Chinese economist calls for stronger safety net to boost consumption amid external shocks

Navigating China's consumption puzzle in a shifting global order

The forces reshaping China's economy now demand an entirely new analytical framework, according to Lan Xiaohuan, whose textbook How China Works has sold millions of copies domestically and been translated into multiple languages. The professor of economics at China Europe International Business School says he would not merely add a chapter to update his bestselling work, he would write a new book.

External shocks overshadow domestic trends

The most consequential changes driving China's economic trajectory are external, Lan argues, despite significant domestic shifts such as the real estate market's decline and the rapid expansion of manufacturing and technology sectors. The pandemic, the Russia-Ukraine war, energy shocks involving Iran, and shifting U.S. political dynamics have proven more disruptive than internal adjustments, while "China's domestic baseline has remained relatively stable," he notes.

Any new book, Lan says, would likely centre on China's industry and technology.

The record surplus and consumption dilemma

The economist discusses what lies beneath China's record trade surplus, a figure that reflects structural imbalances between production and domestic demand. His analysis explores how those imbalances connect to consumption patterns and the mechanisms needed to rebalance growth.

Making the case for social protection

Lan advocates for a stronger social safety net as part of the solution. He frames this not as welfare spending but as infrastructure for sustainable consumption, arguing that inadequate social protections discourage households from spending and lock savings into precautionary reserves rather than productive circulation.

Data infrastructure in the AI race

The economist also addresses how public data infrastructure shapes China's position in the artificial intelligence competition with the United States. The availability, quality, and governance of data, rather than computing power alone, emerge as critical variables in determining which country can build more capable AI systems and commercialise them at scale.

Lan's commentary arrives as policymakers grapple with stimulus measures designed to lift household spending without triggering asset bubbles or fiscal strain.

Source: South China Morning Post