If I were Xi Jinping sitting in Zhongnanhai right now, staring at the increasingly unpleasant arithmetic of the Chinese economy, I would be thinking very carefully about one thing:
Narrative management.
Because with or without the crisis around Iran, China was already heading into difficult waters.
Very difficult waters.
And when systems built on promises begin losing momentum, leadership eventually requires a villain.
An external force.
A disruption.
A hostile world.
Anything except the deeply uncomfortable possibility that the model itself was fundamentally unsustainable from the beginning.
Now, to be fair, every government on Earth does this to some degree.
Political systems survive partly through storytelling.
Economic pain without explanation breeds anger.
Economic pain with a convenient narrative can often be redirected.
And the temptation for Beijing must be enormous.
Because blaming part of China’s slowdown on geopolitical instability in the Persian Gulf has obvious advantages.
Oil disruptions.
Shipping instability.
Trade uncertainty.
Western tensions.
A dangerous global environment supposedly strangling Chinese prosperity.
It is a clean storyline.
Simple.
Emotionally intuitive.
And perhaps useful domestically.
The problem is that China’s core economic problems are overwhelmingly self-inflicted.
The Iran crisis did not create them.
It merely arrived while the structure was already cracking.
The Chinese growth model was never infinitely sustainable.
No industrial export model is.
Particularly not one dependent on permanently rising Western consumption financed increasingly by debt and deindustrialization.
For decades, the arrangement worked brilliantly.
The West consumed.
China produced.
Consumers in Europe and North America bought mountains of cheap goods while simultaneously hollowing out parts of their own industrial base in exchange for lower prices and financialized prosperity.
Everybody pretended this could continue indefinitely.
It could not.
At some point, a rather primitive reality reasserted itself:
Cheap products are still too expensive if people no longer possess stable, productive employment to buy them.
That realization took years to fully sink in.
Perhaps decades.
But it has arrived now.
And once populations begin questioning whether endless offshoring actually served their long-term interests, political pressure inevitably follows.
Which is precisely what we are witnessing across much of the West today.
Supply chains returning.
Manufacturing incentives.
Tariffs.
Strategic industrial policy.
“Reshoring.”
“Friend-shoring.”
Different labels for the same underlying instinct:
Pull production closer to home before dependency becomes strategic vulnerability.
And here China encounters another deeply unpleasant problem.
It is no longer the ultra-cheap manufacturing haven it once was.
Labor costs rose.
Living standards rose.
Expectations rose.
That was supposed to happen.
Success naturally increases costs.
But modern manufacturing competitiveness increasingly revolves around something even more important than labor anyway:
Energy.
Cheap.
Reliable.
Abundant energy.
And in that category, United States and broader North America now possess advantages that are extremely difficult to replicate.
Shale changed the equation dramatically.
An enormous domestic hydrocarbon base.
Large internal markets.
Massive industrial capacity.
Food abundance.
Relative resource security.
These things matter.
Especially during periods of global fragmentation.
How exactly is East Asia supposed to compete structurally with a continent-scale energy advantage of that magnitude?
Short answer:
It probably cannot.
Not fully.
Not without enormous strain.
And certainly not while simultaneously navigating aging populations, rising debt burdens, slowing exports, and a world increasingly skeptical of dependence on Chinese manufacturing.
Which brings us back to narrative.
Because leaderships rarely enjoy admitting structural mistakes openly.
Especially centralized leaderships built heavily around competence and inevitability.
The Chinese Communist Party spent decades presenting itself as the guarantor of unstoppable ascent.
The dragon rises.
The future belongs to China.
History bends eastward.
Those narratives are powerful while growth compounds visibly.
They become much harder to sustain once stagnation appears.
So if decline or prolonged slowdown becomes unavoidable, attaching it to external chaos may appear politically safer than confronting the population with the possibility that the underlying model itself reached its natural limits.
“The global crisis hurt us.”
“The instability damaged us.”
“Foreign tensions disrupted our rise.”
Those explanations preserve legitimacy more effectively than:
“We built a debt-heavy export machine dependent on external consumers and diminishing returns.”
Now, none of this means China collapses tomorrow.
Far from it.
People constantly underestimate the inertia of large civilizations.
China remains an industrial titan.
A technological heavyweight.
A state with enormous administrative reach and social control mechanisms.
But trajectory matters.
Momentum matters.
And the momentum no longer resembles the unstoppable ascent narrative many became accustomed to during the 2000s and early 2010s.
East Asia broadly was entering a more difficult phase regardless of events in the Persian Gulf.
The Iran crisis may simply provide a politically convenient backdrop against which existing weaknesses can be reframed.
A dragon wounded not by its own contradictions, but by global chaos.
That is a far more useful story for leadership.
Whether the population fully accepts it is another matter entirely.
Because narratives work best while living standards still rise.
Once expectations break, even sophisticated storytelling starts losing its magic.
And modern economies everywhere—not only China’s—are beginning to discover that unpleasant truth.