China

China exists because the Qin Dynasty unified warring states 2,200 years ago—and because Deng Xiaoping convinced a Marxist-Leninist party that getting rich was glorious. This is a civilization-state that has reinvented itself repeatedly: from the world's largest economy for most of recorded history, to a century of humiliation under Western and Japanese imperialism, to Mao's disastrous experiments, to the fastest sustained economic growth in human history, to whatever comes next.

Mao Zedong's Communist Party seized power in 1949 after defeating the Nationalists in civil war. What followed was ideological radicalism that killed tens of millions: the Great Leap Forward's famine (1959-1961), the Cultural Revolution's chaos (1966-1976). When Mao died in September 1976, China was impoverished, isolated, and exhausted. Deng Xiaoping, rehabilitated from twice being purged, took effective control in December 1978 and launched 'reform and opening up'—a phrase that encapsulates one of history's most successful economic transformations.

The formula was pragmatic: Special Economic Zones in coastal cities attracted foreign investment and technology, while the party maintained political control. 'It doesn't matter if a cat is black or white, as long as it catches mice.' GDP grew from $150 billion in 1978 to nearly $19 trillion by 2024—9.5% annually for over three decades. Absolute poverty fell from 41% to below 5%. Average wages rose sixfold. China became the world's factory, then the world's second-largest economy. The 1989 Tiananmen Square massacre showed the limits of reform: economic liberalization would not extend to political freedom. 'One country, two systems' absorbed Hong Kong (1997) and Macau (1999) while kicking reunification with Taiwan down the road.

Under Xi Jinping, who consolidated power from 2012, the party reasserted control over everything from tech companies to Hong Kong's democracy movement. Xi abolished term limits in 2018, positioning himself as leader for life. The economic model that produced miracles is now producing contradictions.

The numbers tell the story. Officially, GDP grew 5% in 2024, hitting the government target with implausible precision. Independent estimates suggest real growth was 2.4-2.8%—still significant, but history offers no examples of economies reporting 5% real growth while experiencing ten consecutive quarters of deflation. The property sector has nearly collapsed, with real estate investment down 10.6% in Q4 2024. Consumer confidence remains depressed by the negative wealth effects of falling home prices and a fragile labor market. Yet exports boomed, contributing a record trade surplus of nearly $1 trillion. Manufacturing overinvestment—encouraged by promotion metrics that reward visible industrial projects—creates the 'overcapacity' that alarms trading partners.

China now manufactures more cars, ships, steel, and solar panels than the world can absorb at current prices. Xi's December 2024 pivot toward 'expanding domestic demand as a strategic move' acknowledges the problem. But Beijing's anti-corruption campaigns have created a climate of fear around expenditure throughout the public sector, and local officials remain incentivized to build factories rather than fund consumption.

By 2026, China will likely face a choice the party has historically avoided: accept slower growth as the new normal, or deploy massive fiscal stimulus that risks reigniting asset bubbles and debt. The 9% of GDP budget deficit planned for 2025 suggests Beijing is choosing stimulus. But with housing prices still falling, deflation persisting, and demographic decline accelerating (the working-age population peaked in 2011), even unprecedented spending may only slow the deceleration. The world's top manufacturer, leading exporter, and second-largest economy is simultaneously experiencing what one economist called 'the most significant global economic shift since Deng's reforms.' Both the narrative of inevitable decline and the narrative of unstoppable rise are wrong. The truth is more interesting: China's model has reached the limits of what pure investment-driven growth can achieve, and what comes next depends on political choices Xi Jinping seems reluctant to make.