China is innovative. Its economy is a mess. Which will win out?

Yuen Yuen Ang, AGI Senior Fellow, coined the term “China’s Economic Paradox” in her 2024 Project Syndicate article to capture a defining feature of post-pandemic China: an impressive tech boom amid a broad economic slowdown.

In her words: "China, however, is accelerating its shift to cutting-edge technologies in the midst of an economic slump and a local-government debt crisis. This approach is unprecedented in modern history. When Japan faced prolonged economic stagnation in the 1990s, for example, it did not simultaneously double down on a state-led innovation drive."

"China's Economic Paradox" challenges the “peak China” meme. Rather than simply amplifying China’s weaknesses, it explains why technological strength and economic fragility coexist—and in particular, how the interaction of political mandates and bureaucratic incentives is driving this outcome. President Xi Jinping’s "new quality productive forces" priorities have pushed officials overwhemingly toward high-tech sectors, while weakening incentives to revive the old growth model built on real estate and construction. To ensure a successful transition, Ang notes: "The old and the new economies are deeply intertwined; if the old economy falters too quickly, it will inevitably hinder the rise of the new... [thus] China must emphasize the importance of shoring up the less glamorous parts of the old economy and providing jobs or aid for displaced workers."

In its June 2026 report, The Economist quotes Ang at length on the paradox: "At no time in modern history has a large country gone all in on investment in high-end technology while also navigating a slowing economy and a local government debt crisis, notes Yuen Yuen Ang of Johns Hopkins University. Although the drag from the property crash will lessen over the next few years, and eventually disappear, it would not take much to choke the new growth engine. Itis already being stress-tested by weakening demand for Chinese evs, a prolonged trade war and an energy crisis. China’s paramount leader, Xi Jinping, is nevertheless betting that the new model of growth kicks in faster than the old one, driven by land sales and construction, collapses. It is a high-stakes gamble."

Read the original article: The Economist. "China is innovative. Its economy is a mess. Which will win out?” 8 June 2026.

Read Ang's 2024 article: Project Syndicate. "China's Economic Paradox."