In 2023, the US economy vastly outperformed expectations. A widely predicted recession never happened. Many economists (though not me) argued that getting inflation down would require years of high unemployment; instead, we’ve experienced immaculate disinflation, rapidly falling inflation at no visible cost.

But the story has been very different in the world’s biggest economy (or second biggest — it depends on the measure). Some analysts expected the Chinese economy to boom after it lifted the draconian “zero COVID” measures it had adopted to contain the pandemic. Instead, China has underperformed by just about every economic indicator other than official GDP, which supposedly grew by 5.2 per cent.

Just a few years ago, Xi Jinping’s economy was on the brink of world domination.Credit: Getty

But there’s widespread scepticism about that number. Democratic nations like the United States rarely politicise their economic statistics — although ask me again if Donald Trump returns to office — but authoritarian regimes often do.

And in other ways, the Chinese economy seems to be stumbling. Even the official statistics say that China is experiencing Japan-style deflation and high youth unemployment. It’s not a full-blown crisis, at least not yet, but there’s reason to believe that China is entering an era of stagnation and disappointment.

Why is China’s economy, which only a few years ago seemed headed for world domination, in trouble?

Part of the answer is bad leadership. President Xi Jinping is starting to look like a poor economic manager, whose propensity for arbitrary interventions — which is something autocrats tend to do — has stifled private initiative.

But China would be in trouble even if Xi were a better leader than he is.

It has been clear for a long time that China’s economic model was becoming unsustainable. As Stewart Paterson, author of China, Trade and Power, notes, consumer spending is very low as a percentage of GDP, probably for multiple reasons. These include financial repression — paying low interest on savings and making cheap loans to favoured borrowers — that holds down household income and diverts it to government-controlled investment, a weak social safety net that causes families to accumulate savings to deal with possible emergencies, and more.