Listen to this article:

This column is the second in a two-part series analysing the deeper structural contradictions within China’s growth model, and what developing economies should carefully learn, and avoid learning, from its economic rise. Part one is linked at the bottom of this page as well.

If the first phase of China’s rise was built on suppressing household consumption to accelerate industrial expansion, the second phase is increasingly shaped by the consequences of that choice. The deeper problem with China’s growth model was never simply that households consumed too little. It was that the widening gap between production and consumption had to be absorbed somewhere else in the system.

For nearly three decades, that burden was carried through an extraordinary expansion of investment, credit and exports, allowing the economy to postpone the limits of weak domestic demand while sustaining historically unprecedented rates of industrial growth.

That arrangement generated spectacular gains in infrastructure, manufacturing capacity and poverty reduction. But it also produced a structural dependence on debt-financed expansion, and that is now becoming increasingly difficult to sustain.

A month after Chinese policymakers reiterated their commitment to “high-quality development” and technological self-sufficiency, another set of numbers revealed the scale of the challenge confronting the world’s second-largest economy. Producer prices remained trapped in deflationary territory, property investment continued to contract and local governments across several provinces struggled under mounting fiscal stress tied to land revenues and infrastructure borrowing.

Individually, none of these developments appear extraordinary. Together, however, they point toward something more structural. The growth model that powered China’s rise for nearly four decades is encountering limits that can no longer be absorbed through investment expansion alone.

China’s extraordinary rise was never built on household consumption. For decades, the economy expanded by combining suppressed domestic demand with relentless investment and export growth, allowing the state to sustain industrial expansion at a pace modern economic history had rarely witnessed.

The model generated remarkable gains in infrastructure, manufacturing capacity and poverty reduction. But it........

© The Wire