Geopolitical risks and the domestic economy: Are Chinese officials getting nervous?

CHINA ADVISORY - Report 24 Jan 2025 by Andrew Collier

Xi Jinping is fighting two fires simultaneously: the geopolitical risk of sanctions and a trade war, and a rapidly slowing domestic economy. The trade war outcome is out of his control until Trump enacts specific policies. Even then, Xi has limited retaliatory options such as restricting exports of crucial metals or reducing purchases of U.S. goods such as soybeans.

Domestically, he has more options, although as I will argue, his range of policy choices is restricted by domestic institutions and a high debt load. Already, Xi is making choices that are driving the domestic economy downward more rapidly, primarily through excessive investment in state industry and long-term high technology. There are signs of nervousness in the leadership and further down among rank-and-file officials in banking and other sectors.

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