How Should the Chinese Economic Situation Be Viewed?

A sound understanding of the economic situation is a fundamental prerequisite for accomplishing work in the economic field. Given its complexity, how should the present economic situation in China be viewed? This issue has garnered attention both at home and abroad. If we are to cut through the layers of fog to grasp objective development laws, pinpoint overall trends, and draw the correct conclusions, the guidance of well-founded theories is essential. Since the 18th National Congress of the Communist Party of China (CPC) in 2012, Xi Jinping, as CPC Central Committee General Secretary and President of China, has used the basic theories and methodologies of Marxist political economy to analyze the economic situation and discern overall trends based on both history and the present reality, theory and practice, and the domestic and international contexts. In doing so, he has put forward systematic expositions regarding the major question of how the economic situation should be viewed in the present era. This has provided a sound basis for determining how we should proceed with economic work and deepened the CPC’s understanding of the laws underlying China’s economic development. These insights are an important component of Xi Jinping thought on the economy.

I. We must determine where the Chinese economy stands and the changes it has experienced based on historical, present, and future trends and understand the new features and requirements arising from the evolution in the principal challenge facing Chinese society

The CPC must have an accurate understanding of the historical stage that the cause of the Party and the people occupies, as this is the basis for determining the central task at each stage and setting the guidelines, principles, and policies for work. Following the 18th CPC National Congress, the CPC Central Committee with Xi Jinping at its core conducted an in-depth analysis of the new development conditions facing China. It reached the conclusion that the principal challenge in Chinese society had evolved and emphasized that socialism with Chinese characteristics had crossed the threshold into a new era. At the same time, China’s economic development also entered a new era, the defining feature of which is a shift from high-speed growth to high-quality development. By clarifying the features of China’s current stage of economic development, the Central Committee provided the fundamental basis for correctly analyzing the economic situation and formulating economic policies.

In this new stage, the evolving economic situation is primarily characterized by a transition from high-speed growth to medium-to-high-speed growth. Following the initiation of reform and opening up in 1978, China embraced an extended period of rapid economic expansion with annual growth approaching or reaching double digits. This gave rise to China’s economic growth miracle. Between 1979 and 2012, the economy grew at an average annual rate of 9.9%. However, on entering a new stage, the pace of growth has moderated considerably. Between 2013 and 2022, the average annual growth rate was 6.2%, and during the three years of the Covid-19 pandemic, it was 4.5%. What precipitated such a pronounced shift? Though the causes are many and varied, it is clear that this change is not a cyclical fluctuation but a long-term trend. This trend reflects the evolution in the principal challenge facing Chinese society and the fact that China’s development stage, environment, and conditions have all changed. Moreover, it reflects the underlying logic of China’s economic development.

On the one hand, following more than three decades of high-speed growth, China’s economy is facing an array of new issues. Labor costs have risen, the carrying capacity of our environment and natural resources has reached a limit, problems with economic flows have become more pronounced, and the growth of international market demand has slowed. All this has necessitated a shift away from the extensive development model to the pursuit of a more reasonable rate of growth so that economic development is sustainable. If we were to adopt stimulus policies for short-term growth in such a situation, we would only be eating away at the prospects for growth tomorrow.

On the other hand, economic development tends to unfold in an upward spiral, where quantitative accumulation must lead to qualitative advancements once a certain threshold is reached. With the evolution of the principal challenge in Chinese society, the development challenges and problems we face are predominantly quality-related. This requires us to shine the spotlight on the quality and efficacy of our development. It means we must move faster to transform our growth model and adjust the economic structure in order to enhance development quality and efficacy. This will ensure that we can meet the people’s growing needs for a better life and advance China’s transition from a large economy to a strong economic nation.

It is thus clear that the change in the rate of growth is an inevitable reflection of the features of China’s economic development at this stage. It is not something that is subject to individual will. Instead, it must be understood in an objective and rational light and should serve as the basis for correctly formulating policies. Any analysis of the economic situation must be based on actual reality rather than subjective desire.

The key to accurately understanding the stage-specific characteristics of economic development and changes in the economic situation lies in grasping the principal problem. The principal challenge in economic development varies according to the development stage. The principal challenge in Chinese society has now become that between the people’s growing needs for a better life and unbalanced and inadequate development. Consequently, in the current stage, the principal challenge in economic development is structural in nature, while also featuring aspects relating to aggregate volume, cyclical changes, and institutional issues. These elements are all intertwined, making the picture quite complex. When analyzing the economic situation, we must firmly grasp the evolution in the principal challenge facing Chinese society and the fundamental fact that China has entered a stage of high-quality development. We must put the focus on our efforts to resolve the issue of unbalanced, inadequate development and problems relating to the quality and efficacy of development. Only then can we make an accurate assessment.

Workers install the components of a wind turbine hub at a wind and solar power project, which has a hydrogen energy storage capacity of one million kilowatts, Fengning, Chengde, Hebei Province, January 12, 2024. Once completed, the project is expected to produce 1.8 billion kilowatt-hours of green electricity annually and cut carbon dioxide emissions by about 1.4 million tons. XINHUA / PHOTO BY WANG LIQUN

Put another way, in this new stage of development, to determine whether the economy is doing well or not, we must go beyond aggregate volume and rate of growth. We must see if the engines of development are robust and if the economic structure is rational. We must consider whether the drivers of innovation are stronger, development is more balanced, the foundation for green development is more solid, the standard of opening up is improved, and people’s wellbeing and happiness are higher. Ultimately, we must regard high-quality development as the paramount principle of the new era, fully and faithfully apply the new development philosophy, and promote effective qualitative improvements in the economy as well as reasonable quantitative expansion. It should be noted that behind the shift in the economic growth rate, great changes have unfolded since entering the new era. As a result, China has enjoyed much higher-quality growth and has embarked on a more efficient, fairer, more sustainable, and more secure high-quality development path, with high-quality development becoming an irreversible long-term trend. This is the fundamental point we must bear in mind when attempting to accurately assess the current economic situation.

Tourists enjoy the nighttime scenery along the Gongshui River in Xuan’en County, Enshi Tujia and Miao Autonomous Prefecture, Hubei Province, February 11, 2024. China has continued to prioritize the recovery and expansion of consumer spending, rolling out a series of policies to stimulate consumption. XINHUA / PHOTO BY SONG WEN

II. We must view the economic situation through a holistic, dialectical, and long-term lens and understand that the fundamentals underpinning China’s long-term economic growth have not changed and will not change

At the fundamental level, when analyzing the economic situation, we must adhere to the basic stances, viewpoints, and methods of Marxism. We need to penetrate beyond surface phenomena to reveal the underlying essence and beyond short-term variations to discern long-term trends. We must grasp the objective laws of economics and recognize the inevitable trends they dictate for economic development. We must employ a holistic, dialectical, and long-term lens to identify underlying development trends and avoid being constrained by momentary fluctuations or becoming fixated on short-term gains and losses. This will ensure we always maintain firm strategic resolve.

So, what particular conclusions can we draw if we use just such a lens to examine China’s economy? We will draw the same conclusions that President Xi has repeatedly stressed: the basic features of China’s economy—its abundant potential, robust resilience, ample room for maneuver, and a wide array of policy tools—remain unaltered, and the fundamentals underpinning China’s long-term economic growth have not changed, nor will they.

Facts are the most persuasive form of proof. In the current era, we have continued to build on the miracle of rapid economic growth following the founding of the People’s Republic of China in 1949, particularly the advent of reform and opening up in 1978. China’s gross domestic product (GDP) has more than doubled, soaring from 54 trillion yuan in 2012 to 120.5 trillion yuan in 2022. Per capita GDP has climbed from US$6,300 to US$12,700, placing China in the ranks of upper-middle-income nations. Turning to the growth rate, between 2013 and 2022, China posted an average annual growth of over 6% and even maintained an average annual growth of 4.5% during the three years of Covid-19. In both cases, it significantly surpassed the global averages for the same periods, placing it at the forefront of the world’s major economies.

The year 2023 marked the first year of economic recovery and development for China after three years of Covid-19 response. In spite of persistently sluggish global economic growth, China’s economy achieved overall recovery and improvement. GDP in 2023 surpassed 126 trillion yuan, with economic growth reaching 5.2%. With China contributing one-third of the world’s economic growth, it remains the greatest driver of global economic development. In short, compared to other major global economies, China continues to lead the way in terms of economic growth rate. Relative to the past, meanwhile, China’s primary economic and social development indicators have seen a marked improvement, with the economy achieving stable and consistent growth to ascend to a higher level. Having navigated major challenges, the Chinese economy has emerged stronger and more resilient. This is an important embodiment of the transition to a new stage of high-quality economic development.

To be more specific, the good in China’s economy is evident not only in quantitative measures but, more significantly, in qualitative aspects. Consider the economic structure. The added value of high-tech manufacturing as a share of the total added value of large industrial enterprises has been rising steadily, climbing from 9.4% in 2012 to 15.5% in 2022. In the Global Innovation Index 2023, China ranked 12th in innovation capacity, making it the only middle-income economy in the top 30 and placing it among the world’s most innovative nations. In terms of coordinated development, the contribution of the central and western regions to China’s GDP has increased from 21.3% and 19.6% in 2012 to 22.1% and 21.4% in 2022, respectively. Moreover, the income gap between urban and rural residents has continued to narrow. With respect to green development, China has maintained an economic growth rate of over 6% for the past decade while limiting the average annual increase in energy consumption to just 3%. This has enabled it to achieve one of the fastest reductions in energy consumption intensity worldwide. In terms of open development, China has become a major trading partner for over 140 countries and regions. It has led the world in the total volume of imports and exports for several consecutive years, and its levels of inbound and outbound foreign investment rank among the highest in the world. With regard to shared development, between 2012 and 2023, the per capita disposable income of urban and rural residents rose from 16,500 yuan to 39,200 yuan, essentially increasing in step with economic growth.

It is fair to say that the characteristics of this stage of high-quality development are becoming clear for all to see. The drivers of high-quality development are growing more robust, and high-quality development is now advancing at a more consistent pace. In the face of such historic economic achievements, theories talking down the Chinese economy, such as “peak China” and “China collapse,” are groundless and easily debunked.

Why do we emphasize that the underlying trend of long-term economic growth will not change for the Chinese economy? This is because there are many favorable conditions and strengths that China enjoys in economic development, including solid foundations to support long-term growth. These strengths and foundations fundamentally reflect the objective laws governing socialist economic development with Chinese characteristics.

President Xi has systematically expounded on this matter from multiple perspectives. In an interview in June 2019, he pointed out that China enjoys an abundance of favorable conditions for supporting stable, healthy, and sustainable development in four respects: resource potential, endogenous growth drivers, development vitality, and regulatory capacity. During the annual sessions of the National People’s Congress and the Chinese People’s Political Consultative Conference in March 2022, he further stressed that several favorable strategic conditions underpinned China’s development, namely, the strong leadership of the CPC, the significant institutional strengths of Chinese socialism, the solid foundation laid by China’s sustained and rapid development, long-term and enduring social stability, and a powerful drive that fills us with confidence and strength. During a speech at the APEC CEO Summit in November 2023, he pointed out that “China enjoys distinct strengths such as a socialist market economy in systemic terms, a vast market to drive demand, a complete industrial system for ensuring supply, and a huge and high-caliber force of workers and entrepreneurs in terms of human resources. China’s economic development is underpinned by great endogenous drivers, resilience, and potential.”

In terms of politics, institutions, public support, foundations, development, demand and supply, human resources, and many other areas, China enjoys a comprehensive set of distinctive strengths that reinforce and amplify each other. It is these strengths that have resulted in China’s remarkable economic achievements. Now at a new starting point, these favorable conditions and strengths, given their vast potential and momentum, will undoubtedly spur China toward new economic miracles on the path of high-quality development. They are a source of confidence and assurance for China’s economic growth over the long term.

The BYD Explorer No.1 roll-on/roll-off ship arrives at Xiaomo International Logistics Port in Shenzhen, Guangdong Province, January 14, 2024. In 2023, China’s exports of the “new trio,” namely, electric vehicles, lithium-ion batteries, and solar batteries, exceeded one trillion yuan for the first time, highlighting the new strengths of Chinese manufacturing. XINHUA

III. We must ground ourselves in the domestic context while maintaining a global outlook and understand how China is affected by the complex international landscape

The China of today is inextricably linked to the rest of the world. Against a backdrop of deepening economic globalization, China’s ongoing expansion of opening up, and more intense international competition, accurately comprehending China’s economic landscape requires a global vision, with consideration for both domestic and international imperatives. We need to situate our economic development within the overall context of global political economy, thoroughly analyzing shifts in the external environment and identifying underlying development trends based on the interplay between China and the world.

Far-reaching shifts in the external environment are having a profound bearing on China’s economic development. First, the development gap continues to grow, as multiple crises concerning food, energy, and debt have emerged at the same time. The global economic recovery has proved a difficult process, with momentum for growth flagging. Second, a backlash against economic globalization has emerged. The Cold War mentality, hegemonism, unilateralism, and protectionism are all on the rise, and the stability of global industrial and supply chains has been undermined. Third, geopolitical turbulence and regional conflicts have become more frequent. Regional hotspot security issues are emerging one after another. Global issues are also intensifying, and profound adjustments are taking place in the international economic, technological, cultural, security, and political domains. For China, all this inevitably means more headwinds and adverse currents in the external environment. The fact that we are pursuing development in a more unstable and uncertain world is an important factor we must consider when assessing the economic situation.

For example, flagging global economic growth and the contraction of external demand have greatly affected China’s export trade. Additionally, certain countries have overstretched national security concerns and politicized and weaponized economic, trade, and technological exchanges. They have pursued a “high-fence, small-yard” approach and instigated decoupling and supply chain disruptions, all of which have impacted Chinese participation in the global division of labor and development in the global market. The trends of localization and regionalization in global industrial and supply chains also have the potential to reduce the role played by China in these chains. In the face of these challenges, we must remain mindful of potential dangers, be prepared for worst-case scenarios and extreme situations, and ensure we have the ability to withstand high winds, choppy waters, and even dangerous storms.

Our understanding of the current economic situation should also be underpinned by a spirit of self-confidence and self-reliance. As President Xi has aptly observed, China’s economy is a vast ocean, not a small pond. While fierce storms can overwhelm the pond, they hold no sway over the ocean.

The external environment has indeed become more complex and severe, and the risks and challenges have risen notably. But this has done nothing to change the resilience and momentum of the Chinese economy, nor has it weakened China’s position in and contribution to the world economy. In fact, amid these rapid global changes and deeper interactions between the domestic and international landscapes, China’s economy has actually become more competitive, and its strengths have become more obvious.

China’s economic aggregate, as a share of the global economy, has surged from 11.3% in 2012 to over 18% in 2022, with the average annual contribution to global economic growth exceeding 30%. China is playing a more pivotal role in global industrial and supply chains. Between 2012 and 2023, its share of the global manufacturing value added surged from 22.5% to nearly 30%. It leads the world in terms of manufacturing scale and production volume for a wide range of industrial goods. It is becoming a primary source of investment for a growing number of countries. Where once China was a passive recipient and proactive adherent to international economic and trade rules, it is now steadily becoming an important participant in formulating these rules. As the world’s largest exporting nation, China provides a vast array of high-quality, affordable goods to countries across the globe. The facts have proven and will continue to prove that China has always been and will remain a crucial driver of global openness, a steady source of power for world economic growth, a vibrant and expansive market for countries to explore business opportunities, and an active contributor to the reform of global governance.

IV. We must recognize the dual nature of every issue by acknowledging difficulties and challenges as well as strengths and opportunities and work to foster new opportunities amid crises and open up new horizons on a shifting landscape

To conduct a sound analysis of the economic situation, we must adopt a dialectical approach to understand both sides of this issue. We must acknowledge the difficulties and challenges working against us, but also appreciate the favorable conditions at play on the domestic and international landscapes to identify strengths and opportunities.

Since the 18th CPC National Congress, the economic terrain, both domestically and internationally, has been characterized by profound complexity. The multitude of circumstances, difficulties, and challenges that have emerged are unparalleled since the inception of reform and opening up. Attuned to the shifting development environment, the CPC Central Committee led by Xi Jinping has squarely confronted the difficulties and challenges in China’s economic development and has put forward a series of important conclusions: It has highlighted the prominent gap between China’s excess production capacity and its need for an upgraded demand structure, the lack of endogenous growth drivers, and the glaring problems of imbalanced, uncoordinated, and unsustainable development. It has noted that China is navigating overlapping structural, institutional, and cyclical problems, and that it is in a period where it must simultaneously deal with a growth slowdown, painful structural adjustments, and the effects of past stimulus policies. It is also facing an increase in global turbulences and risks. The Central Committee has also underscored that China is under economic pressure from the triad of contracting demand, supply shocks, and weakening expectations, and confronted by an increasingly complex, severe, and uncertain external environment. At the Central Economic Work Conference in December 2023, it was pointed out that several difficulties and challenges must be addressed in order to further advance China’s economic recovery. These include a lack of effective demand, overcapacity in some industries, weak social expectations, numerous hidden risks, and bottlenecks in domestic economic flows, as well as an increasingly complex, severe, and uncertain external environment.

How should we view this constant stream of emerging issues and difficulties? As President Xi has pointed out, “When difficulties, challenges, obstacles, and changes arise, we must not try to conceal them or pretend they don’t exist; nor can we afford to lose our cool or fall into disarray.” “The tougher the situation,” he has noted, “the more crucial it is to bolster confidence and the greater the need for us to act with composure and courage.” He has also declared that “The crux to preventing and defusing risks and hidden dangers and to proactively responding to shocks and challenges stemming from changes in the external environment is to manage our own affairs well.” These important statements embody the heroic spirit of Chinese Communists, who have always had the courage to fight and win and to press forward in the face of growing danger.

Being mindful of worst-case scenarios does not mean that we should lapse into passivity and refrain from action. It means that on the basis of respecting objective laws, we should harness our subjective initiative to its fullest potential, and while preparing for the worst eventuality, do our utmost to deliver the best possible outcome. This demands that we overcome adversity and make the most of every situation by identifying development opportunities and challenges for China, so that we can seize the strategic initiative. We Chinese believe that good fortune is often hidden within misfortune and vice versa. Opportunities and challenges coexist, and new opportunities emerge by overcoming crises. This is an unchanging dialectical principle that has endured since ancient times.

As President Xi has insightfully observed, “Dangers and opportunities exist side by side; within crises lie potential opportunities, and crises themselves can be turned into opportunities. The opportunities before us are more strategic and malleable, while the challenges are more intricate and pervasive. Though the challenges are unprecedented, if handled well, the opportunities will also be without parallel.”

It is thus important to recognize that despite the profound and complex changes in the domestic and international environments, China is facing new strategic opportunities for development. These include new possibilities ushered in by the latest round of scientific and technological revolution and industrial transformation, the rapid upgrading of the economic structure, China’s growing capacity for scientific and technological innovation, further reform and opening up, the acceleration of green development, the advancement of coordinated development between urban and rural areas and between regions, the upgrading of residential consumption, China’s participation in the reform of the global economic governance system, and high-quality Belt and Road cooperation. Therefore, we need to enhance our awareness of both risks and opportunities, adhere to a problem-oriented approach, and maintain strategic resolve. We should accurately identify changes, adeptly respond to them, and work to steer them in a favorable direction, thereby converting pressure into momentum and challenges into opportunities. Firmly grasping the strategic initiative in development, we must strive to foster new opportunities amid crises and open up new horizons on a shifting landscape.

V. We must exhibit greater confidence and assurance, deliver in our economic work, and steer China’s economy through the waves and toward a bright future

The goal of addressing the question of how to view the economic situation is to determine how economic work should be carried out. With a sound analysis of the economy, we can make well-founded economic decisions and implement effective policies that will drive sustained and sound economic development. On the new journey, it is important that we tap into China’s vast reserves of potential and convert our collective strengths into a decisive force for development, so as to secure further economic accomplishments. Fundamentally, this can only be achieved if we exhibit greater initiative, work with true dedication, and move forward with courage and resolve. We must focus our efforts on Chinese modernization, which is the paramount political objective, regard economic development as the central task, and view high-quality development as the top priority. We should maintain firm confidence, forge ahead, and carry out economic work with an enterprising spirit and an unfailing sense of responsibility.

The sound theoretical guidance of Marxism is what enables Chinese Communists to seize the initiative. Xi Jinping thought on the economy integrates the basic tenets of Marxism with China’s specific realities and with its traditional culture. It systematically addresses the theoretical and practical questions of how the economic situation should be viewed and how economic work should be carried out. It reflects the CPC’s deep insights into the laws that govern economic development, especially socialist economic development.

It thus serves as a powerful theoretical tool for steering China’s economy toward high-quality development, adeptly responding to major risks and challenges, and building a modern socialist country.

The CPC’s centralized, unified leadership over economic work is the fundamental guarantee for the sustained and sound development of China’s socialist economy. Our ability to effectively manage the world’s second-largest economy and maintain sustained and sound economic and social development is fundamentally determined by how well our Party exercises its core leadership role in this sphere. It is thus essential to uphold and reinforce our Party’s overall leadership, continue working to improve the systems and mechanisms for Party leadership over economic work, and enhance the Party’s capacity to lead economic endeavors. We must acquire a thorough understanding of the CPC Central Committee’s conclusions concerning the economic situation, fully implement its decisions and plans regarding economic work, and take prompt, pragmatic, resolute, and effective steps to achieve implementation and accomplish the goals and tasks of economic and social development.

(Originally appeared in Qiushi Journal, Chinese edition, No. 5, 2024)