Economy

Can China’s Industrial Ambitions Outweigh Economic Realities?

China vows tech self-reliance, modern industry, amid US rivalry, prioritizing manufacturing over domestic demand.

byAndres Castro

October 23, 2025, 11:56 AM

A large container ship sails on the ocean, with a tiny motorboat in front of it.

A large container ship and a small boat on the ocean. By MDL.

Executive Summary

China’s Communist Party plenum concluded with a strong focus on building a modern industrial system and intensifying efforts towards technological self-reliance, aiming to bolster the nation’s standing amidst rivalry with the United States.

The plenum’s communique and upcoming five-year plan prioritize advanced manufacturing and tech self-reliance, with economists and analysts noting that pledges to boost domestic demand appear secondary to industrial goals.

China’s economy faces significant structural imbalances, including weak domestic demand, overcapacity, deflationary pressures, and high national debt (three times the size of its economy), exacerbated by its reliance on exporting factories despite tariffs imposed by President Trump.

The Story So Far

China’s intensified focus on constructing a modern industrial system and achieving technological self-reliance is primarily driven by an escalating rivalry with the United States and a strategic imperative to bolster national standing and security. This approach is further necessitated by ongoing economic headwinds, including fragile domestic demand, reliance on exporting factories, and issues of overcapacity, which have been exacerbated by past tariffs imposed by President Trump and contribute to deepening structural imbalances and trade tensions.

Why This Matters

China’s renewed commitment to technological self-reliance and advanced manufacturing, prioritized over boosting domestic consumption, is poised to exacerbate existing structural imbalances within its economy, potentially leading to fragile growth, deepening deflationary pressures, and higher national debt. This strategic direction, aimed at bolstering national standing amidst rivalry with the United States, is also expected to intensify global trade tensions and prompt further re-industrialization efforts in Western nations.

Who Thinks What?

China’s Communist Party elite affirmed their commitment to building a modern industrial system with advanced manufacturing and accelerating high-level scientific and technological self-reliance, viewing these as primary for national strength and security, with expanding domestic demand as a secondary goal.

Economists and analysts, including Julian Evans-Pritchard, Dan Wang, and Tianchen Xu, argue that China’s current industrial policies create structural imbalances, leading to overcapacity, deflationary pressures, and high debt, while expressing skepticism that the leadership is genuinely committed to shifting towards a growth model driven by household consumption.

China’s Communist Party elite concluded a four-day plenum on Thursday, vowing to construct a modern industrial system and intensify efforts towards technological self-reliance. These measures are seen as crucial for bolstering the nation’s standing amidst an escalating rivalry with the United States. The Central Committee also pledged to expand domestic demand and improve livelihoods, though these long-standing goals appeared secondary to industrial priorities, while the meeting also saw the replacement of 11 members amid an ongoing military corruption purge.

Policy Directives and Priorities

The outline of China’s five-year plan, expected to be fully released in March, indicates a continued focus on manufacturing. Building “a modern industrial system with advanced manufacturing as the backbone” and accelerating “high-level scientific and technological self-reliance” were explicitly prioritized. These objectives were listed ahead of the development of “a strong domestic market” in the post-plenum communique from state news agency Xinhua.

Economists have consistently advocated for a shift towards a growth model driven more by household consumption. However, analysts like Julian Evans-Pritchard of Capital Economics suggest the readout implies manufacturing remains central to China’s ambitions for national strength and security. Evans-Pritchard argues that Beijing only offers “lip-service” to boosting consumption, highlighting an unresolved tension between this desire and the goal of shoring up the manufacturing sector.

Economic Headwinds and Structural Imbalances

China’s economic growth experienced its weakest pace in a year during the third quarter, largely due to fragile domestic demand. This has left the economy heavily reliant on its exporting factories, even in the face of tariffs imposed by President Trump, exacerbating concerns about deepening structural imbalances.

The nation’s industrial policies, while fostering sophisticated supply chains and global dominance in various sectors, have also led to rampant overcapacity and fueled deflationary pressures. Low wages, limited social welfare benefits, and job insecurity contribute to subdued domestic demand, making producers dependent on foreign spending power and intensifying trade tensions.

Debt and Future Outlook

The high levels of investment required by these industrial policies have pushed China’s overall debt to three times the size of its economy. Dan Wang, China director at Eurasia Group, characterized China’s growth model as “very fragile,” citing the coexistence of high debt and low inflation as a primary risk.

Pledges to “invest in people” could involve increases in medical insurance and rural pensions, according to Tianchen Xu, senior economist at the Economist Intelligence Unit. However, Xu noted that the leadership may not yet have a clear strategy for implementing these initiatives. China’s manufacturing prowess has prompted re-industrialization and re-armament efforts in Western nations, reflecting broader geopolitical concerns amid global tensions.