Is China's Economy Growing Or Shrinking?

Back in May 2024, I had a post titled “So How Are Things Going In China?” The post was inspired by a New York Times article of April 15 of that year that had reported that China’s economy had grown “more than expected” in the first three months of 2024; and by a just-issued IMF prediction that China’s economy would grow by 5% in 2024. To believe the New York Times and the IMF, in 2024 the Chinese economy was growing at an annual rate of 5% or more. For 2025, China again reported a GDP growth rate of about 5%.

Meanwhile, the reported rates for U.S. GDP growth were 2.8% for 2024 and 2.1% for 2025. It looks like China is beating the pants off us. Surely, it can only be a few more years before China’s economy overtakes ours as the largest in the world.

Well, maybe things aren’t quite that simple. On March 19 the Wall Street Journal had two pieces giving a very different perspective, one in the news pages by Jon Emont, and the other on the editorial page by Joseph Sternberg. Emont’s piece has the headline “Beijing’s Big Problem: An Incredible Shrinking Economy.”

How could China’s economy be “shrinking” when it consistently reports annual GDP growth of 5% or more? Emont:

[B]y one important measure, China’s global heft is shrinking. In dollar terms, China’s gross domestic product, as a share of the global economy, peaked in 2021 at around 18.5%, when it grew to be around three quarters of the size of the U.S. economy. Many economists predicted China’s explosive growth would eventually make its economy bigger than that of the U.S.  Instead China’s share of the pie has decreased, ending 2025 at around 16.5% of the global economy. It is now less than two-thirds the size of the U.S. economy, according to International Monetary Fund data.

It all depends on how you measure GDP. If your measure is volume of production in local currency, China’s economy might be growing strongly. But if your measure is the value of Chinese production in the international marketplace, its economy is shrinking.

An indication of how the difference arises can be found elsewhere in Emont’s piece:

[China] is the global leader in strategically important industries such as electric vehicles, solar panels, shipbuilding and humanoid robots.

Electric vehicles? Solar panels? Emont may call these industries “strategically important,” but what they really are is industries that until recently were heavily subsidized in the West, but now many of those subsidies have been withdrawn. As subsidies were withdrawn during 2025, Western manufacturers have rapidly withdrawn from these industries, and taken write-offs of their investments. On EVs alone, in 2025 GM took write-offs in the range of $7 billion; Ford took write-offs of $19.5 billion; and in early 2026 Stellantis took an EV write-off of over $26 billion. All three also significantly cut back production of the EVs.

But in China, that’s not how it works. They continue to produce EVs by the zillions. CNBC reported in September 2025 that the biggest Chinese EV manufacturer, BYD, had cut prices by as much as 30%. With the much lower prices, its deliveries of new vehicles still declined by a small amount.

And then there’s the issue that China’s production statistics may well be substantially inflated. From Sternberg’s piece:

It’s widely understood that the government economic data concerning GDP growth are a lie intended to flatter the party.

Sternberg also highlights other issues in China’s government-directed economy. For example, China has long made easy and cheap credit available to favored and mostly state-owned industries.

[T]he rapid expansion of [credit] for decades has been Beijing’s primary means of achieving economic growth. Despite robust new bank lending of around $680 billion, the total rate of credit growth is slowing dramatically: to 6.1% year-on-year in January, compared with an average of 9% a year in 2017-24 and 18.1% in 2007-16. . . . [T]he efficiency of credit at generating economic growth may be declining even as the pace of credit creation slows. Some 58% of loans in December were made at interest rates at or below the official benchmark lending rate of 3%. . . . [B]anks are struggling to find borrowers (read: in the private sector) that could generate returns above 3%, which is remarkable in a developing economy with enormous potential for catch-up growth if nothing else. Instead banks are lending to inefficient state-owned enterprises and investment pools linked to local governments.

They plow forward providing more and more subsidized credit to produce more and more stuff of less and less value.

Is China’s economy growing or shrinking? It could be either one, depending on what method of measuring you select. But my view is that, by the measures that count, shrinking is the right answer.