China’s Economy and the US in 2025
China’s economy is currently facing a profound and multifaceted crisis that has captured global attention.
Economically, this crisis stems from years of overexpansion in real estate, excessive debt, and supply exceeding demand. Local governments, in pursuit of GDP growth and personal promotion, have overborrowed and blindly expanded infrastructure and investment. The zero-COVID policy over the past three years caused people to lose trust in the government. Coupled with the recent suppression of private enterprises, both consumers and producers lack confidence and refuse to become “leeks” for the government to harvest.
Pressure from the U.S. and other nations could push the CCP to reform, benefiting both the Chinese people and the world.
Currently, the Chinese Communist Party’s (CCP) economic stimulus approach remains conservative, focusing mainly on helping local governments repay debts and stimulating investment. However, the CCP has not shown the resolve to dispense cash to stimulate consumer spending, reasoning that it must not “encourage welfarism.”
While commentators have focused their analysis on the economic factors in this malaise, the political aspects of China’s economic downturn are no less important.
China’s economic decline is not cyclical; it is institutional — a sign that the “China model” has reached its limit. What is the China model? I summarize it as follows:
National mobilization system: The CCP’s greatest strength lies in its ability to mobilize the entire nation’s resources to develop critical industries, such as high-speed rail, solar power, and electric vehicles. Once a key industry is identified, foreign competition is restricted, selected domestic enterprises are supported, the state helps acquire foreign technologies, and China’s vast market size is leveraged to reduce unit costs quickly and dominate global markets.
Partial legal improvement: Since the late 1970s’ reform and opening up, the CCP gradually established commercial laws that provided some degree of property rights protection for foreign and private enterprises.
Partial privatization: Under limited legal protection, private property rapidly developed over the decades, leading to a large number of successful private entrepreneurs like Jack Ma, who fueled China’s economic growth.
Globalization: Similarly, under partial legal protection, foreign companies entered China en masse while Chinese enterprises sold products worldwide. Leveraging low human rights (low labor costs) and undervalued currency, Chinese products captured global markets, turning China into the world’s factory.
Diligent and hardworking culture: Having experienced the poverty of Mao’s revolutionary era, Chinese people, since reform and opening, have seized every opportunity to work hard and make money, leading to highly efficient workers.
But how many of these characteristics remain today?
Years of private sector development created a massive middle class and wealthy entrepreneurs who are dissatisfied with the CCP’s strict controls and demand genuine rule of law. However, genuine rule of law would fundamentally undermine the CCP’s one-party dictatorship. Thus, the CCP has stopped advancing toward the rule of law, explicitly rejecting Western constitutionalism and placing the Party above the law.
The national mobilization model persists, but the overproduction it creates — such as in electric vehicles — exceeds domestic absorption capacity, with global markets unwilling to accept the surplus.
Other countries are now aware of the threat posed by the China model and are starting to resist it.
Culturally, while Chinese workers remain efficient, the younger generation lacks the willingness to endure hardship like those born during Mao’s era. The emerging “lying flat” culture poses challenges to China’s productivity.
The crux of the CCP system lies in the top leader’s unchecked power. The CCP operates under highly centralized control, suppressing society’s democracy and free expression. This centralization extends to internal Party dynamics, where power is concentrated in the hands of the top leader. Attempts at collective leadership have failed, as shared power results in dukedom, inefficiency, and rampant corruption. Under Xi Jinping, the consensus is that a single leader must hold absolute authority, and offending this leader results in political ruin or worse.
The CCP faces severe economic challenges, such as deflation. Deflation — marked by oversupply, falling prices, reduced investment, and decreased consumption — severely impacts the economy. However, to someone with limited economic understanding, deflation might seem beneficial. The Wall Street Journal reported that when experts informed Xi of the deflation challenge, his response was, “Don’t people like it when things are cheaper?” No one dared to challenge him after this statement.
Understanding the CCP’s policy-making swings between “left” and “right” is crucial. Left-leaning policies emphasize communism, class struggle, suppressing private enterprise, and opposing the U.S. and the West. Right-leaning policies focus on economic growth, encouraging private enterprise, and fostering friendly relations with the U.S. and the West.
Internally, the CCP operates on the principle, “lean left to build powerbase, lean right to survive crises.” The CCP ideology is intrinsically left, making leaders who lean left less politically vulnerable. Conversely, leaders perceived as overly right-leaning risk being ousted, as happened with the reform-minded CCP leaders of Hu Yaobang (head of CCP, 1982-1987) and Zhao Ziyang (head of CCP, 1987-1989).
For Xi Jinping, political considerations take precedence. To secure CCP’s rule, he is willing to close China’s doors, despite the economic costs. When necessary, he may adopt opportunistic right-leaning policies, such as courting private enterprises or improving U.S. relations. However, these are tactical adjustments rather than ideological shifts.
Those who dislike Xi believe removing him will solve the problems, but this is a misunderstanding. Xi’s policies aim to save the CCP, and any leader would prioritize the Party’s survival.
China’s economic crisis and gradual decoupling from the world have significant impacts on global economies, particularly the U.S.
Supply chain instability: China’s scale and mobilization model made its industrial chains robust, producing cheap goods through low labor costs and undervalued currency. Decoupling will disrupt supply chains in the short term. However, globally, alternatives are being developed, making long-term resolution possible.
Rising prices: To counter China’s mobilization model, the U.S. must reduce dependence on Chinese goods, causing short-term shortages and inflationary pressures. For years, China’s large-scale exports to the U.S. injected significant dollar inflows into U.S. capital markets, supporting low interest rates. Decoupling reduces this inflow, ending the era of long-term low interest rates.
These costs are necessary. Continued reliance on China would strengthen its mobilization model, imposing greater future costs on the free world, especially the U.S.
The U.S. must firmly reject the CCP’s mobilization model. Pressure from the U.S. and other nations could push the CCP to reform, benefiting both the Chinese people and the world. Under CCP control, Chinese citizens lack the power to protect their rights. International resistance acts as a counterbalance to the CCP, akin to an opposition party restraining the ruling party, ultimately benefiting ordinary Chinese people.
READ MORE from Shaomin Li:
DEI and Marxism Destroy Merit and Excellence
The Chinese Model’s Challenge to the 2024 Nobel Prize in Economics
Shaomin Li is a Professor at Old Dominion University.
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