When BlackBerry devices came onto the scene a couple of decades ago, one of Nick’s financial clients—an influential chairman and CEO—rejoiced. Suddenly he could fire off emails at all hours on tiny devices that could easily travel out to dinner, into the gym, even into the bathroom. He liked to joke, “My BlackBerry can send faster, but I can’t make the others reply faster.”

But in China, people did reply faster and faster, a reflection of the country’s ambition at the time. It was the same ambition that kept the factories of Dongguan and the tech workers in Shanghai and Shenzhen running “996”—9 a.m. to 9 p.m., six days a week. Coupled with tens of millions entering the workforce, massive capital investment, and a government-fueled infrastructure build-out, this relentless work ethic transformed China in just thirty years from an agrarian nation into a global manufacturing and technology superpower.

China’s urbanization surged from the mid-teens before late-1970s reforms to about 67 percent by 2024, effectively adding a new Shanghai, of around twenty million people, every year. The country now has 144 cities with over a million residents—compared to Europe’s 58 and America’s 12—including 18 mega-cities of more than ten million each. This mass migration has fueled both consumption and productivity as China evolved from a manufacturing hub into a comprehensive industrial ecosystem spanning basic goods, advanced manufacturing, and technology innovation.

That progress has come with trade-offs and significant casualties. China’s corporate athletes got to the world championship and won gold, but along the way, some players fell, others cramped up, and many more burned out. The medal is real—but so is the shakeout.

We see these pains in a segment of young people who quietly reject the competition they feel is required to succeed. We see it in multinationals contemplating their own version of “wait and see” on further China-related investments as margins and market share erode. We see it in Chinese entrepreneurs who confront a slower economy, lower returns, involution, and sheer exhaustion. And we see it in geopolitical shifts that have slowed the flow of Chinese goods, from electric vehicles to solar panels to AI technologies.

“We haven’t seen anything like the rise of China: a capable workforce at least three or four times larger than the US and Europe and working twice as hard. The world isn’t prepared for this level of output from such a large economy,” says LONGi’s vice president and chief sustainability officer Haimeng Zhang. “The decoupling that’s underway is destroying a lot of wealth on both sides.”

Ironically, the very engines that powered China’s rise—investment, savings, ambition, competition—have become drags when pushed to excess. High savings now restrain consumption. Investment fueled infrastructure but left heavy debt burdens. Market-based competition helped industries scale, only to tip them into involution. Educational ambition lifted skills and moved China up the value chain while accelerating burnout. And the demographic dividend—millions moving to cities and joining the urban workforce—has given way to falling birth rates as residents opt out of parenthood.

This chapter is a clear-eyed accounting of the costs of China’s rise. Consumption remains too weak to rebalance the economy or offset the property downturn in the short term. Corporate debt has climbed to 1.8 times GDP, twice the global average, and by the end of 2024, nearly a quarter of industrial firms were unprofitable—the highest share in more than two decades.

How long can this burden be sustained? No one knows. But long-term stability depends on faster productivity growth, which in turn depends on stronger domestic demand—and overcoming several key “traps.”

In 2010, Nick visited an architect friend whose charming home on Beijing’s outskirts had floor-to-ceiling windows overlooking a peaceful lake. At some point, a massive mall appeared across the water, followed by a new metro line. Soon, rows of high-rises began appearing much to the architect’s dismay.

For a time, the towers sat empty, prompting talk of “ghost cities.” But tenants eventually arrived once the infrastructure was in place as Beijing expanded further into the surrounding countryside. Some other mega-projects were less fortunate, remaining largely unoccupied, and as China’s growth slowed, construction in many places continued to outpace population inflows.

For decades, this build-first, fill-later pattern defined an investment-heavy, debt-fueled race to scale. Real estate, infrastructure, steel, autos, solar, even bike sharing—the model was always the same: borrow today, build tomorrow, and assume returns will follow.

It worked well for a long time. Over the past decade, we have had many interesting conversations with our clients—many from emerging markets—who are fascinated by China’s model of development. From Southeast Asia to Africa to Latin America, they all want to know: Could it work for them?

Today, this model has reached its structural limits. China once borrowed to build new capacity; it now borrows largely to refinance existing obligations—supporting infrastructure, property, and local governments whose returns no longer cover their costs. We call this China’s swollen balance sheet problem: economic growth driven by debt accumulation rather than productivity. China’s debt-to-GDP ratio has climbed steadily to a record 293 percent in early 2025—roughly double the level of two decades ago and higher than that of the US, the UK, and Germany.

The roots lie in the urban boom of the 1990s and 2000s, when local governments financed growth by selling land and borrowing heavily. Developers, convinced demand would never falter, built relentlessly. Property values became the backbone of both local government budgets and household wealth. When regulators imposed 2020’s “three red lines”—caps on leverage, debt-to-equity, and short-term liquidity—to curb excess, the bubble cracked. The collapse of Evergrande, with $300 billion in liabilities, symbolized the unraveling.

As revenues dried up, local governments rolled forward old debts just to stay afloat. Infrastructure projects stalled; schools delayed construction; government bureaus cut civil servants’ salaries. State-owned enterprises kept building projects, some of which made marginal fiscal sense—because stopping would trigger loan defaults, which would then ricochet through local banks and public finances.

Once-flush developers began offering steep discounts. Unfinished towers stood behind locked gates. Banks kept lending simply to avoid recognizing losses. Households, watching property prices soften, tightened their wallets—saving more, spending less, waiting for the rebound that has yet to come. Growth remains, but it is slower, more constrained, and funded by yesterday’s money. Each yuan of borrowing now produces less output, while the weight of old debt narrows future choices.

What’s the fix? Shifting from a growth model driven by construction and leverage to one powered by productivity and consumption. Other major economies face their own prescriptions—Europe must invest more, and the US must save more—but China’s challenge is steeper.

Household, corporate, and public balance sheets are already strained, raising the risk of secular stagnation and slower wealth gains in the decade ahead. The Chinese government is acutely aware of the problem: initiatives such as industrial upgrading and “AI +” aim to lift productivity, with ministries rolling out adoption targets and new KPIs. McKinsey’s analysis suggests that without faster productivity growth, wealth expansion over the next decade could slow sharply, making balance sheet trends a clearer signal of the path ahead than conventional forecasts alone.

Consider Jing, a thirty-nine-year-old project manager in Nanjing, who still treats payday like a personal savings ritual. On her commute home, she opens Alipay or WeChat Pay and moves part of her salary as well as her husband’s into a three-year deposit or a money market fund. Jing could automate, but she prefers the feeling of being hands-on. She and her husband check the stock market sometimes, but largely out of curiosity—it still feels too unpredictable. For Jing, financial security means guaranteed returns, and where she once carried cash to the bank counter, one tap on her phone now gives her the same sense of control.

For decades, growth has run on an extraordinary engine: household savings. Since the 1990s, China’s household savings rate has consistently exceeded 20 percent of GDP. That’s the kind of number that makes us rub our eyes and check twice. More than one-fifth of GDP was stashed into savings accounts and low-risk products?

Yes, one-fifth. No country’s citizens save like the Chinese. Over the same period, Japan and South Korea saw their household savings rates fall from around 14 percent to just 8 percent, while in the United States and the United Kingdom, it has never exceeded 10 percent. To be clear, that rainy-day money doesn’t sit idle. Households trust banks, and banks funnel those deposits into loans for state firms and local governments. Higher-return investment trust products—a form of shadow banking—grew rapidly before high-profile failures reminded investors they weren’t guaranteed. For most Chinese households, real estate remained the only serious alternative to bank savings.

This high-savings model powered a once-in-history build-out. Over the past two decades, the country has invested tens of trillions of dollars—often more than 40 percent of GDP each year, into the world’s largest high-speed rail network, vast expressways, ports, metro lines, bridges, new cities, and housing for hundreds of millions. Capital spilled into industrial parks and economic zones. For years, this cycle felt like perpetual motion.

But returns have slowed. Economists track this via the incremental capital output ratio (ICOR): in the early 2000s, China’s economy needed 3 to 4 RMB ($0.4 to $0.6) of investment to generate 1 RMB ($0.1) of GDP; by the early 2020s, it needed 8 to 9 RMB ($1.1 to $1.3). In other words, it now takes two to three times more capital to produce the same growth. Some new infrastructure—data centers, cloud, digital power—still delivers double-digit returns. But trillions of RMB remain locked in real estate, where clearing existing inventory now takes more than two years, compared to just twelve to fourteen months five years ago.

Weak consumption amplifies this imbalance. Household consumption significantly lags rich-world norms, settling at just 39 percent of GDP in 2024—far below the US at 68 percent, Japan at 55 percent, and the low 50s in Germany, France, Australia, and South Korea.

Why do Chinese households save so much? Part of the answer lies in history. As China shifted from a planned economy to a more market-driven one, the old “iron rice bowl” system of guaranteed jobs and cradle-to-grave benefits receded. Families increasingly assumed the private burden of paying for housing, education, retirement, healthcare, and other long-term needs—prompting them to save more. In effect, households internalized costs that in many advanced economies are socialized through public systems.

China does have a broad social safety net; the nationwide “five insurances and one housing fund” program covers pensions, medical care, unemployment, workplace injury, maternity needs, and long-term housing savings. But payouts are often modest, and demographic shifts mean fewer workers will be supporting a growing retiree population—the classic “inverted pyramid” facing aging societies everywhere.

Uncertainty reinforces this instinct. Youth unemployment hovered just below 20 percent in 2025, and job insecurity runs deeper than the headline. As Chinese families say, “If you can’t see the storm forecast, you carry a bigger umbrella.”

The savings trap has two sides. On the supply side, cheap funding keeps flowing into lower-return projects, repeating the old formula of steel, concrete, and buildings. On the demand side, anxious households do what anxious households do: they save rather than spend. Overcapacity feeds frugality; frugality worsens overcapacity.

China’s economy has navigated shocks before—SOE reforms, the global financial crisis, COVID—but this current adjustment will feel slower. The old playbook of debt-fueled growth no longer delivers, and the next phase of growth must come from innovation, consumption, and productivity.

For now, weak spending reflects two realities. First, deflation makes nominal consumption look flat even when real volumes rise. Second, some consumers are “trading down,” shifting from hotels to camping, from Porsche aspirations to BYD practicality.

Expectations also need to be recalibrated. From 2000 to 2020, many assumed property prices, wages, and consumption would rise indefinitely. Property came to be seen as one of the most important investment assets, and the bursting of the housing bubble has been deeply distressing for a generation of savers. Wage growth was likewise expected to have remained in the high single digits, if not double digits; the last few years of slower growth and job cuts have punctured that assumption. Perspective helps. We often remind business leaders that Europe has grown at around 2 percent for decades; Japan closer to 0.5 percent. As expectations normalize, sentiment may recover.

The upside lies in sectors seeded over the past decade: robotics, generative AI, biotech, and green energy. If the 2010s were about building, the 2020s must be about making those assets pay—and turning precautionary savings from a trap back into an engine.

One central question for the next China is simple: How do you unlock 152 trillion RMB ($22 trillion) in household savings and shift some of it from empty apartments and savings accounts into real consumption? The challenge is turning precaution into participation. The potential is obvious. “The desire and the power—and the money—are there. We just need to unlock it,” says Kevin Wei Wang, a McKinsey senior partner co-leading the digital practice in Asia. In researching livestream shopping behavior, McKinsey found that even in lower-tier cities, consumers might spend up to two-thirds of their incomes, drawn by community, novelty, and a nudge by influencers and livestream hosts. “You give consumers a chance, and they do consume.”

As we outlined in the previous chapter, involution can result in dazzling success. Whether it’s coffee, solar, steel, or the less-reported booms in EV chargers, LED lighting, or home fitness gear, each “next big thing” triggers explosive growth and a stampede of capital. Local governments compete to host factories, and companies sprint to grab market share.

We’ve already detailed the economic fallout: negative returns, zombie firms sustained by cheap credit, and capital misallocated by local government incentives and investor exuberance. The cycle typically breaks only when standards tighten, credit dries up, and export markets hit their limits—setting off consolidation that’s always politically sensitive but economically unavoidable. And even then, involution is hard to extinguish entirely: cycles slow, markets might stabilize, and then—because the opportunity is huge—it roars back to life.

What we haven’t yet discussed is the human cost—what this constant over-effort does to sentiment and confidence across Chinese society. Workers feel trapped on the same treadmill that students do: ten years of preparing for the college entrance exam, only to graduate into a job market with another bottleneck and lots of headwinds. “There are too many people running faster and faster, and only a few feel they’re getting ahead,” says Stanley Wang, a McKinsey partner in the global energy and materials practice. “There’s massive fatigue. At some point you ask if it’s sustainable.”

Can the Chinese economy hold on to the upside of relentless competition without burning itself out? The next two traps emerge from the sheer intensity required just to stay in the game.

Picture Ming, twenty-four years old, sitting in a rented studio on the edge of the mid-sized city of Jinhua in Zhejiang province. The blinds are half drawn. His laptop is open, but he’s decided to watch a video rather than work. Ding! His phone glows with yet another message from worried parents, urging him to trade up for a better job, to take the civil service exam, or to get married. He scrolls for a while, then puts the phone face down.

He’s not protesting, he’s just tangping, lying flat, a phrase coined to describe a certain segment of a generation that looks down the road and doesn’t like what it sees. Ming is opting out, working an online advertising job that pays enough to get by: no overtime, no pressure. On weekends, he reads or takes a walk. It’s an unremarkable life, and that’s the point—far from what his parents and grandparents imagined when they poured heart and soul into furthering his education. Ming still hopes to “make it”—whatever that means—just not now.

The one-child era minted a generation of ambition, but now the cost is becoming clear: high expectations layered onto slowing growth have led to generational burnout and in turn declining fertility just as an aging society needs care.

For decades, Chinese families invested heavily in a single child. Households devote a larger share of their budgets to education than any other country—about 17 percent of average annual income, far higher than the 1 to 2 percent typically seen in Japan, Mexico, or the United States. The pattern holds across the rural-urban divide and across income levels: urban families spend more than rural families, and the poorest households devote more than 56 percent of their annual income to education.

By 2024, China had produced 260 million college graduates, forming a large and increasingly skilled workforce. Many have gone on to advanced study at home and abroad, filling out PhD programs around the world, and then returned home to drive the country’s emerging industries. The middle class expanded rapidly: households earning 180,000 RMB (about $26,000) grew from a small minority to nearly half of urban households by 2024—and day-to-day purchasing power often stretches further, with a carton of high-quality eggs costing $1.57 in China compared with $4.40 in the United States and $3.82 in Germany.

But the payoff has thinned. The one-child generation was raised to win; now it’s asking whether the race is worth it. In one recent interview with a twenty-five-year-old master’s graduate on the topic of lying flat, she said, “We used to quote the Chinese proverb—‘bitter first, sweetness later’—meaning that you should work hard first for delayed gratification. This is the problem: we don’t know whether sweetness will ever come, but you know that it sure is bitter now. I would rather taste some sweetness now, because I know it is definitely sweet.”

In other words, a segment of the population has opted out of the race. It is impossible to estimate how large this group is—likely a small minority—but the sentiment is widely felt. At the same time, the “4-2-1” burden—one child supporting two parents and four grandparents—has become a national concern, with the basic pension fund projected to run dry by 2035.

Younger generations are routinely labeled complacent or entitled, a pattern seen in China as well as in mature economies like Japan and Europe. What sets China apart is the speed at which these pressures are arriving. The response, however, is far from passive. Millions are saving more, delaying marriage, or seeking civil service stability—over three million applied in 2025, more than double since 2020—while others turn to gigs, creator platforms, or start-ups, redefining ambition for a slower-growth China.

It’s also a gentle warning sign for corporations. Today’s young workers didn’t grow up in the hardship their parents and grandparents knew. While they’re still living modestly by global developed market standards, they’ve already leapt far beyond the living standards of earlier generations. That shift matters. It means companies can no longer assume that young people will simply put their heads down and accept whatever working conditions or culture they’re handed.

A few years ago, we asked young Chinese what they were seeking from their careers, and their answers looked identical to those of young people everywhere in the world: meaningful work, autonomy, flexibility, and the chance to advance quickly. The way forward is purposeful ambition that excites, supports, and endures. That’s the dividend China now owes its young people.

Consider Mrs. Zhang, a seventy-eight-year-old widow who lives alone in a small apartment an hour outside Chengdu. Like many women her age, she’s outlived her husband, while her son has migrated to Shenzhen and visits only once a year. Most days are quiet. She boils water for tea, watches livestreams on her phone, and chats with neighbors on WeChat—a faint glow of company in an otherwise silent room. A wristband tracks her heart rate and pings her son if she falls. Across the street, the kindergarten has closed—too few children remain and there aren’t enough teachers.

China is confronting a demographic reversal: a rapidly aging population, falling fertility, and a shrinking workforce. The country’s once youthful age structure—long a growth engine—has run its course. Fertility has fallen to around 1.0, among the lowest globally. Meanwhile, by mid-century the number of citizens over age sixty-five will rise from 15 to 31 percent—that’s one in every three Chinese citizens! China is aging faster than Japan ever did, compressing what was essentially a century-long shift in Japan into a single generation. By 2050, the number of seniors in China will double, leaving the country with a demographic profile that looks much like Japan’s today.

On the surface, this may look like a caution flag. But the story is more dynamic—and much less dire—than it first appears. From the late twentieth century through the early 2000s, China reaped enormous benefits from a young, mobile labor force as roughly 240 million rural migrants fueled the country’s industrial boom. The number of urban Chinese quadrupled to 67 percent by 2024. Yet the population peaked at around 1.41 billion in 2021 and has since begun to contract.

China won’t be alone in this shift. Western Europe is expected to have a similar share of older adults by mid-century, and the United States isn’t far behind—though both remain slightly younger than China with higher fertility rates and also higher rates of immigration. This demographic wave will shape everything from the labor force to household finances.

Will Mrs. Zhang’s son have one child or two? In China’s mega-cities, life feels expensive, fast paced, and intensely competitive—and that constant ambition treadmill is eroding the appeal of larger families. Today, roughly five workers support Mrs. Zhang’s pension, but by mid-century, that support ratio is expected to drop to just two working-age adults as the share of retirees rises and the working-age cohort declines.

Despite an array of government incentives—tax breaks, subsidies, and the shift from the two-child to the three-child policy—few families are choosing to have more children, especially in major urban centers. The overall fertility rate sits around 1.14, but that number masks a sharp divide: rural areas are closer to 1.35, while large cities are nearer 1.0. Simply put, raising children in urban China feels too expensive, and many young adults hesitate to birth more kids—only to have them start running on that treadmill almost from day one.

Of course, this isn’t unique to China; it mirrors a global trend seen in most highly urbanized cities. What sets China apart is the speed and depth of its decline: fertility has fallen into the same ultra-low range as Japan and South Korea, but in far less time. The way out of this trap is adaptation: upgrading labor skills, boosting productivity through technology, and addressing the economic and social barriers facing young households. The alternative is stagnation—an economy that grows old before it grows rich.

What are China’s institutions doing to address this? Beijing is rolling out a fertility-boosting program: cheaper childcare, longer parental leave, tax and housing incentives, and a rapid build-out of public nurseries. Local governments are adding work-life balance reforms of their own, from Sichuan’s extended marriage and maternity leave to Shanghai’s mandate around “family-friendly” positions with more predictable hours. Companies have begun limiting overtime and enforcing clock-off rules to reduce burnout. China’s leading online travel agency, Trip.com Group, announced that it will provide 1 billion RMB ($143 million) in subsidies to support employees who choose to have more children; Jane Sun, CEO of Trip.com, tells us she feels “tremendous responsibility” to pave the way for female leaders and has introduced free taxis during pregnancy and company-sponsored egg freezing.

Like many aging societies, China’s demographic shift doesn’t erase opportunity—it reshapes it. An older population is driving demand for healthcare, services, smart devices, automation, robotics, and productivity-boosting tools, and China still contributes more to annual global GDP growth than any other economy.

In the near term, however, the effects will show up more clearly in classrooms than in offices. Kindergarten enrollment will shrink well before the labor force does. University graduates entering the workforce will still increase over the next decade, reflecting higher university enrollments. The sharp drop in births only began after 2016–2017; its full impact won’t be felt until the late 2030s.

In short, the demographic headwinds are real—but so are the markets they create. The questions ahead are not just about population size but also about productivity and innovation. And those are areas where new players, including foreign multinationals, can thrive. Not to be cliché, but boomtowns don’t disappear; they evolve.

Put the five traps together—high debt, high savings, the costs of “involution,” an ambition treadmill, and an aging population—and you get the dinnertime conversation in millions of Chinese homes. The meal looks simple enough—bowls of rice, bok choy with mushrooms, a plate of stir-fried pork—but it probably arrived after a few swipes on an app, steaming hot within thirty minutes and delivered almost for free. The parents sigh, “In our days, things were better.” By “our days” they don’t mean the 1970s or 1990s but just a decade ago, when wages reliably climbed and apartments seemed destined only to rise in value. Yet they’re eating food their own parents could never have afforded so easily. The smart fridge hums beside a countertop full of appliances that once belonged only in glossy magazines. A new EV sits outside. Everyone has one, maybe two phones. Life is materially better, and consumption feels effortless.

What’s faded isn’t comfort or abundance, but rather the confidence that tomorrow will be better still. Their child—often still an only child—gulps down dinner before returning to hours of homework. Her future looks tighter: slower salary growth, a more competitive employment landscape, high real estate prices, postponed family plans, and the expectation of caring for aging parents and grandparents alone.

Companies feel a similar strain: cautious consumers, workers frustrated by flat wages, and markets warped by constant price cuts. The world’s toughest gym built strong muscles; the next phase requires using them more intelligently.

None of this means China is predestined for stagnation. Predictions of collapse often borrow the wrong frame—reading China through Japan’s “lost decades” or Western boom-and-bust cycles. China’s system per capita income still has room to grow and its policy machinery can redirect credit quickly. And remember: Chinese households are sitting on enormous savings. The energy is there, but the channels to turn savings into spending, scale into productivity, and ambition into purpose need repair.

The positives are real: a measured optimism; a vast domestic market that still allows companies to pivot, test, and scale; and a Chinese workforce that remains among the world’s most driven. Chinese entrepreneurs continue to generate world-class competitors in sectors where success once seemed improbable. In AI and robotics, the new class of unicorns are creating wealth faster than ever before, with ever younger whiz kids. In a world of slowing growth, the country’s resilience remains singular.

The challenge—and the opportunity—now is to pivot: to move from price wars to productivity, from ghost assets to smarter capital, from forced workaholism to sustainable ambition, and from inward anxiety to outward confidence. Humans tend to fixate on the negative—an evolutionary instinct that’s great for avoiding bears and tigers but less great for understanding long-term progress, as Nick and his McKinsey Global Institute colleagues have researched and written about in A Century of Plenty. The arc of the past century is unmistakable: global per capita incomes have risen more than seven-fold, life expectancy has extended by three decades, and average years of schooling have increased by more than seven. China has been central to that story, enabling hundreds of millions to lift themselves into the middle class and driving global growth.

A negative outcome is not predestined. “Are we at a precipice?” asks Michael Zang, CEO of Zhejiang Shangbai Group, which operates supermarkets, malls, and department stores across the coastal corridor south of Shanghai. “Whereas periods of ‘irrational exuberance’ can inflate expectations far beyond underlying economic realities, I like to say that ‘irrational pessimism’ calls for immediate entry. The more pessimism I hear, the more opportunities there are. We just need to work a little harder to find them.”