Xi Jinping Turns China Into ‘Fortress Economy’ to Withstand External Shocks: Report

The Lujiazui financial district in Shanghai on June 5, 2024. (Hector Retamal/AFP via Getty Images)

Chinese Communist Party (CCP) leader Xi Jinping has initiated a strategic shift toward an economic model that could protect China’s economy from external shocks, according to new research.

The report, released on July 30, was authored by Jimmy Goodrich, a fellow at the University of California Institute on Global Conflict and Cooperation. The study, which examines official CCP speeches and policy documents, provides a detailed analysis of the Party’s progress in implementing its “fortress economy” policy through several key areas.

“[The strategy is] designed to bolster national self-sufficiency and resilience against external shocks, and ultimately allow the nation to withstand ‘extreme situations’ including protracted armed conflict,” the paper reads.

The paper notes that U.S.–China tensions and other major global events, such as the Russian invasion of Ukraine and the COVID-19 pandemic, have prompted Beijing to shift its economic policy. The COVID-19 pandemic’s disruption of the global economy and supply chains reinforced the need for a “fortress economy.”

Thus, according to the report, the CCP has since emphasized “dual-economic circulation” to shift the economy from export dependence to focus on strengthening domestic capabilities while maintaining international trade. This approach aims to reduce vulnerability to external shocks and ensure economic stability.

This strategy also aligns with Xi’s broader national security priorities and preparation for “extreme-case” scenarios, according to the report. The CCP’s approach involves food, energy, supply-chain security, civil defense mobilization, and strategic reserve infrastructure development.

“This research contributes to understanding China’s strategic intentions and provides a foundation for further exploration of the implications of China’s fortress economy on global economic and geopolitical dynamics,” the author wrote.

China’s economy significantly depends on exports. Last year, the country’s total exports reached about $3.38 trillion, while imports totaled roughly $2.56 trillion. This resulted in a trade surplus of $820 billion—the second-highest in the past decade.

Robert O'Brien, a former national security adviser, commented on the report on X, formerly known as Twitter, urging Washington to pay attention.

“The CCP is preparing to fight and win (or at least survive) a very long war. America should take heed,” he wrote on Aug. 3.

Since the COVID-19 pandemic, the Chinese economy has faced multiple problems, particularly the property crisis marked by the bankruptcy of China’s real estate giant Evergrande. The company is the world’s most indebted firm, with $340 billion in debt.

Earlier this year, a prominent hedge fund manager said the Chinese economy was in trouble because of its heavy investment in the real estate sector, which could result in a crash worse than the 2008 U.S. financial crisis.

The property sector accounts for 70 percent of China’s gross household wealth and about 25 percent of its gross domestic product (GDP), making it a key growth driver but posing a vulnerability for its economy.

China’s troubled real estate market has dragged down the economy, prompting the regime in Beijing to implement “temporary steps,” including 16 measures to support the sector, according to last year’s report from the Atlantic Council GeoEconomics Center and the Rhodium Group, a Washington-based think tank.

The report found that China’s economy struggled with multiple problems, and without robust reforms, Beijing was likely to face a threat to its growth prospects in the coming years, hurting its global position.

The report points out that the root of China’s economy is its “persistent structural reform gap,” which results in “lagging behind top OECD economies in most market dimensions,” and suggests that structured reform is needed.

“The Chinese economy is suffering in part because the [Chinese Communist] Party continues to prioritize ideology over economic dynamism,” it reads.

Due to its weak performance, Beijing’s ambition to dethrone the United States as the world’s largest economy by the end of the 2020s “will not happen in this century, let alone this decade,” the report notes.

Bloomberg economists also forecasted last year that China’s economy was unlikely to overtake the U.S. economy. They predicted that China’s GDP might surpass that of the United States around the mid-2040s but by “only a small margin” before “falling back behind.”