Thread by @InsiderAsia

China's economy — the world's 2nd-largest — is on the brink of disaster.

President Xi Jinping must strike a balance between eliminating China's crushing debt and maintaining consumer confidence.

If he fails, the rest of the world better watch out.

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Since this spring, Beijing has:

🚫 canceled initial public offerings
💻 fined tech companies billions for antitrust violations
📚 forcibly shut down China's entire for-profit education industry

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The upheaval, spanning multiple industries and vast swaths of the country, is the result of one giant issue: China's inability to borrow or buy its way out of its current economic crisis.

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As the government now attempts to deflate the real-estate bubble without bursting it, it has been forced to prepare the country for a period of slower growth.

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With housing prices in major cities soaring, what President Xi refers to as "The Chinese Dream" — the idea that even the poorest in the country would take part in China's rapid growth and modernization — is starting to look out of reach.

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And this isn’t Beijing’s only challenge.

China is also facing an energy crisis fueled by skyrocketing coal prices as well as a working-age population that is getting old without enough resources to retire on.

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In the face of all of these obstacles, Beijing has made a dubious choice.

Instead of continuing to open the economy to spur growth, the Chinese Communist Party is closing it.

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Under President Xi Jinping, Chinese socialism is reverting to a model with tighter state control over much of the economy.

"I think Xi is incredibly ideological, and he's focused on his legacy," said Charlene Chu, a debt analyst at Autonomous Research.

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But if Beijing fails at its ambitious plan to transition from open markets to state control, it could set off shock waves that would crater the global financial system, slow trade, and devastate businesses worldwide.

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In an attempt to revive the Chinese dream, Xi is pushing the idea that China is moving toward "common prosperity."

But exactly what that means is hard to say.

The only certainty is that China is returning to extreme state intervention.

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In the starkest example of state control, China wiped out its entire for-profit education sector in July.

“It shows a willingness to tolerate a lot more volatility ... than people expected,” said Chu.

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If Xi's attempts to fix China's economic discrepancies cause that growth to evaporate, social stability could also vanish.

If that happens, we risk more than the collapse of the global economic order — we risk the shattering of global peace as well.

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