Summary of Key Points
Professor Sun Liping uses three progressively detailed concepts—“the new dual structure,” “the coexistence of three phenomena,” and “a world of polar extremes”—to explain the core contradictions in China's current economy. The economy is divided into two disconnected segments: “national welfare” (the upper half) and “people’s livelihood” (the lower half). Resources are concentrated in the upper half, which includes high-tech industries, advanced manufacturing, and exports, but these achievements fail to benefit the lower half, comprising small and medium-sized enterprises, employment, and everyday consumption. This leads to a paradox where China is technologically strong and its industries are robust, yet the economy feels weak. The resulting trend is one of increasing divergence, with booming sectors and declining others. At the heart of this lies the choice of development model: an over-reliance on technology and exports while neglecting the repair of internal economic cycles.
Detailed Analysis
1. The New Dual Structure: An Economy Divided into Two Segments with No Flow of Funds or Resources
Sun Liping compares the economy to an “8” shape, with two closed loops that do not connect:
- Upper Half (National Welfare): This segment focuses on high-tech areas such as AI and semiconductors, advanced manufacturing (e.g., new energy vehicles), specialized and innovative enterprises, and the military industry. These sectors receive substantial funding and policy support but do not generate many jobs for ordinary people.
- Lower Half (People’s Livelihood): This includes small and medium-sized private enterprises and everyday consumer activities like grocery shopping and clothing purchases. These are the parts of the economy that most people interact with, yet they lack resources and face significant pressure.
The Critical Issue: The Break in Economic Circulation
In the past, exports of labor-intensive goods like clothes and toys drove job creation, leading to wage increases and increased spending (e.g., farmers’ wages grew by 15.7% annually from 2005 to 2010, enabling rural families to buy household appliances and build houses). Today, exports have shifted to technology-intensive products, but the number of buyers has decreased. The money generated from these exports remains in the upper half, leaving the lower half with fewer resources and resulting in higher unemployment and reduced consumer spending.
2. Why Is the Economy Weak Despite Strong Technology?
Three seemingly contradictory phenomena exist simultaneously:
- Rapid Technological Progress: New technologies such as new energy vehicles, AI, and robotics are emerging, narrowing the gap with the United States from a generational to a technological one.
- Strong Industrial Competitiveness: Chinese industries, such as new energy vehicles, are competitive globally, thanks to complete supply chains and cost-effective innovations (e.g., roasting ducks for 20 yuan).
- Economic Weakness: Business is difficult, jobs are hard to find, and stores are closing; government efforts to boost consumption are ineffective.
The Reason: Technology Has Not Connected with the Consumption Loop
According to Schumpeter’s theory, technology must trigger an “industrial revolution” that then leads to a “consumption revolution” for the economy to thrive. However, China’s technological progress has only benefited certain sectors without providing ordinary people with enough income to drive consumption.
3. A World of Polar Extremes: Which Sectors Are Booming, and Which Are Declining?
This reflects the dynamic nature of the new dual structure:
- Booming Sectors:
- Stock market: Stocks in technology-related sectors (e.g., AI, semiconductors) have doubled in value, attracting foreign investment and social security funds.
- Real economy: High-tech manufacturing has grown by 12.5% (with significant increases in integrated circuits and robotics), and the information services sector has grown by 10.6%.
- Venture capital: In Q1 2026, AI (embodied intelligence) and innovative drugs received most funding (24.3 billion yuan and 11.7 billion yuan, respectively).
- Declining Sectors:
- Stock market: Traditional heavyweight sectors (e.g., banks, real estate) have declined, and small-cap non-tech stocks have fallen by more than 30%.
- Real economy: Real estate investment has decreased by 11.2%, and consumption of furniture and building materials has dropped by 8%-9%. Car retail sales have also plummeted by 11.8%.
- Consumption: Retail sales have only increased by 2.4%, and household consumption growth is lower than income growth, indicating that people are reluctant to spend.
The Trend: The Divergence Is Worsening
Resources are increasingly flowing towards high-tech industries, leaving other sectors behind.
4. The Development Model We Have Chosen and the Problems It Creates
There are compelling reasons for choosing a development model based on technology and exports:
- To escape the middle-income trap and become a high-income country.
- To create high-paying jobs and strengthen the middle class.
- To address aging by replacing labor with technology.
- To ensure economic security and avoid being dependent on foreign technologies.
- To reduce debt and achieve faster economic growth.
Problems with the Model:
The high-tech and export sectors have formed a closed loop that is disconnected from domestic livelihoods. Much of the money earned from exports is even refunded to the government (e.g., 13% of export revenue is returned), effectively subsidizing the upper half at the expense of the lower half. As a result, the economy has become two separate systems with no coherent circulation.
5. The Way Forward: Repairing Economic Circuits Is More Important Than Strong Stimuli
Sun Liping argues that the problem is not a lack of funds but rather the misdirection of capital. Short-term stimulative measures (e.g., issuing consumer vouchers) can only provide temporary relief. The real solution is to reconnect the upper and lower halves of the economy:
- Transfer Benefits from the Upper Half to the Lower Half: High-tech industries should create more jobs for ordinary people, and tax policies should be used to redistribute profits to support livelihoods.
- Revitalize the Lower Half: Support small and medium-sized enterprises to provide jobs and income, encouraging consumption.
- Comparing Development Models: The United States relies on internal consumer demand, while the Soviet Union relied on heavy industry, which was disconnected from people’s needs. China must avoid following the Soviet path.
Conclusion
The fundamental issue is the poor circulation of economic resources. Repairing the connection between the upper and lower halves of the economy is more crucial than focusing solely on technology or implementing strong stimulative measures. Otherwise, China may end up with a dual economy where it is outwardly strong but internally weak.