What might save China's economy

0:01NPR

0:11This is The Indicator from Planet Money, I'm Darian Woods. In 2011, Goldman Sachs predicted China would seize America's crown for the world's biggest economy by 2026. A couple of years ago, Goldman Sachs pushed that date back. 2035 was when China would become dominant. But since then, China's faced economic hurdles. Some people are now questioning whether China will ever have an economy larger than the US. And this matters. One-sixth of all the world's economic activity happens in China. Whoever has the largest economy can afford the largest military. They can sweeten more alliances and have a larger say in how the world is run.

0:57As the world's number two economy, China's growth directly challenges U.S. dominance. And to help us figure out how fast China might grow or not, we have NPR's China correspondent, John Riewicz. Welcome, John. Hey, great to be here, Darian. So China just wrapped up its annual session of parliament, the National People's Congress. And this is a once a year opportunity to take the pulse on what China's leaders are thinking about the economy. One big announcement at the start of the event that everybody's looking for is the target for economic growth. This year, it's around 5%. Around 5%. Okay, sounds solid.

1:34And it's higher than U.S. growth and GDP, gross domestic product. Yeah, and it's the same as it was last year. Now, achieving that rate of growth is possible, but not guaranteed. This question of Chinese growth is critical for the global economy. So today's show, we cross the Pacific to see the headwinds and tailwinds facing this industrial giant.

2:01This message comes from NPR sponsor Capella University. Sometimes it takes a different approach to pursue your goals. Capella is an online university accredited by the Higher Learning Commission. That means you can earn your degree from wherever you are and be confident your education is relevant, recognized, and respected. A different future is closer than you think with Capella University. Learn more about earning a relevant degree at capella.edu. This message comes from NPR sponsor U.S. Bank. With U.S. Bank Business Essentials, you get more than just a bank. you get a dedicated partner that provides you a powerful combo of checking and card payment processing with quick access to the money you've earned, proving that there is nothing as powerful as the power of us.

2:47Visit usbank.com today to learn more. Member FDIC. Copyright 2025 U.S. Bank. John, you went to the National People's Congress at an incredible moment for China. Yeah, it's a moment that's got almost equal amounts of opportunities and risk for China. The chief problem being that China's been in this kind of real estate hangover for years. Its property sector has been in a grinding slump, which has really been hitting confidence of the middle class and of businesses. Officially, though, there is a lot of confidence and optimism in China's future, too. Just before the opening session of the National People's Congress, the representatives were streaming into the Great Hall of the People, this giant facility on the side of Tiananmen Square.

3:29And I button-holted a delegate named Tianxuan. He's a professor of finance at Tsinghua University. He's also a representative of the Shanghai delegation at the National People's Congress.

3:42Tianxuan said hitting the around 5 % growth target is going to take a lot of work. First, China needs its own consumers buying more. China has been trying to do this for a while, but it hasn't really figured out how to do it. And it's also been hit particularly hard in the last years with that property slump. Yeah, it has. But Tianxuan says that there are other ways to boost the economy, like making wise investments in things like ports and research and development. Overall, I got the sense that he thinks the government is choosing the right policies to hit that around 5 % growth target this year.

4:14The trade war must be a storm cloud, though. Got new U.S. tariffs on Chinese-made goods. Yeah, it is. Tianxuan's fairly relaxed about it, though. He thinks the authorities have more ways to adapt this time around and are better prepared. Plus, Chinese businesses, you know, they're doing their thing, right? And continuing to figure out ways to reduce risk. You told me this fascinating story about a guy in southern China making light fixtures. Yeah, last fall I visited his factory. The owner is a guy named James Chung. When I was there, he was churning out thousands of mirror lights for a Las Vegas hotel.

4:49He told me that during Trump's first term in office, he moved some of his production to Thailand to help his customers avoid the tariffs. And when I called him the other day, James Chung told me that he had just gotten back from a trip to Thailand for work.

5:04In the past couple months since Trump took office again, he says he's been moving a lot of production there. It's now 70 % of his total, up from about 30. James Chung says his customers will pay about 15 % more for the products if they're made in Thailand. But that's actually a bargain compared with getting products from China. From China, he says they pay 45 % in tariffs. So moving production and assembly outside of China, that's one way around some of these tariffs. Now, it's worth noting that, all told, China's exports to the US aren't a huge share of China's economy. It's just roughly 3 % now.

5:47Yes, China is an exporting powerhouse, but most economic activity is still internal to the country. So what's really going to help China's economy is broader trends that make it more productive, like inventing and adopting cutting-edge technology. Technology and tech-based manufacturing was talked about a lot at the National People's Congress. That member from the Shanghai delegation, Tian Xuan, he says there have been some big innovation breakthroughs in recent months in China, like, of course, the AI company DeepSeek. Yeah, it is a very impressive chatbot, and it used a much smaller budget to make than we thought was possible.

6:25Tianzhen says innovation is blooming, and the key to reaching China's economic goals is creating an even better environment for innovation.

6:36And the government feels this way too. Beijing is in the midst of a multi-year effort to build up its industries in green energy, aerospace, robotics, AI, and advanced machinery. It wants China to dominate these industries of the future. We often talk about it on the show that it's doing incredibly well in some of these areas. Right. China's a leader in green energy, for instance, EVs, batteries, and it's made some pretty surprising strides recently in AI, as DeepSeek showed. But the strategy may have its limitations, according to Arthur Kroeber. Arthur is one of these longtime China heads. He's written a book.

7:14He started a China macroeconomics firm. He divides his time between New York and Beijing. He says that the government's theory seems to be that heavy investments in tech will lead to productivity breakthroughs. Those productivity breakthroughs will then lead to higher wages and good jobs. I don't think that that is very likely. The problem with that is you look at all these high-tech industries that everyone is so excited about, EVs and batteries and whatnot, but they're not very profitable. Arthur says there's a capacity glut. A lot of stuff being produced, but not enough buyers to keep businesses standing on their own two feet.

7:52Companies in the solar sector are struggling in batteries. Profits are falling. Profitability in EVs is dropping. And a lot of this is due to competition with other companies in China. Everyone is struggling. So they're all barely making money. And so they don't have a lot of ability to hire lots of people and give them big wages. Without those big wage increases, Arthur says it's hard to see how growth and high-tech industries will spill over to the rest of the economy. He says China's industrial policy has been successful at a certain level. They've got a lot of very competitive manufacturing industries, but growth is probably going to be pretty sluggish for a few more years yet.

8:33And they're not going to get this magical nirvana that they hope for. So that is the glass half empty take. A government that has intervened a lot in high tech industries has had some results like green tech exports. But it's unclear whether that's really lifting the whole country up. Yeah, in some ways, China's challenge is a lot more basic. It wants to move away from an economy dependent on high levels of investment encouraged by the government. Instead, to one where everyday Chinese people feel enough economic security to spend more. And that's going to take some adjustment. Yeah, just over the weekend, the Chinese government announced plans to vigorously boost consumption, in their words.

9:15They want to raise minimum wage and invest in childcare, among other things. In the meantime, the Chinese people may have to, as Xi Jinping put it, eat bitterness. Eat bitterness. Now, that is a lot more direct than we hear from leaders here. Recently, we heard President Trump calling the possible economic tumult coming in the U.S. a period of transition. There will be plenty of transitions for both countries, I'm sure. That I think we can say for sure.

9:45This episode was produced by Cooper Katz McKim and Alwyn Tsao. It was engineered by Kweisi Lee. It was fact-tracked by Sarah Juarez. Cake & Cannon edits the show, and The Indicator is a production of NPR.

10:01This message comes from Grammarly. From emails to reports and project proposals, it's hard to meet the demands of today's competing priorities without some help. Grammarly is the essential AI communication assistant that boosts your productivity at work so you can get more of what you need done faster. Just a few clicks can tailor your tone and writing so you come across exactly as you intend. Get time back to focus on your high-impact work. Download Grammarly for free at grammarly.com slash podcast. That's grammarly.com slash podcast.