British author and geopolitical analyst James Crabtree has highlighted a stark dichotomy within China's economic landscape, terming it a "K-shaped economy." Following a two-week visit to the country, Crabtree reported being profoundly impressed by advancements in artificial intelligence, electric vehicles, and drone technology, particularly in hubs like Shenzhen. However, this technological prowess exists alongside significant economic struggles.
The Widening Economic K
Crabtree, a distinguished visiting fellow at the European Council on Foreign Relations, noted a growing disparity between China's vibrant technology sector and its broader economic health. While official GDP figures claim 4.5% growth in the most recent quarter, he points to a contrasting reality:
- Investment is falling.
- Demand remains weak.
- The property sector is in free fall.
- Private businesses have significantly reduced spending.
- Tax revenues are plunging.
- China's stock market faces considerable pressure.
Furthermore, China's economic growth is increasingly reliant on exports, which are now contending with retaliatory tariffs from key trading partners, adding another layer of complexity to its economic outlook.
A Looming Stagnation?
During his visit to Beijing, Crabtree met with economist Michael Pettis, who suggested China could be heading towards a prolonged period of weak growth, reminiscent of Japan's post-asset bubble stagnation. Pettis's assessment, described by Crabtree as the "optimistic scenario," forecasts "a decade or more of flat growth, stagnation and slow repair while it works through the biggest debt overhang in history."
Hidden Unemployment and the Gig Economy
Crabtree also raised concerns about China's official unemployment figures, which stand at just over 5%. He cited Chinese economist David Daokui Li, who estimates the actual figure to be around 10.2%, with Pettis suggesting it could be even higher. The author highlighted a Financial Times report indicating that approximately 53 million Chinese workers are employed in food delivery and ride-hailing services, part of a broader gig economy that encompasses roughly 200 million people. This suggests that China may be leveraging the informal economy as a form of unemployment insurance amidst its economic slowdown.
Intense Domestic Competition Drives Global Expansion
The report also touched upon fierce domestic competition, particularly within the electric vehicle sector, where over 100 brands are vying for market share through aggressive price cuts. This intense internal struggle, which some entrepreneurs describe as a "civil war," is pushing Chinese companies to seek profits and expansion opportunities overseas.
Strategic Tech Controls and Global Confidence
Despite these internal economic challenges, Crabtree noted China's increasing confidence on the world stage and its growing lead in various technologies. Beijing is also developing sophisticated mechanisms to control technology exports, mirroring strategies employed by Washington, affecting everything from advanced AI models to drones and tunnel-boring machines. This indicates a powerful, technologically competitive nation that, while economically troubled internally, projects strength and resolve internationally.