China could’ve ruled the world.

All the government in Beijing had to do was pretend to play ball. Put on a show of conformance and feign deference to the system while passively undermining the US-led world order with quietly underhanded trade practices and unobtrusive militarization. “Self-important? Cavalier? Us? No, we’re the last people. We’re just happy to be here!”

On the home front, self-interested economic liberalization and democratization, which is to say free market reforms and expanded individual liberties when the economic and social risk-reward was skewed to the upside for the Party, and command economics and coercion otherwise. The “best” of both worlds.

Instead, Xi Jinping chose overbearing audacity on the global stage and retrograde tyranny at home. The Chinese people are reaping the many “benefits.”

Xi’s 10-years-premature claim to global hegemony prompted crippling trade restrictions, outright bans on the flow of advanced technology to China and the curtailment of foreign investment in critical sectors of the local economy. And his delusions of dictatorial grandeur are manifesting in socioeconomic mismanagement on an unfathomable scale. With the country’s once-thriving tech behemoths laboring under the yoke of a tyrant and consumer sentiment hamstrung by a nationwide property meltdown, China’s staring at an economic quagmire that threatens to morph into deflation.

On Monday, the Party said consumer prices rose just 0.6% YoY in August, slower than expected. Do note: 0.6% actually counts as “brisk” these days, and it was only achieved thanks to a weather-related surge in food costs. Core price growth was an anemic 0.3%, the slowest in years.

Producer price deflation deepened. Factory gate prices fell 1.8% last month. The PPI gauge hasn’t posted a YoY increase since September of 2022.

That’s not good, but by now it’s just par for the course. Markets don’t expect anything different. It’s impossible to imagine no one’s suggested to Xi that the government should take drastic steps to directly support household demand, which means he’s wittingly eschewing big-ticket fiscal stimulus in favor of the same old lean-on-the-factories strategy, the assumption being that China can just export its way out of the doldrums.

To call that misguided would be an understatement, but rehashing all the reasons it won’t work — e.g., the world’s wise to it by now, and with inflation under control in advanced economies, the political center in the West has more to lose in the form of political capital from importing China’s overcapacity than they have to gain from the incremental disinflationary impulse — misses a critical point: This is about the Chinese people. They have dreams and aspirations too. And Xi’s crushing them, or at least stifling them.

Under Xi, the Party’s allowing disinflation to become entrenched. That’s an economic death knell. If they’re not careful, the Party will condemn the Chinese to a very, very long march. Xi’s single-handedly rolling back the clock on decades of progress transitioning China from a one-dimensional, smokestack economy to a dynamic, consumption-driven model. Yes, he talks a lot about cutting-edge technology, but that rhetoric feels disingenuous to the extent his pursuit of advanced chips (for example) is motivated by the technology’s military applications. Someone as ostensibly interested in the peaceful possibilities of AI as Xi pretends to be wouldn’t exhibit such a flagrantly confrontational approach to relations with the West. The same’s true of Tehran and Iran’s nuclear program.

I’m as sympathetic as a Westerner can be to the complaints of China, Iran, Russia and so on, all of whom argue the US is engaged in a conspiracy to stymie their development and thereby deny them the right to self-determination. But let’s face it: The US is more than happy to forge friendly relationships with autocratic regimes. It’s not about democracy. Look at Saudi Arabia, for God’s sake. They’re as backwards as it gets: The Kingdom’s a ruthless, Wahhabi monarchy and if you don’t think Riyadh had some inkling about what was to befall Manhattan on 9/11, I’ve got a smart city in Neom to sell you. But the West coddles the Saudis. Why? Well, they have a lot of oil, for one thing, but more generally, because they play ball. China, Iran, Russia and, of course, North Korea, refuse to play ball. Any kind of ball, and in some cases out of sheer spite. They’re hell-bent on an antagonistic relationship with Washington, so it’s antagonism they get. You reap what you sow.

With that in mind, Xi has nobody to blame for China’s problems but himself. Much as it pains me to concede that Donald Trump’s right about anything, there’s a lot of truth to what he says about China exploiting America’s “stupid” leaders. Where Trump gets it wrong, I think, is to assume that America’s leaders didn’t understand the US was being exploited. It wasn’t all stupidity. Some of it since China’s WTO accession was complicity. If Xi were smart, he would’ve read the writing on the wall, which said the US electorate was losing patience with the hollowing out of the country’s manufacturing base and other globalization side effects, on the way to adopting strategic conciliation. Instead, he chose confrontation, and now here he is, in a cold war with the US 10 years before China was ready to fight it.

At home, Xi’s heavy-handed, top-down approach to managing the economy is a slow motion train wreck. In the simplest terms: He doesn’t have the first idea what he’s doing, and it’s showing up everywhere. Chinese stocks on Monday trundled another 1% or so lower and continue to meander at or near a half-decade nadir.

As the chart header suggests, the situation illustrated above is hopeless. China’s mired in a never-ending quasi-bear market, and it’s mirrored on the bond side by record-low yields. The bond rally’s so entrenched that the PBoC’s now borrowing bonds from banks so they can sell their own long-end in a bid to put a floor under yields.

Note that property values aren’t the only place where deflation’s taken hold in China. Car prices dropped nearly 6% last month. Prices for consumer electronics fell 2%. And on and on. Why would anybody buy anything they don’t absolutely need? If you wait, it’ll be cheaper. And the longer you wait, the cheaper it’ll be. This is deflation dynamics 101.

Earlier this month, while downgrading Chinese equities to Neutral from Overweight, JPMorgan’s EM equity strategy team spelled out the long list of challenges for investors trying to navigate this debacle. “Rising geopolitical tensions make it difficult to model the equity risk premium,” the bank wrote, adding that Chinese equities “could see heightened volatility around the upcoming US elections” given the prospect of a “Tariff War 2.0” which “could be more significant than the first tariff war.” At home, headwinds to growth “include sluggish domestic consumption demand, weak private business sentiment, a prolonged housing market correction and lingering deflation pressures that hurt nominal growth.”

The Street’s not allowed to use the word “uninvestable” when it comes to China. But they don’t have to. What’s understood doesn’t need to be said explicitly. In the same note, JPMorgan’s team wrote that China’s long-term growth is at risk of a “structural” down trend “due to supply chain relocation, the expansion of US-China conflicts and continued domestic issues.”

Unfortunately for everyday Chinese, the most pernicious “domestic issue” isn’t addressable.