The rise of China has reshaped the global balance of power over the past few decades, compelling major geopolitical readjustments. Since the economic reforms of 1978, China’s GDP grew on average by 9 percent per annum, lifting more than 800 million citizens out of poverty.

Now, however, China’s rapid ascent is slowing. Its GDP growth hovers around 5 percent, and global power equations are again being recalibrated. Predictions that China would overtake the United States as the world’s largest economy have failed to materialize.

China’s workforce has already peaked, according to official data. The labour supply is projected to fall by about 7 percent between 2025 and 2050. Even before the pandemic, signs of economic weakness were visible, as the country shifted away from the reformist zeal that had driven its earlier success.

The working-age population has been shrinking for about a decade, while the overall population has already peaked—and has been overtaken by India’s. The once-vast army of young workers that powered the world’s factories is dwindling. The rise of the tang ping (“lie flat”) movement reflects the frustration of a younger generation facing job scarcity and uncertain futures.

China Losing Ground

To support its growing elderly population, China will need to divert more resources, straining its fiscal stability.

This “peaking power trap” could create a more dangerous scenario for the United States, which now faces a powerful rival determined to avert decline. Yet democracies tend to perform better in great-power rivalries, thanks to their economic, diplomatic, and military adaptability. For Beijing, global military dominance remains a distant dream.

China’s regional rivals, particularly India, are fast emerging. Economists have long warned that the Chinese growth model was fundamentally flawed and unsustainable. The problems have now run deep—and the repairs will be costly.

Not only will China not surpass the US as the world’s dominant economy, it is already losing ground.

Chinese Model Changing 

The Chinese model, driven by massive state-led investments in infrastructure, manufacturing, and real estate, delivered rapid growth in its early decades. But after years of an infrastructure boom, the returns are diminishing. With little progress toward shifting from an investment- and export-led model to one driven by domestic consumption, Beijing has turned inward—prioritizing self-sufficiency and internal security.

After four decades of extraordinary expansion, China now faces deep structural problems that constrain both consumption and private investment. Despite developing a more advanced economy, the state and its firms continue to overbuild. The result is wasteful excess: an estimated 23–26 million unsold apartments—enough to house the population of Italy—many located in towns with shrinking populations.

Even China’s pride, its high-speed rail network—the largest in the world—is mired in debt. The state-owned operator owes more than $800 billion and has posted heavy losses.

As China continues to invest beyond what its economy can absorb, unproductive spending—much of it debt-financed—has expanded far faster than GDP. A decade ago, total debt was about twice the size of the economy; now it is roughly triple. The debt-to-GDP ratio has reached around 300 percent, alarmingly high for a developing economy.

According to the International Monetary Fund, local governments have accumulated about $9 trillion in debt through infrastructure financing.

Cycle Of Stagnation

China’s leadership has long recognized these risks and understood the need to rebalance toward domestic consumption and a more open financial system. But reforms have either stalled or failed to materialize. President Xi Jinping, while initially signaling support for change, has ultimately prioritized political control over economic liberalization.

Instead of empowering the private sector, Xi has doubled down on state-led industrial policies to drive innovation. Yet with a high savings rate and a continued reliance on exports and investment, domestic consumption remains weak—reverberating across the region, particularly in Southeast Asia’s export-driven economies.

Falling demand has triggered deflationary pressures, discouraging both investment and consumer spending, and trapping the economy in a cycle of stagnation.

Beijing's Mounting Challenges

Caught in this bind, Beijing is looking outward—seeking to build an alternative economic bloc through “friendshoring” and anti-West models such as the Belt and Road Initiative (BRI), BRICS, and the Regional Comprehensive Economic Partnership (RCEP). The hope is that while China alone may not surpass the US, a broader coalition led by Beijing could.

However, major geopolitical and economic differences persist among these groupings. Without a unified economic framework, they lack the cohesion to seriously challenge Western market dominance. The economies of the six new BRICS members combined are only slightly larger than that of the United Kingdom. Deep-rooted distrust—between India and China, or even between Russia and China—further undermines any collective challenge to the West.

Competing with the US remains central to Xi’s economic strategy. From state subsidies to industrial policies in critical sectors such as semiconductors and artificial intelligence, China seeks to gain an edge. But with per capita income at just around $12,700—one-sixth that of the United States—the domestic base remains too weak to sustain such ambitions.

Fiscal resources are also tightening. State banks have scaled back development lending to poorer nations, while military modernization is constrained by economic limits.

As China’s growth slows, Xi’s ability to project influence and challenge the existing global order diminishes. For many in the Global South, China once represented proof that authoritarian rule could deliver both prosperity and prestige. Its current economic malaise has punctured that narrative.

Authoritarian regimes face a dual constraint: they cannot sustain political control while pursuing the economic openness and reform necessary for long-term growth.

Ultimately, the extent of a nation’s global power projection depends on its economic vitality—and on that count, Beijing faces mounting challenges in keeping pace with the resilience of the West.

(The author is a Kuala Lumpur-based strategic and security analyst. Views are personal. He can be contacted at collins@um.edu.my)