New Logic For China’s Economic Resilience

Syllabus: GS2/International Relation

Context

• The Chinese economy has demonstrated remarkable resilience as the global economic and trade order faces severe shocks.
• There are several key economic issues of concern, and it is necessary to examine China’s growth dynamics, production capacity, and bilateral trade relations with India.

What Is Driving China’s Economic Growth?

• In 2025, China’s GDP surpassed 140 trillion yuan (approximately US$20 trillion), recording a year-on-year growth of 5%, and China’s contribution is expected to reach around 30% to global economic growth.
• China’s economy advanced through a combination of consumption, exports, and investment, while undergoing a deep and positive structural transformation.

Domestic Demand as the Primary Growth Engine

• Domestic demand has become the core driver of China’s economic expansion. The final consumption expenditure contributed 52% of total economic growth in 2025.
• China ranks among the world’s leading consumers when measured by internationally accepted physical consumption indicators.
  • Mobile phone ownership: 1.28 units per person, among the highest globally;
  • Average daily protein intake: 124.6 grams, higher than the United States and Japan;
  • Annual vegetable consumption: 109.8 kilograms per person, the highest in the world;

Exports as a Stabiliser

• Exports of goods and services contributed 32.7% to China’s economic growth in 2025, demonstrating strong resilience despite an unfavourable global trade environment.
• ‘Made in China’ products, particularly high-tech goods, remained highly competitive due to a complete industrial ecosystem and rising innovation capacity.
  • High-tech exports grew by 13.2% over the year.
• Exports to major markets such as ASEAN and the European Union maintained stable growth.

Investment and Emerging Growth Drivers

• Gross capital formation in China contributed 15.3% to economic growth. China is steadily shifting toward a growth pattern led by domestic consumption, with exports and innovation providing additional momentum.
• Breakthroughs in Artificial Intelligence (AI), Quantum Technology, and Brain-computer Interfaces, alongside rapid growth in high-end manufacturing (such as servers and industrial robots), are shaping the future of the economy. 
• At the same time, green industries, including renewable energy and clean power, continue to expand rapidly.

Why Is China Not Exporting ‘Overcapacity’?

• From the Supply Side: China is exporting high-quality and competitive production capacity.
  • In 2025, the capacity utilisation rate of above-designated-size industries reached 74.4%, comparable to levels in the US and the EU.
  • The competitiveness of Chinese products stems from long-term R&D investment, intense domestic competition, and the world’s most comprehensive industrial system, rather than subsidies or dumping.
• From the Demand Side: Global demand is the fundamental driver behind China’s expanding production capacity.
  • Many developing countries have upgraded infrastructure, advanced energy transitions, and accelerated industrialisation by adopting Chinese equipment and technologies.

Addressing India’s Trade Deficit with China

• China – India trade reached a record $155.6 billion in 2025. India’s import from China consists of raw materials and intermediate components essential for India’s manufacturing and development.
• Growing Indian Exports to China: India’s exports to China rose to $19.7 billion, a 9.7% year-on-year increase. 

Opportunities Ahead For India–China Economic Cooperation

• China has identified expanding domestic demand as the top economic priority for 2026, and offers vast opportunities for high-quality Indian products, with 1.4 billion people, including over 400 million middle-income consumers.
• India can utilise platforms such as the China International Import Expo that can enable premium Indian goods to reach Chinese consumers.
• Both countries can transform trade imbalances into shared development gains for Asia by deepening cooperation and moving toward each other.

Source: TH