Not long ago, pundits were debating the consequences of China’s inevitable rise. Today, however, the Chinese economy has slowed growth to the point that some are beginning to doubt whether it will ever eclipse the United States’ as the world’s largest, something that had previously seemed a foregone conclusion. The discourse has suddenly shifted to “peak China” and how Washington, and the world, should manage Chinese decline.
Many have sought to explain what went wrong for China—from the shock of its zero-COVID policies to the gut punch of de-globalization and a trade war with the United States. Some have simply argued that China fell victim to the “general logic of authoritarian regimes.”
One of the most venerable and compelling explanations is that China is simply reaching the limits of its investment-heavy, export-driven growth model—an explanation adopted by the leadership of the Chinese Communist Party (CCP) itself in the wake of the 2008 financial crisis. Chinese leaders believed then that if they could increase consumption at home, China would not be as dependent on foreign consumers racking up debts to buy Chinese goods.
Though efforts to do so by predecessors were notoriously unsuccessful, many hoped that when Chinese President Xi Jinping took office in 2013, he would manage to do what others had not. He seemed to many observers like an “ambitious, efficiency-minded economic reformer” who would inaugurate a new era of liberalization.
But Xi dashed these hopes by doubling down on a state-led, investment-heavy strategy, headlined by the Made in China 2025 plan at home and the Belt and Road Initiative abroad. Instead of liberalizing markets, Xi’s strategy has stifled the private sector and led to a net outflow of capital from the country in recent years. And even though growth has declined during his tenure, the CCP touted this as “higher quality” growth that would avoid trade-offs such as rising inequality and ecological damage. But today, amid still-slow growth rates, a youth unemployment crisis, and debt burdens in the real estate sector that threaten to ignite a broader financial collapse, commentators are once again calling for Xi to solve the fundamental problem of the Chinese economy: its insufficient domestic consumer base.
These calls, however, are unlikely to be heeded. But for Xi, boosting domestic consumption is not merely a macroeconomic policy oversight; doing so would conflict with his ideological vision for Chinese socialism. At a time when Xi sees both the legitimacy of CCP rule and China’s place in the world threatened by an ideological conflict with the United States, the cure of domestic consumption would be worse for the survival of his vision of China than the disease of economic stagnation.
When the Soviet Union and China went from being allies to bitter enemies in the 1960s, one of the chief disagreements between Soviet leader Nikita Khrushchev and Chinese leader Mao Zedong was over the nature of communism. Khrushchev, in his 1961 plan for the construction of communism in the Soviet Union, specifically emphasized consumption and living standards as the measures by which the success of communism would be defined. Under the conditions of a truly communist state, he argued, the average Soviet citizen would live better than his capitalist counterpart. But Mao believed that any attempt to compete with the capitalists on living standards was not only doomed but also meant losing the socialist cause in the process. The goal of socialism was not to out-consume capitalism but rather the creation of a “new man,” one not motivated by individual consumption but rather by the common good.
After Mao’s death in 1976, Chinese leader Deng Xiaoping embraced a policy of reform and opening up. He believed that “communist society is based on material abundance” and famously encouraged the expansion of private enterprise, saying that “to get rich is glorious.” His successors Jiang Zemin and Hu Jintao continued this approach, turning China into an export juggernaut, especially in the wake of China’s 2001 entry into the World Trade Organization.
In the years preceding 2008, the discourse around U.S.-China relations was dominated with talk of a “financial balance of terror” and a corresponding state of mutual dependence—China on U.S. consumers and the United States on Beijing to buy its sovereign debt, a system dubbed “Chimerica” by scholars Niall Ferguson and Moritz Schularick. After the crash, Hu approved an enormous stimulus package directed toward domestic infrastructure, hoping to maintain the momentum of economic growth. Implicit in this move was an acknowledgement that relying so heavily on U.S. consumers to pay for China’s industrialization—on credit, no less—was unbalanced and not sustainable and that the only way to ensure future growth would be to raise consumption at home.
Correcting course, however, has been a tall order for Beijing. Despite China’s official embrace of socialism, the state sector that had provided the public with benefits such as health care, education, and pensions was hollowed out during the years of reform and opening up in the 1980s and 1990s while the state focused its growth efforts on export production. Instead of spending on consumer goods, Chinese households needed to save for health care, schooling, retirement, and other necessities. China did little to rebuild the social safety net following the 2008 financial crisis; thus, the touted rebalancing has never come to pass.
When Xi took power, many hoped that he would deepen market reforms within China to provide the economy with the consumption boost it needed. At a party plenum in 2013, the CCP Politburo declared that the state needed to step back into more of a “regulatory” role to allow more room for the market to grow. Xi seemed to share this vision; in his first speech as president, he said, “All Chinese people deserve equal opportunities to enjoy a prosperous life, see their dreams come true, and benefit together from the country’s development.”
But Xi also seemed to share Mao’s suspicion of the dangers of unleashed private enterprise and has instead focused his efforts on further centralizing control over China’s political, economic, cultural, and ideological domains.
Xi’s priorities in these efforts have often reflected an obsession with avoiding a Soviet-style collapse. The CCP studied the fall of the Soviet Union carefully to avoid such an outcome for itself. In the 1990s, its analysis of the Soviet collapse gave a great deal of attention to the problems of the planned economy and its failure to adequately provision the population, making the embrace of market reforms a logical approach to preserving political stability. In the Xi era, however, diagnoses of the Soviet collapse reflect different priorities, becoming ever narrower and focused on a single factor above all: ideology. According to current-day Chinese scholars of socialism, the Soviet Union collapsed because its ruling party had lost faith in Marxism-Leninism, become complacent and corrupt, and consequently lost touch with the people, who similarly no longer believed in the party’s ideology. This internal fear was compounded by contemporary global events. Following the Arab Spring and the post-Soviet color revolutions, both Moscow and Beijing believed that the West was using democratization to undermine its enemies, with them at the top of the list. There was a pervasive worry about political and ideological subversion—and a particular fear on Xi’s part that he could become China’s Mikhail Gorbachev.
Accordingly, Xi seems to believe that reaffirming the role of the party and the vitality of socialist ideology is a more urgent task than furthering market reforms. He began his rule with a massive anti-corruption campaign that removed potential rivals and officials who came up under previous leaders who might be disloyal to Xi, which had a chilling effect not just on the state but on business leaders who feared being caught up in the purge. This campaign was also directed toward purifying the CCP and restoring the people’s faith in it. Over time, it was accompanied by renewed attempts to force socialist education on the population, to combat “historical nihilism,” and to increase party influence throughout society, including through the placement of party cells within private businesses to help ensure the harmonization of private sector decisions with CCP objectives.
In contrast with Deng, Xi has embraced a distinctly Maoist socialism that emphasizes personal sacrifice for the collective good, harking back to the Cultural Revolution of the 1960s and 1970s. As China’s economic situation has worsened, Xi has harped ever more emphatically on this approach. He has encouraged Chinese youth to “eat bitterness”—in other words, to sacrifice and work hard for less. He has criticized the moral character and work ethic of today’s youth, which has popularized concepts such as “lying flat,” rejecting the intense competition of the workplace in favor of a minimalist lifestyle. Xi’s administration has also launched a campaign to resurrect traditional masculinity by attempting to banish “sissy men” from the public sphere, embracing the conservative asceticism of the Maoist period. His administration has also sought to limit video gaming for fear of the deleterious effect it could have on the moral constitution of China’s youth. In short, Xi’s version of socialism is not a socialism of abundance. Rather, it seems to be very much a moral socialism, derived from the Maoist values of his youth to which Xi is known to be partial—despite the persecution of his father by the CCP under Mao.
This focus on ideology isn’t just about frightening the population into acquiescing to CCP rule. Party control is only viable if socialist ideology is vibrant within the party and society writ large, and a focus on personal consumption is inimical to that vibrancy. Given Xi’s beliefs about the dangers that China faces, it is highly unlikely that he would be willing to rebalance the Chinese economy toward personal consumption, even if he knew how. For Xi, this would be tantamount to burning down the village in order to save it. He is more likely instead to resort to a combination of tepid supply side policies and the mobilization of increasingly unemployed youth for some party-directed cause, alongside a political crackdown on forms of expression that undermine the very work ethic he claims to prize.
Xi’s geopolitical partners, Russian President Vladimir Putin and Iranian President Ebrahim Raisi, also see the expansion of Western values as fundamental threats to their regimes. But while Putin and Raisi have leveraged pro-consumption policies to buy popular support, Xi has abstained. As the only one of them still committed formally to socialism, Xi’s interpretation of Western values seems to take on a decidedly materialist cast. To him, boosting consumption is seen as an ideological surrender to the West that would be even more dangerous to his regime than economic stagnation.
