological self-reliance, China’s government has so far held back on large-scale economic stimulus that could help get people to spend more.

It has also moved slowly in beefing up its social safety net so people have more confidence to spend rather than save. While China has boosted its pension system and some other social programs during Xi’s time in office, total social expenditures—estimated at around 9% of GDP as of 2023—are roughly in line with countries such as Mexico and Turkey. They are less than half the levels of many rich countries.

Foshan, the city near Hong Kong, has a vibrant economic past. As recently as 2021, its growth was outpacing the national average, with thriving factories cranking out building materials, furniture and home appliances.

“Where there is a home, there are products made in Foshan,” became the city’s unofficial slogan.

Today, many factories are vacant—victims of China’s property market meltdown and the country’s failure to find sufficient replacements for growth. There is no guarantee that Xi’s vision for the future will provide that.

At Monalisa Group, a producer of ceramic tiles, sales plunged by a quarter between 2022 and 2024. Its head count shrank nearly 20% over the same period.

On a recent morning, out-of-work factory hands, some lugging suitcases, wandered along a street where a cluster of hiring agencies advertised what jobs were still available. With demand uncertain, many factories are opting to hire temporary workers instead of full-timers, even if it is more expensive on an hourly basis.

Liang Youjun needed a job. Inside a sparse room he rented in Foshan for $3 a day, he unwrapped a strip of coated wood, evidence for prospective employers of his life’s work painting furniture.

Liang is no stranger to hardship, having gone hungry as a child in the Cultural Revolution. But he thrived in China’s era of economic opening, leaving home in the inland province of Sichuan for factory work on the coast.

In the furniture industry, he said, he could earn up to about $1,500 a month to support his wife and four children. “Back then, if you got into a factory, your life was guaranteed,” he said.

As his children enter adulthood, he said, their path to prosperity is much less certain than his was. Lucrative office jobs are exceedingly tough to get, he said, and even factory work has become less certain than before.

A few years ago, Liang said, he broke his lower back in a fall at work, resulting in a limp. But as he approaches 60 years old, he is reluctant to retire, fearful of becoming a burden on his kids as they navigate China’s new economic reality.

“You sit at home and they split their money with you,” Liang said. “As parents, we just can’t do that.”

With the economy where it is, Liang said, he was prepared to work for as much as 50% less than what he earned in the boom years.

Xi’s focus on power and security is a major theme of the country’s current five-year plan, which runs through 2030. It stresses the many risks facing China to justify doubling down on those priorities.

In Foshan, officials are attempting to transform the city into a hub of robotics. At one industrial park, companies are developing robots that can stir-fry chicken and brew lattes. The parking lot is filled with Teslas and BMWs, but the few thousand people working at the site are a tiny fraction of Foshan’s total workforce.

A development plan by the local government is targeting the industry to contribute around $3 billion in annual finished-product output by next year—less than 1% of the city’s total industrial production in 2023.

In a recent magazine column, a Chinese central bank adviser argued that China has been investing too much in “things” and not enough in people.

So, while the country looks formidable on the outside, people inside China are being forced to dial back their expectations.

Graphic designer Lu Ziqi lost her job in December. Since then, lacking a routine, she has grown bored, she said, and has cut back on small luxuries such as buying Pokémon cards. She scrolls job advertisements online, fearful of internet scammers preying on her.

Despite several years of work experience, she recently has been telling companies she would work for around $600 a month, equivalent to what she once earned as an intern. Interviewers sometimes seem perplexed at why she would work for so little. But with the economy as bad as it is, she said, “I’ll have to be a bit more humble in my demands.”