A more nuanced look at China’s economic indicators is necessary to understand current trends.
In recent years, there has been a notable shift among certain Western politicians, media outlets and think tanks regarding their perspective on China's developmental trajectory. The once popular theory of an imminent collapse of China, famously asserted by Gordon G. Chang over two decades ago, has finally begun to lose traction.
But there is still a lingering reluctance to acknowledge China's sustained ascent, prompting the emergence of a new buzzword: “Peak China.” Initially dismissed by the mainstream Chinese academic community as another tiresome collection of biased assumptions unworthy of serious intellectual attention, the concept of “Peak China” has nonetheless been steadily gaining ground in international journals.
As the second-largest GDP globally for 15 consecutive years, China's economic landscape has naturally witnessed expansion alongside moderated growth rates, a phenomenon well-recognized in economic theory. In the context of China's status as a super-large economy, fluctuations in economic indicators are intrinsic to its growth trajectory but to characterize these indicators as data for an economic recession is inherently flawed.
This new, peculiar passion for a “Peak China” narrative, which chooses to overlook China's strides in high-quality development, is provoking attempts among more serious scholars to correct its bolder assertions and whimsical mischaracterizations.
Let’s examine six of the most misguided “Peak China” myths.
In challenging these myths, let us hope we can attain a more nuanced understanding of China's true economic dynamics and so foster a smoother and more mutually beneficial interaction with the Western world.
Myth 1: China's economic size won't surpass the US.
No. Many of the more sober-minded economic institutions continue to maintain that China's GDP will surpass that of the United States by 2035.
Despite recent analyses suggesting otherwise, and with the gap between China's GDP and that of the US widening in the past two years, some are still venturing to suggest China will never exceed the US in total economic volume.
However, such viewpoints fail to align with the prevailing long-term economic headwinds.
In 2023 China saw a GDP growth rate of 5.2 percent, while the US lagged behind at just 2.5 percent. The widening gap between the two nations' GDPs can be attributed to several factors but primarily, the depreciation of the RMB against the US dollar bolstered China's GDP relative to the US. The US has also begun to account for various unconventional economic activities in China, such as the gaming industry, which were previously excluded from GDP calculations.
A closer examination of the core GDP components reveals striking differentials between China and the US. Surprisingly, China's real economy significantly outpaces that of the US across a variety of sectors: China's grain output, reaching 700 million tons, surpasses that of the US by 1.2 times, while its power generation of 9.2 trillion kilowatts is 2.3 times greater. China's production and sales figures, totaling 30.16 million vehicles, triple those of the US. Steel output, towering at 1.36 billion tons, outstrips the US by 19 times, while cement production at 2.23 billion tons dwarfs that of the US by 20 times. China's shipbuilding industry, with an impressive output of 42.31 million tons, exceeds that of the US by an astonishing 70-fold.
Through such figures it quickly becomes clear that the Chinese economy has resisted a so-called "industrial hollow" decline, prioritizing stable development over statistics and financial markets. This reflects the government's commitment to robust, people-centered goals.
What most “Peak China” analysts cannot seem to grasp is that the Chinese government simply couldn't care less about whether its GDP surpasses the US. Back in 2014, the IMF crunched numbers based on purchasing power parity (PPP), declaring China as the world's top economic powerhouse, leaving the US behind. The Chinese central government greeted the news without fuss or fanfare.
Look it up: Over the past four decades, the phrase "outstripping the US" has never graced official documents nor has it ever been a topic of discussion among China's decision-makers. In essence, China's developmental focus isn't about outdoing others. It's about surpassing its own benchmarks for a better quality of life.
Myth 2: China's real estate crisis threatens future growth momentum.
Wrong. Real estate remains a crucial pillar of the Chinese economy, especially as projections suggest that over the next decade, a staggering 100 million people will migrate to urban areas, driving demand for real estate development.
Nevertheless, the significance of real estate in China is waning, with the high housing price bubble gradually deflating. It is true that commercial housing sales plummeted from 18 trillion yuan in 2021 to 11.7 trillion yuan in 2023. But China's private investment also surged by 9 percent in 2023 with the burgeoning so-called “new three” industries, particularly the pan-clean energy sector, compensating for real estate's sluggish growth.
Firstly, the photovoltaic industry has seen remarkable growth, with the Chinese market expanding by over 20 percent in the last decade, boasting a market size of about 2 trillion yuan and over 50 percent of the global market share.
Secondly, new energy vehicles recorded total sales of approximately 5 trillion yuan in the Chinese automobile market. In 2023, after nine consecutive years as the world's largest car production and sales hub, China emerged as the world's leading car exporter.
Thirdly, China dominates the lithium battery market, occupying six spots among the world's top 10 power battery manufacturers and commanding a market share of 62.6 percent.
According to analysis by the Finnish Energy and Clean Air Research Center, the pan-clean energy industry has become the primary driver of China's economic growth, contributing to 40 percent of GDP growth in 2023, marking a 30 percent year-on-year increase.
Compared to the US and Europe, China's new economy not only serves as a vital alternative to real estate for economic growth but also significantly contributes to mitigating global warming. The shift away from real estate dependence and the upsurge in new manufacturing highlight China's high-quality economic development, a facet often overlooked in the more fevered discussions of “Peak China.”
Those who have actually been to China marvel at its e-commerce, 5G society and seamless transportation. Recent years have seen the ascent of China's emerging industries, propelling a comprehensive transformation of the industrial landscape.
In 2022, the added value of China's "new three" economy, characterized by novel industries, formats and business models, surged to 21 trillion yuan. The shift signifies China's departure from a more traditional reliance on real estate as the primary driver, embarking on a trajectory of innovation-led growth.
Myth 3: Foreign investment is fleeing an isolated China.
No. Contrary to the familiar narrative, the much-hyped "decoupling" from China never materialized.
Despite a slight dip in 2023, China still attracted a whopping 1.13 trillion yuan in foreign investment, marking the third-highest influx in history. While labor-intensive industries saw an 8 percent decline, the high-tech sector poured in 423 billion yuan, up 1.2 percentage points from 2022.
Amidst the noise, Western media overlooked the surge of 53,766 new foreign-invested companies in China, a staggering 40 percent jump. While US investment waned, other developed economies like France and Sweden skyrocketed 25 times and 11 times. Germany, Australia, and Singapore upped their investments by 212, 186 and 77 percent respectively.
In 2023, bilateral trade between China and Europe was a staggering $1.2 trillion. Although it saw a slight 1 percent dip from the previous year, it remains the second-highest level in history. Meanwhile, trade between China and the US amounted to about $660 billion in 2023, marking an 11.6 percent decline from the previous year. Despite this drop, it stands as the third-highest figure in history, far surpassing the early stages of the US-China trade war that began in 2018.
These numbers underscore the deep interdependence between China and the West, illustrating that they remain intertwined stakeholders, defying attempts at decoupling.
For more anecdotal insights, many of us like to lean on those surveys issued by various countries’ chambers of commerce in China. They reveal that 80 percent of multinational companies express a desire to remain in China and are even ramping up their investments.
The majority of foreign firms report positive investment returns. But China's market is fiercely competitive. Some multinational corporations have withdrawn, not necessarily due to political reasons but rather because of the emergence of strong domestic enterprises in China. This adds nuance to the picture of China’s economy not likely appearing in the next “Peak China” article.
Contrary to the isolation advocated in the West against Chinese companies, China has consistently maintained an open and inclusive stance towards its Western counterparts. Chinese decision-makers rarely criticize or reject Western companies. On the contrary, it's not uncommon to see news of Chinese leaders engaging with Western companies, aiming to enhance the business environment and ensure social security. China boasts the world's most comprehensive manufacturing industry chain and consistently welcomes foreign investment. Opening up has become a national policy and has been written into the China Constitution.
Consider this: How many multinational companies would willingly forfeit access to the lucrative Chinese market?
Myth 4: China's unemployment rate will spark social turmoil.
Not at all. Political scholars generally assert that once unemployment hits 20 percent, a country faces social unrest. However, according to Chinese government data, the average urban unemployment rate in 2023 stood at 5.2 percent, a far cry from unrest.
With 1.4 billion residents, China needs to generate 12 million new jobs annually, especially to accommodate over 10 million college graduates. Despite recent economic downturns triggering layoffs, job losses don't necessarily translate to social upheaval.
Tackling unemployment ranks high on all levels of Chinese government agendas. In response, various employment assistance policies have been rolled out, from tax cuts to interest subsidies, aimed at mitigating job losses. Even as a university teacher, I actively assist graduates in job hunting.
Another new phenomenon that cannot be ignored is the rise of flexible employment in China. With the popularity of e-commerce and the rapid growth of the live broadcast economy, the number of Chinese freelancers is increasing. Some young people are sharing income from singing, speaking, shooting and travel on new media platforms. It is also creating new employment.
Furthermore, China's unique social safety nets offer relief, supporting young people to sustain themselves.
Having experienced the US during the 2008 financial crisis where the unemployment rate hit 10 percent, I witnessed beggars and job seekers lining the streets. By contrast, such scenes are rare in China, making notions of social turmoil idle speculations.
Myth 5: China's aging population spells economic decline.
No, not really. While China may be losing its demographic dividend, it's transitioning into a talent dividend.
The country's first negative population growth in 2022 sparked significant debate within Chinese society and prompted the government to expedite efforts toward an age-friendly economic transformation. This shift is poised to usher in a new wave of development in China.
Amid rising costs associated with childbirth, parenting and education, middle and high-income countries globally are grappling with declining birthrates and aging populations to varying extents.
While an aging population may diminish the labor force, it doesn't necessarily equate to a lack of economic momentum. China's response involves embracing AI and automation technologies to counteract these trends. Leveraging ultra-heavy drones, unmanned trucks and distribution robots, the country is automating numerous social service processes ‒ such as storage, picking, transportation, integration and delivery ‒ that were once reliant on human labor.
Moreover, China boasts a gross enrollment rate of higher education exceeding 55 percent, creating a vast reservoir of university-educated individuals who contribute to a talent dividend facilitating higher-quality social services.
Building upon this foundation, the aging of society has spurred a new wave of economic growth transformation. Estimates suggest that in China, the annual market size for health and wellness real estate, aging-friendly infrastructure renovation, health services, elderly entertainment, auxiliary supplies, healthcare and elderly insurance surpasses 10 trillion yuan, with an annual growth rate exceeding 15 percent.
Put simply, population welfare is more important than population size. Extending the retirement age from 60 to 63 or 65 has emerged as a common expectation for China's policy adjustments and a necessary step for addressing aging populations globally.
While an aging population does indeed introduce new development pressures, it's far from being an insurmountable obstacle to progress.
Myth 6: Chinese people lack confidence in the future.
Still confident. Remarkably, China stands as the only major economy in the last four decades to have neither initiated nor participated in wars. This peaceful external environment and stable domestic society form the bedrock upon which Chinese aspirations for a better life are built.
The majority of parents invest significantly in their children's education, hoping to secure a brighter future for the next generation. In East Asian societies, there's a shared emphasis on the pursuit of education for the next generation, fueling intense social competition compared to many other nations.
However, countries characterized by involution ‒ intensified competition for limited progress ‒ are often poised for new development breakthroughs. China's endeavors to catch up with developed countries in industries like aerospace, large aircraft, chips, shipbuilding and automotive manufacturing have borne fruit as the outcomes of involution.
It must be acknowledged that the prevalence of 1.1 billion internet users and new media can inundate the Chinese internet with diverse voices. The slowdown in macroeconomic growth and short-term fluctuations in the capital market have fueled complaints among the middle classes, contributing to a rise in annual emigration rates and shaking confidence in the country. But these issues have garnered significant attention from central decision-makers.
In fact, they can be seen as a new impetus for progress. The 45-year development journey of reform and opening-up follows a cycle of problem generation ‒ problem solving ‒ growth achievement ‒ new problem emergence ‒ problem resolution and new growth creation. And so on.
For those well-versed in Chinese history, the present era represents a pinnacle in the nation's 5,000 years of civilization. Bolstered by national resilience and economic potential, the Chinese people are navigating through the present challenges towards a brighter future. This outlook embodies both national rationality and a collective belief in the nation's enduring strength.
(Wang Wen is professor and executive dean at Renmin University of China’s Chongyang Financial Research Institute)