China’s centrally planned economic model is displaying structural weaknesses, as per a report by The National Interest. While China’s tight political and economic control was once seen as an advantage over market-driven economies, it is now revealing economic vulnerabilities. The system in China allows authorities to allocate resources but at the expense of efficiency and long-term stability.
The report highlights that China’s industrial policy is heavily centralized, with state authorities influencing demand and supply in various sectors. This centralized approach has led to rapid growth in key industries but has also caused economic imbalances and resource misallocation. Notably, China’s property sector has been under stress since 2021 due to years of state-supported expansion.
The property sector crisis was triggered by policy tightening in 2020, leading to defaults among major developers like Evergrande. To counter this, Beijing expanded its industrial strategy with initiatives like “Made in China 2025,” focusing on sectors such as electric vehicles and semiconductors. While this boosted production capacity, it also resulted in excess supply and increased export dependence.
External pressures, such as declining exports to the US and trade restrictions from Europe, are further challenging China’s growth model. Despite China’s dominance in rare earth processing, efforts for global diversification are gradually reducing this strategic advantage.
