As China turns 75, Xi confronts looming challenges at home and abroad

China recently celebrated its 75th anniversary with a grand reception at the Great Hall of the People in Beijing. Unlike in years past, the ceremony lacked opulence and cheer, signifying testing times ahead for the People's Republic under President Xi Jinping.

In his address to state guests, dignitaries and ruling Communist Party officials, Xi reflected on China's social and economic achievements over the past three quarters of a century, adding that nothing would hamper further progress.

However, he also warned of "rough seas" ahead, due to mounting international and domestic threats, including rising costs of living, an ageing population and tensions with the Philippines in the disputed South China Sea.

These issues warrant practical and sustainable action, rather than historical reflections. However, Xi's strategy appears to revolve instead around the idea of Chinese nationalism.

In his address, he made constant references to the reunification of Taiwan with the mainland and the rejuvenation of the Chinese nation with "compatriots" in Hong Kong and Macao. Xi also urged the Chinese people to be resilient in the face of domestic and international challenges.

Notably, given Beijing's interconnectedness with the global economy, sticking with nationalistic rhetoric instead of focusing on domestic course correction could have global repercussions as well, jolting international markets, trade and investments.

Challenges ahead

China is now home to one of the world's largest economies. It was also strong enough to power through shocks such as the COVID-19 pandemic and the Russia-Ukraine war.

But after so many years of economic growth, several issues are converging at once to slow down progress, including the default of the real estate market, the ageing population and rising youth unemployment.

Going forward, the first challenge for Xi is to boost the country's morale, which in turn would help increase consumer demand and investor confidence.

Doing this would require a policy reorientation to better support domestic economic growth.

This could mean undoing tough financial regulations put forth by Xi in 2020 to rein in excessive borrowing. The move has had a knock-on effect in the economy.

First, domestic real estate giant Evergrande Group defaulted in 2021. The construction sector then saw unemployment rise and consumer demand drop domestically, amid a diminishing growth outlook internationally.

Then came rising youth unemployment in 2024. The decline of sectors formerly employing Chinese youth such as finance and information technology under Xi has resulted in widespread joblessness and contributed to youth disenchantment.

This is largely due to the president's push to make China a tech power - an important goal, but one that has rendered millions of young Chinese in the labour economy jobless.

Another issue China faces is demographic in nature. The country has been trying to boost its birthrate in recent years, but Xi's "Three Child Policy," introduced in 2021, has fallen flat.

The policy is backfiring particularly in rural China, due to domestic economic difficulties such as higher costs of living, lack of access to universal education and mobility constraints.

South China Sea

China's domestic economy has also not been helped by tensions with the Philippines over the latter's military exercises in the disputed South China Sea.

While not a new phenomenon, China's maritime trade through the region accounts for over 64 percent of its total trade in 2024 and is now in serious danger of being threatened due to heavy militarisation from the United States and its allies, including the Philippines.

This presents Xi with a dilemma. On one hand, he is seeking to assert China's claims over the region and challenge the US and its allies over what China claims are its territorial rights. On the other, he seeks to maintain trading stability amid rising domestic economic concerns.

Both these positions seem irreconcilable.

While it is true that China has previously prioritised negotiations with the Philippines, it is important for Xi to tone down bellicose rhetoric against Manila. Only then, can misunderstandings be replaced with diplomatic efforts toward resolution.

Global stakes

The stakes are high for the international community if Xi continues to prioritise projecting economic strength instead of bolstering it.

Failure to reverse state-level regulations on the real estate sector for example, will dampen international trade. Similarly, failure to address youth unemployment through measures such as job creation will continue to hurt international investor confidence in China's economy.

Lower income levels in the population also mean less domestic demand for foreign goods, which puts more pressure on the domestic economies of Beijing's trading partners.

For China to reinforce its profile as an economically resilient nation, Xi's government must adopt a strategic vision that takes practical measures to resolve the country's current domestic woes.