The country’s dependence on investment and exports is threatening its economy at home and affecting prices worldwide.
China is a nation of thrifty savers rather than prosperous consumers. Chinese people have yet to spend freely and enjoy the fruits of their hard work in line with their peers in other emerging market economies.
Low consumer spending has left China dependent on repeated fiscal and monetary stimulus policies that create asset bubbles and on exports that pit the country against its major trade partners.
It’s been almost five decades since a dose of capitalism injected into a Soviet-style central planning system put China on the path to becoming the world’s second-largest economy. Per-capita GDP jumped from a couple hundred dollars at the end of the Maoist era to around $13,000 in 2024.
Despite a growing per capita GDP, China has yet to become a consumer society, as has been the case with the world’s largest economy—the United States—and other emerging market economies.
In 2023, China’s consumer spending accounted for 39.2 percent of GDP, up slightly from 35.6 percent a decade ago. Meanwhile, consumer spending is 67.8 percent of GDP in the United States, 63 percent in Brazil, 60.4 percent in India, and 52.7 percent in the European Union.
Low consumer spending has left the Chinese economy relying on other sources of growth. One is private investment spending on building homes, apartment complexes, and commercial centers. Another is government spending on infrastructure, including highways, railways, ports, and airports.
While some of these types of spending are necessary for an emerging economy trying to transition to a developed economy, they need to be better balanced, as evidenced by the scores of ghost buildings, ghost airports, and ghost highways. They are built by state-owned construction companies and financed by state-owned banks to keep the economy growing rather than to serve the genuine needs of the Chinese people.
A third source of growth for the Chinese economy is international trade—exports of goods and services to the country’s two largest markets, the United States and the European Union. In 2022, China’s trade as a percentage of GDP was 38.35 percent, up from 35.89 percent in 2019, compared to 27.04 percent for the U.S., 46.84 percent for Japan, and 49.97 percent for India.
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