Another mainstream economist misrepresents China
Deliberately or not, Ruchir Sharma's latest piece in the Financial Times cherry-picks data and overlooks key facts in order to portray an unduly negative picture of the Chinese economy.
I first wrote about China in 1999 and visited in 2000. Even then, stories abounded about ‘the rot’ which would fatally weaken the economy. The bubble would burst, people said, because China’s state planners weren’t flexible enough to adapt to new changes. Financial markets were too small and restricted and the banking system too overloaded to supply the credit needed for future growth. Exports couldn’t power the economic engine forever.
Even if those precise events didn’t come to pass, urged the experts, what went up would inevitably crash. The free-market West would march ever further into the distance.
None of the stories turned out to be true. Over the next two decades China propelled about 700 million people out of extreme poverty into the newly-emerging middle class - the most successful example of poverty reduction in such a short timeframe in human history.
That’s like 10 times the current population of France going from scratching a living on a village or farm, to having enough to eat, getting an education, being able to afford entertainment and some leisure time, and maybe building some savings: all things that Europeans or North Americans take for granted but which were previously reserved for a privileged few.
In purchasing power terms, the Chinese economy overtook the US in around 2014. Trade boomed as the world grew ever-more dependent on Chinese exports. Investment skyrocketed amid a frenzy of house, office, railway and road-building.
This explosion took material form for me when I visited a few years later. Jianguomenwaidajie, where i’d stayed in 2000, had transformed from a dusty thoroughfare featuring street markets and groups of pickpocketing kids, to an unrecognisably slick boulevard lined by the high cathedrals of modernity. The subway was faster than London’s. People ordered food and trinkets online and had them delivered the same day.
In contrast, western neoliberalism hit a series of crises that continue to haunt its slowing economies. In comparison they’ve failed to deliver for the majority of their people.
That massive, tangible Chinese progress relative to western economies despite the pessimism of the naysayers, is why this latest story in the Financial Times by author and investor Ruchir Sharma leapt out as being so demonstrably implausible. I’m not sure if Sharma fully believes what he’s written here, because he seems thoughtful and independent-minded and usually seems to say interesting things about emerging markets.
But the piece falls into the same old trap of viewing the recipe for economic growth as about a hard list of essential ingredients that, unless strictly adhered to, risks certain failure.
A misleading picture
The piece not only hides the long-term nature of the country’s progress; it misrepresents Beijing’s aims, chooses a misleading year as a comparator and omits the full picture, which shows China catching up with the US, not falling behind.
Titled AI is not enough to arrest China’s decline, Sharma claims that Chinese economic growth peaked in 2021 and that the US is taking up an increasing share of the world economy, at the expense of China. “China’s vaunted AI prowess is concealing deep rot elsewhere in its economy.”
Using 2021 as the base year overstates the subsequent downturn. That year, China's gross domestic product surged by a huge 1.1 percentage points of the global total compared with the year before, according to the World Bank. But compared with 2020, the Chinese economy is now only 0.8 percentage points less of world output using current prices; hardly catastrophic.
In total, over the last five years China’s real GDP has leapt about a third, versus roughly 15% for the US. GDP per head, adjusted for prices, rose by about a quarter in China but only 12.1% in the US between 2020 and 2024. This means that the average Chinese person can afford to buy more — a much truer representation of progress than the share of the national economy in the world’s total.
Sharma says that 'independent estimates' suggest that the Chinese economy has stopped growing entirely. I’m not sure where these measures of zero growth come from, but the International Monetary Fund says that real GDP grew at about 5% in 2025, and that it’ll ease to roughly 4.4–4.6% in 2026. That's about double US growth.
Yes, part of this slowing of growth is because an ageing population depends ever more on a shrinking workforce. But demography isn’t orders-of-magnitude worse than in other major countries, and because the leadership is able to strategise for the long term it has a higher chance of success than in the anarchic, unplanned and short-termist US.
China is expanding elderly care, upgrading community services and making homes and services more age-friendly. It’s also subsidising childcare and putting in place more “birth-friendly” measures at the national level. What’s the US doing? Not much. If I were to predict whether Xi or Trump would defuse the demographic timebomb, i'd bet on Beijing.
Sensibly, China isn't pretending that over-investment in large language artificial intelligence models will compensate for this loss of the active workforce. Sometimes it seems like US hopes lie with an army of robots doing all the jobs while humans relax in their retirement homes. Sharma complains that “Chinese hyperscalers are investing just $100bn in AI this year compared to $750bn by US rivals, yielding far less of a pop to growth.”
But this is a good thing, not a problem. US over-investment in AI has artificially inflated economic growth, damaged the environment and stoked a stock market inferno. Some economists estimate that building data centres has added a full percentage point to growth every year.
And it is to misunderstand China’s long-term strategy to imagine that the top brass are gung-ho on LLMs. Few Chinese policymakers ever said that language models were the long-term solution to growth. If anything, China’s purposefully pushing industrial AI robots and automation instead of LLMs. Sharma provides evidence against the very point that he’s trying to make. Beijing probably knows AI that isn’t a fix for everything, which is why it isn’t investing so much in AI or tethering growth hopes to ‘hyperscalers.’
Nor is China so financialised - another related feature of AI fever. The collapse of the AI bubble will be more of a problem for the US than for China because the US is over-invested. Compared with the unequal US, where a tiny minority of super-rich take home most of the spoils from shares, the Chinese stock market is much smaller and therefore less important. This is a source of resilience.
According to the World Bank, the market capitalization of listed domestic companies was about 62.7% of GDP in 2024, below the world average of about 69% of GDP. US market capitalization was about 224% of nominal GDP in 2025, making the country much more dependent on, and vulnerable to, the vagaries of financial markets.
Another fatal Chinese flaw, Sharma contends, relates to the collapse of the Chinese housing bubble. How awful, he says, that you can rent an apartment for $120 a month in some places. But it's good that Chinese urban housing is becoming affordable. One of the problems of western economies is that in many places a house has degenerated into a speculative asset held disproportionately by the elderly. Young people can't afford to live normally. The vast sums spent on rent depress consumer demand and sap dynamism from the most entrepreneurial part of the population.
Predictions of Chinese decline are essentialist nonsense which fail because conventionally trained western economists can’t understand a system which deviates from their own narrow models. Planning can’t work, they reason, because the models say that the market is best.
But long-term strategy in a market economy shaped by planners looks likely to win out over the long term. Far from being in decline, I think the Chinese economy is in finer fettle than most of the West. For better or worse, the 21st century will belong to Beijing.