Toward a New Economic Growth Model for China

China’s long-standing economic growth model, characterized by debt-fueled infrastructure investment and export reliance, has reached a critical juncture due to diminishing returns, a contracting property sector, and demographic headwinds. Transitioning to a sustainable, consumption-led model requires comprehensive structural reforms, including Hukou system liberalization, expanded social safety nets, and a pivot toward the services sector. While the necessity for these changes is clear, institutional and political barriers—specifically the lack of a mechanism to distribute losses from past bad investments and the need for a more balanced fiscal federalism between central and local governments—hinder progress. Without addressing these underlying structural and fiscal imbalances, China faces a persistent drag on productivity and potential growth, necessitating a shift from production-based metrics to a more efficient, market-oriented framework that prioritizes long-term economic stability over short-term political objectives.