cross-posted from: https://mander.xyz/post/54281502
The Chinese government has paid little more than lip service to its greatest macroeconomic challenge.
[Op-ed by Stephen S. Roach, faculty member at Yale University and former chairman of Morgan Stanley Asia.]
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China’s efforts to rebalance its economy have been an abject failure. Nearly two decades after former Premier Wen Jiabao bemoaned the Chinese economy’s excessive dependence on investment- and export-led growth, the problem has gone from bad to worse. The lack of meaningful consumer-led rebalancing implies increased reliance on these time-worn sources of economic activity, raising critical questions for China and the rest of the world.
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It’s high time to face reality. China’s retail sales fell 0.6% ;year on year in May 2026, an unexpected drop following an anemic 0.2% increase in April, and the first monthly decline in three and a half years. Meanwhile, the latest reading of household consumption as a share of GDP is just 39.9%—virtually identical to the 2005 level (39.8%), which Wen had in hand when lamenting the “four uns” in early 2007. Given that the latest reading is from 2024, and that Chinese consumption showed continued weakness in 2025 and early 2026, there is good reason to believe that the economy’s current proportion of consumption has fallen below Wen’s 2005 benchmark.
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This inertia has two worrying implications. First, the Chinese people remain on the outside looking in. The state, state-owned enterprises, and private companies continue to reap a disproportionate share of the fruits of Chinese economic development. This calls into question the prospects for the continued growth of the middle class, long seen as the aspirational beneficiary of prosperity in the People’s Republic of China.
Second, subpar consumption suggests that China will continue to rely on exports and investment to drive growth, especially the technology-led “new quality productive forces” that Xi Jinping continues to underscore. Yes, China set a lower GDP growth target of 4.5–5% for 2026, roughly half the spectacular 9.3% growth trajectory from 1980 to 2020. But with China’s share of world GDP (in terms of purchasing power parity) nearly ten times bigger than it was in 1980, its exports now have a far greater impact on global GDP. By some estimates, China’s share of global manufacturing (in terms of value added) will rise from around 30% today to an astonishing 45% by 2030. The rest of the world is unlikely to be receptive to such an outcome, broadening the prospects of anti-China protectionism, from the United States to Europe.
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