Opinion | More abundance, less prosperity: why 2 Chinas are emerging
China’s 15th five-year plan doubles down on investing in technology at the expense of household wealth
SCMP
Published: 5:30am, 12 Mar 2026
For observers accustomed to a market economy, China’s can look like a contradiction. On the one hand, it is an unstoppable juggernaut, a manufacturing superpower with a US$1 trillion-plus trade surplus demonstrating its prowess and leverage across supply chains.
China is also moving up the value chain, producing steel and widgets while also leading the world in solar panels, electric vehicles and the batteries that power them, industrial robots and more. China is even close behind or on par with the United States in biotechnology and artificial intelligence foundation models.
On the other hand, the costs of this tech and export dominance are increasingly apparent. The wealth of households suffers with falling real estate values, recent graduates face a market with 17.8 per cent youth unemployment as of last summer, wages are falling, deflation is growing and an estimated 12 per cent of registered companies are “zombies”.
These phenomena have given rise to a new lexicon in China: “involution” or increasingly intense competition for a shrinking pie; “lying flat” or giving up on the grind and consuming little; “letting it rot”; and “human ore” or treating workers as a resource to be depleted and then discarded. This bifurcated economy is like an anorexic body, eating its own organs – household wealth, in this case – to sustain the political goals of technological prowess.
Some observers have highlighted a greater emphasis on consumption at this year’s “two sessions”. I am curious about the extent to which continued anaemic household wealth gains will affect China’s capacity to invest in technological innovation so extensively. The key question is: how sustainable is it for these two Chinas to continue to exist, particularly since the anorexic economy serves as the foundation of the juggernaut via subsidies, talent pipelines and income transfers from households?
Can China indefinitely build and lead in increasingly sophisticated technological industries without growing wealthier? The 15th five-year plan and accompanying reports from the two sessions certainly assume so. The government work report highlights 800 billion yuan (US$116.5 billion) in new “policy-backed” financial instruments. Caixin estimates that this could generate 9 trillion yuan in new lending. This lending will be distributed per the priorities outlined in the five-year plan, including accelerating technology self-reliance and leading the development of new quality productive forces.
A woman walks inside a shop in Shanghai on March 10. On the one hand, China is a manufacturing superpower with a US$1 trillion-plus trade surplus. On the other hand, household wealth is suffering with falling real estate values, wages are falling and deflation is growing. Photo: EPA
There is only one section directly focused on consumption. While discussions of self-sufficiency and industrial policy in the plan include concrete investment figures, those involving consumption contain vague language. In other words, the government will continue to invest heavily in AI and other technologies, but improving household wealth is low on the list of priorities. How much longer can China pour resources into industrial policy without growing returns for the larger economy?
Globally, an increasing number of countries do not want to pay for China’s economic choices. They do not want to lose their own manufacturing capacities or become “involuted” themselves. Facing growing challenges, China’s tech champions will remain competitive but find it increasingly difficult to export the costs of China’s economic model as well as accrue the capital needed for research and development, risk-taking and paying for the best talent. They might even take bolder steps that go against the mandates of government regulators, such as rushing initial public offerings, as long as they can get away with it.
Inside China, the impacts of this bifurcation are felt by everyone. There is growing inequality, particularly between the more prosperous provinces and those with growing debt and falling populations. President Xi Jinping highlighted this in his breakout meeting during the two sessions: he emphasised that powerhouse provinces like Jiangsu need to take the lead navigating the current economic environment.
This problem is not just about inequality: even successful tech companies are investing more, in terms of both capital and people, for smaller returns. For sectors in which China is at the cutting edge, Chinese production now vastly exceeds domestic demand in ways that are affecting sales. For example, electric vehicle sales have dropped significantly.
China’s talent pipeline of the last decade has produced arguably history’s largest cohort of skilled, entrepreneurial people. However, this cohort will continue to face fewer opportunities to realise that talent and fewer opportunities to get wealthy and build companies or lives that are outside the imagination of state planning. This will be bad for the world as technological advancements everywhere are likely to require more talent as well as more wealth to produce and incentivise said talent.
This is all before the demographic time bomb starts to take effect. While China’s economy is unlikely to collapse, the country could lose the capacity to compete in developing many different emerging technologies at the same time. Its manufacturing prowess will remain, but we could start to see strategic retreats from certain sectors and technologies that are more investment-heavy.
These dynamics have implications for the world. First, China will continue with its approach of massive subsidies for the near future. Second, China is likely to remain export-dependent. Rebalancing towards consumption would ease global tensions, but doing so requires undoing the engine of China’s tech and manufacturing prowess, a political decision that leaders are unwilling to make.
Third, other governments should be clear-eyed about the nature of economic engagement with China. Trade that generates positive externalities such as local investment, employment, skills and infrastructure will be more sustainable than relationships based solely on access to low-cost goods.
Finally, the “two Chinas” bifurcation reiterates an important dynamic: wealth creation is not just a normative goal of good government but also an indicator of national power. China is devoting unprecedented investments to leading emerging technologies and is likely to continue to do so for some time. However, it will also face two growing pressures: domestic challenges from low consumption and international resistance to its increasingly export-driven economic model.
The world should not underestimate China’s strengths, but neither should it assume that manufacturing dominance automatically translates into sustainable economic power. The durability of China’s rise will depend not only on what it produces, but on whether its citizens share fully in the prosperity that production is meant to create.