Skyscrapers in Shenzhen Photo: TUCHONG

Recently, some in the West once again cast doubt upon China’s economy, with pundits claiming that China has slipped into a balance sheet recession, its demographic dividends have disappeared, or the Chinese economy has peaked. China indeed faces complicated economic scenarios, but these factors do not signal an economic recession. On the contrary, the Chinese economy is experiencing an upturn, showing a bright outlook. This analysis is grounded in profound historical, theoretical, and realistic logic. 

History as proof

Since reform and opening up, several waves of Western media reports badmouthing the Chinese economy have swirled and surged, but their arguments have been proven wrong time and time again. 

For example, in the late 1980s and early 1990s, China’s economic development was confronted with grim challenges. Globally, dramatic changes in Eastern Europe and the Soviet Union sent international socialism into a historic low, while the Chinese economy was undergoing a process of rectification and adjustment. In addition to some Western countries’ economic sanctions, the Chinese economy grew at a rate of 4.2% and 3.9% in 1989 and 1990, respectively. In this context, Western commentary predicting the collapse of the Chinese economy kept surfacing.

In fact, as Deng Xiaoping delivered a series of talks on the need for national economic reform during his famous tour of southern China and the 14th CPC National Congress set the goal of carrying out reforms to the socialist market economic system, the Chinese economy maintained long-term rapid growth, with its annual GDP growth averaging 12.3% from 1991 to 1995. The growth rates over this five-year period were 9.3%, 14.2%, 13.9%, 13.0%, and 11% successively. 

For another instance, from 1997 to 2001, drastic changes took place in the situation facing the Chinese economy. Internationally, the Asian financial crisis broke out in February 1997, while the technological revolution, catalyzed by advancements in information technology, grew by leaps and bounds, and economic globalization progressed at a staggering speed. Domestically, the commodity supply-demand pattern evolved from long-term shortages to overall oversupply, resulting in striking overcapacity, low prices, and slowing growth. Against this background, some foreign economists again touted the theory that the “Chinese economy was on the verge of collapse.”  

As a matter of fact, at that time the CPC Central Committee resolutely implemented the policy of expanding domestic demand to respond to insufficient domestic demand, decreasing external demand, and sluggish growth. Concurrently, strong measures were taken to push ahead with reforms to state-owned enterprises, government institutions, as well as the financial, housing, and fiscal and taxation systems. Moreover, China joined the World Trade Organization. 

Under the combined effect of deepened reform, further opening up, and macro-control, China not only weathered the Asian financial crisis and reined in the trend of downward growth, but also entered a round of high growth after 2000. From 2001 to 2005, the country’s GDP grew 8.3%, 9.1%, 10%, 10.1%, and 11.4%, respectively, with annual average growth hitting 9.8%. The open economy, in particular, developed quickly. Total imports and exports grew 24.6% annually on average during the five-year period. The substantial increase of foreign investment effectively fueled domestic growth. 

After 2007, the Chinese economy faced strong downward pressures due to the impact of the international financial crisis, as the GDP growth dropped from 12.7% in 2006 and 14.2% in 2007 to 9.7% in 2008. Given this dynamic, some foreign scholars expected a Chinese economic recession. For example, Nobel Prize-winning economist Paul R. Krugman voiced concerns over China’s increasing reliance on trade surpluses to sustain manufacturing and signs of a real estate bubble, saying “there are real reasons to fear financial and economic crisis,” in a New York Times op-ed titled “Will China break?” 

In fact, the Chinese government effectively defused the impact of the international financial crisis through proactive fiscal policy and moderately loose monetary policy, leading the economy to maintain steady, relatively fast growth. In 2010, China’s GDP exceeded 40 trillion yuan (approximately $5.6 trillion), making the country the second-largest economy and largest manufacturer in the world. Opening up expanded to new heights. From 2006 to 2010, total imports and exports grew 15.9% annually on average, and China became the world’s largest trader in goods in 2010. 

After 2010, with changes to economic development elements like labor, in addition to the aftermath of the international financial crisis and the ensuing European sovereign debt crisis, China’s economic growth entered a new normal. Around 2015, China’s economic operation featured decreasing growth rates, inflation rates, corporate profits, and tax revenues, yet latent risks increased. 

As a result, some foreign analysts again expressed pessimism about the Chinese economy, forecasting that it would face stagnation and even a crisis. 

The fact was that the CPC Central Committee made the major decision and arrangements to carry out supply-side structural reform, adopting measures like cutting excessive capacity, destocking, de-leveraging, lowering corporate costs, and shoring up weak links in the economy. These measures stabilized and lifted the economy, bringing it onto the track of high-quality development. 

Misconceptions of naysayers 

Why have these critics been proven wrong time after time? This is because they have cognitive biases and misconceptions about the strong resilience of the Chinese economy and its development laws. 

First, they analyzed and evaluated the Chinese economy’s future simply based on Western theory. Western economic theories are summaries of Western developed countries’ developmental practices. Though useful to a certain degree, these theories are not one-size-fits-all rules, and are likely to be inapplicable to developing nations, particularly to a large economy like China which was going through transformative development. 

We cannot conclude that a recession will necessarily occur if an economy is bothered by problems that developed countries used to have. Historical experience has warned many times that Western economic theories cannot be deified. Many developing countries’ mechanical application of Western theories, without considering their own national conditions, didn’t lead to desirable results. This replication has even backfired in some nations, as they became mired in prolonged economic standstill and political turmoil. 

In contrast, China has adhered to a socialist path with Chinese characteristics, continued reforms to the socialist market economic system, and advanced Chinese modernization, thus achieving remarkable results and painting a bright picture for the great rejuvenation of the Chinese nation. 

Second, these critics exaggerated short-term, local problems, underestimating the resilience of the Chinese economy. The analysis of any economic situation should involve both short-term and long-term factors, encompassing both the part and the whole. It is neither advisable to mechanically apply past experience to China, nor to view problems and risks in the Chinese economy with a “microscope” or “short-sighted lens.” 

If we look back, the impact of many problems was far less significant than imagined. China is a large economy; the socialist system with Chinese characteristics has unique advantages in coping with major risks and challenges; and the Chinese economy is on the way up generally. Therefore, the Chinese economy has a strong ability to resist impacts, stabilize disruptions, and heal itself. 

Third, many critics’ understanding and research of China’s economic development was not thorough, tainted either with subjective biases or narrow-minded self-interests. Chinese modernization contains elements that are common to the modernization processes of all countries, but it is more characterized by features that are unique to the Chinese context. Sound analysis of the Chinese economy entails combining economic laws with China’s specific realities and development stages. However, some of the naysayers had never studied the Chinese economy comprehensively or deeply. Few visited China, much less regularly. In addition, some scholars wrote harsh critiques to garner international attention. Some even profited from the capital market by talking down China’s growth. 

Sustainable long-term growth 

Currently, the Chinese economy is transitioning to high-quality development. In this process, problems and challenges, even necessary hardships, are unavoidable, but the economy is emboldened, advantaged, and holds greater opportunities. The trend of sustained long-term growth remains unchanged.

First, economic fundamentals are solid, while new drivers are developing and expanding. After rapid development over the 70-odd years since new China was founded or the 40-odd years of reform and opening up, China has laid an immense material and technological foundation, and accumulated huge domestic demand, providing strong support for maintaining steady growth and tackling risks and challenges. 

For example, the number of registered automobiles has reached 336 million at present. More than 30 million vehicles are available in the market, at an annual replacement rate of 10%. In terms of housing, rigid demand and demand for improved housing have enormous potential. Developed economies like the United States, Japan, and the Eurozone have completed urbanization, and the per-capita consumer spending on housing still accounts for more than 30% of household consumption expenditures, but the rate is only 25% in China. 

In the field of science and technology, despite some countries’ mounting containment for decoupling and disconnection, China’s pace of technological innovation and industrial upgrade is unstoppable. Some countries’ suppression of Chinese technological enterprises will instead expedite China’s independent innovation. In 2022, China’s research and development expenditure was 3.08 trillion yuan, up 10.11% year-on-year. Accounting for 2.5% of the GDP, the expenditure approached the average level of OECD countries. In the meantime, industrial transformation and upgrade is making solid progress, and strategic emerging industries are constantly expanding. China has taken the lead in new sectors such as the digital economy and the green, low-carbon economy. 

Second, China boasts comprehensive advantages in human resources, capital formation, infrastructure, and its industrial system, with tremendous development promise. Although great changes in the total population and demographic structure will affect growth, it should be noted that the population quality is vital to mid- and long-term growth. 

In 2023, the working-age population, aged between 16 and 59, still stood as large as 865 million, of which 240 million received higher education. When it comes to investment, the savings rate remained high in 2023, hinting at great investment potential. Moreover, after years of development, China has built a relatively complete and super-large infrastructure network, with the sizes of its integrated transportation network, installed power generation capacity, power grid, and 5G network, all ranking first globally. 

Meanwhile, a large, sound industrial system with strong supporting capacities is in place. Many research institutions at home and abroad estimated that the Chinese economy’s potential growth rate will reach around 4.5% during the 15th Five-Year Plan (FYP) period (2026–2030), and around 4.0% during the 16th FYP period (2031–2035) under the baseline scenario. Optimistically, these two periods are set to attain growth rates of 4.8% and 4.3%, respectively, making it possible for the country to basically realize socialist modernization by 2035. 

Third, in the face of new strategic opportunities, new types of industrialization and urbanization have broad development space. For starters, breakthroughs have continually been made in a new round of technological revolution and industrial changes—represented by artificial intelligence, life science, and new energy; and digital, intelligent, and green transformations are deepening. These trends have presented major strategic opportunities for China to leverage its advantages, develop new productive forces, boost the total factor productivity, and promote high-quality economic development. 

Furthermore, the upgrade of demand structure will bring new opportunities. During the 15th FYP period, China will historically join the ranks of high-income countries, and its middle-income population is expected to exceed 500 million. With the continuous improvement of residents’ income levels and the social security system, the people’s demand for high-quality products and services will continue to grow, as service sectors such as education, healthcare, culture, tourism, and elderly care will develop quickly. 

Additionally, new opportunities will arise amid urban transformation. In 2023, China’s urbanization rate was 66.16%, a dozen percentage points lower than that of developed countries. Meanwhile, there is big potential for improving the quality of urbanization. In 2023, the urbanization rate in terms of household registration was only 47.7%; nearly 300 million agricultural migrants who work or conduct business in cities are yet to be urbanized. According to pertinent OECD studies, if these migrants have urban household registrations and enjoy equal access to basic public services as urban residents, their actual consumption levels will be lifted by around 30%. In addition, reforms to the global governance system and green, low-carbon transformation likewise provide new opportunities for China’s economic development. 

We should also note that new difficulties and challenges still loom large in the Chinese economy, but the general trend of economic development remains unchanged. History and reality both prove that the Chinese economy has consistently forged ahead against headwinds. High external pressures are bound to stimulate strong momentum for China’s economic transformation and development. 

Wang Changlin is vice president of the Chinese Academy of Social Sciences (CASS) and a member of the leading Party members’ group at CASS. 

Edited by CHEN MIRONG