The economic model of China faces fundamental constraints. Attempts to curb deflationary trends and adjust industrial policy show that traditional stimulus tools (credit expansion, government subsidies and large-scale fiscal injections) are losing their effectiveness.
The key challenge lies in accumulated ‘excess capacity’ and excessive competition in basic industries. For many years, industrial growth was supported mainly through preferential lending and government subsidies. As a result, production capacity has significantly exceeded the level of effective demand, creating sustained deflationary pressure.
China’s fiscal and monetary policies are stretched to the limit. The public debt has already exceeded 300% of GDP, and the key rate is maintained at 1.4%, with little space for manoeuvre. Further easing risks inflaming already existing imbalances without necessarily assuring durable economic growth.
Of particular concern is the growth in interest payments on public debt. Servicing these payments currently accounts for around 8% of GDP, which exceeds the corresponding level in the United States (6.5% of GDP) . This indicates that economic growth in recent years has been largely driven by large-scale borrowing, the burden of which will fall on future generations.
Sustainable growth in China is impossible without revising the existing model. The economy needs structural reforms: stimulating domestic consumption, creating conditions for the development of high-tech industries, and gradually abandoning the practice of uncontrolled subsidisation.
