For all of Chinese leader Xi Jinping’s surface-level confidence about China’s domestic strengths and growing international influence, his policy agenda—both at home and abroad—is sputtering.
Domestically, China’s economy is grappling with a profound economic deceleration exemplified by unprecedented levels of youth unemployment and a pronounced erosion of consumer and business confidence. Foreign firms no longer see China’s vast domestic market as an imperative destination for investment. Indeed, as the head of the EU Chamber of Commerce in China put bluntly, “Companies are beginning to conclude that, considering supply chain risks, considering anticipated lower profits in China, considering the continued barriers . . . that maybe other markets are becoming more competitive, more attractive.” The property sector, once a pillar of domestic growth, is in disarray, with major property developers now in various stages of default and bankruptcy. This situation has sparked broader apprehension about systemic vulnerabilities within the financial sector. Moreover, local governments are contending with escalating debt burdens and constrained fiscal capacity, severely hampering their ability to address routine governance challenges, including the payment of civil servant salaries.
The Xi administration is increasingly grappling with public discontent. Stringent implementation of zero-Covid policies throughout much of the Covid-19 pandemic fueled widespread frustration, which eventually manifested in unprecedented public demonstrations in late 2022. Although China has eased these restrictions, public confidence in the government’s crisis management has waned. In private discussions, many Chinese interlocutors have expressed disillusionment with Xi’s policy agenda and even Xi himself, criticizing his inflexibility and reluctance to adapt. Entrepreneurs, in particular, bemoan the stifling political and regulatory climate, prompting many to explore business opportunities in more favorable international markets.
On the international front, Xi’s foreign policy has certainly yielded successes, yet it has also provoked considerable backlash. Beijing’s alignment with Russia throughout its war against Ukraine has exacerbated tensions with Europe, likely permanently. Its regional neighbors are increasingly apprehensive about China’s growing ambitions and military capabilities. India, with its more fractious and violent border disputes with China, has grown more vigilant of Beijing’s expanding influence and military presence. In Southeast Asia, nations such as Vietnam and the Philippines are particularly unsettled by China’s assertive territorial claims in the South China Sea. The rapid advancement of China’s military capabilities has catalyzed a closer partnership between Japan and South Korea. Beijing’s unprecedented show of force against Taiwan, including the firing of short-range ballistic missiles over the island in August 2022, has made the risk of a Chinese invasion all too plausible. This region-wide concern has catalyzed closer ties with the United States and other allies to counterbalance China’s influence and safeguard regional stability.
China Priorities in the First 100 Days and Beyond
In addition to the maturing strategic discussion in the United States about how to confront China’s aggression and growing military and technological capabilities, there should be a focus on how the United States and its allies can leverage Beijing’s growing setbacks and weaknesses.
First, growing discontent with Xi’s policy agenda offers a unique opportunity for the United States to leverage its open, pluralistic society as a magnet for Chinese scientists, academics, and entrepreneurs who no longer see China as an environment conducive to innovation and creativity. Research shows that AI researchers who attend graduate school in the United States overwhelmingly choose to stay in the country to work. Conversely, 90 percent of Chinese AI researchers who attend school in China remain in China. The United States thus faces a choice: Does it want the best and brightest Chinese thinkers to make breakthroughs on AI in China or in the United States? The United States can attract those disillusioned by China’s increasingly restrictive and unpredictable political climate with smart investments and policies. Legislative efforts, such as the Keep STEM Talent Act of 2023, are a step in the right direction. But the United States also needs an aggressive push to address its antiquated immigration policy to ensure that it facilitates the brain drain that Xi has created. Similarly, Silicon Valley, Boston, and Austin should welcome with open arms Chinese technology entrepreneurs who no longer see China’s political and regulatory climate as allowing for the next Jack Ma.
Second, and perhaps more controversially, the political and public skepticism about Chinese firms investing in the United States and setting up operations there should be reevaluated. While concerns about national security and intellectual property theft are essential, the United States could adopt a more nuanced approach that balances these risks with the economic benefits that investment from private Chinese companies can bring. As it stands, flows of Chinese foreign direct investment (FDI) into the United States have cratered since 2016. According to research by the Rhodium Group, the number of Americans employed by Chinese firms decreased from 229,000 in 2017 to 140,000 in 2022. The next administration should make public comments welcoming Chinese greenfield investments that do not threaten U.S. national security.
Finally, as Xi’s aggressive foreign policy continues to sour relations with China’s neighbors, a Harris or Trump administration should increase the coalition-building efforts with U.S. allies and partners that have gained momentum over the past four years. One of the key areas demanding greater attention is building partnerships that can help keep the peace in the Taiwan Strait. While many countries in the region have greatly increased their engagement with Taiwan, they too often take a “bystander” approach to cross-Strait dynamics. Yet there is no avoiding the profound economic and military costs of a conflict between the People’s Republic of China (PRC) and Taiwan, should it break out. The next administration should expand engagement with regional allies, especially Japan, Australia, South Korea, and the Philippines, specifically focusing on scenarios of conflict in and around the Taiwan Strait, should the PRC launch a unilateral attack. The United States should also work more closely with Taiwan to bolster its economic resilience, as well as invite allies and partners to join these discussions. Supply chain resilience is one such priority area where all countries in the region have a stake in Taiwan’s security. More importantly, Taiwan should be brought into all of these discussions to the extent practical. Here, U.S. willingness to directly lean into these discussions can help create space for others to do the same.
Jude Blanchette holds the Freeman Chair in China Studies at the Center for Strategic and International Studies in Washington, D.C.
