The Elephant No One Wants To See

Why the World Ignores China's Economic Crisis

Back in November 2024, I asked a simple question: Can China spend its way to growth?

Over a year later, the answer is still the same. Most likely, it cannot. And the fact that almost no one is paying attention tells you everything about where the financial media is focused.

Let me be clear: we are talking about the second-largest economy in the world. By some measures, it is bigger than the United States. China accounts for about 18% of global GDP, is tied into every supply chain on earth, and affects the lives of billions of people.

Yet here we are, with headlines dominated by what the US Federal Reserve might do next, by the latest statement from a controversial American president, and by how Europe will react to the US. Meanwhile, China is standing on shaky ground, and almost no one wants to talk about it.

Why? The answer is uncomfortable but simple.

The Attention Gap

Finding the real story about China takes work. The numbers exist. The World Bank, the IMF, China’s National Bureau of Statistics, and the People’s Bank of China all publish data. But it is scattered. It needs triangulation and interpretation. It does not come with a ready-made story.

Compare this with the United States. The Federal Reserve holds press conferences. Treasury officials give interviews. Central bankers deliver speeches that are streamed around the world. If you want to know what is happening in American economic policy, the information is pushed directly to you by people who want to communicate clearly.

China? The data is there, but finding it feels like digging through ancient ruins. Household debt figures come from CEIC Data. Property market damage estimates are provided by researchers such as Gavekal Dragonomics. Understanding bad loan numbers requires reading multiple bank reports in Mandarin. This is not laziness on the part of journalists. This is simply how global media works: it takes the easiest path.

There is something else, too. A controversial US president gets clicks. Articles about tariffs, Federal Reserve decisions, and American political drama grab attention. They matter to Western readers. They appear to have clear good guys and bad guys. They feed into existing divisions that keep people scrolling.

China’s economic crisis does not fit into neat stories. It is complicated. It requires understanding structural issues such as property debt, population decline, and excess factory capacity. These topics do not work as viral tweets or simple headlines.

So, the world looks away. And the elephant in the room keeps growing.

What the Data Actually Shows

Let me update you on where things stand as of January 2026.

Private consumption is stuck at 39.9% of GDP. This is basically unchanged from when I wrote my original piece. To understand why this matters, look at how China compares to other major economies:

This is not a small difference. This is the basic structure of China’s economy, and it is fundamentally broken. Chinese households spend less than 40 cents of every yuan the economy produces. The rest gets sucked into investment and government spending that increasingly does not pay off.

China’s 39.9% consumption ratio is not just low, it is historically low, even for China. The long-term average since 1952 has been 49.4%. The current number puts China among the lowest consumption-to-GDP ratios in the world.

Why Rebalancing Is So Hard

As I explained in my November 2024 article “Can China Spend Its Way to Growth?“, history shows that it is challenging for a low-consumption economy to meaningfully raise its consumption share without experiencing a slowdown, or even a contraction, in GDP growth. Yet Beijing remains determined to prevent any such slowdown. In theory, rebalancing could happen without slower growth if consumption accelerated rapidly enough, but no country has ever managed this. China has been trying for years and has so far failed.

The root cause is structural. For decades, China’s growth model has relied on a massive, systematic transfer of resources away from households. Through artificially cheap credit, an undervalued currency, suppressed wages, excessive infrastructure spending, and various land and production subsidies, the system has effectively taken money out of consumers’ pockets and funneled it into manufacturing and investment. This has made the Chinese industry extraordinarily competitive on the global stage, but it has come at the direct expense of household consumption.

Reversing this requires dismantling the very mechanisms that powered China’s rise. It means ending the cheap credit that flows to state-owned enterprises instead of consumers. It means allowing the currency to strengthen, which would boost household purchasing power but hurt exporters. It means redirecting government spending from bridges and factories toward healthcare, pensions, and direct support for families. Each of these changes is necessary in the long run, but each one is deeply painful in the short term.

Look at Japan: it proposed rebalancing the economy in the Maekawa Commission Report in 1986, and it was right about everything. Boost consumption, reduce investment, reduce savings. And yet, here we are, 38 years later, and it is not even clear whether they have achieved it.

If China’s GDP is to keep growing at 4 to 5% over the next decade, either other major economies must be willing to shrink their investment and manufacturing to make room for China, or China must create policies that shift growth from investment to domestic consumption. Neither is easy, and the first option is very unlikely.

The Household Debt Crisis Nobody Is Discussing

Total household debt has reached roughly $11.4 trillion. As a percentage of GDP, this sits at around 60%, having leveled off from a peak of 60.9% in early 2024.

The total number sounds manageable. Sixty percent seems reasonable compared to other major economies. But the details tell a much darker story.

Here is what the mainstream financial media is not telling you: between 25 and 34 million people defaulted on personal loans in 2024. That is double the number from 2019. When you include loans that are overdue but not yet officially counted as defaults, that number rises to somewhere between 61 and 83 million people. We are talking about 5-7% of China’s entire adult population. This compares to 4.5% in the USA, which also has one of the best debt management systems in the world—unlike China, where people with bad credit can be trapped in default forever.

Bad loan rates in mortgage portfolios are rising across almost all major banks. Eleven of the twelve major Chinese banks reported higher mortgage bad-loan rates in 2024. Regional lenders are under severe stress, with banks such as Bank of Chongqing and Yibin Bank reporting mortgage bad-loan rates as high as 3.86%.

The official bad-loan rate for commercial banks stands at just 1.5%. Think about that. Banks operating in an economy that has experienced the fastest credit growth in human history, with extremely low interest rates, and massive investment in risky real estate, somehow have bad loan rates that would be the envy of the most conservative Swiss banks. This is not careful banking. This is fantasy.

The Property Catastrophe

The property market destroyed an estimated $7 trillion in household wealth between 2021 and 2024. This is not a small number. This is about 37% of China’s entire GDP wiped out from household savings.

And it could be much worse. The $7 trillion figure, based on Rhodium/Gavekal research assuming a 10-15% price drop, is the conservative estimate. Barclays and Bloomberg put the figure at $18 trillion through 2025, accounting for 20-30% price declines across different city tiers and including secondary market losses and negative equity. Seafarer Funds estimates potential losses of up to $23 trillion under a deeper correction scenario, with a 33% decline in housing prices and 50% equity erosion.

In China, property makes up 60-74% of household assets, far higher than the roughly 30% in the United States. When home values collapse, Chinese families lose the vast majority of their wealth. There is no diversified portfolio to cushion the blow. Losses come directly through devalued homes, reduced rental income, and eroded savings.

The bleeding continues. New home sales fell 11% year over year through November 2025. Real estate investment dropped nearly 16%. Property investment is now down more than 50% from its 2021 peak. New housing starts have collapsed by 75%.

The broader economic damage extends beyond household balance sheets. The crisis has caused roughly a 2% annual drag on GDP in 2024-2025. Property developers are losing $27.5 billion annually. Local government debt has ballooned to $18-19 trillion as land sales, once a crucial revenue source, have dried up.

Remember, real estate contributes directly and indirectly between 25% and 30% to China’s GDP and makes up about 70% of household wealth. When that sector is in free fall for five straight years, everything else gets dragged down with it.

The response from Chinese households has been completely logical: household savings grew 50% between 2021 and 2024. Savings rates hit 32% of disposable income. This is fear-driven behavior on a massive scale. Even worse, as I wrote in “China’s Gold Rush: When Your Only Escape Route Is Paying a Premium“, many are willing to pay a premium for gold as long as their money is not tied to the banking system.

Chinese people are scared. And they understand their economy better than most Western analysts do.

The Demographic Time Bomb: Why 2050 Changes Everything

China’s birth rate just hit a record low. In 2025, only 7.92 million babies were born, a 17% drop from the previous year. This is the lowest birth figure since records began in 1949. The total population fell by 3.39 million to 1.4049 billion, the steepest annual decline on record outside of the devastating famine from 1959 to 1961.

But the current numbers are just the beginning. The projections for the coming decades are staggering.

Population Projections: The Numbers Nobody Wants to Face

According to the United Nations Population Division (2024 Revision), China’s population will follow this path:

By 2100, China is projected to lose more than half its current population. The UN projects a decline of 786 million people, the largest population loss of any country through the end of the century. To put this in perspective, China will lose roughly the combined population of the United States and the European Union.

Yi Fuxian, a demographer at the University of Wisconsin-Madison who has argued for years that China’s population is overstated, believes the decline will be even worse. He estimates the population already stands at about 1.28 billion (not the official 1.4 billion), could reach about 1 billion by 2050, and fall to roughly 525 million by 2100.

Some projections from researchers at Victoria University and the Shanghai Academy of Social Sciences forecast that China’s population will fall to approximately 525 million by 2100 at current decline rates. This is a sharper drop than previously expected.

The Population Overcount Problem

There is another dimension to this crisis that few analysts discuss: China’s population may be significantly overstated.

Yi Fuxian has argued for years that China has been systematically overreporting its population. The Shanghai Academy of Sciences, one of China’s top research institutions, has indicated that the population under age 45 may have been overcounted by more than 100 million.

The evidence is striking. In 2018, China administered 6.21 million tuberculosis vaccines to newborns (a mandatory requirement), suggesting at most 9.9 million births. China officially claimed 15.23 million births that year. That is a gap of over 5 million in a single year. The 2000 census initially found 1.24 billion people. Officials were unhappy with this and revised it upward to 1.27 billion. Local governments have strong reasons to inflate population figures because more residents mean larger payments from Beijing for education, pensions, and poverty relief.

If China’s population is overstated by 100 million or more, the implications are enormous. GDP per capita is wrong. Consumption figures are distorted. Labor force projections are off. The entire economic picture is even more misleading than it already appears. And the demographic decline will be even steeper than the already dire official projections suggest.

The Dependency Ratio Crisis

The raw population numbers only tell part of the story. What matters even more is the age breakdown of that population.

By 2050, the share of Chinese over retirement age will be 39% of the total population. The dependency ratio will rise to about 70%, almost twice the 36.6% recorded in 2015.

The worker-to-retiree ratio tells an even starker story. If retirement ages stay the same, this ratio will fall from about 4 workers per retiree today to just 1.2 to 2 workers per retiree by 2050. That means there will be barely one or two working-age people to support every retiree.

Ryan Hass of the Brookings Institution put it bluntly: “China is at risk of growing old before it grows rich, becoming a greying society with weakening economic fundamentals that hold back growth. The working-age population is already shrinking, and this trend will accelerate dramatically in the coming decades.”

Why Demographics Make the Consumption Problem Unsolvable

Here is where the demographic crisis connects directly to the consumption problem, creating a vicious cycle that may be impossible to break.

First, aging populations spend less. Older people consume less than working-age adults. They buy fewer cars, fewer appliances, fewer homes. A shrinking, aging population mathematically means lower total consumption, even if spending per person stays the same.

Second, precautionary savings increase with aging. When people see fewer workers supporting more retirees, they save more for their own retirement instead of spending today. This is precisely what Chinese households are already doing. The 32% household savings rate is partly driven by demographic anxiety.

Third, pension and healthcare costs will crowd out other spending. China only spends about 6% of its GDP on healthcare, compared to around 10% in the European Union and Japan. As the elderly population grows from 220 million to nearly 400 million, healthcare and pension costs will consume an ever-larger share of government resources. The government will have less capacity to boost consumption through other means.

Fourth, the shrinking labor force reduces production capacity. The working-age population will fall by about 225 million by 2050. That is close to the combined population of Germany, France, and the United Kingdom. Even with automation and productivity gains, this represents a massive reduction in China’s productive capacity.

Fifth, fewer young households mean permanently lower property demand. The property crisis is not a temporary downturn. It is structural. Fewer people are getting married, fewer households are being formed, and fewer first-time buyers are entering the market. The property sector, which once contributed 25-30% of GDP, will never return to its previous size.

The Stimulus That Is Not Working

The Chinese government has essentially admitted the problem by throwing targeted stimulus at it. In 2024 and 2025, Beijing spent roughly RMB 370 billion ($51 billion) in consumption support across four rounds of stimulus programs.

The headline results look encouraging. Household appliance sales jumped 12.3% thanks to trade-in subsidies. Passenger car sales rose 6% through 2025. Online retail sales surged 7.2%.

But dig deeper, and you see something troubling. These subsidies only work for the categories the government is supporting. Everything else is stalling. Retail sales of consumer goods grew only 3.5% year over year in 2024. That is weak growth for an economy supposedly shifting to consumer-led expansion.

Here is the killer statistic that nobody mentions: China’s full-year 2025 inflation target was “around 2%.” Actual CPI came in at essentially zero. The target was missed entirely. Producer prices (what factories receive for their goods) have been falling for over 36 straight months.

This matters enormously. Deflation makes households even more reluctant to spend. If you believe prices will be lower next month, why buy today? If your wages are flat while your debts stay the same, your real debt burden grows. Deflation is poison for a consumption-led recovery.

The Tariff Squeeze: Why It Is About to Get Worse

Now we come to the part of the story that connects all these structural problems to what happens next. And it is not good news for China.

Despite everything I have described, China’s trade surplus just hit a record $1.19 trillion in 2025. How is that possible when the US has imposed tariffs exceeding 50% on Chinese goods?

The answer is rerouting through other countries. Chinese exporters have adapted by moving lower-end manufacturing to third countries in Southeast Asia, Mexico, and elsewhere that face lower US tariffs. Goods that would have been labeled “Made in China” are now being assembled or shipped through Vietnam, Indonesia, Thailand, and Mexico before reaching the United States.

The numbers tell the story. Vietnam’s trade surplus with the US soared roughly 18% annually to a record high in 2025. Chinese exports to Mexico rose from $74 billion in 2017 to almost $130 billion in 2024. Mexico’s trade surplus with the US more than doubled from $81 billion in 2018 to $172 billion in 2024.

But here is why this matters going forward: the US is catching on, and the pressure is about to intensify.

The average US tariff on imports from China stood at 57.6% in September 2025—more than double the level at the start of the year. Mexico has proposed additional tariffs on non-free trade agreement partners, including China, covering roughly 1,463 product categories. The EU, Vietnam, Indonesia, and Chile have all imposed fees or restrictions on Chinese goods in the past year.

The game of export rerouting is getting harder to play. And for an economy that cannot sustain domestic growth, this is an existential threat.

The Energy Vulnerability

There is another dimension to China’s weakness that receives almost no attention: dependence on energy imports.

China imports 73% of its oil and 42% of its natural gas. It is the world’s largest importer of both. In 2024, China’s fuel import bill exceeded $460 billion, resulting in an annual trade deficit of more than $450 billion in energy alone.

To put this in perspective: China consumed 163.8 exajoules of energy in 2024, more than the United States, the European Union, and Japan combined. Despite rapid growth in renewables, fossil fuels still supplied 86% of China’s primary energy and powered 61% of electricity generation. Coal alone accounted for 54% of the electricity supply.

An economy that depends on exports to grow and relies on energy imports to power those exports is doubly vulnerable to outside pressure.

If the United States keeps raising tariffs, and if global pushback against Chinese exports intensifies, China faces a squeeze from both directions. It cannot boost domestic consumption because households are over-indebted and scared. It cannot rely on exports because the world is blocking access. And it cannot power its economy without importing energy, which must be paid for in foreign currency, increasingly sourced from a trade surplus under attack.

Why This Matters Globally

Supply chain implications. A Chinese economy growing at 4-4.5% instead of 6-7% still has massive factory capacity but weaker domestic demand. That excess capacity gets exported as global price competition. This is highly deflationary for the rest of the world.

Investment flows. If China’s growth genuinely slows and risks mount, capital that was flowing into Chinese markets gets redirected elsewhere.

Geopolitical stability. Economic frustration at scale creates social pressure. A China experiencing genuine economic trouble could become a more unpredictable player on the world stage.

Trade dynamics. China’s record $1.19 trillion trade surplus inevitably creates mounting international pressure for rebalancing.

The Squeeze That Is Coming

The Chinese government will have a tough time boosting domestic consumption. Consider what it is up against: households that are over-indebted, scared, and saving at record rates; a population set to shrink by up to 280 million by 2050 and potentially by half by 2100; a dependency ratio that will nearly double, leaving just 1.2 workers to support each retiree; an export machine that relies on rerouting through third countries to avoid tariffs, with that loophole closing; and an energy import bill exceeding $450 billion a year, payable in foreign currency.

The US tariffs are not just protectionism. They are effectively trying to force China to abandon its export-led model and the dumping that goes with it. Even though China’s trade surplus grew because it exports through third countries as intermediaries, the pressure is increasing. And for an economy that cannot sustain domestic growth, things are about to become much, much harder.

Demographics make this worse, not better. You cannot boost consumption when your population is shrinking and aging. You cannot grow your way out of debt when your labor force is declining by 225 million workers. You cannot fund pensions and healthcare when the worker-to-retiree ratio collapses from 4:1 to 1.2:1.

My Updated Thesis

November 2024: Can China spend its way to growth? Most likely not, because the data does not support it.

January 2026: China cannot spend its way to growth under current policies. It is actively not spending its way to growth. The consumption stimulus is working on the margins for government-supported categories but is failing to create organic demand. Meanwhile, household debt is rising, defaults are accelerating, the population is shrinking and aging, and precautionary savings behavior suggests Chinese citizens understand their economy better than policymakers do.

The question is not whether China can rebalance. Structurally, it can, if it allows wealth redistribution to work, implements genuine pension reform, and expands healthcare spending. The question is whether it will. Current policy signals suggest the answer is no.

Until that changes, China will remain trapped in the same pattern: high investment, low consumption, rising debt, shrinking population, slowing growth, and increasing vulnerability to external pressure on its export lifeline.

The data is there. The story is clear. China’s economic model is broken, and patching it with targeted subsidies will not fix it.

The demographic projections make this even more dire. A country that is losing 3 million people per year now will be losing 14 million per year by 2062. A workforce that shrinks by 225 million cannot sustain the growth rates Beijing demands. An aging population that nearly doubles its dependency ratio cannot suddenly transform into a consumption-driven economy.

The real question is: how long before global markets start pricing in the actual risk, rather than the comfortable narrative?

I suspect we are about to find out.

References

United Nations Population Division, World Population Prospects 2024 Revision; World Bank China Economic Update; IMF Article IV Mission to China, December 2025; Yi Fuxian, University of Wisconsin-Madison demographic research; Shanghai Academy of Social Sciences population studies; Brookings Institution China demographic analysis; NBER Working Papers on China aging; Carnegie Endowment for International Peace; George Magnus, Oxford University China Centre; Michael Pettis, Peking University; Gavekal Dragonomics; Rhodium Group; CEIC Data; various government press releases and statistical bulletins; Barclays China Property Market Outlook, November 2024; Bloomberg Economics: China’s Housing Crisis Update, December 2025; Seafarer Funds China Outlook Report, 2025; Nikkei Asia: China’s Local Government Debt Analysis, October 2025; Statista: Chinese Property Developer Financial Losses, 2025 Summary; IMF World Economic Outlook, October 2025 (for broader debt and GDP drag estimates).