China’s Emergence from Poverty and Its Global Impact Since WTO Accession (2001–2025)

China’s entry into the World Trade Organization (WTO) in 2001 marked a pivotal moment in its economic trajectory. Over the past two decades, China has experienced unprecedented growth, lifting hundreds of millions of people out of poverty while transforming into a global manufacturing powerhouse. This article examines how China’s rapid growth was financed and whether this expansion has come at the expense of the United States and other leading economies. We compare poverty levels in China and the top five economies by nominal GDP (the United States, Japan, Germany, India, and the United Kingdom), drawing on World Bank and IMF data. We also analyze key strategies that fueled China’s growth—such as export-driven industrialization, massive infrastructure investment, and integration into global trade—and evaluate the sustainability and fairness of China’s growth model, including its impact on trade, labor markets, and global inequality.

China’s Poverty Alleviation Since 2001

When China joined the WTO in December 2001, it accelerated a process of poverty reduction already underway since the late 1970s economic reforms. China’s growth averaged over 9% annually from 1978 through the 2000s, enabling a “marked decline in poverty” . In 1981, an estimated 88% of Chinese lived in extreme poverty (below the World Bank’s threshold of about $1.90 a day); by 2015, this share fell below 1%. In absolute terms, over 800 million Chinese people have been lifted out of extreme poverty – a poverty reduction “benefiting the largest number of people in human history,” as noted in a World Bank report. This accounts for nearly three-quarters of global extreme poverty reduction in the past few decades. Notably, after WTO entry, poverty reduction in China “resumed at a very rapid rate”, with poverty cut by one-third in just the first few years, underscoring how trade-led growth directly translated into income gains for China’s poor. By 2020, China announced the eradication of extreme poverty nationwide.

However, China’s achievement depends on the poverty standard used. While extreme poverty (measured at the international line of $2.15 per day) is essentially zero in China today, many Chinese remain under higher poverty benchmarks appropriate for a middle-income country. The World Bank’s upper-middle-income poverty line (about $6.85 per day) captures a sizable vulnerable population. As of 2021, roughly 17% of Chinese (about 240 million people) lived on less than $6.85 per day. This indicates that despite incredible progress, China still faces challenges in elevating hundreds of millions to secure middle-class status. Nonetheless, China’s overall improvement in living standards since 2001 is dramatic. Real GDP per capita surged and ordinary Chinese saw major gains in health, education, and infrastructure access. Case studies such as rural villages transformed by road and electricity projects and coastal boomtowns like Shenzhen illustrate how growth reached both urban and rural areas, albeit unevenly. Urban coastal regions benefited early, while targeted anti-poverty programs in the 2010s helped lift lagging interior rural communities in the final push to eradicate extreme poverty.

Comparative Poverty Levels (China vs. Top 5 GDP Economies): Table 1 summarizes poverty metrics in China and the five largest economies by nominal GDP (excluding China itself). We report the share of each country’s population living in extreme poverty (below $2.15/day) and under the national or upper-middle-income poverty threshold, using latest available World Bank/IMF data:

Country	Extreme Poverty (% of population) <$2.15/day (2017 PPP)	National/Relative Poverty Rate (% of population)
China	0.0% (2020) – extreme poverty eradicated	17.0% (2021) below $6.85/day (upper-middle income line)
India	~10.2% (2019) – down from 22.5% in 2011	~18% (2023) below $6.85/day (upper-middle line)
United States	~1.2% (2022) – very small share under $2.15	11.5% (2022) official poverty rate (about 38 million people)
Japan	~0% (approx. 0.7% in 2013) – extreme poverty negligible	15.4% (2021) relative poverty (OECD measure)
Germany	~0% (0.2% in 2020) – extreme poverty negligible	16.9% (2021) at-risk-of-poverty (national measure).
United Kingdom	~0% (0.2% in 2021) – extreme poverty negligible	18.6% (2017) below national poverty line.

Table 1: Poverty rates in China and the five largest economies by nominal GDP. Extreme poverty is nearly eliminated in all these countries except India. However, using each country’s own poverty standards (which are much higher in wealthy nations), 10–20% of the population in the U.S., Japan, Germany and the U.K. are considered poor. (Sources: World Bank, national statistics).

From Table 1, the contrast is stark. China and India, which began the 2000s with high poverty, have dramatically reduced extreme poverty – China to zero, India to low double-digits (with estimates of a further drop to ~3% by 2023). In absolute terms, India still has the largest number of poor people (about 130 million in 2024 living under $2.15/day), but this is down from 430 million in 1990. The advanced economies (US, Japan, Germany, UK) have virtually no one in extreme destitution by global standards; yet they each have around 15% (or more) of their citizens living under nationally defined poverty lines – a form of relative poverty reflecting inequality and social safety net gaps. Notably, the United States, despite its wealth, still had 37.9 million people (11.5%) living below the U.S. poverty line in 2022, and poverty rates in the U.S. and U.K. have fluctuated around the low-teens to high-teens without a clear downward trend over the last two decades. In fact, in Germany the share of people in poverty rose from about 14% in mid-2000s to nearly 17% by 2021, a “sad peak” exacerbated by the COVID-19 pandemic. Japan likewise has seen persistent poverty around 15%, with single-parent households particularly affected (over 40% in poverty). These comparisons highlight a key dynamic: global poverty between countries has fallen, as developing countries like China (and to a lesser extent India) catch up, but within many rich countries poverty and inequality have proven stubborn or even worsened. We will explore to what extent China’s rise – through trade and globalization – has contributed to these Western poverty trends.

How China Financed its Rapid Growth

China’s rapid economic growth since 2001 has been fueled by a combination of investment, industrialization, and integration into the global economy. Key financing and growth drivers include:

• High Savings and Investment: China consistently reinvested a huge portion of its GDP into capital projects – infrastructure, factories, real estate, etc. Domestic savings rates routinely exceeded 40% of GDP, providing ample capital for investment. Much of this was funneled through state-owned banks into building highways, power grids, industrial parks, and new cities. This investment-driven approach created modern infrastructure that supported productivity and manufacturing growth. By comparison, most Western economies invest a far smaller share of GDP. China’s banks (often state-controlled) financed massive projects at low cost, sometimes leading to overcapacity but undeniably building the backbone for economic expansion (e.g. the world’s largest high-speed rail network was built in under 15 years). This investment-heavy model boosted growth (often over 8–10% annually in the 2000s), albeit with rising debt levels.

• Foreign Direct Investment (FDI): After WTO entry, China became a magnet for foreign capital and multinational corporations. The government “opened the door” to FDI by creating Special Economic Zones (SEZs) and offering tax incentives for joint ventures. As a result, China became the world’s largest recipient of FDI in the 2000s, with overseas firms investing in manufacturing plants to take advantage of China’s cheap labor and improving infrastructure. For example, electronics giants and textile manufacturers moved production to China’s Pearl River Delta and Yangtze Delta regions. FDI brought not only capital but also technology and managerial know-how, effectively financing industrial growth. By one account, “China has been more open to foreign trade and investment” than its peers, which helped it become a manufacturing export base. Foreign-invested firms played a huge role in early export growth – by 2005, about 60% of China’s exports came from foreign-owned factories. This external financing engine was crucial in the 2001–2010 period when China’s trade surpluses and foreign reserve accumulation grew rapidly.

• Export Revenues and Trade Surpluses: Joining the WTO gave China virtually unfettered access to global markets for its goods. Chinese companies – often supported by government incentives – aggressively expanded exports of everything from apparel and toys to electronics and machinery. China’s export revenue boom provided another source of financing for growth: trade surpluses. Year after year, China earned far more from exports than it spent on imports, generating large surpluses (hundreds of billions of dollars) that were recycled into the economy. Some of these surpluses were used by China’s central bank to buy foreign assets (notably U.S. Treasury bonds), effectively lending money to the United States. This phenomena was dubbed the “global savings glut” – China’s excess savings helped finance consumption and budget deficits in the US and Europe, while keeping Chinese factories humming. Thus, in an ironic symbiosis, American borrowing and spending (on Chinese-made goods) helped finance Chinese investment, and Chinese lending helped keep U.S. interest rates low. China’s foreign exchange reserves swelled from $200 billion in 2001 to over $3 trillion a decade later, reflecting the cumulative surpluses. These reserves provided a financial buffer and could be seen as China effectively financing itself via export earnings, rather than relying on foreign aid or loans.

• State-Led Development and Industrial Policy: Unlike many nations that rely purely on private sector finance, China leveraged the financial power of the state. The government directly invested in priority industries (such as steel, autos, telecoms) through state-owned enterprises (SOEs) and guided capital to strategic sectors. China’s state banks often provided policy loans to promote manufacturing or support struggling industries. Local governments, too, financed growth by borrowing for urban development projects and forming business ventures. While this led to concerns about debt and efficiency, it meant that lack of capital was seldom a binding constraint in China’s growth. The state could mobilize resources at an unparalleled scale – exemplified by the 2008–09 stimulus, when China unleashed a credit-fueled infrastructure boom to counter the global financial crisis. This stimulus (nearly $600 billion, largely financed by state banks) kept China growing near 9% while Western economies stalled, showing how China could finance growth even during external shocks.

• Labor Mobilization and Urbanization: Though not “financing” in a traditional sense, it is important to note that China’s growth was underwritten by an enormous transfer of labor from low-productivity agriculture to higher-productivity manufacturing and services. Over 200 million migrant workers moved from the countryside to cities, providing the human capital that powered factories and construction sites. This demographic dividend – a young, abundant workforce – kept labor costs low and returns on capital high, encouraging more investment. In essence, Chinese workers “financed” growth with sweat equity, accepting low wages in early years in exchange for future opportunities. The hukou (household registration) system, while criticized for limiting migrant rights, ironically ensured a steady supply of cheap labor to cities, as rural migrants had few alternatives. This labor influx was a key ingredient that attracted foreign investors and kept China’s export prices competitive globally.

In summary, China’s rapid growth was financed through a unique blend of high domestic savings, attracted foreign investment, trade surpluses, and assertive state intervention. By “throwing capital” at development and leveraging its large market and labor force, China avoided some common financing bottlenecks that constrain other developing nations. However, this model also created imbalances – high debt in some sectors, over-reliance on exports, and environmental costs – which we will address when discussing sustainability.

Strategies and Case Studies Fueling China’s Growth

Several strategic choices and development models enabled China’s extraordinary growth since 2001. Here we highlight a few, with brief case examples:

• Export-Oriented Industrialization: China decisively pursued an export-led growth strategy after WTO entry. The government established Special Economic Zones (SEZs) in coastal areas like Shenzhen, Guangdong and Xiamen, which offered tax breaks and trade facilitation to manufacturers. These zones became booming hubs of light manufacturing (e.g. textiles, apparel, toys in the early 2000s) and later electronics and hardware assembly. Case in point: Shenzhen, a small fishing village in the 1980s, was designated as China’s first SEZ. By the 2000s, it had grown into a metropolis and a global electronics manufacturing center – home to Foxconn’s massive factories assembling devices for Apple and other global firms. The success of Shenzhen’s model – combining cheap land, abundant labor, and openness to FDI – was replicated across China’s eastern seaboard. As a result, from 2001 to 2010, China’s exports grew roughly 5-fold. Low-end manufacturing created tens of millions of jobs for rural migrants, directly reducing poverty by providing stable wages. Case study: The city of Dongguan in Guangdong province became a giant workshop for the world, specializing in shoe and toy factories. Though workers earned only a few dollars a day, these jobs were a significant improvement over rural farming and helped workers gradually climb out of poverty. The export-led approach was so successful that by the mid-2000s China had become the “world’s factory,” producing a large share of global consumer goods.

• Manufacturing Upgrading and Tech Development: Over time, China climbed the value chain. The 2010s saw policies like “Made in China 2025” aiming to make China a leader in high-tech industries (e.g. robotics, pharmaceuticals, semiconductors). While not without controversy (Western countries accused China of forced tech transfer and subsidies), these strategies channeled financing into research and development and supported domestic champions. Case study: The rise of Huawei – from a small telecom equipment trader to one of the world’s largest telecom and smartphone companies – exemplifies China’s tech ascent. Supported by state credit and protected in the domestic market, Huawei invested heavily in R&D and by the 2010s became globally competitive, even outpacing Western firms in 5G technology. This transition to more capital-intensive, higher-tech production required massive financing (often via state banks and venture investment) but aimed to sustain growth as labor costs rose. It also meant China captured more value-added domestically rather than just assembling foreign-designed products.

• Infrastructure and Urbanization Mega-Projects: China’s government undertook infrastructure construction on an unparalleled scale as a deliberate growth strategy. The “Western Development” program launched in the 2000s poured investments into roads, railways, and dams in poorer inland provinces, partly to spread growth beyond the wealthy coast. Case study: The Three Gorges Dam (completed 2006) and subsequent hydroelectric projects were not only energy investments but job creators and market connectors for interior regions. Similarly, the expansion of the national highway network and the rollout of high-speed rail (HSR) – now over 40,000 km of HSR lines connect virtually all major Chinese cities – dramatically reduced transport times and boosted domestic trade. These projects, financed largely by state bonds and bank loans, stimulated the domestic steel, cement, and construction industries (often soaking up excess capacity when export demand faltered). Urbanization itself was a growth engine: hundreds of new cities and industrial parks were built. Local governments, financed by land sales and borrowing, competed to offer the best infrastructure to attract industries. This infrastructure-led growth model improved productivity and created a short-term economic boost (through construction employment and materials demand), although sometimes resulting in “ghost cities” or underused assets when planning overshot demand.

• Agricultural Reforms and Rural Poverty Reduction: Though industry led the way, China also implemented targeted strategies for rural development to ensure poverty reduction was widespread. The government increased agricultural procurement prices and invested in rural infrastructure (irrigation, roads to villages) to raise farm incomes. In the 2010s, the Targeted Poverty Alleviation campaign identified the poorest households and provided them with livestock, stipends, or job training to improve livelihoods. Case study: In Guizhou and Yunnan (poor mountainous provinces), local authorities introduced programs to connect isolated villages with markets – for instance, helping farmers plant profitable cash crops like walnuts and tea, and facilitating e-commerce sales of rural products. Microcredit loans and “Taobao villages” (promoting online entrepreneurship in rural areas) were among the innovative methods used. These efforts, combined with migrants sending remittances home, significantly reduced poverty in China’s interior by the late 2010s. Rural poverty fell from 30% in 2005 to near zero by 2020 (per China’s national poverty line).

• Belt and Road Initiative (BRI) and Going Global: In the 2010s, China launched the BRI, a global infrastructure and trade network initiative, investing in ports, railways, and power plants across Asia, Africa, and Europe. While BRI’s primary motive is geopolitical and strategic, it also reflects China’s need to sustain growth by entering new markets and utilizing its excess industrial capacity abroad. Financing for BRI (often via China’s policy banks like the Export-Import Bank or China Development Bank) provided an outlet for China’s enormous foreign exchange reserves and kept demand for Chinese construction and engineering firms high. Case study: The China-Pakistan Economic Corridor (CPEC), part of BRI, involved ~$60 billion of Chinese-financed projects in Pakistan (roads, a major port at Gwadar, power stations). This exported Chinese capital and expertise, and in theory will create new trade routes for Chinese goods. Domestically, the “Going Global” policy also encouraged Chinese companies to invest overseas and acquire foreign companies (famously, Chinese firms bought global brands like Volvo cars, IBM’s PC division/Lenovo, etc.). These strategies aimed to secure new sources of growth and inputs (like oil, minerals) to fuel China’s economy, especially as returns on investment at home started diminishing.

Each of these strategies was backed by substantial financing – whether through government budgets, state banks, or foreign capital – and contributed to China’s rapid development. The combined effect was a sustained period of high growth that not only lifted China from poverty but also reshaped global trade and production patterns. By the 2020s, China produces nearly one-third of the world’s manufactured goods, an extraordinary shift in less than one generation. This shift is illustrated in Figure 1, which shows China’s meteoric rise in world manufacturing share after joining the WTO, as compared to the declining share of G7 economies:

Figure 1: China’s rise as the world’s manufacturing superpower since WTO accession. The left panel shows each country’s share of global manufacturing gross output (1995–2020). China (red line) surged from ~5% in 1995 to ~35% by 2020, surpassing the United States (blue) around 2008 and the combined share of the top 10 non-China producers by 2015. Meanwhile, traditional industrial powers like the US, Japan (yellow), and Germany (green) saw their shares decline significantly. This reflects China’s strategy of export-led industrialization capturing global market share. Source: OECD TiVA data analyzed in Baldwin (2024).

As Figure 1 suggests, China’s manufacturing expansion came partly at the expense of other major economies’ industry. The U.S., Japan, Germany and the U.K. all deindustrialized relatively faster after 2001 under the pressure of Chinese competition. This dynamic is central to evaluating whether China’s growth has been “unfair” or has contributed to economic difficulties in Western nations, which we turn to next.

Impact on the U.S. and Other Leading Economies

China’s integration into the world economy has had profound effects on other countries – positive and negative. For the United States, Japan, Germany, the U.K., and others, China’s rise meant cheaper consumer goods, new export markets, and opportunities for business expansion. It also meant intensified competition for industries and workers. We analyze a few key impact channels:

• Trade Imbalances and Manufacturing Job Losses: Perhaps the most visible impact has been large trade deficits with China in countries like the U.S. and U.K., and associated manufacturing job losses. After China joined the WTO, its exports to the U.S. surged, and the U.S. trade deficit with China ballooned from around $83 billion in 2001 to over $350 billion by 2019. A flood of “Made in China” products – from steel and furniture to electronics – undercut many domestic producers in the West. This phenomenon is often termed the “China shock.” Economic studies by Autor, Dorn, and Hanson (2013) quantified this shock: By 2011, import competition from China was directly responsible for a net loss of about 2.4 million jobs in the U.S., including 1 million manufacturing jobs. Entire industries in North America and Europe, such as textile mills, shoe factories, and consumer electronics assembly, either shrank drastically or disappeared, unable to compete with China’s lower costs. Regions heavily dependent on manufacturing – for example, the U.S. Midwest and South (industrial towns in Ohio, Michigan, the Carolinas, etc.) – suffered long-term economic decline. Many locales were “devastated”, with factories closing and workers facing unemployment or lower-wage service jobs. Crucially, while consumers nationwide benefited from cheaper goods, the concentrated pain in certain communities was severe. This contributed to social problems and political backlash in the affected countries. The United Kingdom saw similar impacts in sectors like apparel and basic manufacturing – segments of Northern England’s industrial towns struggled in the 2000s amid competition from imports. Germany managed somewhat differently: as a high-end manufacturer (machine tools, luxury cars), Germany actually exported capital goods to China, benefiting from China’s industrial boom (e.g. Chinese demand for German machinery kept factories in Bavaria busy). Even so, low-end industries in Germany and across Europe saw job losses from Chinese imports. Overall, China’s WTO entry is widely seen as a boon for consumers and a shock to certain producers in advanced economies.

• Wage Pressure and Labor Market Effects: Beyond outright job losses, the competition with Chinese labor suppressed wage growth for many lower-skilled workers in developed countries. With manufacturing plants closing or outsourcing to China, workers had less bargaining power. A factory worker in the U.S. or France now effectively competes with a counterpart in China earning a fraction of the wage. This put downward pressure on middle-class incomes in manufacturing-heavy regions. The threat of moving production to China also became a bargaining chip for employers. Some economists argue this dynamic contributed to stagnating real wages for blue-collar workers in the West since the 2000s. Furthermore, as production shifted abroad, the new jobs created domestically were often in service sectors (retail, hospitality) which pay less – contributing to rising inequality. It’s notable that in the period of China’s dramatic rise (2001–2016), income inequality in the U.S. reached extreme levels, with the top 1% capturing a large share of gains. While multiple factors drive inequality, globalization with China is a part of that story: capital owners and consumers benefited (through higher profits and cheap goods), while many workers without college degrees faced lost jobs or stagnant incomes. In Europe, stronger social safety nets somewhat cushioned the blow, but countries like Spain, Portugal, and Italy saw segments of their manufacturing workforces displaced, contributing to higher youth unemployment and financial strain on welfare systems.

• Consumer Benefits and Inflation: On the positive side, China’s emergence has been a boon to consumers and helped tame inflation in advanced economies. A wide array of products became more affordable – from clothing to electronics – effectively raising real living standards. A Walmart study famously noted that Chinese imports saved American families hundreds of dollars per year in the 2000s. Central banks also acknowledged that inexpensive Chinese imports kept inflation low in the 2000s, allowing for lower interest rates. So, while certain workers suffered, many households benefited from the “China price.” For example, a television or a pair of shoes cost a fraction of what it might have without China in the WTO. Germany benefited both as a seller (exporting machinery to China) and a buyer (cheap consumer goods kept German manufacturing inputs and consumer prices in check, aiding the competitiveness of German exports globally).

• Corporate Profits and Global Supply Chains: Western multinational companies often gained from China’s growth by offshoring production and tapping into China’s market. Apple, to take an iconic example, shifted most of its manufacturing to Chinese contractors, dramatically improving its profit margins. Many U.S., Japanese, and European firms moved production to China or sourced components there, benefiting shareholders and top management. This contributed to a divergence between capital and labor income – higher corporate profits versus stagnating wages – in developed countries. At the same time, Western firms gained access to China’s huge domestic market. Case: Automakers like GM and Volkswagen saw China become their largest market by the 2010s, buoying profits even as growth in home markets slowed. Thus, globalization with China created winners among multinational enterprises and highly skilled workers, even as less-skilled workers faced hardship. This complicates the question of “expense” – China’s rise hurt some groups in the West while helping others (notably consumers and investors).

• Global Commodity and Input Markets: China’s explosive growth also had spillovers via commodity trade. Its hunger for raw materials pushed up prices for oil, metals, and agricultural goods in the 2000s, benefiting commodity-exporting nations (like Australia, Brazil, and many African countries) but straining import-dependent countries. For instance, China’s demand became a key driver of global oil prices. This had mixed effects on poverty worldwide: resource-rich developing countries enjoyed export windfalls (which, if managed well, could fund poverty reduction), whereas higher fuel and food prices hurt consumers globally, including in poor nations. Additionally, China’s dominance in certain inputs – e.g., it became the world’s largest steel producer – meant that global supply of some manufactured inputs grew, reducing costs for downstream industries worldwide. In some cases, China’s capacity led to gluts that harmed producers elsewhere: the global steel glut saw China produce more than half of world steel by 2015, driving prices down and causing layoffs in U.S. and European steel mills that couldn’t compete with cheaper Chinese steel (often alleged to be subsidized). This led to trade tensions and tariffs (the U.S. and EU accused China of dumping steel at below cost).

• Technology and Innovation Impacts: Initially, China was seen as purely a producer of low-end goods, but over time its technological capabilities grew. Western economies face a new challenge: China as a competitor in high-tech sectors. This is evidenced by Huawei (in 5G networks), Chinese electric vehicle and battery companies, etc. While this is more of a post-2010 development, it raises strategic concerns in advanced economies about retaining technological leadership and high-value jobs. It has prompted policies like the U.S. restricting tech exports to China, and conversely China’s heavy investment in R&D to be self-sufficient. The long-run impact of this competition on Western economies remains to be seen – it could spur innovation or lead to further erosion of manufacturing (e.g., if China dominates clean energy tech, Western manufacturing in that sector might suffer).

In aggregate, China’s growth has contributed to global economic expansion – creating new markets and lowering costs – but also to significant distributional effects within countries. The phenomenon of rising inequality and “left-behind” communities in many Western countries during the era of globalization has often been linked to the China shock. Indeed, an IMF analysis noted that while globalization lifted millions out of poverty in places like China, it “reduced inequalities between countries” but sometimes widened inequalities within countries. This rings true: the gap between rich and poor nations has narrowed (thanks largely to China’s rise), yet the gap between rich and poor citizens inside the U.S., U.K., etc., has in many cases grown.

One concrete outcome is political: grievances over trade and jobs lost to China fueled protectionist sentiments and populist politics. The U.S.-China trade war that began in 2018, Brexit debates in the U.K., and concerns in Europe about dependence on China all have roots in the perceived unfairness of China’s meteoric rise. Critics argue China gained at others’ expense by using methods like currency manipulation (keeping the yuan undervalued in the 2000s to make exports cheaper), heavy subsidies to industries, and lax enforcement of labor and environmental standards – creating an uneven playing field. For example, China’s large trade surplus with the U.S. was partly blamed on China’s currency policy and state capitalism. The U.S. Treasury at times accused China of keeping its yuan ~30–40% undervalued in the 2000s, effectively subsidizing its exports; China countered that its low wages and high savings were naturally driving the surplus.

It is worth noting, however, that not all Western economic challenges can be laid at China’s feet. Automation and technological change also reduced manufacturing employment. And many Western firms actively offshored to China to cut costs, a decision benefitting shareholders but harming workers – a domestic policy choice as much as a foreign causation. As a Cato Institute review of the China shock notes, China accounted for perhaps 20% of total U.S. manufacturing job losses, with the rest due to automation and other factors. Nonetheless, in specific industries and regions, the China shock was indeed the dominant factor in job decline.

In summary, China’s rise has been a double-edged sword for other leading economies. It boosted overall growth and consumer welfare globally, contributing to low inflation and corporate profits, but also induced adjustment pains in trade-exposed sectors. This has raised questions about the sustainability and fairness of the global economic order that facilitated China’s rapid ascent.

Sustainability of China’s Growth Model

China’s growth model – characterized by export-led industrialization, high investment, and state-directed development – delivered rapid gains for decades. But can it be sustained, and at what global cost? There are several dimensions to consider:

• Economic Rebalancing: Both Chinese policymakers and international observers recognize that China’s old growth model has “largely reached its limits”. Reliance on investment and exports has led to diminishing returns: building yet more infrastructure yields less benefit now, and the world cannot absorb ever-increasing Chinese exports indefinitely. Even before the COVID-19 pandemic, China’s annual GDP growth had moderated to ~6%, and further slowdown is expected as the economy matures. The government has called for a shift “from manufacturing to high-value services, from investment to consumption”. This means encouraging domestic consumer spending (Chinese households historically consume a low share of GDP) and growing the service sector (education, healthcare, finance) to reduce dependence on exports. Achieving this rebalancing is challenging – it requires reforms to social safety nets (so households feel less need to over-save) and allowing uncompetitive industries to downsize, which can raise unemployment in the short term. The sustainability of growth will depend on successfully transitioning to a more normal economic structure. Early signs: China’s current account surplus (a measure of export reliance) has shrunk from ~10% of GDP in 2007 to under 1% in recent years, indicating more reliance on domestic demand. Yet investment still constitutes an abnormally high share of GDP (~40% in 2022). Reducing that without causing a hard landing is a major policy tightrope.

• Debt and Financial Risks: High growth has been accompanied by a rapid build-up in debt, particularly after 2008. Local governments and state enterprises carry heavy debt loads, much of it linked to property and infrastructure. This raises concerns of a financial crisis or a prolonged deleveraging dragging down growth. The collapse of speculative real estate bubbles (as seen with large developers like Evergrande in 2021–22) is a warning sign. For sustainability, China needs to manage these debts – likely through restructuring and slower credit growth – which could dampen investment-led growth. However, a disorderly debt crisis could spill over globally. So far, authorities have contained risks, but the debt-to-GDP ratio (over 280% by some estimates including corporate and local government debt) is high for a middle-income country. This limits how much further debt-fueled growth can continue.

• Demographic Changes: China’s demographic dividend is ending. The population is aging and even started shrinking slightly (as of 2022, China’s population growth turned negative). The workforce will decline in coming years, reversing the labor abundance that fueled growth. Fewer workers and higher elderly dependency will make high growth harder to sustain. It will also likely push wages up, eroding the cost advantage that underpinned export competitiveness. To sustain growth, China will need gains in productivity and possibly immigration – both uncertain prospects. An aging society could also mean higher social spending, straining government finances. Contrast this with India, which still has a young growing population; some project India could inherit labor-intensive industries that China sheds. In fact, rising wages in China have already led manufacturers to relocate some production to countries like Vietnam, Bangladesh, and India. That diffusion could moderate China’s dominance in low-end manufacturing over time (benefiting those developing countries). Thus, China’s model may be self-limiting as success raises incomes and costs.

• Environmental Constraints: China’s growth has come with significant environmental costs – severe air and water pollution and high greenhouse gas emissions. By the mid-2010s, China became the world’s largest carbon emitter (nearly 30% of global CO₂ emissions). This is unsustainable both environmentally and increasingly, socially – Chinese citizens are demanding cleaner air and water, and climate change imposes global pressure. The need to pivot to a greener growth path is now explicit. China has pledged to peak carbon emissions by 2030 and reach carbon neutrality by 2060. Achieving these goals requires restructuring energy, transport, and industry – for example, phasing out coal (still a major energy source in China) and investing massively in renewable energy and electric vehicles (areas where China ironically leads in production). A more sustainable model will incorporate the costs of environmental protection, likely making growth slower but more qualitative. It also offers new growth areas (China is the largest producer of solar panels, wind turbines, and EVs, positioning it to benefit economically from the green transition). Globally, China’s engagement is “crucial for mitigating climate change” – if it succeeds in green growth, it could lower costs of clean tech for the world; if it fails, the planet’s environmental health is at risk.

• Global Trade Tensions and Fairness: The very success of China’s model has provoked pushback that could limit its future scope. The trade war initiated by the U.S., ongoing tariff barriers, and broader moves to “decouple” certain supply chains (especially in sensitive technologies) pose new challenges. If major markets erect barriers to Chinese goods or investment (citing unfair practices or national security), China may not be able to rely on export growth as before. There is increasing scrutiny on issues like forced technology transfer, intellectual property theft, and subsidies in China’s system – as other countries deem these unfair advantages. Multilateral trade rules (WTO) have struggled to discipline some of these practices, leading to unilateral actions. To sustain integration, China might eventually have to adjust some policies (e.g. better IP protection, more reciprocity for foreign companies in its domestic market) to alleviate concerns. Otherwise, a fragmentation of the global trading system could occur, which would undermine the very global scale that China’s model leverages. In essence, China’s path may be reaching a point where it must contribute more to the system – by opening its markets and playing by common rules – to keep reaping benefits. How China manages its huge Belt and Road lending is another factor: if partner countries’ debts become unsustainable (so-called “debt trap” diplomacy concerns), there could be a backlash that undermines China’s global economic reach.

• Within-China Inequality and “Common Prosperity”: Another sustainability aspect is domestic social harmony. China’s growth has led to high inequality – one of the highest Gini coefficients among major economies (official Gini around 47) (). Coastal–inland and urban–rural divides remain large, even after poverty eradication. Recognizing this, President Xi Jinping has emphasized a shift toward “common prosperity,” aiming to build a broad middle class and curb the excesses of the super-rich and monopolistic firms. This policy direction has already led to crackdowns on certain industries (e.g. tech and tutoring) to reduce inequality and ensure stability. While not directly a global issue, how China addresses internal inequality will affect its consumption-driven growth plans. A more equal China could be a more stable trading partner and a larger market for the world (if more of its people reach middle-class purchasing power). Conversely, if inequality persists, it may impede domestic consumption and force China to continue relying on exports and investment – which, as discussed, are less sustainable. High inequality can also create social unrest, which is a risk to sustained growth. The World Bank notes that the share of people in China living under 50% of median income is “almost three times as high as the OECD average”, indicating how far China is from developed-country levels of equality.

In weighing fairness and sustainability on a global scale, one must consider that the global economy itself has benefited from China’s rise – but that benefit has been unequally distributed. Hundreds of millions globally were lifted out of extreme poverty (mostly in China and Asia), fulfilling a key development goal. The global poverty rate fell from 28% in 1999 to about 9% by 2020, largely thanks to China’s growth. This is an economic and humanitarian positive. Additionally, countries that traded with China often enjoyed higher growth – for example, African countries exporting minerals to China or ASEAN countries integrating into regional supply chains experienced a boost. However, parts of the working class in rich countries felt left behind, contributing to “anxiety… the zeitgeist of the twenty-first century global economy”. Is this outcome “fair”? That is subjective: from one perspective, globalization enabled efficient specialization and poverty reduction, from another, policy failures left Western workers without sufficient support during the transition.

Moving forward, global sustainability may require recalibration. To avoid a zero-sum scenario and ensure broad-based prosperity: China will need to consume more and export relatively less (helping global rebalancing), Western countries will need to invest in retraining workers and strengthening safety nets (so globalization’s gains are more widely shared, preventing poverty rises), and all countries must cooperate on issues like climate change that transcend borders.

There are early signs of adjustment. China’s latest five-year plans focus on innovation, green development, and domestic demand – implicitly acknowledging that the old model of churning out ever more steel and sneakers for the world is over. The U.S. and EU, for their part, are discussing “friend-shoring” (diversifying supply chains to trusted partners) which could moderate but not sever ties with China. India’s rise might introduce another massive labor force into global markets, potentially repeating some of China’s story but also offering an alternate manufacturing base for global companies. The interplay of these giants will shape whether global poverty continues to decline and whether inequality widens or narrows.

Conclusion

China’s emergence from poverty since its 2001 WTO accession is an historic achievement. Never before have so many people moved from poverty to relative prosperity in such a short time: extreme poverty in China fell from 88% in 1981 to effectively 0% by 2020. This transformation was fueled by deliberate strategies – heavy investment, export-oriented growth, and integration into the world economy – financed through both domestic resources and global capital flows. In the process, China became the world’s second-largest economy and the leading manufacturer, profoundly altering global trade patterns.

The benefits of China’s rise have been felt worldwide: it contributed more than 70% to the reduction in global extreme poverty, provided affordable goods to consumers everywhere, and became a new engine of global growth (especially after 2008 when China’s stimulus helped prevent a deeper global recession). China’s success also demonstrated alternative pathways to development; as one analysis notes, China’s growth was “not based on the neoliberal reforms espoused by the Bank and Fund”  – indicating there are multiple models to achieve development.

Yet, China’s rapid ascent also brought costs and sparked new challenges. In the United States, United Kingdom, and similar high-income countries, manufacturing communities experienced decline and job loss linked to the “China shock”. Inequality in many Western nations widened, feeding political discontent. Whether China’s growth came “at the expense” of these countries is debated – certainly specific sectors and workers paid a price, while consumers and capital owners gained. Rising poverty in Western nations (at least in a relative sense) during this era suggests that globalization without adequate domestic adjustments can create winners and losers. For example, Germany saw poverty climb to record highs by 2021 even as its overall economy grew, partly because lower-income groups did not share in the gains. In the U.S., the hollowing out of middle-class jobs contributed to the highest inequality in decades and pockets of entrenched poverty in former industrial areas. These trends are not solely China’s doing – policy choices within Western countries on taxation, education, and social welfare greatly influence poverty outcomes – but China’s rise was a significant external shock that exposed and exacerbated existing weaknesses in those societies.

Is China’s growth model sustainable globally? The evidence suggests that a continuation of past trends is neither feasible nor desirable. Globally, we cannot return to the pre-2008 pattern where the U.S. runs huge deficits, China runs huge surpluses, and everyone’s happy in the short run – that bred financial imbalances and political backlash. A more balanced global growth, with China consuming more and emitting less, and Western economies investing in their human capital to compete rather than simply protecting old industries, would be more sustainable. Encouragingly, China’s leaders are pivoting towards a more consumption-driven and greener economy, and recent U.S./EU policies emphasize rejuvenating domestic manufacturing and ensuring trade is fair. These shifts may reduce the frictions that characterized the last two decades.

From a fairness perspective, one might conclude that globalization lifted boats in China and India while some in the West missed the tide. The task now is not to turn back globalization – which would risk a lose-lose contraction – but to manage it better. This means international cooperation to set fair rules (e.g. on subsidies, intellectual property, labor standards) so that competition is not “a race to the bottom.” It also means domestic policies in each country to support those adversely affected by economic changes – whether that’s retraining laid-off workers in Ohio, or extending social insurance to gig workers in Beijing, or investing in education in rural India.

China’s emergence from poverty is a testament to the potential of economic growth to improve human well-being. Its continued success will depend on addressing the very imbalances that its initial success created – both at home (debt, inequality, pollution) and abroad (trade tensions, inequitable impacts). Likewise, the rest of the world must adapt to a reality where China is a central economic player. If managed well, China’s next chapter – with a burgeoning middle class of its own – could be a source of robust global demand and innovation, benefiting other nations (for instance, imports to China from Africa and Asia are already rising, creating new opportunities for those economies). If managed poorly, rivalries and protectionism could reverse some of the gains of the last 20 years, and the risk of conflict (economic or even military) could increase.

In conclusion, China’s experience since 2001 offers both inspiration and caution. It shows that rapid development and poverty alleviation are possible in a short time – an inspiring model for developing countries. But it also highlights the importance of evolving one’s growth model and the need for global systems to adjust when a new powerhouse emerges. The world economy is an interconnected web; China’s story has become inseparable from that of Western economies. The challenge and opportunity ahead lie in forging a more inclusive globalization – one where China’s prosperity does not come at the cost of others, but rather alongside shared progress, thus ensuring that prosperity – and poverty reduction – is sustained for all.

Sources: World Bank, IMF, WTO, and national statistics as cited. Key references include World Bank reports on China’s poverty reduction (Lifting 800 Million People Out of Poverty – New Report Looks at Lessons from China’s Experience) (Lifting 800 Million People Out of Poverty – New Report Looks at Lessons from China’s Experience), IMF analyses of inequality and globalization (Linking Climate and Inequality), and academic studies of the China shock’s impact on Western labor markets (Q&A: David Autor on the long afterlife of the “China shock” | MIT News | Massachusetts Institute of Technology), among others.