Commentary: To Fix Its Economy, China Needs to Pay Its Workers More
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A production scene at a company in Taizhou, Jiangsu province. Photo: VCG
A glaring macroeconomic imbalance on mainland China is becoming impossible to ignore: supply is vastly outpacing demand. In the first quarter of 2026, real industrial output and gross domestic product grew by 6.1% and 5.0% respectively, indicating robust supply-side expansion. Yet, real retail sales and fixed-asset investment lagged significantly, growing just 2% and 2.6%. While a surge in exports explains part of this divergence, external demand alone cannot account for the widening domestic shortfall.
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- China's supply-demand gap widened from 8% (2016) to 27% (nominal) in Q1 2026; industrial output grew 6.1% vs retail sales 2%.
- High-efficiency, low-profit model boosted IT services (11.6%) and leasing (11.3%) but suppressed wages and stock gains: MSCI China rose 40% vs S&P 500's 246%.
- To boost final demand, Beijing must shift income toward households via policy overhauls in labor, exchange rates, and fiscal strategy to raise wages and services consumption.
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Who’s Who
- Credit Suisse
- Credit Suisse is mentioned in the article as the former employer of Chen Changhua, a columnist and former Head of China Research at the bank. The article does not provide further details about Credit Suisse itself.
- MSCI
- MSCI (明晟) provides the MSCI China Index, a key benchmark for Chinese equities. According to the article, from April 2016 to April 2026, this index rose only 40%, significantly underperforming the US S&P 500 (246%), Japan's Nikkei 225 (142%), and Europe's Stoxx 600 (80%).
- S&P Global
- Based on the article, S&P Global is referenced through its S&P 500 index. From April 2016 to April 2026, the U.S. S&P 500 soared 246%, significantly outperforming China's MSCI China Index. This highlights S&P Global’s role in benchmarking U.S. market performance.
- Nikkei Inc.
- The article does not provide information about Nikkei Inc. It only references the Nikkei 225 stock index, noting a 142% rise over the decade from April 2016 to April 2026. No details about the company itself are included.
- STOXX
- STOXX is a leading index provider, best known for the STOXX Europe 600 index. The article notes that over the decade from April 2016 to April 2026, the STOXX Europe 600 gained 80%, outperforming the MSCI China Index but lagging behind the S&P 500 and Nikkei 225.
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