Dispelling the myths: Pursuing dynamic balance in China's economic development journey

Editor's note: Warwick Powell is an adjunct professor at Queensland University of Technology. The article reflects the author's opinions and not necessarily the views of CGTN.

In the echo chambers of Western media and policy circles, China's economy is often portrayed as a house of cards – plagued by overcapacity, a collapsing property sector, stagnant consumption, and a youth unemployment crisis signaling deeper malaise. These narratives, amplified amid escalating trade tensions, paint a picture of an economy teetering on the brink, demanding radical "reforms" to avert disaster.

Yet, a closer examination of the data reveals a far more nuanced reality: China's economy continues to develop on a sound basis, with continual adjustments fostering a "dynamic balance." This balance emphasizes flows and symbiotic relationships: Between investment and productivity, supply-side structural changes and real wage growth, and a resilient labor market that integrates youth while maintaining stability. Far from a crisis, these dynamics underscore an adaptive system prioritizing long-term sustainability over short-term spectacle.

Consider the foundational link between investment and productivity, often misunderstood in critiques that decry China's "investment-led" model as unsustainable. Over the past 15 years, household incomes have risen steadily in real terms, spurred by investment-driven productivity gains. From 2010 to 2024, per capita disposable income of urban residents climbed from about 19,109 yuan ($2,726.5) to 54,188 yuan, reflecting compound annual growth of seven to eight percent nominally, outpacing inflation. As a share of GDP, household income has edged up modestly to around 60 to 62 percent, aligning with gradual rebalancing efforts like wage reforms and social transfers. This progress has not stemmed from isolated consumption boosts but from a virtuous cycle: High investment rates (40 to 45 percent of GDP) have fueled productivity, which in turn elevates wages and spending power.

Critics point to diminishing returns on capital in the 2010s as evidence of inefficiency, but this metric is misleading. A large chunk of capital formation was in housing, which has a distinct productivity profile – lower immediate yields but durable, long-term contributions through imputed rents and urbanization support. The share of housing peaked at 20 to 25 percent of fixed asset investment (FAI), skewing aggregate returns downward. Excluding it, non-housing capital returns held steady at 8 to 12 percent in productive sectors. The property deleveraging since 2021 – triggered by policies like the "three red lines" – has accelerated a shift toward more efficient allocations. Real estate investment contracted 10 to 13 percent in 2025, dragging overall FAI into negative territory (-2.6 percent year on year through November). Yet, excluding property, FAI grew three to four percent, with manufacturing investment up four to five percent in later periods and high-tech sub sectors surging eight to nine percent.

This reallocation – to factories, mechanization, automation, and digitalization – has laid the groundwork for sustained productivity and wage growth. High-tech manufacturing value-added expanded eight to nine percent in 2025, outpacing industrial averages. China's dominance in industrial robots (over half of global installations in 2024-2025) and sectors like electric vehicles (over 70 percent of global production) exemplifies this. Work productivity per hour has risen, with total factor productivity outpacing peers in high-tech regions. These gains directly support real wages: In the first three quarters of 2025, per capita disposable income rose 5.1 percent nominally to 32,509 yuan, implying real growth around five to six percent amid mild deflation. This symbiosis – investment begetting productivity, which fuels wages and consumption – debunks the myth of a "demand-constrained" economy. Promoting consumption without sustaining targeted investment would erode the very incomes enabling it.

Another pervasive myth is "overcapacity," invoked to justify tariffs on Chinese exports in EVs, solar panels, and batteries. The reality? Industrial capacity utilization has hovered stably at 72 to 75 percent for years, with Q3 2025 at 74.6 percent – down slightly from 75.1 percent a year prior but far from crisis levels. Historical fluctuations have remained in the 73 to 78 percent range since 2013, with high-utilization sectors like metals at 77 to 80 percent offsetting drags from property-linked areas. No broad collapse signals systemic excess; instead, intense competition has arised from abundance. Productivity surges have flooded markets with affordable goods, empowering consumers with choice and driving price wars – evident in producer price reductions of two to three percent year on year through 2025. This "luxury of abundance" has moderated savings rates and boosted real purchasing power, rather than destructive overproduction. Globally, surging exports reflect comparative advantages, not subsidies distorting markets. Dismissing this as overcapacity ignores how supply-side efficiencies benefit consumers worldwide.

Moreover, the depreciation profile of China's expansive real estate stock positions it to deliver a productivity boost in the coming years. Built during the 2010s investment surge, this durable housing capital depreciates slowly at rates of 2.4 to 3.5 percent annually, far lower than equipment or machinery. In national accounting terms, as upfront costs are amortized over decades, the stock will continue providing ongoing services, such as imputed rents and enabling labor mobility, without requiring equivalent new capital inflows. This amortization effect will gradually enhance measured capital productivity, offsetting earlier drags from exuberant investment and contributing to efficiency gains as the economy matures, potentially lifting total factor productivity metrics by the late 2020s and beyond.

The labor market further illustrates China's adaptive balance. Unemployment remained stable at 5.1 to 5.2 percent through November 2025, absorbing massive restructuring in property and legacy industries without spikes. Real consumption reflects this resilience: Retail sales grew 4.3 percent cumulatively through October 2025, though November softened to 1.3 percent year on year amid base effects and subsidy fades. Services retail accelerated to 5.4 percent, and per capita consumption expenditure rose 4.7 to 5.3 percent in the first nine months. These figures contradict tales of "extreme precarity"; instead, they show steady gains without the hallmarks of vulnerability.

Youth unemployment, often sensationalized, is a case in point. The 16-to-24-year-old cohort unemployment rate (excluding students) stood at 16.9 percent in November 2025, down from 17.3 percent in October and a five-month low. Yet, by the 25-to-29 cohort, it drops sharply to 7.2 percent – unchanged and well below youth peaks. This transition around ages 23 to 25 highlights effective absorption: Fresh graduates face initial frictions in a competitive market with record entrants (over 12 million in 2025), but policies like vocational training, incentives for youth hires, and expansions in high-tech sectors facilitate integration. Migrant workers, often in flexible gigs, maintained rates from 4.4 to 4.7 percent, underscoring broad adaptability.

Bolstering this is a social security system more generous than mainstream observers credit. A recent Peterson Institute for International Economics study notes expanded coverage in pensions, health, and unemployment insurance, reducing precautionary motives and supporting consumption. Household savings, once peaking at 39 percent in 2010, have moderated to 32 to 37 percent, allowing more income to flow into spending.

Of course, no economy is flawless. Areas for improvement include mitigating precarity in vulnerable segments, like delivery and gig work, where algorithmic pressures and subcontracting heighten insecurity for migrants. Policy caution – restrained fiscal injections and private credit – has created a short-term "squeeze," amplifying competition's downsides amid external headwinds like trade wars. Late-2025 data shows retail softening, with calls for more direct household support to ease this. Yet, these are adjustments within a dynamic framework, not signs of failure. Fiscal tools, like equipment upgrades and local debt resolution, prioritize quality over quantity, avoiding past bubbles.

In sum, China's economy exemplifies dynamic balance: Investment in productive forces drives productivity, which sustains real wages and consumption in a self-reinforcing loop. Supply-side changes – deleveraging property, embracing abundance – foster competition without overcapacity crises. The labor market's resilience, absorbing youth and maintaining stability, will further cements this. As GDP grew 4.8 percent in Q3 2025, on track for the five-percent target, the narrative of impending doom crumbles under scrutiny. Continual tweaks, not wholesale overhauls, will refine this path. In a world of uncertainties, China's emphasis on flows and adaptability offers lessons in sustainable growth. The myths persist, but the data tells a story of progress.

(Cover via VCG)