China is paradoxical. Two incredibly different narratives can be correct at the same time: its economy is slowing sharply, and its exporters are becoming an even bigger competitive force.
But this contradiction is not really a contradiction. A development model that helped turn China into the world’s second-largest economy – built on high investment, weak household consumption and powerful industrial policy – can hit its limits without disappearing overnight.
As the old growth engine sputters, Beijing is leaning harder on exports and industrial upgrading to keep growth stable. For South Korea, that means the short-term problem is not just that China buys less. It is also that China sells more, and increasingly in the very product categories the Koreans depend on.
While the short-to-medium-term impact on Korean industrial giants will be great, the transition will not last forever. If China ultimately succeeds in rebalancing toward consumption, South Korea – and the world – could benefit from a larger, more open Chinese market and a global economy with more demand.
China’s development should be a bit familiar to any Koreanist: a rapid, sustained rise in GDP and living standards built on a close, collaborative relationship between the state and business, guided by industrial policy in high-value-added sectors and funded by high savings and constrained wages.
Where the analogy breaks down is that South Korea’s macroeconomic imbalances never got as severe as China’s.
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The scale of China is massive. South Korea’s population is less than the number of workers on the Chinese government payroll. With the Chinese scale comes delegation and decentralization. In the heyday of South Korea’s developmental state, Park Chung-hee and the Economic Planning Board (EPB) were able to steer the whole economy from the Blue House. China relies on the provinces.
Beijing gives targets based on its priorities, and local cadres have key performance indicators to hit. Ever since reform and opening started in 1978, the priority has been growth in GDP. In fact, China did not and does not just measure its GDP – it targets it. Meaning that, in a locality, if household consumption and private business investment do not hit the GDP target, the government by building a new bridge or subway line can make up the difference.
This was great when China was poor, its infrastructure was weak and its investment needs were vast. None of these is true anymore – yet China’s high savings-investment, weak consumption mode of development has not caught up with its new reality. Instead, its investment is, while not growing as strongly as before, increasingly becoming unproductive. And its debt burden is skyrocketing.
Instead of increasing consumption – which would require increasing wages and the household sector’s share of national income, which would require the politically difficult task of reducing a different sector’s share of GDP – Beijing is turning towards pushing its excess abroad. This matters for South Korea since it means direct competition for its firms in autos, petrochemicals and semiconductors.
Despite the external turn to solve internal problems, Beijing understands – and wishes to solve – its imbalance. In 2025, boosting domestic consumption was its top priority. It has signaled that in 2026 it will double down on it.
However, it has not quite targeted the main cause of its weak domestic consumption. Chinese households consume so little, but not because they save too much – they earn too little. China’s household sector’s share of national income is very low compared with its international peers. In 2023, it was just 44%, compared with the United States’ 73%.
Nevertheless, boosting the household sector’s share of national income will be a decades-long undertaking – one that Beijing will treat with great caution, due to its political sensitivity.Increasing one sector’s share of national income requires reducing a different sector’s share.
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But, in fact, the grass is indeed greener on the other side. China’s transition will take time, but China’s, South Korea’s, and the world economy will be stronger because of it. Currently, China runs a large trade surplus with the rest of the world, meaning it solves its weak domestic demand with demand abroad. If it is successful in raising consumption, China will add more demand while easing the global competitive pressures that have strained other economies
In this scenario, South Korean exports would find wider markets, globally and in China, and more breathing room for R&D spending. This would benefit China, Korea and the world. But it will not happen overnight.
Until then, Seoul should support its firms that are facing fierce competition by using export subsidies for the global market and tariffs for its home market – of course, utilizing the WTO framework. Yet these will be temporary measures.
China will rebalance, as its economic health depends on it.
Anthony William Donald Anastasi PhD is a lecturer (assistant professor) of economics at the Sino-British College, University of Shanghai for Science and Technology.
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