In 2021, twelve high-rise buildings in Kunming collapsed in a matter of seconds. They were not unstable. They weren’t falling apart. In fact, they were never even used. Together, they were worth more than $150 million — and yet, they were destroyed, not preserved.
Why?
Because they were allegedly standing in the way of a 5% GDP target.
That single moment reveals something profound about how China has chased economic growth for decades. Build fast, build big, and worry about why later. But now, that era of breakneck expansion may be coming to an end. And what happens next could determine not only China’s future, but the entire shape of the global economy.
How We Got Here: China’s Growth-at-All-Costs Playbook
Since the late 1970s, China has followed a development model based on scale and speed. Massive factories, highways, railways, and housing developments—some built purely for show—helped produce double-digit GDP growth for years.
But GDP, as it turns out, is a blunt instrument. It doesn’t distinguish between meaningful, productive activity and economically hollow gestures. You could build a highway, demolish it, rebuild it, and repeat forever—and GDP would keep climbing.
In China, this loophole was often exploited by local officials eager to meet growth targets handed down by Beijing. That’s why you might see entire “ghost cities,” brand-new infrastructure, or even perfectly fine buildings torn down.
It’s growth. But not the good kind.
This kind of growth creates a mirage. The economy looks like it’s expanding, but there’s no increase in public well-being, no jump in productivity. And now that China has matured economically, this model is no longer sustainable.
So the country is attempting something far more difficult: rewiring its entire economy from the inside out.
The New Plan: Growth Through Innovation and Consumption
Beijing’s new economic vision for 2025 to 2035 is bold: grow the economy at an average of 5% per year—not through construction or exports—but through innovation and domestic consumption.
If this plan succeeds, China’s GDP per capita would double from 2020 levels by 2035. In other words, China would finally enter the ranks of high-income countries—something it has been striving for since the fall of the Qing Dynasty more than a century ago.
But here’s the catch: economic growth is not the same as productive growth. It’s not just about moving money. It’s about moving value.
Which means the road to riches is far more complicated than it seems.
Why Consumer Spending Is the Missing Link
Today, only 39% of China’s GDP comes from household consumption. That’s incredibly low.
Let’s put that into perspective:
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United States: 68%
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United Kingdom: 62%
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Brazil: 63%
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South Africa: 67%
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Japan: 53%
In fact, China ranks among the bottom 15 countries globally on this metric.
This isn’t just a statistical oddity—it’s a reflection of deep-rooted habits. The average Chinese household saves over 30% of its income. In contrast, Americans save around 9%.
Much of this has to do with historical trauma. Decades of instability, poverty, and uncertain welfare systems have conditioned Chinese families to save obsessively. Savings are viewed as security—not just for individuals, but for entire families spanning generations.
Even after the harsh lockdowns of COVID-19 were lifted in late 2022, consumer confidence didn’t bounce back. People became even more frugal. Savings increased, but spending didn’t. The lockdowns didn’t just change routines—they changed mentalities.
And that has triggered an economic ripple effect Beijing is now racing to contain.
China’s Deflation Crisis: The Invisible Recession
While most Western economies struggle with inflation, China has entered a more ominous phase: deflation.
For 18 consecutive months, prices have declined. At first glance, this might seem like a good thing—cheaper goods and services!—but in reality, deflation is a dangerous cycle.
Here’s why:
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When people expect prices to fall further, they delay purchases.
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As spending slows, businesses lose revenue.
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Businesses cut prices to attract buyers, deepening the deflation.
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Eventually, firms cut jobs or close down.
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Debt becomes harder to pay off because money increases in value, but the amount owed doesn’t shrink.
This feedback loop is economically paralyzing. It’s like the entire economy holding its breath—and forgetting how to exhale.
So how does China reverse this?
Beijing’s Three-Point Plan to Reignite Spending
To unlock its vast consumer market, China has launched a policy framework centered around three goals:
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Give people more money to spend
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Encourage them to save less
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Redistribute money from savers to spenders
To achieve this, officials plan to:
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Raise local minimum wages
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Expand health care subsidies and pensions
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Improve paid leave and job protections
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Increase childcare support
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Develop affordable housing initiatives
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Give workers more holidays
Altogether, these policies represent a fiscal stimulus worth around 2% of China’s GDP. That’s a serious commitment to rebooting domestic consumption.
But policy alone may not be enough. China’s biggest challenge lies beneath the numbers—in the population itself.
The Demographic Time Bomb
China is getting older—fast.
As of 2023, 14% of its population is over 65. That’s double the aging threshold set by the World Health Organization. And it’s only going to increase.
If the birth rate remains around 1.0 (well below the replacement rate of 2.1), China’s population could shrink from 1.4 billion today to just 760 million by 2100. That’s nearly half.
For comparison, the U.S. is projected to have 435 million people by then. India will likely remain above a billion. Even Africa, often overlooked, will become the growth center of the global population.
But China’s issue isn’t just size—it’s structure.
An aging population means:
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Fewer workers to power the economy
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Fewer consumers to keep money circulating
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Greater burden on younger generations to care for elders
This shift mirrors what happened in Japan during the 1990s, when growth stagnated despite immense industrial success. Germany faced a similar fate, only cushioned by immigration.
In short, a graying population slows everything down—production, innovation, even ambition.
Can Innovation Outrun Demographics?
Beijing’s answer to its demographic dilemma is one word: innovation.
The government is pouring resources into advanced industries like:
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Artificial Intelligence
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Automation and Robotics
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Smart manufacturing
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Digital infrastructure
From Shenzhen to Hangzhou, China is building the world’s largest AI and semiconductor hubs. The idea is simple: if you don’t have enough people, build machines that can do what people do.
But this too comes with complications.
Robots can assemble cars. AI can crunch data. But neither of them buys a car or pays for data services. Machines can create supply—but not demand.
And so, even the most high-tech economy can stall without a vibrant middle class willing to spend.
A New Chapter in Global Economics
China’s current transformation is one of the most ambitious national overhauls in modern history. It’s not just economic. It’s societal.
For decades, China was the world’s factory. It built for the world. But now, it has to build for itself.
That means:
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Shifting from quantity to quality
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Moving from export-led to consumer-driven growth
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Replacing speed with sustainability
This transition won’t be easy. It may not even be fully possible.
But if China succeeds—if it can grow at 5%, boost consumer spending, innovate around demographics, and restructure its economy—then it will not only join the ranks of rich nations, it will have rewritten the rulebook on how to get there.
FAQ
Q: Why did China demolish $150 million worth of buildings?
A: To hit local GDP targets. These buildings were seen as obstacles in redevelopment projects designed to boost economic output—even if the gains were artificial.
Q: What is GDP and why does it matter?
A: Gross Domestic Product (GDP) measures a country’s economic activity. But it doesn’t distinguish between productive and unproductive activity. Even wasteful or redundant projects can boost GDP.
Q: Why is household consumption so low in China?
A: Cultural habits, lack of a strong social safety net, and recent COVID lockdowns have made Chinese households wary of spending. Most prefer to save.
Q: What is deflation and why is it a problem?
A: Deflation is a decrease in the general price level of goods and services. It discourages spending and can lead to business closures and job losses.
Q: What’s the “middle-income trap”?
A: It’s when a country develops quickly but then stalls before reaching high-income status. It’s often due to structural problems like low productivity or demographic issues.
Q: Can China overcome its demographic crisis?
A: Possibly, with innovation and better policy. But an aging population makes it much harder to maintain high growth.
Q: Will robots and AI fix the problem?
A: They may help boost productivity, but they can’t replace consumer demand. Economies need people who buy things—not just machines that build them.
Q: Is 5% annual growth realistic for China?
A: It’s possible, but difficult. Growth is slowing globally, and China’s transition requires deep structural changes.
