Xi's Fatal Pivot: How China Traded Boom for Bust | Digging into China

Hi, I'm Dong. Welcome to Digging into China, where we explore China in depths to review unique perspectives. If [snorts] we view the CO9 pandemic in 2020 as the key turning point in China's economy, then the years before and after mark two whole different phases. Take youth unemployment for instance. Just 10 years ago, it was the high point of job prospects in China with the entire country buzzing from steady economic growth. Fresh college graduates back then aimed for roles at large companies or foreign enterprises. Civil service exams drew little interest and those who tried often targeted more business focused spots like banks. Now things look very different. The number of people sitting for those exams each year is so vast it could span the globe and the youth unemployment has climbed to record levels. So when did this shift in China's overall fortunes truly begin and how much blame falls on Shiinping? We will explore that in this episode. Economists today typically divide the countries into three groups. underdeveloped, developing, and developed. The last two are straightforward. China counts as developing. The United States as developed. Underdeveloped ones are those with per capita GDP still under $1,000. Most underdeveloped countries have never truly joined the global economy. Consider Sudan in Africa locked in a fierce civil war since 2023 that has killed tens of thousands. We hear endless coverage of the wars in Ukraine, Russia or Israel, Hamas. But Sudan's conflict barely registers. These places seem left behind and without globalization their economies stick to basic activities like farming. Generally if agriculture makes up more than 30% of GDP the country is underdeveloped. Developing and developed nations however are fully part of the global system though each place a distinct part. What stands out about the developed countries apart from their wealth is the strength of their tertiary sector services. This goes beyond everyday things like tourism or dining to include a film, finance, software development, AI systems and self-driving technology or under services. A developed economy's success ties directly to this sector's size. The larger it is, the greater the prosperity. Developing countries in contrast focus mainly on the secondary sector industry which covers manufacturing and construction. This breakdown helps explain the huge gaps in per capita GDP worldwide. Underdeveloped nations go it alone missing out on globalization the biggest economic shift in history. So poverty persists. Countries like the United States reach developed status not just from the dollar's power but from leading the global order as creators. They use innovation and research to sell products everywhere. Spread culture through Hollywood movies and draw investment with stable institutions, trust and legal protections. Developing countries handle the assembly of those products. So their industry thrives. But since making things require less creativity than inventing them, developed the nations end up with a higher per person income and GDP. Why dwell on this structure at length? It clarifies why China surged ahead from Dang Xiaoing's time through the huan years only to slow down. Now, back then, the goal was to lift China from a poor farming economy to a strong developing one. Dang Xiaoing started by building ties with the United States. But the real foundation was 40 years of policies aimed at creating a manufacturing giant to solidify China as a top developing power. Even if some steps were harsh on people, industrialization needs more than a spot in global work divisions. It calls for affordable, steady workers in large numbers, kept in check. In the world's biggest communist country, labor protections were minimal, and the government often stepped in to curb worker protests or strikes. The so-called edge from lower human rights standards. During Dong Xiaoing and Huin Tawan Jaba eras, key policies seemed unrelated to industry at first, but they all supported this rapid push forward. Family planning is a clear case. You might wonder how it fits. Doesn't it reduce the workforce? Yes, it limited the future population and labor supply. But by cutting birth rates at the time, it ease the move to industry in key ways. Babies are a pure cost right away, eating up resources. Fewer of them ease the food demands, allowing a shift to industrial needs. Even more important, it freed up workers, especially women. India and China have similar overall population, but India's higher birth rates keep many women at home raising children, leaving its workforce hundreds of millions behind the China. The policy of higher housing prices driven by land sales revenue also aided industrialization in unexpected ways. This was a clever tactic by the Chinese Communist Party. Dictatorships often squeeze citizens too hard, stalling growth. Land revenue turned that squeeze into short-term fuel. Local governments focus the pressure on land, raising prices and funding infrastructure to pull money from people. At its peak, land sales made up over 40% of local government income. The clever part was its fit with industry. Housing and infrastruct infrastructure are both secondary sector activities and a new roads from those projects boosted manufacturing. What could have hurt growth instead helped it in its setup. True, some policies from Dang Xiaoping to Huan were deeply unfair to people. Still, they aligned with China's push for progress. That balance broke down when Xi Jinping took power. His situation deferred sharply from Huin Tao Wunjaba or Jang Zaming. If he had not sought another term, things might have stayed steady. But by extending his rule, he faced a core challenge, leading China to develop the status. This was the true test of the nation's path. Success would carry the momentum forward. The failure would end it. Many see Xi Jinping as misguided. But in China's economic story, his role matches Dang Xiaoing's importance. Dang Xiaoing poured country from Maong's era of rural poverty into a developing industrial force, earning 40 years of good fortune. Shi Jinping's task was to take it from developing to developed. That meant major changes to han approaches and new directions. A win would bring fresh prosperity. A loss would bring decline. the very issue China faces today. At the moment when big choices shape the future, Xi Jinping arrived, but he fell short as the needed changer. It's not that he avoided the change altogether. He tried some but they either failed to deliver or moved in the wrong direction. He kept the many who hold overs intact. Those helped the quick industrialization but they don't aid develop the status. Some even block the growth of services like the low human rights approach. Useful for fast factories. It now holds things back. Services grow not just from innovation but from people with money and time to spend on it. Under tight labor rules, Chinese workers are squeezed dry. No cash or hours left for buying. In 2012 when Shiinping administration began, China should have strengthened the labor laws. More rest better pay for the basics. So everyday people could consume. He did not prioritize this. Enforcement targeted only state debts like a social security. Hard hits there but silence on forced overtime. Family planning followed the same pattern. Fewer births helped the industry but they hurt the shift to develop the status. Children don't work yet but their spending matches or beats adults fueling services. Changes were overdue when Xi Jinping started. Instead second child allowance came in 2015 third in 2021. By 2024 birth rates were near zero before full restrictions lifted. on land revenue. He made some adjustments but left it unfinished. High prices under that system drained the spending power. Homes took all the money. Xi Jinping first pushed houses for living not investment to cool prices. But after push back he stopped and under him prices rose even more sharply. If his errors stopped at mishandling old policies he might seem only clumsy. But Xiinping also actively damaged the paths to develop the status like by targeting certain services. Gaming and film are prime examples. In 2018, a sudden freeze on game license lasted from March to December 265 days with none approved, bankrupting many small companies. It happened again in 2021 unannounced for 263 days. State media like Economic Information Daily joined in, calling games a spiritual opium. For films, 2016 brought the limits on shows, historical dramas, and Korean imports. 2018 added a strict reviews and big tax checks. The results, the industry collapsed. These steps came from Xiinping's unique view of China's developed future at odds with the standard economic thinking. He did not see a service-led economy handing manufacturing to places like India or Vietnam. Instead, China would innovate and produce everything. And innovation meant manufacturing only. Services could touch high-tech like AI but not entertainment. So under Xi Jinping, entertainment and finance faced cuts while bats went to advanced industry. electric vehicles, solar panels. This top-down style driven by sudden ideas rather than markets led to overp production in those areas. The cheap exports that followed worsened ties abroad. This approach stems from Xiinping's economic view and China's real conditions. Looking closely at his ideas and policies shows a limited grasp of economics. Dang Xiaoing is known for leaving the man road to test the waters step by step. Xi Jinping follows a similar ad hoc path. Services offered the clear way to develop the status but he turns away shaped by an old style Marxism what I call the traditional e economics. At its heart production above all to Xi Jinping making things is everything. Without output the economy is empty. This view stretches hard work, low benefit, controlled wants and the less spending. Games means laziness. The play is now not real effort. Production is the only true measure. This thinking is not his alone. It turn it runs people in China from years of Marxist economic teaching. When judging a country's strength, we often look first to factories. Korea does well. It's Samsung's chips and phones, not K-pop or Squid Game. Japan excels. Think Toyota cars, not its comics, games, travel, or culture. Dang Xiaoing's leaders managed the change from farms to factories. Xi Jinpings have not bridged to services. Beyond this mindset, China's system makes the services shift hard. The main barrier is the Chinese Communist Party itself. services rely on spending, but keeping up the party's huge structure leaves little for public wallets. In China, consumption is just 37% of GDP, far below the United States, Japan, or the European Union. Some say it's because Chinese save too much. But it's really about how income is shared. People get only 40% of GDP. From every $10 made, the state takes six, leaving four. In the United States, people get eight. Without the strong spending, services can't take off. China starts at a disadvantage. Here to raise incomes means cutting government cost sharply, shrinking staff, and limiting elite gains. Steps that threaten the party directly. The tight control on speech and ideas also limits services global reach. Is deepseek's weak international presence just from tech or chip issues? No. In China, AI must follow party lines. Deepseek stays a local tool like a BU once was. Ask about the 1989 Tanaman Square events. It says, "Oh, let's talk about something else." Chinese accept the filter after years of them. Outsiders walk away. Films and games often push positive messages. How many foreigners watch party promotions? Finance suffers too. Sudden asset grabs scare away investors. Xi Jinping's hold on information and unchecked power strips away freedoms at home and boxes in services abroad and within. China's setup from the start hinders service. Real growth. The real growth there requires political changes from within. Add Xiinping's odd visions and his rigid traditional logic and the country takes a strange turn. By 2021, China's per capita GDP reached $12,900 then flatlined just $600 more over four years with the growth under 1% a year. Against the United States, China's share of GDP had fallen each year since. All the predictions of overtaking America by 2035 now seem endlessly delayed. To me, the start of China's declining fortunes came before 2021. Before when Xi Jinping took office in 2013 or even earlier. It was when the Chinese Communist Party chose this strongman leader after who went instead of someone open to democratic steps. That choice sealed the downward path. Economists described the middle income trap where countries try to reach developed status often stumble and fall back like Mexico or Argentina. Those cases feel almost predictable. Low education levels meant no new thinkers. So services couldn't grow and the shift failed. China is different. Even with the party's limits on services and spending successes emerged. Deepseek, labubu, tik tok, Chinese people show real creative potential unlike those earlier Latin examples. The trap does not have to claim China, but it faces a party that clings to power and and Xiinping set on his unusual course to the end. These are now the biggest blocks to progress. The party will fade, history will end it and the force change. The question is time. When that happens, will China be stuck too deep in the trap to recover or still able to push forward develop the status once more? Can the lost momentum return? Thank you so much for watching. 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