Opinion | More abundance, less prosperity: why 2 Chinas are emerging

For observers accustomed to a market economy, China’s can look like a contradiction. On the one hand, it is an unstoppable juggernaut, a manufacturing superpower with a US$1 trillion-plus trade surplus demonstrating its prowess and leverage across supply chains.

China is also moving up the value chain, producing steel and widgets while also leading the world in solar panels, electric vehicles and the batteries that power them, industrial robots and more. China is even close behind or on par with the United States in biotechnology and artificial intelligence foundation models.

On the other hand, the costs of this tech and export dominance are increasingly apparent. The wealth of households suffers with falling real estate values, recent graduates face a market with 17.8 per cent youth unemployment as of last summer, wages are falling, deflation is growing and an estimated 12 per cent of registered companies are “zombies”.

These phenomena have given rise to a new lexicon in China: “involution” or increasingly intense competition for a shrinking pie; “lying flat” or giving up on the grind and consuming little; “letting it rot”; and “human ore” or treating workers as a resource to be depleted and then discarded. This bifurcated economy is like an anorexic body, eating its own organs – household wealth, in this case – to sustain the political goals of technological prowess.

Some observers have highlighted a greater emphasis on consumption at this year’s “two sessions”. I am curious about the extent to which continued anaemic household wealth gains will affect China’s capacity to invest in technological innovation so extensively. The key question is: how sustainable is it for these two Chinas to continue to exist, particularly since the anorexic economy serves as the foundation of the juggernaut via subsidies, talent pipelines and income transfers from households?

Can China indefinitely build and lead in increasingly sophisticated technological industries without growing wealthier? The 15th five-year plan and accompanying reports from the two sessions certainly assume so. The government work report highlights 800 billion yuan (US$116.5 billion) in new “policy-backed” financial instruments. Caixin estimates that this could generate 9 trillion yuan in new lending. This lending will be distributed per the priorities outlined in the five-year plan, including accelerating technology self-reliance and leading the development of new quality productive forces.