Common Misconceptions About the Chinese Economy
Over the past few weeks, I keep running into several pervasive myths about China’s economy. Many see these narratives as undeniable facts, despite being deeply flawed. Here are three of the most common misconceptions and why they don’t hold up under scrutiny:
1. “Never Bet Against China”
This mantra, popularized by decades of China’s rapid growth, asserts that anyone betting against China is doomed to fail. The argument rests on the premise that because skeptics were proven wrong during the decades of China rise, they will continue to be wrong today.
This is illogical. It assumes the past guarantees the future, ignoring fundamental changes in China’s economic, political, and global environment. Betting against China during its reform-and-opening era—a time of low-hanging fruit, favorable demographics, and integration into the global economy—was a very different proposition than evaluating its prospects today, where many of those tailwinds have become headwinds. Assuming history moves in straight lines is simple ignorance.
2. “New Industries Will Keep China Growing Strong”
The rise of China’s “new three”—electric vehicles, lithium-ion batteries, and solar panels—is often touted as proof of its ability to innovate and maintain strong growth. While these industries have shown remarkable growth, they remain a small part of the overall economy, accounting for less than 10% of GDP.
Meanwhile, the broader picture is bleak: investment and domestic consumption, two of the three growth engines of China, are contracting. The idea that these emerging sectors can offset the structural decline in real estate and the associated wealth effects is wishful thinking. The math simply doesn’t add up.
3. “If Only the Chinese Government Would Launch a Big Stimulus Plan”
This belief stems from the memory of China’s 2008-09 stimulus, which successfully shielded its economy from the global financial crisis. But the situation today is fundamentally different.
China’s growth model—built on relentless investment, cheap labor, and export dominance—has run its course. Domestically, the country is over-invested, heavily leveraged, and constrained by Xi Jinping’s return to centralized control, reminiscent of Mao’s era. Internationally, the geopolitical environment has shifted. Favorable conditions like unfettered access to Western markets and global supply chains are no longer guaranteed.
Consider the numbers: China accounts for roughly a third of global manufacturing and 14% of global exports. By contrast, the U.S., the second-largest manufacturer, produces 16% of global goods and exports 7%. This dominance is now meeting stiff resistance. With global demand weakening and Western nations actively diversifying supply chains, China’s manufacturing machine is running into a wall. A stimulus might provide temporary relief, but it won’t solve the structural challenges.
The Bottom Line
These misconceptions persist because they are comforting. They allow observers to believe that China’s economic juggernaut will roll on indefinitely, just as it had in past decades. But the reality is more complex—and more sobering. China’s economic challenges are structural and deep-rooted, and simplistic narratives are often misleading.