I. The Chasm in the Chinese Economy: High-Tech Soaring, but Weak Demand
In recent years, the Chinese economy has exhibited a peculiar phenomenon. On one hand, industries such as new energy vehicles, semiconductors, and AI have made remarkable progress, with Chinese companies becoming globally competitive. On the other hand, real estate sales are sluggish, consumers are hesitant to spend, businesses are reluctant to invest, and prices continue to fall (the GDP deflator has been negative for several quarters, indicating overall price decline).
Logically, technological advancements should drive inflation and economic growth, but the reality is more like "half flame, half water"—high-tech sectors are thriving, yet the demand side of the economy remains cold. Why is this?
II. The Lessons from the Great Depression in the United States: Even with Advanced Technology, Weak Policies Can Lead to Collapse
The Great Depression of the 1930s is well-known, but few realize that technological progress was actually rapid during that period. There were widespread improvements in electricity infrastructure, more roads built, truck logistics replaced horse-drawn carriages, breakthroughs in the aviation industry, and the development of new materials like nylon and plastic. Economists even consider the 1930s one of the periods with the fastest increases in production efficiency.
Yet, why did the economy still collapse? It was due to flawed policies: the Federal Reserve failed to support banks in a timely manner, leading to deflation; government stimulus measures were insufficient, and state governments were required to balance their budgets, leaving them unable to boost demand. Although Roosevelt's New Deal had some effect, it was not aggressive enough, and when the economy began to recover in 1937, policymakers prematurely tightened fiscal policies, causing another downturn. This is a classic example of prematurely withdrawing stimulus measures.
III. Japan's "Lost Decade": Technological Leadership Could Not Overcome Weak Demand
After the bursting of the real estate bubble in the 1990s, Japan's economy stagnated for decades, despite its leading technological position. Companies like Sony, Toyota, and Canon remained strong in industries such as automobiles, robotics, and precision manufacturing. It was only after 2000 that some firms began to fall behind.
Why did the economy stagnate? Japanese government stimulus policies were ineffective and inconsistent: there were brief periods of fiscal support, followed by concerns about debt that discouraged further spending. In 1997, a consumption tax was introduced, which undermined the nascent recovery. As a result, demand remained weak, prices continued to fall, and the economy fell into a cycle of low consumption, lack of investment, and declining performance.
IV. China Should Avoid Similar Mistakes: High-Tech Alone Cannot Solve the Problem; Weak Demand Is the Core Issue
China shares similarities with the Great Depression in the US and Japan's periods of stagnation: there is active technological progress, but aggregate demand (consumption, investment, and government spending) is insufficient.
Some might argue that China's strong high-tech sectors are enough to overcome challenges. However, these sectors account for only a limited portion of the economy. Even if new energy vehicle sales are successful, they cannot compensate for the impact on real estate (which is linked to many other industries), consumer reluctance to spend, and corporate hesitation to invest. If aggregate demand remains weak, corporate profits will decline, and consumer incomes will grow slowly, affecting high-tech sectors in turn—after all, no one will buy advanced products if there is no market for them.
V. The Key to Action: Aggressive, Prompt, and Sustained Macroeconomic Stimulus
To address weak demand, high-tech alone is not enough; macroeconomic policies (fiscal and monetary) are necessary. Measures such as:
- Distributing unlimited consumer vouchers to boost spending;
- Improving social security and healthcare to encourage consumption;
- Helping local governments manage their debts to enable infrastructure investment;
- Converting existing housing into affordable housing to stabilize real estate markets.
The most critical factors are the intensity, speed, and duration of these policies. We must avoid the mistakes made in the US in 1937 and Japan in 1997, where policymakers prematurely withdrew stimulus measures when the economy began to improve. Given the current large demand gap, modest efforts will not be effective; bold and sustained actions are needed to break the cycle of weak demand, falling prices, and further decline in consumption.
Conclusion
The impressive performance of high-tech sectors is positive, but we must not overlook the severity of weak demand. History teaches us that technological progress does not automatically solve economic problems. Only sufficient and timely macroeconomic stimulus can restore the economy to a healthy path. Delaying or underinvesting in these measures will result in higher costs in the future. The lessons from the US and Japan are clear: we must act decisively and boldly to avoid similar outcomes.