How is China's economy holding up?

ByShao Xia

A view of Qingdao Port in Qingdao, east China's Shandong Province, March 10, 2026. [Photo/Xinhua]

It's been more than a year since "reciprocal tariffs," also referred to as "Liberation Day," imposed by the US administration on China, and Western voices predicting China's decline have not let up. They speak of "slowing growth," "weak domestic demand," "tech investment crowding out consumption" and "disappearing demographic dividends." But what is the real state of China's economy? A closer look tells a different story.

The claim of "growth slowdown" is an old trope. China's 2026 growth target of 4.5% to 5% was quickly seized upon as a sign of trouble. In fact, it reflects a rational and pragmatic planning. China's economy exceeded 140 trillion yuan (about $20.16 trillion) in 2025, and even a 4.5% expansion would add over 6 trillion yuan – equivalent to the annual GDP of a medium-sized developed economy.

Moreover, this new growth target means that China is no longer solely focused on economic sprinting; it has shifted to a sustainable, quality-focused long-term "run" – prioritizing technological innovation, industrial upgrading and people’s livelihoods.

With the prolongation of the tariff war coinciding with the conflict in Iran, many countries are already facing economic crisis. But it is precisely this new growth pattern of high-quality development that enabled China to remain resilient amid shocks and respond to external uncertainty with its own certainty.

Huge domestic demand

Consumption now contributes 52% of China's economic growth, a 5% increase from last year, making it the main growth engine. In fact, China has remained the world's second-largest consumer market for many consecutive years.

Thanks to a full industrial system and government policies, prices in China remain below global averages, creating a unique "more consumption, less spending" phenomenon. In purchasing power parity terms, China is already the world's largest consumer market.

From concerts and travel to digital services. The market is shifting from goods to experiences, unlocking even great economic potential and opportunities.

Against the backdrop of weak global demand, China's ability to continuously expand domestic demand is itself a significant capability. With the Report on the Work of the Government listing "building a strong domestic market" as its top priority, further consumption potential will benefit the whole world.

Tourists visiting the Xiangyang ancient town, central China's Hubei Province, May 2, 2026. [Photo/Xinhua]

Technology boosts consumption

There is also a Western narrative that China's technological innovation is indeed impressive, but it comes at the expense of the people's consumption capacity. They argue that when the government and enterprises channel substantial funds, land and policy support into areas such as semiconductors, new energy and artificial intelligence (AI), it will crowd out resources that could otherwise be used for people's livelihoods, leaving ordinary people with less money in hand.

Some are even concerned that technological upgrades, automation and intelligent systems will displace a large number of ordinary workers, leading to unstable employment, declining incomes and consequently weakened consumer confidence and capacity.

But is that really what happens? On the supply side, tech innovation has turned "buy what is available" into "make what you want" – from smart home systems and wearables to AI-powered medical devices.

On the income side, while automation replaces some repetitive jobs, it also creates many new ones – AI equipment operators, livestream e-commerce assistants, smart community managers – often requiring only basic training. Companies and governments are partnering to provide such skills training, boosting employment and incomes. Advanced AI professionals, of course, earn even more.

Technology and consumption are not a zero-sum game; technology expands consumption.

From demographic quantity to quality

Thanks to consistent government emphasis and supporting policies, China's workforce is undergoing significant shifts. It is evolving from "quantity dividend" to "quality dividend."

Education is key. Government spending on education has stayed above 4% of GDP since 2012. Over 250 million people have higher education degrees. The average years of schooling for the working-age population exceeds 11. China produces over 5 million Science, Technology, Engineering and Mathematics graduates each year – the most in the world. This talent pool has given birth to "DeepSeek moments" which refers to the breakthrough that shook tech and global investment circles and is seen as a catalyst for China's tech-driven economic growth, and is reaping a rich talent dividend.

The outline of the 15th Five-Year Plan again stresses "investing in human capital," directing public resources toward education, health and social security. When people feel secure and hopeful, growth follows.

The tariff war poses challenges, but China is adapting and strengthening its fundamentals. While others talk, China keeps moving steadily and substantively.

The author isa commentator on international affairs for CGTN.