‘De-Growth’ In China’s Future Economy – Analysis
By Yang Xite
Research into economic growth is an undertaking that anyone concerned with the economy will inevitably engage in. As early as 2013, ANBOUND's founder Kung Chan applied information analysis methods to study China's economic growth. His conclusion was that China's economy could not sustain high-speed growth indefinitely; instead, it would experience a progressive slowdown. Under ideal conditions, the average growth rate would decline by about one percentage point roughly every ten years. After three such decades, China's economic growth would fall to about 5%, giving rise to a consumption-driven society. Ultimately, this trajectory would take the form of a pyramid-shaped growth pattern, which was termed the "Pyramid Model".
In fact, assessing long-term economic growth trends is a form of foundational research. In short, the gradual adjustment from double-digit growth rates around 2008 to the current level of roughly 5% reflects a long-term trend that has fundamentally altered the previous investment-led growth logic. It has, somewhat unexpectedly, initiated a process akin to "de-growth". Such an assessment stood in stark contrast to the widely held optimism at the time that China's economy would continue to grow at high speed for "several decades". As a result, it failed to attract serious attention from businesses, the media, society at large, or even policymakers.
And China's economic "de-growth" has now happened right before our eyes.
There are multiple reasons for this, but in 2026, China's economic growth rate is highly likely to fall below the 5% threshold and move directly into the 4% range. This downward curve is remarkably steep, far more abrupt than what was projected in 2013. In reality, it has taken only 12 years to complete a slowdown process that was originally expected to unfold over 30 years. This indicates that China's economy is in a clear and rapid downward trajectory, unmistakably signaling that it has effectively entered a state of "de-growth".
In the past, China's economic growth has rapidly consumed the 30 years of adjustment time and space within just 12 years, much earlier than what had originally been anticipated. This dramatically reduces the room available for a healthy economic adjustment, making it difficult for the economy to adapt and depriving it of the buffer and opportunities needed for transformation. The economy is facing enormous pressure as it collides head-on with the harsh reality of downward economic adjustment. Of course, this rather unexpected acceleration of the timeline also reflects certain external factors that sped up what was forecast 12 years ago, most notably the intensification of the U.S.-China trade war.
At its core, "de-growth" signifies a change in the fundamental conditions that once sustained China's economic growth. In the past, the entire economic system was built around growth as its underlying premise. Foreign capital was willing to take risks and remain in China; private businesses were prepared to hold on, with some still focused on scaling up and becoming stronger; public finances were sustainable because as long as growth continued, land sales could support a virtuous cycle of fiscal revenue; households were willing to take on mortgages and car loans and to spend, all because they expected their incomes to rise in the future. In this sense, growth functioned as both the necessary and sufficient condition for the operation of China's economy.
When "de-growth" sets in, that foundational condition is effectively removed. As a result, many things that were possible in the past can no longer be taken for granted. "De-growth", therefore, is not just slower growth but a shift to an entirely different operating track. Previously, the economy was running on a familiar, well-tested track that everyone understood. Now it is moving onto a new one. If decisions continue to be guided by old assumptions, one may very well find that past experience no longer applies.
"De-growth" is also a process of "de-dreaming". The world is familiar with the "American Dream", which is essentially an aspiration of achieving success for individuals. China, shaped by a different social structure, has nevertheless long nurtured a collective dream built on economic growth. Once growth is no longer assured, those dreams will lose their foundation. When the underlying base is shaken, no dream can remain what it once was.
In practice, the various blueprints and plans of the country, including the Five-Year Plans, are in essence dreams constructed on expectations of growth. In the future, such dreams will inevitably differ from those of the past. "De-growth" also signals a change in the very nature of development. Data are often relied on to answer questions about economic development and to make forecasts. Yet, at times, data-driven analysis, even when rigorous and well-supported, can obscure bigger structural changes. From the perspective of year-to-year figures, the previous, current, and next years may appear largely similar, but such data are often incapable of capturing fundamental shifts in underlying economic conditions.
Some might object that so long as there is a few percentage points of economic growth in the current state, even if it is at the modest 1%, the situation cannot be described as "de-growth". This objection, however, rests on a narrow understanding of the concept. China's economy once maintained double-digit growth for a prolonged period before slowing to single-digit rates. Crucially, that slowdown did not culminate in stabilization, but instead has been followed by a continued downward trajectory. As Kung Chan has previously observed, China has completed within roughly twelve years a process of growth deceleration that was initially expected to unfold over three decades. The question, then, is not whether growth still exists in a numerical sense, but what has been diminished in substantive terms. What has contracted is growth potential, developmental space, market capacity, profit margins, income opportunities, and ultimately income levels themselves. This form of contraction, which occurs earlier and more rapidly than what had been previously thought, captures the essence of what is meant by "de-growth". Accordingly, the presence of a few remaining percentage points of growth cannot be taken as evidence against de-growth. On the contrary, the current growth rate already embodies a significant erosion of the economic momentum that once prevailed.
At the policy level, there also appears to be a degree of inconsistency in how economic growth is perceived. On the one hand, official statements emphasize that success should not be judged solely by GDP growth rates. On the other hand, when setting annual growth targets, there remains a clear insistence on achieving a certain pace of expansion. Economic data for the first eleven months of 2025 show that while investment has grown markedly in emerging sectors such as new energy and artificial intelligence, traditional pillar industries like the real estate continue to contract. Consumer confidence remains subdued, and youth unemployment is still under pressure. This kind of structural imbalance suggests that relying on isolated breakthroughs in a handful of emerging industries is insufficient to fully offset the systemic impact of weakening traditional growth drivers under conditions of "de-growth".
At a deeper level, the "de-growth" environment is reshaping the behavior of micro-level economic actors. Private enterprises are grappling with weakening expectations, leading investment decisions to become more short-term and risk-averse. Data for the first eleven months of 2025 show that the growth rate of private fixed-asset investment has remained below that of state-owned investment, indicating that China's endogenous momentum still needs to be strengthened. On the household side, amid unstable income expectations, the propensity to save has risen, with precautionary savings increasing. This makes it difficult for consumption, which is the economy's driver, to operate at full capacity. Meanwhile, local governments, constrained by shrinking land-transfer revenues and mounting debt pressures, face growing limitations in their ability to provide basic public services and undertake incremental investment. Taken together, these micro-level behavioral shifts are reinforcing one another, forming a negative feedback loop that further entrenches the trend toward "de-growth".
Confronted with the reality of "de-growth", China's macroeconomic policy framework needs to move beyond the traditional mindset of countercyclical adjustment. The long-standing practice of relying on large-scale investment stimulus to ensure growth is delivering diminishing returns in an environment of persistently declining investment efficiency, and may even exacerbate overcapacity and debt risks. Policy priorities should instead focus on building a resilient social and economic system aligned with the new normal, such as strengthening the social safety net to stabilize household expectations, and advancing substantive structural reforms to raise total factor productivity, even if this entails continued pressure on growth in the short term. The essential shift is from pursuing the speed of growth to prioritizing its stability and sustainability.
In fact, during this painful transition, maintaining strategic composure is crucial. According to ANBOUND's model estimates, taking a GDP base of RMB 100 trillion, sustaining stable growth of 4% would, over a little more than eight years, generate an increase in total economic output comparable to that achieved by maintaining high growth of 7% for five consecutive years. In this sense, steady progress over the long term is the right course without having the need of fixing on high-speed growth. Given the high consumption of growth rates in the past, the focus of policy must now shift away from boosting short-term growth at all costs, toward building a sound, fair, and predictable institutional environment suited to a medium-growth platform of around 4% to 4.5%.
Looking ahead, China's "de-growth" does not imply a sharp recession or stagnation, but rather signals a profound shift in the growth paradigm. It will challenge long-established assumptions about development, policy instruments, and even social attitudes. Successfully adapting to this transition hinges on whether the economy can truly move beyond its fixation on speed and its anxiety over shifting gears, and the shift from focusing on the presence of growth to the quality of the growth itself. This requires a comprehensive adjustment in macroeconomic policy and micro-level behavior, development philosophy, and values alike. If this transition can be managed effectively, China's economy may slow in terms of headline growth while simultaneously achieving a qualitative leap in the post-industrial stage, laying a solid foundation for the next phase of development.
Final analysis conclusion:
The future of China's economy does not lie in whether it can return to the high-growth track of the past, but in whether it can, under conditions of "de-growth", build a new development model that is more resilient, more inclusive, and more sustainable. The value of such a model will no longer be defined by a single GDP growth figure. This is a more demanding path, but it is also the only route toward a higher-quality stage of development.
- Yang Xite is a Research Fellow at ANBOUND, an independent think tank.