Commentary: To Fix Its Economy, China Needs to Pay Its Workers More¶
By Chen Changhua (former Head of China Research, Credit Suisse)
Full Caixin article arguing that China must transition from a 'high-efficiency, low-profit' model toward a consumption-driven economy by paying workers more.
The Core Thesis¶
China's economic model has long prioritized production efficiency and industrial output, but this has come at the cost of household consumption. To rebalance the economy, workers must capture a larger share of the economic pie.
Key Data Points¶
| Metric | Value |
|---|---|
| Q1 2026 supply (industrial output) growth | 6.1% |
| Q1 2026 demand (real retail sales) growth | 2.0% |
| Supply-demand gap (2016) | 8% |
| Supply-demand gap (Q1 2026) | 27% |
| MSCI China 10-year return | +40% |
| S&P 500 10-year return | +246% |
| Nikkei 10-year return | +142% |
Three Policy Prescriptions¶
- Labor reform — Raise wages at the expense of corporate margins
- Exchange rate adjustment — Support domestic rebalancing
- Fiscal strategy — Shift from production incentives to household consumption
The Supply-Demand Gap¶
The gap between what China produces (supply) and what Chinese consumers actually buy (demand) has widened dramatically from 8% in 2016 to 27% in Q1 2026. This imbalance is reflected in the relatively poor performance of Chinese equities compared to global benchmarks over the past decade.