On January 9, 2026, Professor LU Feng from the National School of Development at Peking University was invited to deliver a keynote speech at the Global Economic Governance 50 Forum Cutting-Edge Lecture. The topic was “Why Is China’s Economy Strong on Supply but Weak on Demand?—Focusing on the Deep Causes of Public Resource Allocation.” Over a hundred faculty, students, and alumni from Tsinghua University’s PBC School of Finance attended the event, which was hosted by WEN Jing, Secretary-General of the Global Economic Governance 50 Forum and Assistant Director of the Global Economic Governance Research Center.
Professor Lu began by noting that “strong supply and weak demand” has become a prominent contradiction in China’s current economy. The Central Economic Work Conference has identified this as an “old problem, new challenge,” framing it as an issue of development and transformation. Lu emphasized that this contradiction is not a short-term phenomenon but has persisted since 2018, characterized by demand-constrained growth. Compared to historical episodes of insufficient demand, the current situation is marked by its duration and the significant advancements on the supply side.
On the supply side, Lu described China’s recent progress as “frequent triumphs”: infrastructure remains robust, traditional industries such as steel, shipbuilding, and electricity continue to strengthen their competitiveness, and high-tech and advanced manufacturing sectors have moved from catching up to leading in some areas. International industry leaders like Elon Musk and Jensen Huang have praised China’s development strength and potential, especially in cutting-edge fields like AI.
However, structural weaknesses on the demand side are equally evident. The core issue is insufficient aggregate demand, with domestic demand lagging. The key shortfall lies in household consumption, particularly service consumption, which trails major global economies by 15–20 percentage points.
Photo: LU Feng
Beyond factors such as the deep adjustment of the real estate sector dragging down domestic demand, Lu and his research team highlighted the impact of China’s catch-up model of public resource allocation. They defined the scope of the public sector and measured the scale and structure of public resources in 2023. Their findings show that public sector-controlled resources accounted for about 48% of GDP, with public expenditure on the supply side estimated at 25.5% of GDP and public spending on livelihood consumption at 22.5%. Despite increased investment in social security, structural issues persist, especially the continued emphasis on supply-side allocation, which is a deep-rooted cause of weak consumption.
Lu further pointed out that the improvement in supply capacity is closely linked to market reforms and the rapid development of the private sector. With stepwise advances on the supply side, relaxed constraints of investment on exports, and ongoing structural challenges, the “strong supply, weak demand” phenomenon has emerged. The direct consequence is a declining investment return rate, making it unsustainable to rely on investment to offset weak consumption and maintain supply-demand balance. Economic rebalancing is urgently needed.
During the Q&A, participants asked insightful questions about the distribution of savings rates, “strong trade, weak currency,” state-owned banks, and overcapacity. Professor Lu provided in-depth responses to each topic.
Photo: speech venue
