Problems are piling up for Xi Jinping

Ten Pacific Island nations have snubbed China by rejecting the terms of a sweeping security and trade pact, in a blow to Beijing’s ambitions to forge new alliances in the region.

On a visit to Fiji today, China’s foreign minister Wang Yi urged the countries not to be “nervous or anxious” about the proposals, which would involve China training local police, collaborating on cybersecurity, conducting sensitive marine mapping and gaining greater access to the nations’ natural resources.

In a letter leaked last week, David Panuelo, president of the Federated States of Micronesia, one of the nations involved, said the deal “threatens to bring a new Cold War era at best, and a World War at worst”.

The deal isn’t dead. Chinese diplomats will have to go back to the drawing board and smooth things over.

But the South Pacific is a cauldron of fierce superpower competition, and the rejection is a set-back for Xi Jinping who wants to pitch China as boss.

It comes a week after Joe Biden’s Asia tour, and the signing of the Indo-Pacific Economic Framework, strengthening US economic ties with 12 Indo-Pacific nations.

There’s trouble afoot for Xi on the domestic front, too.

The President’s “new development concept”, a series of economic initiatives designed to tackle the very real problems of debt, monopolies and inequality, have tied Chinese firms up in red tape, hampering growth in some of China’s most productive sectors, like tech.

Covid is a more immediate issue. Authorities in the financial hub of Shanghai are lifting some restrictions after a gruelling two-month lockdown. But 200m people are still living under restrictions across the country, and the zero-Covid fixation at the top of the CCP remains firmly in place.

The slew of lockdowns has devastated domestic spending and is stopping any economic momentum from building. China’s GDP is set to grow by just 2 per cent this year, compared to 2.8 per cent in the US, according to analysis by Bloomberg Economics. It would be the first time US growth has outpaced China since 1976.

The race between the world’s top two economies matters. Xi told his senior economic officials to ensure China’s growth outpaces the US this year because it was critical to show the superiority of the one-party system over liberal democracy.

Even if Chinese growth ends up being more like 4 per cent as most economists predict, it still falls well below the Communist Party’s 5.5 per cent target. Decades of red-hot growth seem to be at an end.

The stakes are high for Xi personally. He’s expected to secure an unprecedented third term as Communist Party leader later this year. Previous leaders have stepped down after two.

Xi understands better than anyone that his legitimacy as leader is underpinned by Chinese prosperity and pride. If things carry on not going China’s way at home and abroad, his confirmation as dictator-for-life could prove a tough sell.