Beijing: For four decades, China's economy appeared unstoppable, driven by substantial foreign investment, an abundant supply of cheap labor, and a relentless global demand for its exports. The nation's GDP growth consistently exceeded 10% per year, lifting hundreds of millions out of poverty and giving rise to a new middle class. The Chinese Communist Party (CCP) credited this "economic miracle" to the superiority of its authoritarian governance.

However, the miracle is unraveling into a mirage, with the foundations of China’s growth model eroded by the CCP’s policies and overconfidence. Cracks had started to appear even before the COVID-19 pandemic, but the CCP’s strict lockdowns exacerbated the situation, plunging the economy into a severe downturn. The property sector, which contributes up to 30% of GDP, is in crisis due to overleveraged developers defaulting. Youth unemployment is soaring, and foreign investors are withdrawing, deterred by the CCP’s unfair practices and increasing geopolitical risks.

The CCP believed it could bully and manipulate its way to permanent prosperity but overreached. For years, China coerced foreign companies into transferring advanced technologies and intellectual property in exchange for market access. It subsidized strategic industries, such as solar panels and electric vehicles, undermining overseas competitors. However, instead of fostering domestic innovation, China remained reliant on the West for high-value components and expertise.

Political control took precedence over economic growth. Private businesses faced arbitrary crackdowns and excessive regulations under the guise of "common prosperity." This environment led to massive malinvestment, particularly in real estate, where local officials accumulated huge debts constructing ghost cities and vanity projects. The absence of secure property rights fueled a housing bubble of unprecedented scale.

The pandemic further destabilized this precarious structure. The CCP's harsh lockdowns eroded consumer confidence and disrupted supply chains, causing millions of small businesses to collapse and prompting multinational corporations to expedite plans to diversify away from China. Xi Jinping's crackdown on the private sector, highlighted by the cancellation of Ant Financial’s IPO in 2020, sent a clear message to entrepreneurs: comply with the Party or face ruin. Consequently, business investment plummeted.

Foreign investors are increasingly disillusioned. Foreign direct investment (FDI) into China has hit a 20-year low. Global firms face mounting pressure from both Beijing and their home governments regarding human rights, Taiwan, and technology controls. Business confidence has declined as Xi consolidates power and intensifies anti-Western rhetoric. Even the Europeans, traditionally more accommodating to Beijing, are frustrated by the lack of reciprocity. China remains a crucial market but one fraught with risks that many are no longer willing to bear.

India, with its vast domestic market and more open political system, is emerging as a major beneficiary of this shift. Major manufacturers like Apple and Samsung are increasing production in India. Despite facing significant challenges, India has several advantages over China, including a growing working-age population, a vibrant private sector, stronger property rights, and warmer ties with the West. Prime Minister Narendra Modi's efforts to accelerate reforms and attract investment could position India as the new manufacturing hub of the world.

In recent years, India has made notable progress in enhancing its economic landscape and attracting foreign investment through structural reforms. The government has focused on creating a more business-friendly environment by streamlining processes and reducing bureaucratic obstacles. Additionally, India has embraced the digital revolution, recognizing its immense growth potential.

China’s economy, still the world’s second-largest, will not collapse overnight. However, the CCP’s state capitalist model is losing momentum. Unfavorable demographics, declining productivity, and rising debt levels signal slower growth and increased instability. As economic hardships mount, the Party is likely to intensify nationalism and repression to maintain legitimacy.

Ultimately, China's economic challenges are largely self-inflicted. By prioritizing politics over economics, the CCP has undermined much of the progress achieved over the past 40 years. The Party now faces a critical choice: maintain tight control or return to market-driven reforms. The former path leads to continued stagnation and isolation, while the latter could revitalize the economy. Unfortunately, current signs indicate that Xi Jinping and the CCP are steering the country backward, having bet everything on an all-powerful Party-state with no clear path to reversing course.