China’s Real Economic Crisis
As the scholar Mary Gallagher has observed, Beijing has fanned the flames by using social campaigns such as “common prosperity”—a concept Chinese leader Mao Zedong first proposed in 1953 and that Xi revived at a party meeting in 2021—to spur local industrial development. These planning directives and campaigns put enormous pressure on local party c
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In April, U.S. Treasury Secretary Janet Yellen warned that China’s overinvestment in steel, electric vehicles, and many other goods was threatening to cause “economic dislocation” around the globe. “China is now simply too large for the rest of the world to absorb this enormous capacity,” Yellen said.
Zongyuan Zoe Liu • China’s Real Economic Crisis
China’s sixth five-year plan (1981–85) was the first to be instituted after Chinese leader Deng Xiaoping opened up the Chinese economy. Although the document ran to more than 100 pages, nearly all of it was devoted to developing China’s industrial sector, expanding international trade, and advancing technology; only a single page was given to the t
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Minimal Focus on Household Consumption in China's Five-Year Plans: China's Five-Year Plans have historically prioritized industrial growth and infrastructure development over household consumption. This approach aimed to rapidly transform the economy into a global manufacturing powerhouse, often at the expense of consumer spending. As a result, while China's economy grew significantly, the emphasis on boosting domestic consumption has only recently gained attention in policy discussions.
Moreover, as factories are forced to close and industries consolidate, the firms left standing are not necessarily the most efficient or most profitable. Rather, the survivors tend to be those with the best access to government subsidies and cheap financing.
Zongyuan Zoe Liu • China’s Real Economic Crisis
As the party sees it, consumption is an individualistic distraction that threatens to divert resources away from China’s core economic strength: its industrial base. According to party orthodoxy, China’s economic advantage derives from its low consumption and high savings rates, which generate capital that the state-controlled banking system can fu
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Q: How does this system emphasise political stability
A: The system emphasizes political stability by ensuring that the business elite remains dependent on state-controlled financing, which binds their interests to those of the Communist Party. This control prevents dissent and individualistic tendencies that could threaten the party’s authority, thereby maintaining a cohesive alignment between economic activity and political objectives.
A: The Chinese government prioritizes industrial investment over consumption because it views consumption as a distraction that diverts resources from its industrial base, which is essential for political stability and economic control.
Q: Why does the Chinese government prioritize industrial investment over consumption in its economic policy?
(Run the prompt again for the answer.)
The party believes that spending too much by individuals is a distraction that can take away resources from what makes China strong: its factories and industries. They think China's strength comes from people saving a lot of money instead of spending it, which helps banks lend money to businesses. This system also keeps the government in control of the economy. Since the factories rely on cheap loans to keep going, the wealthy business people have to follow what the party wants. In Western countries, money often controls politics, but in China, politics controls money.
In August 2023, the U.S. Commerce Department found that Chinese PV producers were shipping products to Cambodia, Malaysia, Thailand, and Vietnam for minor processing procedures to avoid paying U.S. antidumping tariffs. China’s PV-production capacity, already double the global demand, is expected to grow by another 50 percent in 2025. This extreme o
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When Beijing’s economic planners do talk about consumption, they tend to do so in relation to industrial aims. In its brief discussion of the subject, the current five-year plan states that consumption should be steered specifically toward goods that align with Beijing’s industrial priorities: automobiles, electronics, digital products, and smart a
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Illusion of Consumer Choice in China's E-Commerce Landscape: The e-commerce landscape in China presents consumers with a vast array of products and services, creating an impression of abundant choice. However, this perception is often misleading, as a few large companies dominate the market, shaping consumer preferences and limiting true diversity. As a result, many consumers may unknowingly participate in a system that prioritizes the interests of these dominant players over genuine choice.
China’s economic planners have failed to recognize that the real driving force of innovation is disruption. To truly foster this kind of creativity, entrepreneurs would need unfettered access to domestic capital markets and private capital, a situation that would undermine Beijing’s control of China’s business elites. Without the possibility of mar
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According to government statistics, 27 percent of Chinese automobile manufacturers were unprofitable in May; at one point last year, the figure reached 32 percent. Overproduction throughout the economy has also depressed prices generally, causing inflation to hover near zero and the debt service ratio for the private nonfinancial sector—the ratio o
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China's Rising Debt Service Ratio and Its Implications for Economic Stability: China's debt service ratio, which measures the proportion of income that households and businesses use to service their debt, has been increasing in recent years. This rise raises concerns about economic stability, as higher debt burdens can lead to reduced consumer spending and increased default risks. Consequently, policymakers are under pressure to implement measures that balance economic growth with sustainable debt levels to avoid potential financial crises.