Given China’s disappointing forays into consumption stimulus over the past few years, there can be little doubt that its recent strategic shift back toward infrastructure-driven growth is fully justified. All the talk among international commentators about overcapacity ignores the realities on the ground.
BEIJING—China’s first-quarter year-on-year GDP growth rate of 5% indicates that the sustained slowdown seen in the second half of 2025 has been reversed. In March, the producer price index rose by 0.5% year-on-year, ending 41 consecutive months in negative territory. Nonetheless, the fundamental problem of insufficient effective demand remains, which means that authorities are likely to continue proactive fiscal and monetary policies, while remaining vigilant against the effects of oil-price fluctuations and other external shocks.
The most striking (and encouraging) feature of China’s economy so far this year lies in infrastructure investment, with annual growth surging sharply, from -2.2% in the first quarter of 2025 to 8.9% in January to March.
This differentiates China from advanced economies such as the United States and European countries, where macroeconomic policymaking focuses primarily on achieving full employment and maintaining price stability. These countries’ macro policies are not tailored to specific demand components. Both consumption and investment are determined by households and enterprises, which seek to maximize utility and profits within a given macroeconomic environment shaped by interest rates, liquidity conditions, and the overall scale of fiscal revenue and expenditure.
In China, by contrast, distinct institutional arrangements enable the government not only to regulate infrastructure-investment growth, but also to leverage it as a policy tool for macroeconomic stabilization—a counter-cyclical approach that has proven effective over time. Ever since the post-1978 era of “reform and opening up” began, Chinese authorities have addressed insufficient effective demand by turning up the dial on infrastructure investment (scaling it back during periods of overheating).
Hence, when China launched its massive CN¥4 trillion ($586 billion) stimulus package in 2009, the strategy was to promote consumption through investment and fuel economic growth with stronger consumption, not to target household consumption directly. Infrastructure investment duly shot up by 44%, allowing China—unlike G7 economies—to weather the global financial crisis with no decline in GDP. Between 2007 and 2011, China’s share of global GDP increased from 6.2% to 10.3% at current exchange rates, and from 11.5% to 14.5% in purchasing-power-parity terms.