After a two-week stay in China, British writer James Crabtree identified significant discrepancies in the state of the country's economy. While impressed by achievements in artificial intelligence, electric vehicles, and drones, he also found that the economy is facing issues related to weak demand, declining investment, rising unemployment, and a protracted crisis in the real estate sector.
In his publication titled 'China: Through the K-hole,' Crabtree characterized China as a 'K-shaped economy,' where rapid technological growth coexists with deep economic difficulties. He noted that upon leaving Shenzhen, he was struck by the power of the technological ecosystem, which surpassed his previous expectations, but the internal state of the economy turned out to be much worse than he had assumed.
Crabtree, an invited research fellow at the European Council on Foreign Relations, highlighted the growing gap between China's technology sector and its overall economic situation. He reported that while GDP grew by 4.5% in the last quarter, there is a decline in investment, weakening demand, a serious drop in property prices, and a cessation of spending by private businesses.
The geopolitical analyst also pointed to reduced tax revenues, pressure on China's stock market, and restricted access to advanced computing technologies. In Crabtree's view, China's remaining growth depends on exports, which are facing tariffs from trading partners.
During his trip to Beijing, Crabtree met with economist Michael Petis, who discussed the possibility of a prolonged period of weak growth in China, similar to what Japan experienced after its asset bubble burst. Analyst Petis assessed China's economic prospects as a period of slowdown, stagnation, and slow recovery that could last a decade or more, given that the country is grappling with one of the largest debt burdens in history. He called this a positive scenario.
Crabtree questioned whether official unemployment figures reflect the reality of the labor market. He cited an example where official unemployment is just over 5%, which, in his words, raises doubts. Chinese economist David Daokui Li recently reported the actual unemployment rate at 10.2%. Petis believes even this figure remains high. Quoting a Financial Times report, he mentioned that 53 million Chinese workers are employed in food delivery and ride-hailing, and about 200 million people work in the large gig economy.
The author suggested that China is using the informal economy as a kind of temporary buffer against unemployment amid the economic slowdown. His comments mentioned employment forecasts and alternative unemployment data that were not separately verified in the publication.
Crabtree noted that Chinese businesses are facing excessive domestic competition, especially in the electric vehicle sector. He recounted that during his visit, he often heard entrepreneurs say that the struggle in China resembles a civil war. Over a hundred EV brands are actively competing by lowering prices, leading to a significant reduction in margins for most companies. In Crabtree's opinion, such domestic competition forces Chinese firms to expand abroad in search of profit.
Furthermore, Crabtree drew attention to China preparing new export control regulations due to increased competition with the US. He stated that China is beginning to restrict the export of technologies, including powerful open-weight AI models, as well as drones and tunneling equipment. Beijing is creating systems similar to those in Washington to limit access to strategic technologies.
Ultimately, Crabtree concluded that China maintains technological competitiveness and strengthens its international standing despite structural problems in its domestic economy. He noted that Xi feels confident on the world stage, for instance, meeting with representatives from Washington in 2025. Although China's technological superiority is growing, the country feels economic weakness, which, in his opinion, explains Beijing's desire to maintain stable relations with the US.
