China's Industrial Might Outpaces Domestic Demand, The Economist Reports

China is navigating an economic paradox where industrial and commercial capabilities have expanded significantly, yet domestic demand remains insufficient to absorb the resulting production volume. This imbalance has increased the economy’s dependence on external demand to take up surplus output. At the same time, Beijing is pushing for investment in infrastructure and industry, a strategy that could support Chinese growth while impacting global supply chains and worldwide demand.

Convergence with US Economy Slows

The Economist reported that despite rapid advancements in industrial and technological sectors, China has not achieved the expected progress relative to the United States. The publication identified weak local consumption and the need to address the real estate market as primary challenges hindering consumer spending. Economists had previously projected that by 2026, China’s GDP would reach approximately 80 percent of the US figure when calculated at market exchange rates. However, the current reality places China’s economy at only about two-thirds of the American size.

Three years ago, the magazine discussed the concept of "Peak China," which hypothesized that the convergence between the Chinese and US economies might slow or halt. Subsequent developments have rendered this scenario less severe than initially anticipated. China has recorded notable progress in electric vehicles, robotics, and drones, demonstrating resilience during recent trade tensions with Washington. The country also plans to play a leading role in the next industrial revolution.

Infrastructure Investment Limits

The reception given to Chinese President Xi Jinping in Washington last September was interpreted within China as recognition of the nation’s status as a prominent economic power. Nevertheless, the Economist noted that the lack of expected progress toward catching up with the US economy indicates a slower convergence process than previous forecasts suggested, despite successes across various industrial and tech sectors.

While directing funds toward new infrastructure can benefit both the Chinese and global economies, it does not solely resolve the structural issue of weak domestic consumption. The report highlighted China’s growing reliance on foreign buyers for its products, arguing that boosting internal demand is an economic necessity rather than continuing to depend on overseas markets as the main outlet for production.

Housing Market Reform Key

The most effective response to this situation involves reforming the real estate sector and supporting consumer expenditure, thereby increasing local demand and granting it a larger role in sustaining economic growth. Addressing pressures within the housing market is considered fundamental to solving the consumption problem, as stabilizing this sector could help restore household confidence and spending capacity.

The core issue extends beyond the scale of investment or China’s ability to build more infrastructure; it concerns achieving a better balance between production and demand. A strong industrial base alone does not guarantee sustainable growth if it is not accompanied by robust local consumption. Consequently, the widening gap between earlier expectations regarding the size of the Chinese economy compared to the US suggests that the path to economic parity is no longer proceeding at the speed once believed possible.

China possesses a massive industrial and technological foundation, with clear advances in areas such as electric vehicles, robotics, and drones. However, these achievements do not eliminate the need to correct imbalances within the domestic economy. The publication concluded that China must do more to raise consumption levels, with real estate market reforms and consumer support representing the most direct responses to the challenge of relying increasingly on external demand to purchase its goods.