Xi Jinping
doubtless expected to celebrate the New Year by touting the superiority of his authoritarian economic and governance model. Instead, he is trying to manage a healthcare crisis, a weakening economy, and political protests. These vulnerabilities—each attributable to the Chinese Communist Party under Mr. Xi’s leadership—allow the U.S. to combat the party’s mercantilist policies and debunk its narrative that China’s rise to global dominance is inevitable.
Mr. Xi’s climb-down from his signature zero-Covid policy, and the broad and poorly controlled spread of the virus, has exposed the weaknesses of China’s social safety net. The public demonstrations since November are signs of underlying discontent. The participation of the well-off and normally passive urban populations affirms that Mr. Xi can’t expect to maintain political control if he continues to impose such authoritarian restrictions.
As Simone Gao recently wrote in these pages, the end of zero Covid was in large part an admission of the government’s unsustainable financial situation. In early December, Beijing said local governments would be responsible for the cost of daily Covid testing. These already distressed institutions were put in charge of the healthcare emergency in addition to their responsibilities for education, unemployment insurance and retirement. They are also still expected to stimulate economic growth through building infrastructure and subsidizing local industries.
Achieving those goals would be difficult in the best of times. But China’s local authorities have been operating with one hand tied behind their backs, thanks to Mr. Xi’s economic policies. More than 40% of local government revenue in recent years has come from land sales to real-estate and industrial developers. That led to one of the global economy’s largest bubbles, which Mr. Xi attempted to deflate by forcing developers to deleverage their balance sheets and limiting any government bailout of private real-estate firms. The crisis has devastated the government’s balance sheet and contributed to the economy’s slowing. Unemployment crept up to 6.7% in the 31 largest cities in November and is in the high teens for the young.
Few of China’s development needs can be met by the overmatched leadership and faltering finances of local governments. The urban-rural gap remains enormous in…
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