First, in substance: Xi described the China under his watch as a guardian of the international order, a model of globalization and free-trade liberalism, and an opponent of defeatist nationalist protectionism. Second, in its subtext: Donald Trump's inauguration is just days away, and Xi Jinping can play the adult in the room as the Davos conference prepares for the “America First” slogan to take over global politics.
This week offers a reminder of what has changed and what has not. Trump's landslide victory in the Iowa caucuses highlighted the size of his shadow that will cast over the United States and the world in the coming months. In Davos, a large delegation from China alarmed US counterparts. Chinese Premier Li Qiang used his speech to the plenary session on Tuesday to herald Beijing's commitments to international comity and prosperity, stressing the need to keep global supply chains “stable and smooth.”
But China's position on the world stage is now markedly different. Xi's ruthless suppression of political freedoms in Hong Kong has focused attention on the increasingly authoritarian character of his regime. Thanks in part to Trump, it has also become common for politicians in the West to criticize the entire globalization project, and specifically to lament the ways in which Beijing has manipulated the rules of the road to its advantage.
China itself is weaker than it appeared in 2017. In his New Year's speech, Xi acknowledged the “headwinds” facing the Chinese economy, which is in the midst of a structural slowdown caused by sluggish exports, weak demand, rising unemployment and strained investor confidence that has never recovered in the wake of the pandemic.
“Some companies have had a difficult time. Some people have had difficulties finding jobs and meeting their basic needs,” Xi said, pledging to “consolidate and strengthen the momentum” of China's economic revitalization.
Easier said than done. Li told the audience in Davos that China's gross domestic product grew by about 5.2 percent, which is in line with the 5 percent target set by Beijing the previous year — although much slower than the country's pace of growth before the pandemic. China is expected to set a similar target for next year.
“Although strong compared to advanced economies, last year’s target was the lowest in China in decades,” the Financial Times explained. Analysts said: “After the harsh lockdowns that hurt the economy in 2022, this would have been easy to achieve, but the government was forced to increase financial support after growth fluctuated in the middle of the year.”
The massive influx of foreign investment abroad represents a stunning transformation in China's image. David Lubin of Chatham House noted that “Chinese companies are investing more abroad than foreign companies in China, and foreign companies now appear unwilling to invest in China at all.” “In the three months to September, foreign companies withdrew $12 billion of their capital from the country, the first time this had happened in a generation.”
Lee used his opportunity in Davos to promote foreign companiesAvoid further divisive rhetoric and positions regarding the wars in Ukraine and the Middle East. But he is fighting an uphill battle, as Xi's tough centralization policies and crackdowns on private enterprise have spooked foreign capital and even domestic investors, while Chinese consumers tighten their wallets and young Chinese face record unemployment rates.
China is grappling with a host of interlocking challenges: “A prolonged real estate slump that is hurting consumer and investment confidence, increasing scrutiny of foreign companies’ activities in China, and regulatory crackdowns on successful private sector industries like technology and education,” explained the Wall Street Journal’s Jason Douglas. “The specter of deflation, As well as rising interest rates in the US, it has also played a role in absorbing money from China.
And in Davos – where China's rise has often been the toast of the city, celebrated by admiring politicians and financiers – Beijing almost seemed the sick man of the global economy. Kristalina Georgieva, head of the International Monetary Fund, called on China to implement important reforms in an interview with reporters there.
“Ultimately, what China needs is structural reforms to further open up the economy, to balance the growth model more towards domestic consumption, and that means creating more confidence in people, so [they] “They don’t save, they spend more,” Georgieva said.
Analysts are awaiting the measures that Xi will take to change fiscal and monetary policy. “I think it is a critical year for the Chinese economy in the sense that deflation could enter a vicious cycle,” Robin Cheng, chief China economist at Morgan Stanley, told the Financial Times.
Meanwhile, Xi must lick his wounds on other fronts. This includes the fallout from Taiwan's presidential election, which saw China's least desirable candidate win – and the Democratic Progressive Party for a third straight term in power, which is more openly challenging Beijing and hostile to Xi's rhetoric about the possibility of an eventual final solution. Reunification with the mainland.
Communist Party organs recirculated an old speech Xi gave in 2022 after the Taiwan vote, in which the Chinese president said Beijing needed to do more to “develop and strengthen nationalist pro-unification forces in Taiwan.”
This is model language for winning the hearts and minds of ordinary Taiwanese voters by promising closer economic ties with China. According to a statement published by Bloomberg News, Xi pointed out how a healthy Chinese private sector could attract Taiwan to its cross-Strait neighbor. Given China's troubles under Xi Jinping, such a vision remains as illusory as ever.
