China’s Economy Has Peaked. Can Beijing Redefine Its Goals?

The phrase “peak China” is having a moment in discussions of the global economy, even though the phrase is usually accompanied by a question mark to indicate skepticism about the premise. The debate over whether China is “peaking” typically focuses on Beijing’s perceived power and international influence, and whether China’s nascent decline or continued ascendance will change Beijing’s behavior and policymaking. At the foundation of this discussion, however, are the fundamentals of China’s economic performance and the prospects for China’s future economic growth.

The decline of China’s economy over the past three years, linked to the collapse of the property sector and weakness in local government infrastructure investment, has raised new questions about whether a return to the previous growth rates is possible, or whether China is facing a structural economic slowdown. The question is not only significant in foreign conversations but within China as well. In Chinese social media discussions, the phrase “garbage time of history” has begun to circulate surrounding China’s current economic prospects, to the consternation of the domestic censors.

This article makes three arguments related to this debate. First, while nothing in economic development is certain, as a proportion of the global economy, China’s economy probably peaked in 2021. Second, nothing about Beijing’s behavior in response to China’s structural economic slowdown is inevitable. Beijing’s own economic objectives and expectations about China’s trajectory are the most important influences on its policymaking, and these goals can change. Third, if China’s economic slowdown continues, Beijing can ease tensions with the rest of the world by publicly acknowledging such trends.

China’s current expectations about its own economic growth—to achieve socialist modernization by 2035, a goal that is widely interpreted by Chinese officials to mean a doubling of the gross domestic product (GDP) from 2020 levels by that date—are unrealistic. Beijing’s tendency to engage in gradualism may prevent near-term downgrades of such economic goals. However, a China that is no longer trying to overtake the United States economically—or Chinese leaders who realize that surpassing the United States is highly improbable—can refocus its development objectives on slower but more sustainable consumption-driven growth, while reducing trade frictions with the rest of the world. China’s politics currently prevent these expectations from shifting, but the Party can always redefine the country’s economic goals. Similarly, Western policymakers who define the economic challenge from China as foundational—based on a flawed view of China’s economic prospects—ironically limit their options in responding to Beijing’s policy choices and risk overshooting with restrictions that end up blowing back on their own economies.