Domestic challenges compel China to change tack

PRESENTING the annual Government Work Report (GWR) to the 14th National People’s Congress on March 5, Chinese Prime Minister Li Qiang emphasised a strategic shift from high-speed growth to “coordinating development and security” for future economic progress.The focus on security also included managing factors such as local government debt which, as per IMF estimates, has reached 127% of GDP, property market instability and stable food supplies (including in rural areas) to mitigate migration and high unemployment.The lowering of the GDP growth target to 4.5-5% in the GWR is an admission that China’s economic growth is slowing. As per independent analysts, real growth may be much lower (some say close to 1%) due to reversals in the property sector. Even the fixed asset investment (total expenditure on building long-term assets) declined by 3.8% (from 51.4 trillion yuan in 2024 to 48.52 trillion yuan in 2025) with 17.2% decline in real estate, lowering of “outdated” capacities of certain metal industries, restrictions on local government borrowings to pare down their debt and weak domestic and foreign investment.The fixed asset investment in high-tech industries (digital information, aerospace, artificial intelligence, quantum technologies) grew by 28%, but their total share in GDP was less, about 15-20% (all figures are from Chinese government sources). Historically, China became vulnerable during periods of low growth, high inequality or food scarcity. The 1989 Tiananmen Square protests were partly rooted in high inflation and economic frustration among workers and students. The 2022 Zero-Covid protests were linked to social and economic hardships when citizens asked President Xi Jinping to step down.Increasing corruption among the Chinese Communist Party (CCP) elite including the military, regional leaders and in financial technology sectors is another factor threatening China’s security. Over 100 senior officers of Lt General or higher rank have been purged since 2023 affecting more than 50% of the People’s Liberation Army (PLA) top brass. These included five members of the Central Military Commission who were picked by Xi and had worked with him earlier (these posts are now lying vacant, with the seven-member Commission functioning with only two). “Pay for promotion” culture is also among the key causes of massive corruption.Many Party Elders, senior military officers and others are worried that Xi’s emphasis on “untainted personal loyalty” and purging of 50% of top military brass has depleted the pool of technically proficient commanders and competent officers are being sacrificed for “political alignment” with Xi. Sometimes, corruption is used as an alibi for removing competent officers perceived as politically disloyal and forming cliques.Corruption is not limited to personnel alone; there have been reports of PLA making “water filled missiles (instead of fuel)” and non-functional equipment. Some Chinese military equipment has been a failure or performed poorly in Operation Sindoor (May 2025) when Pakistan’s China made HQ-9 and HQ-16 systems were jammed by the Indian Air Force in 23 minutes and failed to protect critical targets. Ditto in Iran in March 2026 against the US advanced fighter aircraft.Analysts cited radar coverage gaps and slow reaction time (20 seconds compared to six seconds of US Patriot systems) as primary reasons for failure. China’s J-10C and JF-17 Block III fighter aircraft were unable to deter Indian aircraft. Its PL-15 air-to-air missiles frequently failed to hit targets or malfunctioned in mid-flight.Xi harbours “deep and abiding doubts” about his officers’ honesty and war readiness, as per several reports. Lack of trust between the political and military leadership is a critical vulnerability of China. Due to these reasons, China is in no position to take on a superior armed force like the US. According to US Intelligence Community’s 2026 Annual Threat Assessment, China may have the capability for a Taiwan invasion but it does not have the intent.China’s low-key reaction to the US invasion of Venezuela and the attack on Iran is a “strategic pivot” to prioritise domestic stability. China is now more interested in seeking a détente with the US rather than a confrontation.But the calm attitude towards the US does not that mean China will abandon its long-term goals — its desire to become a developed country — or its territorial claims with its neighbours. Its outlook towards India and other countries will be a mix of tactical de-escalation and grey-zone assertiveness. It will continue its aggressive posture against Japan, the Philippines and Taiwan to stand firm against external interference exhibiting its superior power.China’s stiff attitude towards India has changed as Beijing has realised that New Delhi can’t be too close to Washington due to its Russia policy. India’s foundational defence agreements with the US had created some myths which have now been cleared up. India has also realised that it has more to gain from a “calm and relaxed” relationship with Beijing. With thaw in diplomatic frostiness, India and China have assumed a posture of cautious stabilisation. Finance Minister Wang Yi recently appreciated “re-energised interactions at all levels” and a new high (about $137 billion) in bilateral trade, 2025-26.The two countries have resumed visa and flight services and reopened the Lipulekh pass for border trade. India has agreed to relax its curbs on the Chinese FDI in select areas given the decline in overall foreign investment and value of the rupee. But Beijing is restrictive in sharing technologies for the manufacture of lithium batteries, electric vehicles and solar panels to discourage supply chains shifting from China to India.Delhi and Beijing have started a dialogue to maintain peace and stability on the borders, but structural issues remain unresolved. China’s efforts to contain India’s influence, the border problem and its close ties with Pakistan will continue to constrain bilateral ties. But both will take advantage of improved relations for their economic development, given the huge global turmoil and the wars raging in Europe and Asia which are adversely affecting them.

Domestic challenges compel China to change tack

Growing corruption among the Chinese Communist Party elite is threatening the country’s security.

Yogesh Gupta

Domestic challenges compel China to change tack

Growing corruption among the Chinese Communist Party elite is threatening the country’s security.

Yogesh Gupta

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