There are multiple explanations for China’s mediocre productivity performance – an ageing workforce, the slowdown in key export markets after the global financial crisis in 2008, and weak consumption growth.
Authorities have also sought to shift the economy away from less productive industries (such as property and traditional infrastructure), but they still account for a much larger share of economic activity than “new productive forces”. In other words, new industries are unlikely to make up for the contraction of traditional industries and the existing overcapacity will limit how much further their share can increase in the next few years.
HITTING THE LIMITS OF STATE-ENGINEERED GROWTH
There is little evidence that China will meaningfully rebalance its economy toward consumption.
The policies that are most needed to lift consumption structurally (instead of only for one or two years) – such as increased social spending in the countryside and hukou reform – have not materialised despite these ideas being raised repeatedly for over a decade.
Without these measures, continually boosting supply, is unlikely to make up for weak consumption growth, especially in an economy of China’s size.
China has shown that it can create globally competitive productive capacity, but it has not been able to create a matching appetite for what it produces. That remains its biggest economic challenge.
Donald Low is senior lecturer and professor of practice in the Division of Public Policy, Hong Kong University of Science and Technology. He is the author of The Price of Zero: China’s policy missteps during and after COVID (2025).