Rumours of Xi’s downfall distract from China’s real challenges

Albanese will find in Xi Jinping’s China an economy that is slowing, a still-valuable trading partner for Australia, and an ambitious military with an uncompromising plan to extend its reach.

What kind of China will Prime Minister Anthony Albanese arrive in when he lands in Shanghai on Saturday evening for a five-day trip that includes meetings in the capital, Beijing, and Chengdu in the west?

Does Xi Jinping still reign supreme over the ruling Communist party and the military? Is an economy which was battered by pandemic lockdowns out of trouble? Has Beijing been able to keep US President Donald Trump’s tariffs at bay?

To have even asked the first question about a leader who quickly gained a grip on the Chinese system, when he came to power in late 2012, would have once seemed preposterous.

But a tsunami of reports about Xi’s imminent demise and replacement by a former Politburo rival have emerged in China’s diaspora media in recent months — and are spilling into the western press.

China’s opaque politics have long made it a rich target for rumour vendors. During the Cold War, Taiwanese intelligence would fabricate documents purporting to be internal party memos, to encourage the Americans to believe that China was close to collapse.

Likewise, the stories about Xi being taken down by an alliance of party elders and disgruntled generals are clickbait for his many sworn enemies and critics offshore barracking for his demise.

Should we take these wild and uncorroborated stories seriously? The short answer is no. They should be taken with a dump truck full of salt.

More to the point, the notion that Xi is about to be toppled is a distraction from the real cleavages in Chinese politics.

Albanese and his travelling party might sense, once they are on the ground, that Chinese leaders have a spring in their step, broadly for several reasons.

“Albanese will find an ambitious military with an uncompromising plan to extend its reach all the way to our shores.”

The unexpected emergence of a local AI champion in DeepSeek, developed at a fraction of the cost of western rivals, cemented Beijing’s confidence that it can compete and perhaps surpass the US for global technology leadership.

Similarly, Beijing has put a cocky Trump administration on the back foot in early trade negotiations with its hardline tactics, primarily by leveraging its lock on core critical minerals and an export sector that has diversified away from the US.

Finally, while the Chinese economy has lost some of its stimulus-driven growth that it enjoyed in the first quarter, exports remain strong and retail sales remain robust.

Dig deeper into the Chinese economic story, though, and it is not hard to find areas of weakness, and divisions in Beijing over how to manage them.

Economic policymaking in China has been torn apart by competing camps – one, embodied by the Ministry of State Security, stressing national security imperatives, and the other by business-oriented groups that support greater engagement with the world.

The securocrats view foreigners, namely Washington, as an irredeemable fifth column dedicated one way or another to the downfall of the Chinese Communist Party.

The old reform and opening camp has the backing of liberal economists and many provincial and city chiefs desperate for foreign investment to support local jobs.

Under Xi, the securocrats have had the upper hand, but the policy is under stress. Laid on top of those contradictions are structural problems in the economy that are getting worse.

The tech economy is booming, even if it is in part a profitless boom, as scores of EV companies engage in a vicious price-cutting war to cannibalise market share at home and abroad.

Again, Xi is fine with this, as he is getting what he wants out of China’s green tech boom: internationally competitive companies which the party can use to dictate terms to foreigners in strategic industries.

Elsewhere, however, the economy is struggling, with a property sector in a multi-year slump, stagnant incomes, indebted local governments and high unemployment, especially among graduates.

None of this means that China is about to fall flat on its face. But in the medium term, the persistent economic problems threaten to corrode Xi’s dominance, and help his domestic critics make the case that he doesn’t merit a fourth consecutive term in 2027.

Foreign visitors to China like Albanese can get a good sense of the economy, as it has always been the most open area for debate under the communist party.

But they won’t be able to penetrate the source of the greatest domestic upheaval at the moment, and the springboard for much of the rumours about Xi’s political problems - upheaval in the Chinese military.

This year alone, at least three of China’s most senior generals, most of whom are identified as Xi loyalists, have been arrested for corruption, or have simply disappeared without explanation.

In the prior 18 months, two defence ministers, one former and one serving, were detained. The former commander of the People’s Liberation Army Rocket Force, responsible for the country’s nuclear weapons, was removed for corruption in 2023.

Does this sound like an effective fighting force – the kind that Xi has asked to be ready to invade Taiwan by 2027?

Thus far, the purges at the top have not discernibly affected the military’s capabilities, which have expanded at an impressive pace.

Two Chinese aircraft carriers recently carried out an exercise in the seas east of Japan. In another first in April, a Chinese naval task force circumnavigated Australia.

In short, Albanese will find in China an economy that is slowing, but still an immensely valuable trading partner for Australia. He will find an ambitious military with an uncompromising plan to extend its reach beyond its immediate maritime region, all the way to our shores and nearby Pacific island nations.

That’s the China squeeze. The Prime Minister should engage with care.