Reasons to be bearish about China’s rise

Rana Foroohar rana.foroohar@ft.com · 10 Nov 2025

Iam a contrarian at heart. Questioning any narrative that is all one way, all the time comes naturally. Take the rise of artificial intelligence, the evils of tariffs and, most recently, the sense that nothing will hinder the global ascendancy of China.

Many investors have bought whole hog into that last argument in recent weeks. Beijing appears to have won the trade wars and is poised to win both the chip wars and the AI wars as well, seemingly making China’s role as the new global hegemon secure.

But there are important caveats to this story.

Let me start by humouring China bulls and pointing out the obvious: China’s economic engine is remarkable, and its long-term industrial planning enviable. It has met US President Donald Trump’s bullying with a great show of force in areas like rare earth minerals, agricultural purchases (where it has turned away from the US on a dime) and cutting-edge tech development (Nvidia chief executive Jensen Huang says “China is going to win the AI race”). It has leveraged US isolationism to build new bridges in south-east Asia, Africa and Latin America.

Now, the bad news: none of these things has changed the fundamental challenges facing the country, particularly if it aims to replace the US as the new global superpower.

These three facts about China alone should temper the optimism.

First, despite new pledges to raise consumption, the mathematics and politics of doing so are as tricky as ever. Second, while global diplomacy is now Beijing’s game to lose, it has made many fewer gains than it should have so far, given the low-hanging fruit. And third, autocracy remains a hard sell globally, which will make it difficult for China to ever replace the US (or even Europe) in terms of soft power.

Let’s start with the fundamental shifts that need to happen in the Chinese economy. While Beijing has been promising consumer-led growth for years, it hasn’t happened because it demands painful redistribution of wealth from local governments, state banks and state-owned enterprises to individuals.

This means fundamentally upsetting the political economy and all the vested interests within it. That’s not an easy thing to do in the best of circumstances, and less likely now than in the past, since self-reliance and more control of regional and global supply chains is front and centre of Xi Jinping’s agenda.

China’s new five-year plan promises “high-quality development” through technological self-reliance, further industrial modernisation and expanded domestic demand. I have no doubt that it will succeed in the first two areas. But as economist Michael Pettis, political scientist Elizabeth Economy and many others have pointed out, income and job growth aren’t going to be fed by more manufacturing (which is increasingly done by robots), but rather by marketled bolstering of household demand, which requires the end of financial repression.

Instead, we are seeing more cheap state subsidies (witness the new energy subsidies for AI chips), lower consumer spending and the dumping of surplus capacity that can no longer go to the US into Europe.

This gets me to my second point. Trump handed China an amazing opportunity to court the EU by weakening the transatlantic alliance. One could easily have imagined Chinese diplomats making diplomatic hay in Brussels, forming new trade partnerships, sharing value chains, or just reassuring Europeans that there could eventually be a solution to the problem of too much cheap Chinese stuff.

But there isn’t a solution — not only because China’s fundamental economic model isn’t changing, but because it is an ally and key enabler of Russia, Europe’s biggest strategic threat.

All of this makes it very difficult for me to imagine a new “Eurasian alliance”, even if America remains an unreliable partner for Europe (the chances of which seemed to decrease a bit given big Democratic victories in state and local elections last week).

China is very good at mercantilism. But it doesn’t do soft power nearly as well. State control is getting tougher, not looser, as bullishness about Chinese tech and industrial dominance rises.

The current political purges are the most extensive since Mao Zedong’s time. You could argue that corruption is at the heart of these, and the empty seats at the latest party plenum are evidence that Xi is cleaning house appropriately. But curators, artists, performers and journalists are all under fire too. China simply isn’t a place for the creative class to flourish.

Historically, global hegemony and openness have been intimately linked; economic dynamism relies on the desire of people and capital to move into a country. But since 2015, the amount of foreign direct investment into China from advanced economies has dropped by 70 per cent. The number of foreign national resident permits issued is at around 85 per cent of pre-Covid levels.

Much of that is down to geopolitical tensions, but even if global conditions were more propitious, I don’t know too many members of the multinational elite who would put a posting in Beijing, or even Shanghai, at the top of their wish list.

These things may not hinder China’s short-term growth. But they are points that any good contrarian should consider.