China’s economic miracle fades

How to govern China as the economic miracle ends [View in browser]( [Bloomberg]( Welcome to Balance of Power, bringing you the latest in global politics. If you haven’t yet, sign up [here](. President Xi Jinping has a problem his predecessors didn’t have to face: How to govern a post-boom China? Growth is down, incomes are rising more slowly, and wealth is taking a hit as the property crisis rolls on. For decades, a nearly uninterrupted improvement in living standards has [underpinned the legitimacy]( of the Chinese Communist Party. Some have described it as the unspoken bargain: the promise of a better life in exchange for fewer freedoms. Now, there are signs that deal is beginning to fray. People are grappling with salaries that are stagnating. After getting used to a steady climb in living standards, most say they’re feeling gloomier about their prospects these days. Homeowners are seeing the price of their most valuable asset tumble. A difficult outlook for the year ahead means that some are firing their employees while others are canceling plans to have children. Worries over the future are prompting people to pull back on spending that ultimately risks slowing the shift to a consumer-led economy. In China’s tightly-controlled society, this unease doesn’t represent an existential threat to the regime. Economic protests rose in the second half of last year, according to China Dissent Monitor research, but they still tend to be smaller scale and sporadic in nature. Bloomberg Economics analysis on the correlation between growth and freedoms in China reveal a striking picture about how these dynamics have evolved over the past 40 years. Xi’s China suggests it’s moving full circle with a return to characteristics seen at the end of the Mao Zedong era. But there are differences: China today is much richer with better standards of governance. And in some ways, the slowdown can be put down to Xi’s determination to solve the problems created by his predecessors: debt-driven growth, a real-estate bubble and overcapacity in certain industries. Ultimately, the goal is to create an economy that’s far more sustainable for decades to come. For Xi, it appears that must come at the cost of diminishing social freedoms. — [Rebecca Choong Wilkins]( Global Must Reads Israel recalled its ambassadors from Ireland and Norway after they announced plans to formally recognize a Palestinian state. The coordinated move, which was soon followed by Spain, underscores how Israel’s war against Hamas in Gaza is [focusing global attention]( on the issue of statehood for Palestinians and damaging Israel’s international relations. The US, meanwhile, has [softened its resistance]( to a broader military operation in Rafah following efforts by Israel to reduce the civilian toll. The death of Iranian President Ebrahim Raisi has left the Islamic Revolutionary Guard Corps poised to become [more powerful than any individual]( who might eventually replace Supreme Leader Ayatollah Ali Khamenei, who’s in his mid-80s. Designated a terrorist organization by the US in 2019, it was set up to protect the Islamic Republic’s political regime and has increased considerably in size and strength over the past 20 years. The funeral of Raisi, Foreign Minister Hossein Amirabdollahian and other officials killed in Sunday’s helicopter crash. Source: Iranian Presidency/Anadolu/Getty Images Russia’s Defense Ministry set out proposals in a consultation document to change the country’s Baltic Sea border and expand its [territorial waters]( next to NATO rivals, referencing a 1985 decision by the Soviet Union to justify the move. That prompted reactions from Finland and Lithuania, which called the step an “obvious escalation against NATO.” Russian newswires later cited an unidentified official denying such plans. The Alternative for Germany’s lead candidate in next month’s European Parliament elections [quit the far-right party’s leadership]( committee following a string of scandals and said he won’t take part in any more campaign events. Maximilian Krah was quoted last week as saying that not all members of the Nazi SS paramilitary organization were criminals, prompting the party of French far-right politician Marine Le Pen [to break off ties]( with the AfD.  A political firestorm has erupted in Africa’s most populous nation after the Nigerian cabinet approved construction work on the second section of a $13 billion highway awarded to an ally of President Bola Tinubu. Business tycoon Gilbert Chagoury, a fixture of the political and business scene for decades, was listed by the government [as Tinubu’s “confidante”]( when a member of Nigeria’s delegation at last year’s COP28 climate conference in Dubai. Half of swing-state voters say they’re [worried about violence]( around the US presidential election, suggesting misgivings about how an acrimonious race and its results will be received by a highly polarized electorate. More large protests are expected in Taiwan as opposition lawmakers plan to make a final push on Friday to pass a bill [aimed at reining in new President]( Lai Ching-te’s administration. North Korea’s cult of personality appears to have entered a new phase by [elevating the portrait of Kim Jong Un]( next to that of his grandfather and father, showing him in a similar status as its former leaders regarded as demigods at home. Washington Dispatch The jurors in Donald Trump’s criminal trial in New York can prepare for the Memorial Day holiday weekend today after the former president’s defense lawyers rested [without calling]( him as a witness. Justice Juan Merchan scheduled closing arguments in the case for Tuesday and said he hoped deliberations could begin “at some point next Wednesday.” While it’s rare for criminal defendants to testify, Trump told reporters on the eve of the trial that he would take the stand, saying, “All I can do is tell the truth.” But his decision spared him from a grueling cross examination. Manhattan District Attorney Alvin Bragg accuses Trump of falsifying business records to conceal a hush-money payment to adult-film star Stormy Daniels before the 2016 presidential election. Trump’s lawyers said prosecutors failed to prove the payment had anything to do with influencing the election. He has denounced the case as a “witch hunt” designed to undermine his campaign to return to the White House. One thing to watch today: Existing home sales for April will be reported. [Sign up for the Washington Edition newsletter]( for more from the US capital and watch Balance of Power at 1 and 5 p.m. ET weekdays on Bloomberg Television. Chart of the Day China’s BYD, which overtook Tesla last year to become the biggest global electric vehicle maker, is about to raise the stakes in its drive to win market share in Europe. Its sub-$10,000 Seagull hatchback, due in the region next year, offers features like cruise control and wireless phone charging normally seen on much more expensive vehicles. Its arrival [is ratcheting up pressure]( on Europe’s automakers for dominance in the post-combustion-engine era. And Finally The US military built a temporary pier along the Gaza strip to help ease the humanitarian crisis caused by Israel’s war against Hamas. The roughly 1,800-foot dock was forecast to be able to bring in an initial 90 truckloads of humanitarian aid into Gaza each day. But crowds of [desperate people have intercepted]( almost all of the assistance that has arrived so far, forcing a temporary halt to deliveries. A ship transporting aid is moored at the pier yesterday. Source: AFP/Getty Images More from Bloomberg - Check out our [Bloomberg Investigates]( film series about untold stories and unraveled mysteries - [Bloomberg Opinion]( for a roundup of our most vital opinions on business, politics, economics, tech and more - [Next Africa](, a twice-weekly newsletter on where the continent stands now — and where it’s headed - [Economics Daily]( for what the changing landscape means for policy makers, investors and you - [Green Daily]( for the latest in climate news, zero-emission tech and green finance - Explore more newsletters at [Bloomberg.com](. Follow Us Like getting this newsletter? 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