Paper: GS – II, Subject: International Relations, Topic: Global Issues, Issue: China’s Economic Resilience.
Context:
China was widely expected to enter a phase of structural economic decline due to deflation, property-sector stress, demographic ageing, and capital outflows. By 2025, however, economic outcomes have challenged this decline narrative, indicating the need to reassess how economic resilience and power are evaluated.
Key Highlights:
Why China Was Prematurely Written Off by West?
Much of the pessimism about China rested on four assumptions:
- Deflation necessarily leads to prolonged stagnation
- Demographic decline weakens innovation capacity
- Western capital exit implies manufacturing erosion
- Political centralisation inherently reduces economic efficiency
These assumptions reflect a liberal market-centric framework, which tends to underestimate state-led coordination, scale-driven innovation, and policy continuity.
Strategic State Capacity under Xi Jinping:
China’s recent economic performance suggests a deliberate strategic recalibration, not an accidental rebound.
- Application-Oriented AI Strategy:
Unlike the US emphasis on Artificial General Intelligence (AGI), China has prioritised industrial and commercial AI applications:
- AI-driven logistics and supply-chain optimisation
- Highly automated “dark factories”
- AI-enabled product design and faster manufacturing cycles
Implication: Productivity gains are realised in the present, rather than being deferred to uncertain technological breakthroughs.
(b) Education–Industry Alignment:
- Nearly 40% of Chinese high-school graduates now enter higher education (up from ~10% in 2000)
- Engineering dominates postgraduate enrolments
- China produces engineers at a scale unmatched globally
Structural Advantage: Innovation through large talent pools and iterative improvement, rather than reliance solely on frontier research.
Manufacturing Ecosystem as Enduring Strength:
Despite global “de-risking” and “China+1” strategies:
- China remains the most integrated manufacturing ecosystem globally
- Exit costs for multinational firms remain high due to:
- Supplier density
- Skilled labour availability
- Logistics efficiency
- Manufacturing competitiveness depends less on wage levels and more on ecosystem depth and coordination.
Trade Performance and Export Composition:
- China’s trade surplus has approached $1 trillion, driven by: Electric vehicles, Integrated circuits, Shipbuilding and Advanced machinery
- This has allowed China to outperform traditional export leaders such as Germany and Japan, indicating a shift from volume-driven to technology-intensive exports.
Emergence of Chinese Consumer Brands:
China’s export profile increasingly reflects:
- Design-driven products
- Brand-led value capture
- Cultural and technological integration
Transition: From “Made in China” to “Designed and Branded in China”, signalling maturation of its industrial economy.
Why Western Analysis Fell Short:
Key analytical gaps included:
- Overemphasis on political values as predictors of economic performance
- Underestimation of centralised decision-making in mobilisation
- Failure to distinguish between:
- Openness to capital flows
- Openness to capability-building
China restricted certain financial flows while expanding industrial and technological capacity.
Constraints and Sustainability Concerns:
Despite its strengths, China faces significant constraints:
- High local government debt
- Geopolitical pushback and trade restrictions
- Continued dependence on external technology in advanced semiconductors
These factors may moderate the pace of China’s growth, even if they do not negate its structural strengths.
Global Order Implications:
A resilient Chinese economy complicates Western strategies of economic decoupling and reinforces trends toward a multipolar economic order, where industrial capacity matters as much as ideological alignment.
Conclusion:
China’s experience highlights that economic power in the 21st century is shaped by the interaction of scale, state capacity, and applied technology. Writing off China on the basis of conventional indicators risks repeating one of the most persistent analytical errors in contemporary global economics.
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