China‘s Steady Economic Decline

Velina Tchakarova 

 

 

Foreign Affairs published a new article on China‘s economy pointing to a steady decline. „China is not facing an economic crisis or a collapse, but a steady decay of its capacity to influence its economy through its fiscal and financial systems. After years of unproductive investments and amassing trillions of dollars of bad debt, the country has no way to generate sustained domestic demand from households or corporations and is entirely dependent on exports for its growth.“

And „…Last year, despite the Trump administration’s trade war, China achieved its largest-ever global trade surplus, $1.2 trillion, by exporting some $3.8 trillion worth of goods, a 5.5 percent increase from the year before. The rest of the Chinese economy, meanwhile, has cooled significantly since 2022 amid the collapse of the property sector and Beijing’s overly aggressive COVID-19 restrictions.“

The unresolved question is whether China can eventually rebalance toward stronger consumption without sacrificing the industrial strategy that underpins its technological and geopolitical ambitions. At present, Beijing appears willing to accept weaker consumption if it preserves manufacturing leadership and reduces dependence on foreign technology, a trade-off that sits at the heart of the current US-China strategic rivalry.

China’s official data imply that it accounts for about 16.7% of global nominal GDP. However, some economists argue that measurement issues, the property correction, and slower underlying growth suggest its effective share may be closer to 15%.

However, China’s challenge today is less about the absolute size of its economy and more about whether it can convert its immense manufacturing and technological capacity into sustained, productivity-driven growth while competing with the United States for long-term economic and technological leadership. The rivalry is not a contest over a single GDP figure but over different pillars of systemic power.

A factory in Chengdu pays wages, electricity, and local suppliers in renminbi, not dollars. Its ability to produce drones, batteries, or machine tools is therefore better approximated by PPP than by nominal GDP.

This is why I have long argued that the US-China rivalry is not a race to become the single largest economy. It is a competition between two different models of systemic power.

The United States remains the world’s dominant financial and innovation superpower, while China has become the world’s dominant industrial and production superpower. The strategic contest is about which combination of capabilities: finance and frontier innovation or industrial scale and production capacity, will prove more decisive in shaping the next international order. That distinction is far more consequential than whether China’s share of global nominal GDP is 15%, 16.7%, or even 20%.

The central question of the New Cold War is which geopolitical ecosystem can command the critical sources of systemic power in the age of the Fourth Industrial Revolution (4IR) and artificial intelligence.

The US and the DragonBear represent two competing models of strategic advantage. The United States remains the world’s dominant financial, monetary and innovation superpower. It continues to control the global reserve currency, the deepest capital markets, the leading AI frontier ecosystem, semiconductor design, venture capital, and an unparalleled network of military alliances and technology partnerships.

The DragonBear, by contrast, is steadily consolidating its position as the world’s industrial and resource superpower. China provides the manufacturing scale, industrial capacity, critical minerals processing, advanced production ecosystems and increasingly indigenous technological capabilities, while Russia contributes strategic depth in natural resources, military adaptation, nuclear deterrence and wartime operational experience. Together, they are constructing a complementary geopolitical ecosystem whose resilience derives less from financial dominance than from the ability to sustain production, absorb systemic shocks and reduce dependence on Western-controlled technologies and institutions.

Artificial intelligence fundamentally changes the nature of this competition. AI is no longer a standalone technology but the operating system of economic productivity, military effectiveness, industrial automation, intelligence collection and strategic decision-making. The decisive variable therefore becomes not simply who develops the most advanced AI models, but who can integrate AI across the entire industrial base: from semiconductor fabrication and robotics to autonomous weapons, logistics, energy systems and advanced manufacturing.

This is why nominal GDP alone has become an increasingly incomplete measure of geopolitical and geoeconomic power. Financial strength remains indispensable, but the AI-dominated era rewards countries that can combine technological innovation with manufacturing scale, secure supply chains, energy resilience, data ecosystems and sustained industrial mobilization. In other words, the strategic competition of the Fourth Industrial Revolution is shifting from measuring wealth to measuring the capacity to generate, deploy and continuously regenerate systemic power.

The emerging new bipolar order should therefore not be understood as a contest between two economies, but as a competition between two rival geopolitical ecosystems. On one side stands the US-led coalition, leveraging financial primacy, technological innovation and alliance networks. On the other stands the DragonBear ecosystem, leveraging industrial capacity, strategic resources, military adaptation and increasingly integrated technological ecosystems. The outcome of the New Cold War will not be determined by which side records the higher GDP growth rate, but by which ecosystem proves more resilient, adaptive and capable of orchestrating the full spectrum of power in an AI-driven international system.