Through many years, I have questioned the quality of Chinese official statistics. Sometimes, one can hear or read about statistical improvements. This may be partly the case – but who knows? Doubts are still in place, underlined by the competent research of BOFIT which is linked to the Finnish central bank, Suomen Pankki.
Worrisome domestic and global economic environment
According to the National Bureau of Statistics (NBS) in Beijing, Chinese GDP grew by 5 percent in Q1 of 2026 compared to Q1 last year. This is actually on the upper end of the growth objective of 4.5-5 percent for 2026 as a whole, despite all domestic and international distortions and wars. However, transparency of this development remains limited.
5 percent of economic growth in Q1 has been managed officially despite all the worrisome developments at home and internationally. GDP-growth rates remain unbelievably stable in China. Domestically, China is facing the the ageing population, the imbalanced property sector, major debt problems locally, and uncertain consumers – major challenges alongside all the technological achievements. On the other hand, official statistics also showed that investments and exports performed quite well in the beginning of 2026.
For example, exports grew by 20 percent to ASEAN countries (Q1 in value terms), by 32 percent to Africa and by 9 percent to Latin America. However, exports to the U.S. continued to decrease (-16 percent).
Anyway, I still wonder for how long time or whether Chinese policy makers can continue to manage their dual economy simultaneously, the lagging and the leading one. An answer still cannot be given.
China’s political leadership continues to reduce its previously high growth expectations. This became clear when Prime Minister Li Qiang announced the official GDP-growth objective during the opening of the annual National People’s Congress (NPC) on March 5. The envisaged growth range for 2026 – now settled at 4.5-5 percent – means some downsizing compared to the corresponding plans one year ago (then around 5 percent for 2025). 4.5 percent is – by the way – exactly the GDP-growth number that was noted last year in Q4 – but 0.3 lower than in Q3. It can be added that recent statistics continue to show disappointing statistics for retail sales and real estate markets.
Lowest expectations since 1991
Decreasing growth expectations in China cannot be regarded as a new growth phenomenon but have been going on already for a number of years (https://tradingeconomics.com/china/gdp-growth-annual). Sure, the Chinese prime minister talked at the NPC about complex conditions domestically and abroad when explaining the (slightly) weakening growth goals. On the other hand, there has been a downward trend of Chinese GDP growth already for quite some years and not only recently.
Of course, we still do not know enough about China’s real growth performance more recently. However, historical experience in this specific growth aspect is not very encouraging in an environment of lagging transparency.
Growth concerns inside China create growth concerns outside China
Altogether, there is good reason to believe that China remains confronted with obvious growth problems which only cautiously is admitted by China’s political leadership (https://www.chinadaily.com.cn/a/202603/05/WS69a8f737a310d6866eb3bdfd.html ). Not even different growth stimuli more lately could give strived growth effects, at least not according to my own interpretation,
Consequently, still stronger Chinese export efforts to non-protectionist countries cannot be ruled out in the forthcoming quarters and beyond. Such moves could be important to explain to the Chinese people that their political leadership still has tools to manage the economy successfully. This psychological aspect should not be neglected!
Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
China’s economy remains in many respects a peculiar conundrum. Obvious domestic and global ambitions both politically and economically are unfortunately not supported by transparency. For this reason, there is no way for foreign and Chinese economists to predict how China can make its dual economy to change successfully in the future. All we know is the fact that China – sooner or later – will have to meet substantial challenges that cannot be hidden forever despite probable and sizeable progress in certain technological areas which will develop even stronger in the foreseeable future.
The character of China’s dual economy
A dual economy is characterized by the existence of two strongly different parts in the economy, consisting of a promising and a lagging one. Criteria in this respect can be tech and innovation standards, productivity, wage levels, international competitiveness, etc. Important insights about the phenomenon of a dual economy in developing countries were launched already in 1954 by the future Nobel Prize winner from 1979, Arthur Lewis (see https://www.un.org/en/chronicle/article/w-arthur-lewis-pioneer-development-economics).
The research of Arthur Lewis remains interesting these days despite the fact that his modeling seems to be very theoretical and not completely applicable in reality. Thus, most experts do not share all his assumptions and conclusions. But we can learn a lot from Lewis about the general phenomenon of a dual economy also when we look at an emerging country like China.
Lewis refers in his analysis of a dual economy to the existence of two different kinds of economic sectors, i.e. lagging agriculture and promising manufacturing. The first one with low productivity and weak innovation and the second one with promising innovation, productivity and international competitiveness.
Similarities with China are definitely in place. Also China has a clearly lagging sector with insufficient productivity and competitiveness (the traditional economy) and at the same time a productive sector with an innovative development of internationally competitive products (the modern economy).
Thus, we come to the big question whether the shift from the traditional economy to the modern economy can be too complicated for creating new Chinese GDP-growth potential with sufficient new jobs.
Will China be able to overcome its current dual economy?
The theory of a dual economy still can be applied generally to many emerging countries when considering the general phenomenon of a lagging and a future-oriented/promising economic sector. On the one side, the lagging sector in China is represented by the big number of unprofitable and subsidized state-owned companies and, on the other side, the promising sector by high-tech development and production. The Lewis model is interesting also in a Chinese context since it reflects a model of structural change which describes the development from a traditional economy to a modern one. This is exactly the theoretical ambition of Chinese political leaders.
But when joining the conclusions of Lewis in a realistic and applied way, one has to raise the question to what extent the transformation of the less skilled labor force to the advanced high-tech sector will succeed sufficiently in order to increase China’s overall productivity plus income levels and, consequently, total GDP growth on trend. And if this should become the case, one has to raise serious doubts whether Chinese cities – where most of modern production is located – will be able to accommodate increasing numbers of migrant workers from the lagging areas. Or could it be the case that excess labor-force capacity already largely can be found in major urban areas?
The official Chinese sectoral model – can it succeed?
In practice, China obviously does not use the Lewis model. At least I have not found any official hint in such a direction. Instead, Chinese leaders try to stick to what officially is called “the dual circulation model”, aiming at creating a more independent economy. President Xi has been defining this approach as a strategy towards “internal circulation”, meaning increasing reliance on domestic development and production and a kind of decreasing dependence on imports of overseas technology and markets while maintaining global competitiveness and trading (“external circulation).
In other words: No one can claim that the Chinese plan and act without long-term strategic ambitions. The question is rather whether the Chinese version of a dual strategy has a chance to succeed. I have my doubts though it theoretically should not be impossible.
However, the number of economic imbalances seems to be too comprehensive. Major remaining problems are, for example, demography, the real estate sector, public and private indebtedness, bad loans, state control in areas like innovation, education and SoE:s, insufficient institutional conditions when it comes to the financial system and transparency and – at least for quite some time in the future – shortcomings in employment / consumer confidence and possibly continuous protectionist threats.
Finally – not to forget: Psychological support by the Chinese people will be badly needed as well. This will be necessary to manage the important challenge to achieve the strived contribution of private consumption to stronger domestic growth.
But will psychology be treated as an important policy parameter?
Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
