So, you’ve surely heard the breathless hype about China’s economy being an unstoppable juggernaut. In reality? It’s closer to a paper tiger — all roar, no real bite.
Over the last ten years, China has been doubling down on a centrally planned, neo-Keynesian fantasyland — one that only works so long as someone else is willing to play along. Think of it as Monopoly with Chinese characteristics: print a boatload of money, build entire ghost towns that now star in eerie YouTube drone tours, and call the whole thing “growth.” Only… it’s not.
Meanwhile, the manufacturing sector is running a Red Queen race — running faster just to stay in place. “China churns out way more than it can use and then panics, shoving its surplus onto the U.S. like a teenager cramming junk into the closet five minutes before mom walks in.” If you’ve ever been 15 and grounded, you already understand Chinese economic strategy.
And no, this isn’t some isolated incident or short-term hiccup. “The Chinese manufacturing sector overcapacity is not an anecdote. It is the norm.” Let that sink in. “China produces 30% of the world’s manufacturing goods but consumes less than 18%, according to CKGSB.” They’re essentially the Costco of the planet — bulk everything, but no one at home wants it.
And here’s the punchline: “China’s industrial capacity utilization rate fell to 74.1% in the first quarter of 2025.” Translation? About a quarter of their factories are on vacation — or making TikToks — instead of producing anything useful.
Why does this happen? Because the goal isn’t to turn a profit. It’s to look busy. “China’s Keynesian central planning model aims to maximise employment and maintain strong economic growth, despite financial constraints and excessive indebtedness.” So they just keep building — bridges, apartments, factories — and pray someone, anyone, shows up to buy the stuff. The government, of course, acts like everything’s fine, even while quietly admitting there’s a problem: “It noted that ‘involution’-style competition (wasteful competition) is a major focus for the 2025 economic policy, and steps are being taken to reduce unnecessary investments and control growth in some industries.”
VISIT OUR YOUTUBE CHANNELHere’s the real kicker: “Overcapacity in China is not a fatality; it was created by political design, with local and national authorities trying to boost GDP at any cost.” In other words, this whole economic Rube Goldberg machine was handcrafted by bureaucrats who think the GDP is a high score in SimCity.
Does the model work? Kind of — if they can export the excess. “The model is aimed at keeping full employment and economic growth even with economic returns below the cost of capital, and it almost works if the excess capacity can be sold globally, receiving reserve currency and maintaining low costs by passing the working capital cost to global consumers and maintaining low production expenditure with currency controls and exchange rate fixing.” Translation? Flood America with cheap goods, rig the currency, and pretend it’s genius. Rinse, repeat, delude.
But now the real world is kicking down the door. “The combination of rising debt, a constantly weakening currency, and the escalating bankruptcy and working capital issues could potentially bring this model to a collapse, even in the absence of an official recession.” The structure is wobbling, and even Xi Jinping’s signature death glare won’t hold it up much longer.
And they know it. “China has learnt that it cannot endure a trade war and cannot substitute the US consumer, the richest and largest market, with European or Latin American consumers.” Sorry, Europe — Beijing swiped left.
Now they’re scrambling to save face — and their economy. “China is officially in deflation for the third consecutive month in April. Business insolvencies are projected to increase by 7% in 2025 and by 10% in 2026, according to Allianz, even as the government implements additional fiscal stimulus.” Their fix for drowning in printed money… is to crank up the printer. Makes sense, right?
Meanwhile, the beating heart of China’s economy — small and medium businesses — is flatlining. “Small and medium-sized enterprises, particularly exporters, are facing mounting bankruptcies due to declining cash flow and the elimination of US tariff exemptions. Job losses are rising in export-dependent regions, and the urban unemployment rate is expected to average 5.7% in 2025, above the official target, according to CNBC.” In other words, China’s economic miracle is now a cautionary tale.
Let’s not forget the PMI numbers. “The official NBS Manufacturing PMI fell sharply to 49.0 in April 2025, the steepest decline since December 2023, reflecting a drop in output, new orders, and employment, with foreign orders shrinking to their lowest in at least eleven months.” That’s economic speak for “we’re in trouble.”
And then we arrive at the iceberg: China’s real estate market. “The collapse of the real estate sector, which once accounted for up to 30% of GDP, has weakened banks, reduced household wealth, and led to a negative wealth effect, further depressing consumption and credit demand.” So if you’re wondering why people aren’t buying new phones, it’s because they’re too busy watching their net worth implode.
Sure, China has strengths — but you can’t keep wallpapering over cracks with propaganda. “Everything that is weak in China comes from previous years of government policies aimed at boosting economic growth by building stuff and hoping it would sell at some point.” It’s the economic version of “if you build it, they might show up… eventually… maybe.”
And what about the Belt and Road Initiative? Well, it’s turning into a cautionary tale of its own. “Rising bankruptcies, an imploding property market, and mounting local government debt strain the financial system just as non-performing loans from the Belt and Road Initiative (BRI) soar. Several BRI countries have defaulted on their debts or required IMF bailouts, including Sri Lanka, Zambia, Ghana, and Pakistan, while the BRI generated $385 billion in off-the-books debt.” And what about the Belt and Road Initiative? Well, it’s fast becoming the world’s most expensive lesson in bad investments. Tons of debt, barely any returns — but hey, at least the bridges to nowhere make for stunning drone shots.
Bottom line? “Keynesian policies always lead to high debt and stagnation. However, when combined with a centralised planning system, a closed financial system, and capital controls, Keynesian policies create a dangerous mix of overcapacity, poverty, and economic slack.”
There’s still an escape hatch — if they’re willing to use it. “China can only begin to address its enormous working capital problem through a quick and successful trade deal with the United States. It will benefit China enormously if the government opens its economy, lifts capital controls, and allows the private sector to breathe.”
Otherwise? “The implosion of the overcapacity problem hidden from the media, offset by even more central planning and stimulus spending, is only going to weaken China in the long run.”
And at that point, it won’t be a treadmill on fire — it’ll be the whole gym going up in smoke.
#chinacollapse #ghostcityeconomics #centralplanningfailure
