The “decoupling” between China and the US (and the EU, which calls it “de-risking”) is ongoing, and it is likely to continue in the future, particularly if EU continues to blindly follow US’ anti-China policy. Even so, it will still take several years to achieve this decoupling, and it is unlikely to ever become complete.
It is thus expected that the commercial interaction between the West and China will decrease gradually in the coming years (exports to the US fell probably with around 20% in 2025 ). China has therefore been very active lately in opening new markets in the ASEAN countries and in the broader Global South to compensate for the shrinking market in the US. It has been quite successful in doing so. The fall in exports to the US in 2025 is more than compensated by increased exports to the EU and other countries (of which part is probably due to redirecting Chinese exports through third countries). Overall, exports are expected to increase with 5-6% in 2025 compared to the year before. Taking into account Trump’s tumultuous and damaging trade policy, this is a quite impressive result.
EU is flip-flopping on China. Photo: Ursula von der Leyen and Antonio Costa with Xi in Beijing, July 2025. Official photo from the Chinese Government.
China is presently growing at around 5% per year and is about to pass from being a middle-income to a high-income country (according to the classification by the World Bank). It would actually have passed this threshold already a couple of years ago, had it not devalued the Yuan with 7-8% in relation to the US dollar, but 2025 was probably the year it finally happened.
Calculated in purchasing power, China’s overall production (GDP), which in year 2000 was only a third of that of the US, surpassed the US in 2016 and was in 2024 30% higher. Of course, as China’s population is much bigger, its GDP per person is still much lower. In 2024 it was only a third of that of the US and half of that of the EU (for those interested in numbers, there is at the bottom of this article some instructive charts).
Will this trend continue? This is a good question. I think it will, but China is facing challenges (as is the West, by the way).
We haven’t seen the details of the new 5-year plan (2026-2030) yet, as it will be approved at the National People's Congress in March. Presently only a “2025-10 Strategic Blueprint for China's Economic and social development” has been made public. It is likely that China will go for a continued annual economic growth of around 5% (as in the last 5-year plan). This should be an achievable goal, as the gap with the West in income per capita is still quite big, implying that there is still room for catching up, before the country will settle for a lower growth.
In a recent report from the American China-critical “Center for China Analysis”, they list a series of challenges China will face in the coming year. The report has to my opinion an overly pessimistic tone, but it still gives a useful overview of the challenges.
At the political level, the report concludes, correctly to my opinion, that ‘Xi Jinping’s governance model—anchored in Party control, national security, and technological self-reliance—will continue to dominate China’s trajectory’. They furthermore think that the anti-corruption drive may stifle the bureaucracy, as people are nervous about making errors, which I think is also correct, but on the other hand, the anti-corruption drive is essential for the political legitimacy. And I agree with the overall conclusion that ‘China’s system is likely to remain stable’.
At the technological level the report considers that there is a dilemma between state-led and private-led innovation, and they conclude that ‘the US export controls and intensifying tech competition have exposed the limits of a state-driven innovation model that has long been better at scaling than at discovery’. This is a standard critique of China: it is claimed that they are good at copying, not at innovating. But the reality is the contrary: what the US technology sanctions have shown is that if it hadn’t been for the state’s effort to stimulate both public and private research and development, the US technology sanctions would have been fatal. It turned out, they weren’t. China has applied what they call the ‘whole country effort’ in for example semi-conductors (and equipment) and this has been vital. The capacity to continue that will be determining for the future as the decoupling with the West deepens. I think that it is rather the West that will face a serious challenge in this field, if it continues to rely mainly on the financial capital, the private sector and the big corporations.
In the economic area, there are several challenges:
Firstly, China has a very high savings rate, a fact that has been criticised because it implies that investments, rather than consumption, is driving the economy. There are several explanations. The traditional one is that the lack of a solid social security system makes people save more for contingencies, but as social security has improved in China, this may not be the most important explanation. China had in 2024 a gross savings rate of 43%, which is around the same as the rest of East Asia and the Pacific (41%). Perhaps it plays a role that the report is from the US, where the saving rate is extraordinarily low (17%), while in the EU it is 26%. Some other developed countries have high gross savings too, for example Singapore (57%), South Korea (34%), Russia and Denmark (33%). For a country that is still developing, a high savings and investment rate is crucial if it wants to close the gap to the richer countries. Only the US has had the privilege to let the rest of the world save for them. Up to now.
China is being criticised for a too high savings rate, and hence very high investments, among others in public infrastructure. One of these is the impressive high-speed train network that criss-crosses the country. Photo: highspeed train, Beijing West Railway Station. Wikimedia.
Anyhow, now China wants to shift to a more consumption driven growth, persuading its citizens to use more of their income for consumption. However, it has turned out to be difficult to achieve. The result is that China is running a considerable public budget deficit to stimulate demand, just as is the case in the US and many EU countries. To my humble opinion, what they should do (apart from continue improving social security) is increase the income of common people. Several things can be done, among these increase the minimum wage and make the tax system more progressive. That would address inequality at the same time.
Secondly, China has for years now experienced a crisis in its housing sector after the bursting of a speculative bubble in 2021. Now the country is riddled with unsold newly constructed or half-constructed buildings, many developers have gone bankrupt or are barely surviving, and the banks are burdened with bad debts. China has a very high rate of home-ownership: around 90% own their homes. But as speculation has driven prices up, many young people are unable to afford to buy a flat. Most of the state- and municipality-owned flats were privatised during the market reforms in the end of the nineties, and that is coming back to hunt China now. The same is, by the way, the case in many developed countries where lack of affordable housing is a serious issue.
The bursting of the real estate bubble in 2021 has created a large stock of unsold housing, finished and half-finished, and a mountain of bad debts in the banks. Image from Wikimedia.
Thirdly, China has now a very low birth rate. After many years with a stable fertility rate of around 1.7, it dropped in 2023 to 1, even lower than Japan (1.2), but higher than South Korea (0.8). A fertility rate of 2.1 is needed to maintain a constant population. For comparison, the fertility rate was 1.6 in the US, 1.5 in Denmark, 1.4 in the EU and Russia, and 1.2 in Italy and Poland. The reasons for this very low birth rate are many, but in the case of China (and Japan, Korea and other Asian countries) the extreme competitive work culture is probably an important part of the explanation.
Fourthly, inequality is a challenge, both between regions, between urban and rural population and in general (the report mentioned barely touches this issue). I have for a long time assumed that inequality in China (and Russia) was at the level of the extreme inequality of the US. According to World Bank data this was actually the case in 2013, but inequality (and poverty) has fallen since in both countries and is now at a level close to Germany (while it has remained high in the US and has been rising in the EU). See the chart at the bottom of the article. However, inequality continues to be a serious challenge (just as it is in the West).
In conclusion, even with the challenges that China is facing, I think the country will continue developing and gradually close the income gap with the most developed countries. It will thus no doubt become one of the biggest centres of economic power in the new, multipolar world.
Like it or not.
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Notes on the data
For those who like numbers, below are some charts.
1. GDP for the world’s biggest economies
The chart below shows the GDP of the world’s biggest economies in trillions US dollars at Purchasing Power Parity, that is, the nominal GDP corrected for the purchasing power in local currency. As it can be seen, China is the world’s biggest economy and around 30% bigger than number 2, which is the US. If EU had been a country it would be third.
2. GDP per capita for the world’s biggest economies
The chart below shows the GDP per capita for the same 10 economies, in purchasing power parity US dollars. As it can be seen, the US and has the highest GDP per person, followed by Germany. China is in seventh place and India is at the bottom.
3. Inequality
Inequality can be measured in many ways. One of these is the ‘Gini-coefficient’. It has a value between 0 and 1, where 0 represents total equality (all have the same) and 1 represents total inequality (one person takes all), so higher value of the Gini-cofficient means more inequality. The chart below compares China with the US, Germany, Denmark and Russia. As it can be seen from the illustration, inequality in China (the red line) increased dramatically during the reforms in the nineties, topped in 2010 and then started dropping. In the US (the blue line) inequality has increased somewhat and it is consistently high with no signs of decreasing. Germany and Denmark have experienced a slow, but almost constant rise in inequality since 1990, but it continues to be well below the US. Russia had extremely high inequality during the nineties after the collapse of the Soviet Union, and after a temporary drop, it increased again from year 2000 to 2008, when it topped. It has since decreased and was in 2023 close to the level of Germany.
All data are from the World Bank data base.
