China's Economy Has Not Peaked

What happens to the world economy and global geopolitics in 2025 will depend significantly on China, the world's largest exporter and second-largest consumer market.

- NANCY QIAN

But prevailing assessments of China's economic health are deeply flawed.

The headlines in 2024 have been mixed. China's GDP is growing, though the precise rate is always a matter of debate. Youth unemployment, which shocked policymakers when it reached a peak of 21.3% in June 2023, has declined to 17.6%. And the property-market crisis finally seems to be moderating, with transactions increasing following the government's bold intervention to support the sector, which, directly and indirectly, accounts for one-third of the Chinese economy.

And yet, the dynamism that characterized China's economy over the last three decades seems to be missing. Consumption growth is slow, as apprehensive Chinese households maintain high savings rates. Likewise, foreign investors' confidence is at an "all-time low." As prices drop, fears of a deflationary spiral are growing, recalling the prolonged stagnation that gripped Japan beginning in the 1990s. Against this backdrop, some now argue that China's economy has already peaked.

But such assessments are not particularly reliable. For starters, they mostly reflect the perspective of multinationals, concerned with their own profits, or foreign businesses and governments that take an adversarial view of Chinese growth. This helps to explain why observers tend to focus on specific sectors, such as luxury goods or electric vehicles, which account for a small part of a vast and complex economy and are disconnected from the challenges confronting most of China's 1.4 billion people and the government that manages their lives.

A second problem with much of the analysis of China's economy is that it is not evidence-based.