How China grew
For more than four decades, China rose at lightning speed by building more and producing more. Factories churned out goods, cities mushroomed, and exports carried the surplus to the world.
This supply-driven model was unmatched in scale and efficiency in world history, lifting millions from poverty and making China the world’s workshop.
But growth came less from what its people wanted to buy, and more from what the state pushed to produce. That imbalance is now catching up with China.
Problems piling up
Today, cracks are visible everywhere. Housing projects are either unfinished or unoccupied, local governments struggle with debt, and even booming sectors like electric vehicles and solar panels show signs of overproduction.
Meanwhile, ordinary Chinese households are holding back on spending. With weak pensions, costly health care, and uncertain jobs, families save rather than shop.
Consumption is estimated to make up less than 40% of China’s GDP, far below any other country.
This leaves the country with an odd problem: world-class factories, but too few domestic customers. And a world that no longer wants to import from Russia without reciprocal export.
What demand push could do
The solution is straightforward in theory: shift the engine from supply to demand.
If Chinese families could be encouraged to spend more, the entire economy would rebalance.
How can they be made to spend more?
- Fairer income distribution to put more money in the hands of households. Let its own people enjoy the fruits of China’s growth so far.
- More imports to broaden choices and ease trade frictions.
- Better social safety nets so people don’t have to save excessively.
If pursued, these steps would unleash the spending power of Chinese households, reduce the risk of overcapacity, and place growth on a healthier foundation.
The global socialist economists who have been frequently advising the rest of the world to put money in people’s hands to spend have forgotten to give the same prescription to China.
Why the world wants it too
Here’s the twist: the cure for China’s problems is also what the world desperately needs.
- Trade peace: Fewer surplus goods dumped abroad means fewer trade wars.
- New market: A stronger Chinese consumer would buy more from other countries, spreading growth.
- Financial stability: Less reliance on debt-heavy construction lowers the risk of a crisis that could ripple worldwide.
- Climate benefit: Cutting back on excess industrial output helps global carbon goals.
A demand-driven China would not only stabilize itself but also steady the global economy.
Problem of the Chinese worldview
So why is China not embracing this obvious solution? The answer may lie in how China sees the world.
For long, Beijing has approached global progress as if it were a zero-sum game: One nation’s gain must come at another’s loss.
That worldview fits a supply-driven Communistic, ‘state-owned wealth’ model, viz., outcompete rivals, dominate markets, hog as much share as possible, never mind its consequences.
But in today’s interconnected economy, China has reached a point where this mindset is self-defeating.
If instead China embraced a cooperative model, where its households spend more, buy more locally and some from abroad, and its growth complements rather than undermines others, it would unleash a cycle of mutual benefit.
Such a shift would not only revive its domestic economy but also foster global peace and stability, which in turn would create more space for China’s own long-term growth.
Why China is unlikely to do it
This change in worldview may be harder than any policy reform.
It would mean transferring wealth and power away from state-owned firms and local governments, toward households.
It would also require accepting slower growth for a time, and trusting in the idea that prosperity can be shared without eroding China’s strength.
That runs against the instincts of a system built on control, complete self-reliance, and geopolitical competition.
China has the key to solving its economic problems
China has the key to its revival in hand. Turning it would not only solve its domestic challenges but also give the global economy a much-needed boost.
In such a new world order, China would enjoy a preeminent position, greater than what it has today and greater than anything it could ever achieve through a purely selfish approach.
China today is like a monkey that has thrust its hand deep into a cookie jar.
In its eagerness, it has grabbed as many cookies as its fist can hold. But now, with its hand clenched tight around the prize, it cannot pull the hand back out of the jar.
The solution is obvious: let go of a few cookies, take a hand out, and enjoy the cookies, one by one.
Yet, unwilling to release its grip, the monkey stays stuck, unable to satiate its hunger.
In much the same way, China’s determination to hold on to a supply-driven model for too long keeps it from tasting the sweeter, more sustainable rewards of a demand-driven economy.
This will not only solve China’s problem but also make its own people happier and help mitigate the problems of the world, at least to some extent.
So, the question is not whether the world is ready for China’s revival, but whether China is.
Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.
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