People and companies in China—indeed in business communities around the world—have eagerly embraced Beijing’s promises to enact policies that will restore the nation’s economic momentum. However, disappointment has always followed. It is beginning to look as though China’s leadership simply does not know what to do. This conclusion is entirely plausible since China’s economic and financial troubles largely sprouted from ill-conceived policies dating back to well before the pandemic. 

China’s economy has come a long way from the place that once garnered nothing but praise from Western media. Not too long ago, it was common to read that China’s economy would soon eclipse that of the United States. Commentary often praised the effectiveness and prescience of Chinese top-down planning, some suggesting that perhaps it was superior to the comparative chaos of democratic practice and market-based approaches. In 2009, for instance, New York Times columnist Thomas Friedman extolled what could be accomplished by China’s “one-party autocracy.” Canadian prime minister Justin Trudeau spoke admiringly about how China’s “basic dictatorship” allowed it to “turn the economy around on a dime.” President Barack Obama gave credit to China’s approach to bringing millions out of poverty. This is just a small sample of the kind of commentary that was prevalent during China’s great growth strides. But now, that system seems to be failing.

Praise for the prescience of China’s central planning was always misplaced. Since modern China began as a severely underdeveloped and war-torn economy, its planners had an easy time identifying where the nation should put its emphasis. All they needed to do was to look at the developed world. They could see that building new roads, rail links, port facilities, housing, power stations, and the like would pay huge growth dividends, and they did. People rose from dire poverty and became richer. However, as China developed and joined more advanced economies, its future needs became less obvious. Beijing’s central planners had lost their model and increasingly began to make mistakes.

This new fact of economic life (for China) became evident in the 2010s. By then, the authorities had been promoting residential construction for some time, giving subsidies for building, advancing credit on easy terms to developers, and enlisting the support of local governments by making land sales lucrative for them and even encouraging them to enter joint ventures with developers. However, as China shifted from a housing-short economy to one of abundant housing, planners made the mistake of keeping these policies in place. Real estate development rose to an unsustainable 30 percent of China’s economy. 

When Beijing finally woke up to the problem, it made a second error. In 2019–2020, Beijing suddenly removed all the former support to the housing sector. The decision was reasonable, but the suddenness of the action caused problems. It caught both developers and local governments by surprise, leaving them no time to adjust. Having extended themselves under policies that no longer existed, developers and local governments faced severe financial troubles. In 2021, developers began to fail, and local governments began to report difficulties meeting their financial obligations, in some cases, even in providing basic public services. 

That year, matters in Chinese finance began to resemble those in the United States during the global financial crisis of 2008. Rather than act forcefully to stem the spread of financial failure, the authorities in Beijing made yet another mistake. They sat on their hands as if nothing were wrong. Their inaction allowed the financial problems to spread throughout the system, rendering Chinese finance far less able to support growth than it had been. Building activity fell, as did homebuying. Worse still, the lack of demand caused real estate values to fall. Because so much household wealth in China is tied up in a family’s home, this drop in real estate values hit household net worth hard and convinced most Chinese to pull back on consumer spending. In a short time, the economy lost support for both construction activity and the Chinese consumer. And as the economy slowed, private businesses in China rethought their expansion and hiring plans. Yet, the authorities failed to move. 

In a concurrent mistake, the authorities managed to exacerbate all this strain. When the rest of the world was re-opening after the COVID-19 Pandemic, Beijing imposed severe zero-Covid policies. Their associated lockdowns and quarantines interrupted workers’ incomes and accordingly gave consumers yet another and lasting reason to hold back spending. Those interruptions also interfered with the flow of goods for export, undermining China’s once-vaunted reputation for reliability and convincing buyers in the United States, Europe, and Japan that they needed to diversify their sourcing away from China. The country’s exports to these important regions have never fully recovered.

Only in 2023 did Beijing awaken to the need to do something to remedy these matters. Having waited so long, the government should have taken stronger remedial action. Yet, the planners, in yet another mistake, have shown remarkable timidity in the various palliatives they have offered. They added to their mistakes by deciding to make up for shortfalls in building, consumption, and private investment spending by using state-owned firms to enlarge productive capacities in what they believed were the industries of the future: electric vehicles, for instance, batteries, artificial intelligence, semiconductors, and the like. 

With weak domestic spending, however, this new excess capacity only made China more dependent on exports than ever before. That was hardly an answer as there already existed a paucity of overseas buyers. American, European, and Japanese businesses were already diversifying their sourcing away from China and continue to do so. Washington, Brussels, and Tokyo also became increasingly hostile to Chinese trade, raising tariffs and putting other restrictions on sales to and from China.

Even this hostility in the developed world is at least partly the result of other mistakes made by China’s leadership. When anti-China attitudes first emerged in the West with Trump’s tariffs of 2018 and 2019, it was clear that Beijing could have softened Washington by moderating the policies of which the Americans had complained—subsidies to domestic industries, buy-local policies, patent theft, and Beijing’s insistence that any foreign firm operating in China had to have a Chinese partner with which it had to share its technological and trade secrets. However, China’s leadership refused to make any concessions, so the original Trump tariffs stayed in place, and the Biden administration built on them, including a 100 percent tariff on Chinese-made electric vehicles and batteries. Brussels and Tokyo have followed suit, though in a more moderate way.

Now, due to this cascade of policy errors, China finds itself in a weakened economic position generally and in an especially poor position to face the new tariffs that incoming President Trump has promised. Though the talk of a Chinese economic implosion has taken the place of the praise and envy of years gone by, it is doubtful that there will be such a collapse. China has a large economy that surely can withstand even the significant number of mistakes outlined here. However, the Chinese triumphs that Western media once spoke of seem very far away indeed. Even adequate growth seems unlikely. If Beijing claims that the economy achieved 2024 its 5 percent real growth target, the announcement will deserve a skeptical reading. Such growth will take a long time, if ever, to return.

Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New York-based communications firm. His latest books are Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live and Bite-Sized Investing.

Image: Amnat30 / Shutterstock.com.