China’s shift from growth to resilience is reshaping global trade, technology, energy markets, and geopolitical power.
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| Cover Image Attribute: Silhouetted figures beneath the Chinese flag in Beijing. Photo by Ran Liwen. / Source: Unsplash |
Yet recent years have exposed vulnerabilities. Domestic demand has weakened amid challenges in the property sector and pandemic-related disruptions, prompting a policy reorientation that prioritizes state-owned enterprises and technological self-reliance over the earlier reform-oriented framework associated with late Premier Li Keqiang. This evolution has coincided with profound demographic shifts. Births fell from more than 15 million in 2018 to 7.92 million in 2025, following a population peak in 2021 that has left the nation confronting an inverted age pyramid while still at middle-income levels, raising questions about long-term sustainability in a society aging before fully achieving developed status.
These pressures crystallized in the official data for 2025, released by the government in January 2026. Real gross domestic product growth was reported at 5.0 percent, outpacing the nominal rate of 4.0 percent for the third consecutive year, a pattern widely interpreted as evidence of entrenched deflation with no immediate end in sight. Government revenues, including tax income, declined 1.7 percent year on year, marking the first such drop since the onset of the COVID-19 pandemic in 2020 and casting doubt on the robustness of the headline figures. Independent assessments placed actual growth closer to 2.5 to 3.0 percent, with some analysts suggesting expansion had effectively stalled at near-zero levels. Nonperforming loans reached approximately 1.5 quadrillion yen equivalent, echoing the scale of bad debts that prolonged Japan’s post-bubble stagnation.
Social indicators underscored the strain. Youth unemployment rates exceeded 40 percent according to some economists, while anecdotal reports from ordinary citizens highlighted everyday hardships. One migrant worker described returning home early, noting, “There was no work and rent kept piling up, so I returned home before the Lunar New Year in February.” An employee at a smaller company recounted, “After not paying salaries for three months, the owner disappeared in the night.” A young job seeker added, “I’ve sent out over 100 resumes and didn’t get called for a single interview.” Such accounts, circulating on social media amid shuttered shops and empty malls, painted a picture of sluggish activity that contrasted with official optimism.
As the year turned to 2026, policymakers moved to address these challenges through a deliberate reorientation. The 15th Five-Year Plan for 2026 to 2030, formally adopted by the National People’s Congress earlier in March, outlined a blueprint centered on stability, risk management and supply-side reforms rather than broad-based demand stimulus. Targets included lifting annual research and development spending by at least 7 percent, expanding the core digital economy to 12.5 percent of gross domestic product, raising the share of non-fossil fuels in energy consumption to 25 percent and securing decisive breakthroughs in critical technologies such as integrated circuits, industrial machine tools, advanced materials and biomanufacturing. Urbanization goals aimed for 71 percent of residents by 2030, up from 67.9 percent the previous year, while fiscal policy maintained a deficit at 4 percent of gross domestic product and monetary measures retained flexibility through potential reserve requirement adjustments and interest rate tweaks. The plan also stressed high-level opening up to sustain external engagement, opposing protectionism, safeguarding the multilateral trading system centered on the WTO and deepening ties with the Global South via the Belt and Road Initiative (BRI) in sectors ranging from digital economy and artificial intelligence to green technology and health.
This framework represented a fundamental shift. As one assessment framed it, “This is not merely a policy adjustment; it is a fundamental great pivot from scale-driven expansion to substance-driven resilience.” The strategy rests on three pillars: bolstering domestic demand through expanded service consumption and a national unified market, advancing technological self-reliance in areas such as quantum computing, 6G and artificial intelligence, and accelerating a green transition to leverage advantages in renewables, hydrogen and energy storage. In essence, “China is attempting to redefine its role from a global supplier to a global stabiliser – a certainty anchor in an uncertain sea.” The approach seeks to foster innovation-driven growth, with the digital economy and emerging technologies expected to add trillions in value, while promoting overseas partnerships and renminbi internationalization to enhance financial connectivity.
Global trade dynamics in 2025 had already hinted at both strengths and tensions. Exports rose 5.5 percent in U.S. dollar terms despite headwinds, contributing to a record $1.2 trillion trade surplus as shipments to the European Union (EU) and Association of Southeast Asian Nations (ASEAN) increased while those to the United States fell 20 percent year on year. Yet this performance intensified competition, prompting responses such as Brazil’s imposition of anti-dumping duties on Chinese steel in February 2026 and concerns in Europe over market dominance. One observer noted of the EU context, “the issue is not only that China exports more. It is that China exports more of what Europe also produces.” Such developments underscored the plan’s emphasis on innovation in intermediate goods, services, digital trade and green sectors to navigate a fragmented global environment marked by disruptions to trade, energy markets and travel.
Resilience was further tested by external shocks. Amid a 50 percent surge in global energy prices linked to conflict involving Iran that drove Brent crude to $115 per barrel, analysts highlighted China’s structural advantages. A decade of preparation had lowered reliance on liquid fuels to 28 percent of primary energy consumption, compared with 40 percent in the United States and 44 percent in the EU. Renewable sources, including nuclear, wind, solar and hydro, now generate 40 percent of electricity, up from 26 percent a decade earlier, while strategic petroleum reserves total approximately 1.2 billion barrels, sufficient for more than 110 days without imports. Diversified supply lines with partners such as Russia, Australia and Malaysia provide additional buffers against chokepoints like the Strait of Hormuz. On March 30, 2026, Goldman Sachs strategist Kinger Lau observed, “China looks better placed than most in this oil shock,” trimming the country’s gross domestic product growth forecast by just 0.2 percent, the smallest revision in the Asia-Pacific region, versus a 0.4 percent cut for the United States.
The following day, March 31, 2026, brought confirmatory data from the National Bureau of Statistics (国家统计局). The manufacturing purchasing managers’ index rebounded to a 12-month high of 50.4, rising 1.4 percentage points from February and returning to expansion territory for the first time in months. The non-manufacturing business activity index edged up 0.6 percentage points to 50.1, with the service sector at 50.2 and construction at 49.3. High-tech manufacturing registered 52.1, sustaining 14 consecutive months above the boom-bust line, while key areas such as agricultural processing, non-ferrous metals, railway transport, telecommunications and financial services posted readings above 55.0. Chief statistician Huo Lihui attributed the gains to post-holiday recovery, stating, “The improvement came as companies resumed work and production following the Spring Festival holiday, boosting overall market activity.” He added that construction activity had similarly benefited from the gradual resumption of nationwide projects.
Deutsche Bank’s contemporaneous review of the economic directives reinforced the focus on pragmatism. The 2026 gross domestic product growth target was set between 4.5 and 5.0 percent, with consumer price inflation around 2 percent. Policies prioritize sectors aligned with national goals, including semiconductors, artificial intelligence, robotics, advanced manufacturing, the low-altitude economy involving drones and electric vertical takeoff vehicles, and green infrastructure such as energy storage and hydrogen. This supply-side orientation aims to generate low-volatility conditions favorable for bonds while creating equity opportunities in strategic areas, even as weak domestic demand and geopolitical challenges persist.
Independent analyses of cross-border effects underscore the stakes. Fluctuations in Chinese activity transmit more forcefully through trade linkages, with input-reliant economies and firms more exposed to supply shocks and output-reliant ones to demand slowdowns. At the firm level, both types of disturbances erode revenues and profits, with demand shocks exerting persistently larger impacts on export-oriented companies and supply shocks hitting importers harder. These dynamics highlight how China’s evolution could either anchor global stability or amplify disruptions, depending on the success of its internal rebalancing.
Nobel laureate Paul Krugman captured the prevailing skepticism in 2023 when he wrote, “some have been asking whether China’s future path might resemble that of Japan. My answer is that it probably won’t — that China will do worse.” The combination of deflationary forces, demographic contraction and questions over the efficacy of state-first policies has indeed evoked comparisons to Japan’s lost decades, potentially extending for 30 years or longer if bad debts and subdued demand prove intractable. At the same time, the latest indicators and the five-year blueprint suggest a measured pivot toward substance, innovation and resilience that could mitigate these risks while sustaining China’s role as a global growth contributor.
Whether this reorientation will deliver sustained expansion or encounter the limits of structural constraints remains an open question. The interplay of domestic reforms, technological ambitions and international spillovers will shape not only China’s trajectory but also the broader contours of global trade, investment and economic security in the years ahead. As policymakers steer between stability and ambition, the world watches to see if substance can indeed supplant scale without sacrificing momentum.
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