The renminbi is back at the center of debates about global macroeconomic imbalances. With China’s merchandise trade surplus widening to $1.2 trillion in 2025, and with its manufacturing sector becoming increasingly dominant, the near-consensus among financial and economic commentators is that the renminbi is significantly undervalued. The implication is that China should let its currency appreciate sharply, thereby shrinking its surplus, easing competitive pressure on manufacturers elsewhere, and helping rebalance the global economy.

For most of the past four decades, China’s direction of travel was clear: everything was moving forward. The country’s per capita GDP was barely $300 at the start of the 1990s. But its cities would soon fill with skyscrapers, highways, and subways. Families that once worried about having enough food would buy apartments, cars, and smartphones. Children would go to universities their parents could scarcely have imagined attending. In the space of a generation, China joined the World Trade Organization, hosted the Olympics, built the world’s largest high-speed rail network, and became a central engine of the global economy.

The country’s robust resilience remains intact, putting the full-year growth target of 4.5 to 5 percent well within reach. Its ability to move forward ahead stems from a sound industrial structure: an ultra large domestic market combined with ample policy reserves.

Chinese industry has been operating under distinctly unfavorable external conditions, with trade tensions, the pandemic, geopolitical conflicts, and the reconfiguration of global supply chains all exerting pressure on manufacturing. Yet China’s net goods exports have continued to grow and now exceed $1 trillion, with electric vehicles (EVs), batteries, and machinery expanding their global footprint. Why have external headwinds not weakened China’s manufacturing competitiveness?

Chinese firms have achieved global leadership in industries once assumed to be the preserve of advanced economies: electric vehicles, batteries, industrial robots, solar panels, and AI—to name just a few. The standard explanation for this success is that the Chinese state subsidizes production, an argument that has now been given the institutional weight of a major OECD report.

In the long sweep of history, China’s economic performance over the past 50 years will obviously stand out for the sheer scale and pace of quality-of-life improvements within that country. But China’s impact on the rest of the world has still been underappreciated.

China’s well-documented rise in prominence in the global supply chain has created an economic engine that now rivals the United States, but now facing stagnating growth, can China innovate into the 21st Century and drive into new territory?

China manifests a striking paradox. It is among the world’s most dynamic technological powers, producing breakthroughs in AI, electric vehicles, and advanced manufacturing at an accelerating pace, yet economic growth continues to slow. The reason is no mystery. As the government’s latest Five-Year Plan (2026-30) recognizes, China is experiencing a structural transition, not a cyclical slowdown. The old model is giving way to a new one, which has yet to take hold.

As missiles, bombs, and drones fly across the Persian Gulf, the prospects of an even more devastating war in the Pacific are strengthening. De-escalation of the new cold war between the United States and China must now become the world’s top priority. To that end, it is essential to explode a powerful myth that makes war more likely: the idea that China has cheated its way to prosperity.

2026 is the first year of the Fifteenth Five-Year (2026-2030) Plan for National Economic and Social Development of China. There is intense interest in the target rate of economic growth as well as the actual rate for 2026, given the continuing slump of the real estate sector in China, the apparent lack of sufficient domestic aggregate demand, and the many different challenging geo-political uncertainties. The official target rate will be announced at the “Twin Conferences (the National People’s Congress and the Chinese People’s Political Consultative Conference)” in early March.