For more than four decades, China was the world’s great economic miracle — a once-impoverished nation that transformed itself into an industrial and technological giant. Since Deng Xiaoping’s economic reforms of 1978, China’s GDP expanded at an average annual rate of roughly 9 percent, lifting over 800 million people out of poverty and reshaping global trade, manufacturing, and finance.
But the miracle is slowing.
Today, China’s growth rate has fallen to around 5 percent — still high by Western standards, but a far cry from the breakneck pace that once defined the “Chinese century.” The global balance of power, long tilting toward Beijing, is again being recalibrated. Predictions that China would soon surpass the United States as the world’s largest economy have quietly faded from economic forecasts.
Instead, analysts now speak of a country entering a “peaking power” phase — one where economic momentum wanes even as ambitions expand.
The foundations of China’s rise are eroding. The workforce that once fueled its manufacturing boom has peaked. Official data shows the labor supply will shrink by about 7 percent between 2025 and 2050. The working-age population has been declining for nearly a decade, while the total population has already begun to contract. In 2023, India overtook China as the world’s most populous nation — a symbolic moment signaling the end of an era.
Demographic change strikes at the heart of China’s growth model. A younger, mobile workforce once drove the “world’s factory,” producing everything from smartphones to solar panels. That engine is now sputtering. Fewer young workers mean rising labor costs, reduced consumption potential, and greater fiscal strain as the government diverts resources to support an aging population.
The social mood is shifting too. The rise of the tang ping (“lie flat”) movement — young people opting out of punishing work hours and intense competition — captures a broader sense of disillusionment. Once motivated by dreams of upward mobility, many in China’s younger generation now face high unemployment and dim career prospects.
As the demographic dividend disappears, China’s once-vast productive base is contracting. The consequences extend well beyond economics. A slowing China must now find ways to sustain global influence without the relentless growth that made its rise possible.
At the heart of China’s slowdown lies a deep structural problem: an economic model that has outlived its usefulness. For decades, Beijing’s growth strategy revolved around heavy state-led investment — in factories, infrastructure, and real estate. That approach worked spectacularly in the 1980s and 1990s, when capital was scarce and demand was strong. But after years of overbuilding, the returns have sharply diminished.
China’s skyline tells the story. Across the country, “ghost cities” of empty apartments and unused industrial parks stand as monuments to overinvestment. Estimates suggest there are between 23 and 26 million unsold apartments nationwide — enough to house the population of Italy. Many are located in smaller cities already facing population decline.
Even China’s signature infrastructure project, its vast high-speed rail network, has run into trouble. The state-owned operator carries more than $800 billion in debt and posts heavy annual losses. Despite this, Beijing continues to pour money into new lines and projects, unwilling to slow the machinery that once symbolized its rise.
The costs are piling up. A decade ago, China’s total debt stood at roughly twice the size of its GDP. Today, that figure has ballooned to about 300 percent — exceptionally high for a developing economy. Local governments, responsible for much of the infrastructure building, are now buried under an estimated $9 trillion in debt, according to the International Monetary Fund.
Much of this borrowing financed projects that generate little or no economic return. The result is a dangerous cycle: unproductive spending fuels growth figures on paper, but deepens financial fragility in reality.
Adding to the strain is deflation — a persistent fall in prices that discourages both investment and consumption. Consumer demand remains weak, private firms are hesitant to expand, and households are saving more amid uncertainty. The once-vibrant property market, a cornerstone of household wealth, is in decline. The combination of deflation and debt is locking the Chinese economy in a cycle of stagnation that even massive state stimulus struggles to break.
Beijing’s leaders have long recognized these risks. For more than a decade, policymakers have spoken of the need to “rebalance” the economy — shifting away from export-led, investment-heavy growth toward one driven by domestic consumption and innovation. But meaningful reform has stalled.
Under President Xi Jinping, China has moved in the opposite direction. Instead of liberalizing markets and empowering private enterprise, Xi has reasserted state control over nearly every sector of the economy. The Communist Party now plays a direct role in corporate governance, strategic investment, and even technology policy.
Initially, Xi appeared to endorse reformist ideas — calling for a “decisive role for the market” in 2013. But as political control tightened, those ambitions faded. Crackdowns on the private tech sector, private education, and property developers sent a chilling signal to entrepreneurs and foreign investors alike.
The shift reflects Xi’s broader vision: stability and self-sufficiency over growth and openness. The emphasis is now on “national security,” “internal circulation,” and “technological sovereignty.”
To some extent, the pivot was inevitable. The global environment has grown more hostile, with Washington imposing export controls on advanced semiconductors and restricting investment in Chinese tech firms. But the inward turn also reflects Xi’s conviction that political control — not economic reform — is the key to national strength.
That trade-off carries heavy costs. Innovation thrives on openness and competition, not on top-down directives. By suppressing dissent and curbing the private sector, Beijing risks stifling the very dynamism it needs to sustain growth in a maturing economy.
China’s predicament is more than an economic story; it is a geopolitical one. History suggests that “peaking powers” — nations that sense their rise is plateauing — often become more assertive abroad as they seek to secure influence before relative decline sets in.
This dynamic worries strategists in Washington and across Asia. A China still powerful but increasingly constrained may act more aggressively to lock in gains, from Taiwan to the South China Sea.
Yet there are reasons to doubt that Beijing can sustain prolonged external pressure. Economic vitality is the foundation of military and diplomatic power, and China’s fiscal resources are tightening.
While the country continues to expand its defense budget, the pace is slowing. Its ambitious Belt and Road Initiative (BRI) — once the flagship of global influence — has lost momentum as partner nations grapple with debt and delayed projects. Chinese state banks, burdened with domestic debt and non-performing loans, have scaled back overseas lending.
The “peaking power trap” could indeed make China more dangerous in the short term. But over time, economic stagnation tends to erode both the means and the confidence to project power.
Faced with economic headwinds and geopolitical isolation, Beijing is looking outward — but on its own terms. Rather than joining Western-led systems, China is building parallel institutions: the Belt and Road Initiative, the BRICS grouping, and the Regional Comprehensive Economic Partnership (RCEP). These efforts aim to create a sphere of economic and political alignment independent of the West.
However, their cohesion is limited.
The BRICS expansion — adding countries such as Saudi Arabia, Egypt, and Iran — looks impressive on paper, but the bloc remains divided by competing interests and distrust. The combined GDP of the six new BRICS members is only slightly larger than that of the United Kingdom. India, China’s main rival in Asia, is unlikely to align fully with Beijing’s vision. Russia, while a partner in anti-West rhetoric, is increasingly the junior member in the relationship, dependent on Chinese markets and technology.
The Belt and Road, meanwhile, has entered a period of retrenchment. Many participating countries, from Sri Lanka to Zambia, have struggled to repay Chinese loans. Beijing has begun restructuring debts and pulling back from risky projects. The era of massive, debt-fueled infrastructure diplomacy appears to be ending.
Without a unified economic framework or shared strategic purpose, these coalitions cannot yet rival the scale, depth, or stability of Western economic networks. The dollar still dominates global finance, and the US-led alliance system continues to expand — from NATO’s outreach to the Indo-Pacific to the Quad partnership with India, Japan, and Australia.
Despite its military modernization and growing assertiveness, China’s ability to translate economic might into strategic dominance remains limited. The People’s Liberation Army has improved dramatically in capability, particularly in naval and missile forces, but it has not been tested in real combat for decades.
Global military dominance — the kind the United States wields — remains a distant goal. China’s per capita income, around $12,700, is just one-sixth that of the US. That gap matters: wealth underpins not just defense spending, but also innovation, logistics, and long-term power projection.
Moreover, China’s global image has taken a hit. The once-powerful narrative that authoritarian rule could deliver prosperity and efficiency has lost luster. For many in the Global South, Beijing now represents a more complicated model — one burdened by debt, demographic decline, and political rigidity.
Western democracies, though often chaotic, have shown a remarkable capacity to adapt. The United States, once written off as a declining power, has reasserted leadership in technology, energy, and defense. Its economy, driven by innovation and immigration, remains resilient. The contrast with China’s stagnation has not gone unnoticed in global capitals.
China’s leaders face a fundamental question: can an authoritarian system sustain economic vitality in the absence of reform?
So far, the answer looks uncertain. The social contract that underpinned China’s rise — rapid growth in exchange for political control — is fraying. Citizens expect better living standards and opportunities; the state demands obedience and sacrifice.
The risk is not an immediate collapse, but a long stagnation — Japan’s “lost decades” on a much larger scale, but without Japan’s political openness or global goodwill.
In theory, China could still chart a new path: strengthening private enterprise, loosening capital controls, and encouraging innovation through openness. But these steps would require political compromises Xi Jinping seems unwilling to make. The priority remains control, not growth.
The implications of China’s slowdown are global.
For decades, the world’s economic geography was defined by China’s rise — from commodity demand in Africa and Latin America to manufacturing in Southeast Asia. As that engine cools, the ripple effects are profound.
Southeast Asian economies that once rode the wave of Chinese demand are feeling the drag. Export orders are shrinking. Supply chains are realigning toward India, Vietnam, and Mexico as multinational firms diversify away from Chinese dependence.
Geopolitically, Washington’s relative position is strengthening. The United States, backed by alliances and innovation ecosystems, remains the central node in global power. Its ability to attract talent, capital, and technology gives it resilience that China’s closed system lacks.
For Europe, China’s slowdown is both a relief and a concern — easing fears of Chinese dominance but exposing dependence on its market. For the Global South, the shift marks the end of easy Chinese financing and the return of Western engagement as Washington seeks to counter Beijing’s influence.
The global balance of power is not static; it is being reshaped once again. The era of Chinese hypergrowth has ended, and with it, the assumption that economic size alone guarantees strategic supremacy.
China’s transformation since 1978 remains one of the most extraordinary in modern history. It built a middle class the size of Europe’s, revolutionized manufacturing, and lifted living standards on an unprecedented scale. But the same model that produced this success has now become its constraint.
As growth slows, debt rises, and demographics shift, Beijing faces a future far more complex than the triumphalist narratives of the past suggested. Its leaders must manage decline without admitting it — a political challenge as daunting as the economic one.
