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No stimulus can fix China growth model China’s economic ills are serious but not incurable on.ft.com/48c5pvr The notion that China’s economy can be easily fixed with a large stimulus package, as some analysts suggest, is fundamentally flawed. The idea that “if only Xi would listen and implement a big stimulus, everything would be fine” misses the deeper issues at play. Let me explain why. The growth model that propelled China’s rapid expansion for decades is fundamentally broken. Over the past two years, we’ve seen how monetary stimulus has had little effect. This is because the fundamental economic conditions have shifted. Moreover, the state’s reluctance to implement a large fiscal stimulus is not just hesitation, or “we can’t get through Xi’s thick skull”—it’s an acknowledgment that they are struggling to execute it effectively. Here’s why: 1.Domestic Consumption: The real estate sector, once a cornerstone of China’s growth, is broken beyond repair, and pumping more capital into it won’t fix the problem. Years of overbuilding, over-leveraging and overbuying have led to a bloated market with too much inventory. This isn’t a capital insufficiency issue but rather a systemic flaw. Additionally, we are witnessing the early stages of a contracting consumer market. The collapse of the wealth effect from real estate—where rising property values made consumers feel wealthier and more willing to spend—is now in reverse. As property values fall, consumer confidence continues to erode, dragging down domestic consumption. 2.Investment: Private entrepreneurs have lost confidence in the regime. Many of them no longer see long-term prospects in China. While some may still engage in speculative short-term opportunities, faith in sustainable, long-term investment has dwindled. The state-driven infrastructure build-out that once fueled growth has also run its course. For years, China pumped its GDP numbers by over-investing in infrastructure projects, many of which now offer low or negative returns. Roads to nowhere and empty airports don’t generate sustainable economic growth. 3.Exports: The global geopolitical landscape has shifted dramatically against China. Many countries are now adopting protectionist measures to limit Chinese imports, driven by both economic and strategic concerns. Even though China produces roughly one-third of the world’s goods, it’s hitting the ceiling of external demand. Major markets, particularly in the West, are curbing their reliance on Chinese manufacturing, and this trend is only accelerating. The result? The once-booming export machine is slowing down with fewer markets willing or able to absorb China’s output. With domestic consumption weakening, long-term investment drying up, and global export markets becoming less accessible, China faces a fundamental question: where do you put capital to work? And if private entrepreneurs are unwilling to take on the risks, who is left to drive implementation of any growth strategy? This is why the idea that a big stimulus will solve China’s problems is misguided. China’s challenges are structural, not cyclical. They require deep societal, economic, and political reforms—far beyond what a stimulus package, however large, could achieve. Monetary or fiscal injections won’t fix these underlying issues. The solution requires adjustment of the entire growth model, and that won’t happen for political reasons.