China debates: “Made in China”—A Boon or a Bane?

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A cursory look at the Chinese media or social media in recent months reveals an unmistakably triumphant tone. Many seem to believe that China is actually winning this round of trade war and that “it’s gameover for the US”. China is now escalating, retaliating, and experimenting with extra-territorial trade rules vis-à-vis the US with more effectiveness. It has not only pushed the Trump administration to roll back a few of his punitive tariffs but also forced Washington to face new challenges, such as exposing its supply chain vulnerabilities, spurring growing international scepticism about American reliability, declining global influence, etc. All these spell a strategic victory for China, and behind this success, it is argued, is the strength of ‘Made in China’.

The popular discourse in China, therefore, is that the Sino-US game has tested China’s resilience and forced the US and the world to reassess China’s capability and recognise China as a “risen power”. No wonder China has been celebrating.

Chinese exports have maintained good momentum despite the disruptions caused by the Trump tariffs. Its exports grew by 7 percent in 2025 till September.  Even after losing much of the US market, China's enormous global trade surplus remains intact. In the first eight months of 2025, China's trade surplus in goods reached US$785.34 billion, and is expected to exceed US$1.2 trillion for the entire year, accounting for 1 percent of the global GDP. China's manufacturing now accounts for nearly 30 percent of the global total, and its overall scale has remained the world's largest for 15 consecutive years. Meanwhile, ‘Made in China’ has become the economic foundation of many developing countries, including India. The popular discourse in China, therefore, is that the Sino-US game has tested China’s resilience and forced the US and the world to reassess China’s capability and recognise China as a “risen power”. No wonder China has been celebrating.

But the celebration is momentary as China faces mounting concerns elsewhere:  its domestic economy. Although China’s manufacturing exports are performing well globally, Chinese observers are of the opinion that the huge surplus China earns through its manufacturing exports has not been able to add sufficient vitality to China’s domestic economy. It either circulates in the books or is used for overseas activities.

There is a growing consensus within China that the Chinese economy is currently facing a situation never seen in the past 40 years, and that the Chinese economy could never truly recover from the pandemic. The reason is that the PPI (Producer Price Index) has been negative for three consecutive years, declining every month. Three years of negative PPI and more than two years of near-zero consumer price index (CPI) indicate a slump unprecedented in China's four decades of economic development. There is also the continuous decline in prices and pressure on corporate profits, resulting from serious involution in various key sectors of the economy. Coupled with the downturn in real estate prices that began in 2021, consumption is shrinking. Now, with foreign direct investment (FDI) declining, the risk of industrial chains moving abroad looming large, market costs rising, population shrinking and consumption diminishing, pressure is also building up on the employment space.

Precisely at this stage, when consumption should be driving China’s growth—and accounting for 70-80 percent of Chinese GDP—instead, consumption has been weakening, especially in the past two years.

Now, the key question doing the rounds in Chinese strategic circles is why Chinese consumption isn’t picking up, despite high-level government intervention. In cases of most developing countries, when per capita GDP reaches US$13,000-14,000, the export-driven effect will gradually weaken, and consumption becomes the primary driver. Most developed countries run trade deficits because they have more money to spend, so they export less. But in China’s case, this is clearly not happening. Although its per capita GDP has already reached US$13,000-14,000, most of the highways and airports that needed to be built have already been completed. Precisely at this stage, when consumption should be driving China’s growth—and accounting for 70-80 percent of Chinese GDP—instead, consumption has been weakening, especially in the past two years.

One explanation, that is fast gaining currency in Chinese strategic circles, is that the government’s techno-nationalism, particularly post-2018, its single-minded focus on strengthening independent innovation, has proven counterproductive. Yao Yang, professor at the Shanghai University of Finance and Economics, argues that the Chinese government has somehow pitted the development of hard technology and innovation in opposition to developing consumption, finance, and real estate. It is almost as if engaging in consumption and real estate would hinder innovation, causing China to lose against the US. But it is now becoming clear that although China's current technological level has already become quite high, it cannot prevent the Chinese economy from entering a phase of prolonged recession. It is now being argued that China cannot escape its current economic predicament of severe liquidity crunch (caused by the contraction of the capital market, with real estate at its core) by simply overcoming technological bottlenecks and establishing an independent domestic industrial chain. Without sufficient domestic demand, Chinese economists warn, the stronger China’s manufacturing, military, and technology is, the more severe is its domestic economic crisis. They caution that, before World War II, the United States held a 40 percent global manufacturing share, higher than China's current 30 percent, yet it suffered a depression unprecedented in human history. They say the same is becoming true for China today.

Precisely at this stage, when consumption should be driving China’s growth—and accounting for 70-80 percent of Chinese GDP—instead, consumption has been weakening, especially in the past two years.

The other explanation to China’s current economic challenges, put forward by certain Chinese economists is that when it comes to boosting consumption, the government’s policies so far are focusing on measures like subsidies, tax cuts, cash handouts, stabilising employment, increasing residents' share of income distribution, increasing transfer payments, and boosting social security and public welfare spending, etc, while avoiding structural issues like the real estate. It is argued that if real estate prices continue to decline for a long time, overall demand can only stagnate. Local governments, lacking revenue, will be reluctant to invest, making it difficult for domestic demand to pick up.

From that perspective, de-risking and deflating the real estate bubble in the past few years were “serious mistakes”, opined Zhao Yanjing, Professor at Xiamen University and Vice President of the China Urban Planning Society. He further added that the universal crackdown on real estate has hit China’s middle class; as a result, domestic demand is unable to pick up. The Chinese strategic community thus want the government to re-examine its long-held stance regarding debt expansion, particularly treating real estate as taboo, or obsessing over the real economy (that is, strong technology, production, and military), or shying away from expanding debt, referring to Japan's experience of losing three decades.

The core proposition now is that the government must stop strengthening the supply side during this period of shrinking demand, which is creating more oversupply and dragging down the domestic economy. Meanwhile, internationally, China’s overwhelming productivity is putting it on a collusive course not just against the US but also the European Union, India, among others. Countries with large markets are increasingly seeing China as their biggest threat and devising protectionist measures against it. From that perspective, China's superior productivity, which is the key to China’s global status, is also proving as its greatest weakness under the current circumstances.

The US's unrivalled position in today's global tariff war is precisely due to its monopoly over global debt, and China must emulate that.

Instead, Chinese observers argue China should now focus on finance, not manufacturing, explore options like boosting the stock market, stabilising housing prices (preventing its continuous fall), and stabilising local government debt, that is, measures that can create money and expand domestic demand, without accumulating excess capacity. In other words, rather than competing head-on with other exporting countries where the US is trying to shift the supply chains, China, they say, needs to change the battlefield and compete with the US directly for the title of "global client" by forcefully expanding its own debt. It is neither asset-constrained like Japan, nor presently facing labour shortage and hence must think out of the box to break the recessionary spiral. The US's unrivalled position in today's global tariff war is precisely due to its monopoly over global debt, and China must emulate that.

Such discussions about course correction by China’s prominent economists and strategists, although found limited expression in China’s recently released 15^th Five-Year plan, however, seem to have triggered widespread apprehension among common Chinese netizens, who are increasingly losing confidence about the future of the Chinese economy. The policy conundrum is also making the public opinion in China more aggressive, strongly unwilling to relocate manufacturing overseas, without distinguishing between low-end and high-end industries. Similarly, there are voices advocating a complete blockade of rare earth elements and other strategic resources, preventing even a single gram from disappearing overseas.

As India considers economic re-engagement with China, it must make a greater effort to understand the turmoil that has gripped the world’s second-largest economy. It needs to be careful in its China strategy, neither blindly accepting the “China is winning” narrative, nor underestimating the resilience of the Chinese economy or the efficiency of the Chinese system in steering the economy out of crisis.

Antara Ghosal Singh is a Fellow with the Strategic Studies Programme at the Observer Research Foundation.

• International Affairs
• China
• India
• USA and Canada
• China Domestic demand
• China Trade surplus
• Chinese economy
• Chinese manufacturing
• Consumer Price Index
• Export-driven economy
• Producer Price Index
• Superior productivity

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