China Cannot Surpass the United States: Xi Jinping's Ambitions Have Failed

U.S.-China Confrontation. (Video screenshot)

[People News] For over a decade, the notion that China would surpass the United States to become the world's largest economy was widely regarded as an undeniable conclusion. Around 2021, numerous institutions and analysts were still earnestly discussing the possibility of 'surpassing the United States in nominal GDP by as early as 2026.' The 'great rejuvenation of the Chinese nation' and the plan for comprehensive national strength to surpass that of the U.S., as articulated by Chinese Communist Party leader Xi Jinping, were viewed externally as among the most ambitious political objectives, serving as the strongest evidence of Xi's political leadership.

However, Logan Wright, a partner at the Rhodium Group, in a series of studies leading up to 2026, along with his article 'China's Moment of Weakness: Economic Decline and America's Strategic Opening' published on July 23 in Foreign Affairs, has presented irrefutable objective data and clear logic to announce that Xi Jinping's dream has essentially reached a dead end.

Wright's central conclusion is that it is nearly impossible for China to surpass the United States as the largest economy, and its strategic position globally has been significantly diminished. The United States no longer faces long-term systemic economic competition with China, while Beijing must exert every effort to keep its export markets open to prevent a complete halt in economic development.

Data indicates that since the end of 2021, the GDP of the United States (measured in US dollars) has increased by 28%, while China's GDP, measured in RMB, has risen by 21%, and only 11% when converted to US dollars. Over the next decade, the economic advantage of the United States is likely to widen further. If China's export growth slows, the repercussions could be far more severe than they were four years ago: domestic deflation, increasing corporate debt, weakening exchange rates, capital outflows, and financial instability, potentially leading to a scenario reminiscent of Japan's 'lost decade' in the 1990s. The overall decline in fiscal resources for the Chinese Communist Party will hinder the sustainability of military modernization and technological innovation.

The article posits that Beijing's stimulus growth policy tools have fundamentally failed. China is not on the brink of collapse; rather, its policy instruments are in a state of continuous decline. The two main tools that Beijing has relied on in the past—credit expansion and fiscal stimulus—have fundamentally proven ineffective. The returns on growth from equivalent levels of credit and fiscal spending are diminishing; private investment remains sluggish; and the policy tools have become 'zombified', with very limited capacity for further financial injection.

China has amassed hundreds of billions of dollars in bad debts as a result of years of ineffective investment. The banking system is roughly $72 trillion in size, yet a significant portion of loans fails to generate enough cash flow for repayment. Following a reduction in credit expansion by half in 2018, defaults have gradually spread from peer-to-peer (P2P) lending, small banks, and non-bank institutions to real estate companies and local governments. Authorities have opted to indefinitely extend bad debts and continue providing financial support to non-productive state-owned enterprises and local governments, resulting in 'the past stifling the future.' Currently, the growth rate of bank loans stands at only about 5.3%, which is less than one-third of the levels seen during periods of economic prosperity. Notably, 58% of new loans have interest rates at or below 3% of the Loan Prime Rate (LPR), yielding minimal profits, and are primarily directed towards state-owned enterprises and local governments rather than innovative firms or households. By 2025, China's tax and non-tax revenue is projected to account for just 15.4% of GDP, falling below the average of all OECD member countries, while the annual fiscal deficit is expected to be around 9-10% of GDP, approximately $2 trillion. Revenue from land transfers has plummeted to about 4.15 trillion yuan, less than half of the peak in 2021, with the three main sources of income—tax, non-tax, and land—declining by over 1.1 trillion yuan in total.

As a result of the severe downturn in the real estate sector, Chinese households and businesses are unable to generate sustained domestic demand, leaving China's economic growth almost entirely dependent on exports. In 2025, China still managed to achieve a record trade surplus of $1.2 trillion, with exports totaling around $3.8 trillion. However, this reflects the weakness of domestic demand, as excess production capacity can only be sold overseas at discounted prices.

According to data released by Beijing, China's share of global GDP has been on a downward trend since peaking at 18.5% in 2021, with the latest official figure now around 16.7%. Rongding estimates that the actual figure is even lower, close to 15%. In contrast, during the same period, the United States' share of global GDP has risen from approximately 24% to about 26%. Since the end of 2021, the nominal GDP of the United States (in dollars) has increased by roughly 28%, while China's dollar-denominated GDP has only grown by about 11%.

Rongding's projections for the real growth of the Chinese Communist Party's GDP from 2022 to 2025 are even more pessimistic, suggesting an average annual growth rate of only 1.5% to 2.0%, with cumulative dollar growth potentially limited to around 2%. This aligns closely with the assessments made by the late economist Gao Shanwen.

The 4 trillion yuan investment by the Chinese Communist Party in 2008 led to significant investment bubbles, setting the stage for economic decline. Since 2016, efforts to reduce leverage have successfully curtailed shadow banking, preventing an earlier financial crisis, but have also permanently halved the growth rate of credit. The banking system currently stands at about 70 trillion dollars, yet it can only sustain single-digit growth. In January 2026, new credit added in a single month reached 7.2 trillion yuan, but the year-on-year growth rate fell to a record low of 6.1%. Annualized new loans have decreased from a peak of over 24 trillion yuan in 2023 to approximately 15.6 trillion yuan. More alarmingly, banks' profit-generating capacity has weakened, with the net interest margin dropping from around 270 basis points to 142 basis points, and the overall system's profit stagnating at about 2.38 trillion yuan.

Local debt in the Communist Party of China has become a significant obstacle to economic growth. Local government financing vehicles (LGFVs), commonly referred to as urban investment bonds, have interest payments and accounts payable that exceed 59 trillion yuan, roughly 50% of GDP. A 2023 survey by Rongding of nearly 2,900 platforms revealed that the median asset return rate is just 1%, while the average borrowing cost stands at about 5.36%. Cash reserves are declining, the share of short-term debt is increasing, and the capacity to cover interest payments is generally worsening. Revenue from land sales has plummeted from a peak of 8.7 trillion yuan in 2021 to an estimated 4.15 trillion yuan by 2025. The overall fiscal deficit, which includes both central and local general budgets as well as fund budgets, has surged to around 9% of GDP. Rongding views the assertion that 'central debt is low and fiscal space is ample' as a myth that the authorities can fabricate; the actual total government debt, including various hidden debts, was nearing 142% of GDP as early as 2022.

'It is nearly impossible for China to overtake the United States as the world's largest economy; the economic strength advantage of the United States is likely to further widen in the next decade.' This assertion is not just propaganda or a matter of cognitive alignment, but is based on algorithmic deductions related to credit, finance, taxation, and export structures. While Xi Jinping's objectives for military modernization and technological innovation may be prioritized, the overall trend in fiscal resources is downward, making long-term sustainability challenging.

What implications does this have for the United States and its allies? Wright highlights that the nature of strategic competition has evolved. China is no longer the long-term adversary capable of systematically surpassing the United States in economic scale; instead, it has become a vulnerable competitor that must strive to keep its export markets open. While its robust industrial base still controls critical segments of supply chains, such as rare earths, its domestic decline may push it to utilize these resources more aggressively. Nonetheless, there are opportunities as well; if the West can enhance resilience through industry-specific trade protections and investments in domestic industries, China's weak internal demand could swiftly transform external barriers into strategic pressures.

Xi Jinping's foremost concern is the comprehensive enhancement of national power and the timeline for national rejuvenation, which is being undermined by the structural economic decline of the Communist Party of China. Economic growth used to be a crucial pillar of the regime's legitimacy, but with policy tools failing, a transition of power now equates to political suicide. The report from Rongding indicates that the Communist Party of China is grappling with a challenging economic downturn, and Xi Jinping's ambitious narrative of overtaking to achieve global dominance is likely to end up in the annals of history.

(First published by the People's Daily)△