China’s Economic Quagmire: Xi Jinping at a Crossroads
As China ushers in 2025, it finds itself grappling with a multitude of economic and social crises that are putting immense pressure on Xi Jinping’s leadership. With the highly anticipated 2027 Party Congress looming—where Xi aims to secure a fourth term after abolishing term limits—whispers of potential internal factions forming against him are growing louder, even if concrete evidence remains elusive.
During his first term, President Trump inflicted significant damage on China’s economy through sweeping tariffs and trade restrictions, which curtailed exports and hampered factory productivity. Initially, as COVID lockdowns swept across the globe, China capitalized on the surge in demand for home office equipment and exercise gear. However, while other nations began lifting restrictions in 2022, China clung to its stringent lockdowns for an additional year, ultimately becoming the last major economy to reopen. The economic fallout from these decisions has proven to be irreversible, and the blame can be squarely placed on Xi Jinping’s shoulders.
From 2010 onward, China’s economy enjoyed double-digit growth rates, positioning it to potentially surpass the United States. Yet, since then, growth has steadily declined, exacerbated by the trade war and ongoing lockdowns. President Biden has not only retained but expanded upon many of Trump’s tariffs, layering additional trade and investment restrictions on China.
Now, in the second term of his presidency, Trump has signaled a readiness to forgo short-term U.S. economic gains to inflict long-lasting damage on China, all while bolstering American manufacturing and expediting the process of decoupling.
As Xi grapples with this complex landscape, he is confronted with stagnating growth that barely meets central government benchmarks. By July 2025, youth unemployment soared to a staggering 17.1%, even after Beijing revised its methodology to exclude over 12 million recent graduates. The official unemployment rate appears modest but conveniently overlooks the 300 to 400 million rural migrant workers, many of whom arrive in cities only to discover that factories are not hiring.
Bankruptcies and capital flight have surged throughout 2025, while the property sector looms as a significant threat with trillions in debt hanging in the balance. Real estate investment plummeted by 10.4% in the first 11 months of 2024, and China is now experiencing deflation for the second consecutive year.
With these mounting challenges, Xi stands at a crucial juncture as the 2027 Party Congress approaches. This year will also mark the 100th anniversary of the founding of the People’s Liberation Army—an essential propaganda opportunity for China to showcase its military prowess. Senior U.S. officials suspect that Xi may leverage this centennial to finalize his military modernization agenda, aiming to cultivate a world-class military force capable of rivaling the U.S. and potentially challenging Taiwan.
A prevalent theory suggests that should Xi fail to revitalize the economy, he may resort to an aggressive move on Taiwan, framing it as a legacy-defining achievement that could cement his historical significance and secure a fourth term.
Simultaneously, speculation within overseas Chinese media concerning potential leadership changes has intensified. One name frequently mentioned is Wang Yang, a 69-year-old reformer who previously served as Vice Premier and Chairman of the Chinese People’s Political Consultative Conference. Wang’s ideological alignment with market reforms and gradual political liberalization resonates with the legacy of Deng Xiaoping.
In contrast to Xi, who comes from the “princeling” elite, Wang has ties to the Communist Youth League (CYL), a rival faction historically associated with reform and populism. The CYL has produced influential figures like Hu Jintao and Hu Yaobang, and under Hu Jintao’s leadership (2002–2012), it became known for promoting rural development, social equality, and ongoing reforms—often at odds with Xi’s centralizing tendencies.
Xi has systematically undermined the CYL’s influence. At the 2022 Party Congress, prominent figures such as Li Keqiang, Wang Yang, and Hu Chunhua were excluded from leadership roles despite being eligible to continue serving. In a symbolic gesture viewed as the faction’s demise, Hu Jintao was escorted off the stage during the closing ceremony.
Yet, reports indicate that Wang may be positioning himself for a potential comeback. Renowned for his technocratic pragmatism and experience in international economic relations, Wang could appeal to factions increasingly concerned about Xi’s economic stewardship. Some analysts suggest that internal dynamics have shifted enough to render him a viable alternative as Xi faces escalating pressure.
However, institutions like the Jamestown Foundation urge caution, acknowledging Xi’s vulnerabilities while downplaying the likelihood of a leadership transition. They argue that Xi is experiencing a “dramatic truncation of power,” rather than a collapse of authority. His challenges are largely rooted in purges that may have inadvertently weakened his standing. Since 2023, Xi has removed high-ranking officials from the People’s Liberation Army, including Defense Ministers Li Shangfu and Wei Fenghe, along with senior figures in the Rocket Force and Equipment Development Department. Instead of consolidating his grip on power, these purges may signify internal dissent, as adversaries target Xi’s protégés.
Especially telling is the disappearance of Central Military Commission Vice Chairman General He Weidong, a known Xi loyalist, which may indicate that Xi is losing allies rather than simply eliminating foes.
While the chatter surrounding Wang Yang’s return reflects genuine tensions and economic distress, analysts caution against overstating the likelihood of sweeping changes. The 2027 Party Congress will undoubtedly be pivotal, yet Xi’s position remains relatively secure due to the absence of credible alternatives and the entrenched nature of China’s authoritarian political framework. The dismantling of the CYL, once a counterbalance fostering reform and moderation, has effectively stripped away one of the few sources of internal resistance. Wang’s exclusion may signal not his future relevance but Xi’s success in neutralizing potential rivals. Although Xi’s authority might further wane, any shift is more likely to manifest as constrained leadership rather than outright replacement.
