How China's economic slowdown factors into the Biden-Xi meeting

China's economic struggles add an unpredictable element to President Biden's meeting with Chinese leader Xi Jinping on Wednesday.

Why it matters: There's not much transparency into the decision-making process of China's ruling Communist Party, so little is known about how top officials are reacting to domestic economic difficulties.

Context: China's economy is arguably facing its biggest challenge in decades.

• Growth is slow, youth unemployment is high, and deflation is setting in.
• The housing sector, a cornerstone of the domestic economy, is heavily indebted, financially wobbly — and a money pit for the government.
• Foreign capital is fleeing the country in what amounts to a vote of no-confidence in the leadership's ability to get things back on track.

The big question: Will these issues refocus China's leadership on jumpstarting the economy — implying a more amenable posture toward key trading partners and geopolitical adversaries like the U.S.?

• Or will the dismal outlook at home mean a ratcheting up of nationalism, a key pillar of Xi's increasingly authoritarian China?

What they're saying: Economic struggles could "pull back some of their political ambitions," says Matthew Goodman, director of the Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations. "I think that's possible."

• "But it's also possible that it could do the opposite and it could stoke some of their nationalist objectives," he adds.

Analysts say it's important that the U.S. doesn't look like it's trying to take advantage of temporary economic weakness in China, which would feed into the narrative that the West is trying to hamstring Chinese economic power.

• "From a U.S. perspective, the key here is really stressing that all this internal turmoil within the Chinese economy is self-driven," says Niels Graham, associate director for the Atlantic Council GeoEconomics Center.
• "These are domestic decisions at the end of the day that have driven the Chinese economy to the point it is. The last thing the U.S. should do right now is really put itself out as a scapegoat," he says.

State of play: U.S. officials have been trying to tamp down expectations for major breakthroughs at the meeting between Biden and Xi, which will occur on the sidelines of the Asia-Pacific Economic Cooperation summit in San Francisco.

• They are holding out hope, however, that there will be some concrete results of the talks, such as the re-establishment of military-to-military communications lines, seen as a crucial off-ramp should the two militaries inadvertently stumble into conflict.
• They are also reportedly set to announce a deal today cracking down on China's fentanyl trade, the deadly opioid wreaking havoc in the U.S.

What to watch: The tone of Chinese domestic propaganda efforts, which can provide early signals about the ruling party's policy shifts.

• Analyst Weifeng Zhong, of the Mercatus Center at George Mason University, uses natural language processing technology to monitor party-controlled communications in China. From that data, he produces what he calls the Policy Change Index.
• If the party ultimately moves toward economic reforms at home, it would likely have to shift away from its negative tone toward the U.S., Zhong said.

The bottom line: "If you want to reengage with the U.S., you need to change the public opinion, yet again, to explain why America or the American people are suddenly good people again," he said.