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China’s Economic Collision Course

As China's growth slows, Beijing's moves are drawing a global backlash

China’s economy has barely grown in the past two years. The immediate causes, including a decline in property construction and ham-fisted “zero COVID” policies that tanked private-sector investment, are well known. But the roots of the stagnation are systemic, and firms and analysts inside China, as well as governments and businesses around the world, have waited with anticipation for Beijing to clarify its plans to put the country’s economy on a more stable track. Between 2010 and 2019—not long ago—China’s annual GDP growth averaged 7.7 percent, but today the basic policy reforms necessary to support even three or four percent growth are proving difficult for Beijing to achieve.

Domestic and foreign observers pinned their hopes on the biggest policy event on China’s calendar, the National People’s Congress (NPC), for signs of an overdue change in direction. China has run an annual trade surplus for more than two decades, but in 2022 and 2023, a slowdown in China’s domestic demand pushed the country’s exports to exceed its imports by a shocking $1.7 trillion. A year earlier, in 2021, President Xi Jinping had declared that China had become a “moderately prosperous society”—a reference to a concept defined more than two millennia ago in the Chinese poetry collection known as the Book of Songs. In modern economic terms, Xi was taking credit for China’s rise to middle-income status. This transition should come with a policy pivot. After over two decades of strong investment-led growth, China now needs consumption-led growth. Further investment will have diminishing returns unless China can consume more at home. Yet over the past two years, the opposite has happened. Unable to sell goods to domestic buyers, Chinese companies are exporting their excess production abroad.

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Practice Area
China