China's Economic Problem: Strong Supply, Weak Demand
China’s 15th Five-Year Plan is candid, in its way, about the structural problems in the Chinese economy. It characterizes the situation as “strong supply and weak demand” — a polite phrase for a serious imbalance. Chinese industry produces more than Chinese consumers absorb. The gap gets filled by exports. The exports generate trade friction. The trade friction produces the tariffs and decoupling pressures that the plan then has to work around.
The policy response sustained in the 15th FYP is called “dual circulation” — an approach that aims to create domestic demand by increasing domestic supply. The logic is not immediately obvious, because supply-side stimulus does not automatically generate consumer spending. Critics argue it has already deepened industrial overcapacity and export dependence, and the plan does not substantially change the approach.
Other structural issues appear in the document but go unresolved. Provincial trade barriers, regional economic imbalances, youth unemployment, real estate sector risk, and high debt levels in local governments and financial institutions are all acknowledged. Solutions are not offered in the detail that would suggest a real reckoning.
Demographics are the long shadow over the plan’s 2035 targets. The goal of reaching middle-income developed country per capita GDP levels by 2035 runs against slowing growth and a population that is aging faster than it is being replaced. The plan introduces “fertility-friendly” policies to try to reverse the birth rate effects of the old one-child policy, but demographic trends of this kind do not reverse quickly.
The plan projects ambition. The underlying economy it is working with is more constrained than the ambition implies.