China Faces a Host of Problems and the Olympics Haven’t Even Started

In summer 2008, the Beijing Olympics marked a big moment in China’s progress toward global power. With that spotlight came controversy; activists used the event to highlight the government’s human—rights abuses, but the event’s triumphalist pageantry illustrated the story of China’s rise toward prosperity and prestige for a world audience.

Since then, China’s ambitions have taken another leap forward. Under President Xi Jinping’s leadership over the past decade, China has gone from pushing for reform of the international system to helping guide that reform to making plans for leading it. In recent years, Xi has heralded a “new era” that will move China “closer to center stage” in global politics. He has presented China as “a new option for other countries,” an alternative to Western democracy, and he has outlined what he calls the “Chinese solution” for the world’s problems. Closer to home, China’s leaders mean for their country to tighten control of Hong Kong, to pressure Taiwan to stop resisting Beijing’s push for unification with the mainland, and to build military strength in the South China Sea.

Yet the reality is that China’s rise was losing trajectory even before a more aggressive U.S. foreign and trade policy and the COVID-19 global pandemic. While Xi’s “China Dream” of prosperity has become reality for hundreds of millions of people, extending these gains to a population with rising expectations for a bright future won’t be easy. China is still a middle-income country. To reach Western levels of prosperity, it needs 6% to 7% growth for another generation. That goal now looks nearly impossible to achieve, because the growth engines that have powered China forward in recent decades are running out of steam.

First, a reshoring of manufacturing away from China and advances in robotics have cut into China’s lower-wage advantage. Second, its demographics are discouraging. China announced that birth rates have fallen for the fifth consecutive year. In coming years, a shrinking workforce will weigh on growth, and that smaller number of workers will have to support a fast-growing population of elderly people. The state’s shift from a “one-child policy” to a “two-child policy” and now a “three-child policy” hasn’t helped. Xi has promised that China will achieve a “common prosperity” that reduces income inequality by redistributing wealth across regions, income groups and economic sectors. But for now, the country looks to be getting old before it can grow broadly rich.

China also has a debt problem. In particular, it has relied heavily for economic growth on easy credit for property and other speculative investments. Too often the institutional borrowers who have accepted much of this money expect government help and protection if they struggle to repay. Xi knows China’s domestic tranquility, and its national security, depend on financial stability. To avoid a banking crisis and an economic crash, China’s government has tried to clean up the business of borrowing and lending. But the various fights in recent months over the fate of possibly “too-big-too-fail” companies, like the deeply indebted property developer Evergrande, make reform much easier to promise than to deliver.

Read More: The Beijing Olympics Will Be the Ultimate Test of China’s Zero COVID-19 Policy

For the 2022 Winter Games, China’s leaders have a more immediate problem. Throughout the pandemic, the state has sharply limited the number of COVID-19 infections within the country’s borders with a “zero-COVID policy.” It has used digital devices to track and trace infections, and its tight, highly centralized political control to enforce lockdowns of a large number of people. In 2020, this policy was among the world’s most effective, and helped China to be the only major economy to experience growth that year.

Not so much now. It’s much harder to build a fence around the Omicron variant, which is far more infectious if less dangerous for those who’ve been fully vaccinated. China has yet to roll out its own versions of the mRNA vaccines that have proven so effective.

As China prepares for its new moment in the Olympic spotlight, it faces the most highly transmissible form of COVID-19 yet. Compared with America and Europe, it has a much smaller percentage of people protected by previous infections or access to the most effective vaccines. That’s why foreigners can’t attend the Games as spectators, and why domestic audiences will enter by invitation only. More than 20 million people across China are currently locked down. All of this comes at a time of economic slowdown.

Fourteen years after China’s debut as Olympic host, the spotlight is getting much hotter.