China's centrally planned economic model is generating deep structural vulnerabilities that are becoming increasingly difficult to conceal, according to an analysis by The National Interest. The report challenges the widely held assumption that Beijing's tight grip over political and economic levers gives it a competitive edge over market-driven economies — arguing instead that centralisation is now a liability.

The Case Against Central Control

While China's system allows state authorities to direct resources across industries and regions at scale, the analysis contends this comes at a steep cost: reduced efficiency, diminished flexibility, and long-term economic instability. Industrial policy remains heavily centralised, with the state exerting influence over both demand and supply across sectors spanning manufacturing to services.

This top-down approach has delivered rapid expansion in targeted industries, but it has also entrenched economic imbalances and systematic misallocation of capital — problems that compound over time.

Property Sector: The Most Visible Fault Line

Nowhere is the strain more visible than in China's property sector, which has been in crisis since 2021. Years of state-backed expansion — fuelled by low interest rates, government subsidies, and coordinated support from local administrations — made real estate a cornerstone of GDP growth.

The reversal came swiftly. Policy tightening in 2020 under the 'three red lines' framework — designed to curb developer leverage — triggered a cascade of defaults across major property groups, most notably Evergrande. What was once a growth engine became a drag on the broader economy, and the sector has yet to fully stabilise.

Industrial Overreach and Export Dependence

In response to the property downturn, Beijing doubled down on its industrial strategy through initiatives such as 'Made in China 2025', channelling large-scale investment into electric vehicles, semiconductors, and artificial intelligence. The results have been mixed.

While production capacity surged, the report notes that this drove excess supply, falling domestic prices, and a growing dependence on export markets to absorb output. This structural shift is now colliding with mounting external headwinds, including declining exports to the United States and escalating trade restrictions from Europe and other regions.

Rare Earths: Strategic Strength Under Pressure

Supporters of China's model often point to its dominance in rare earth processing as evidence of enduring strategic leverage. The analysis, however, argues that this advantage is eroding as global diversification efforts gather pace. Multiple economies are actively investing in alternative supply chains, gradually reducing their dependence on Chinese processing capacity.

What This Means for the Global Economic Order

Taken together, the findings suggest that China's growth model — effective in an era of globalisation and rising demand — is increasingly ill-suited to a world of trade fragmentation, technological competition, and geopolitical realignment. The report stops short of predicting an imminent crisis, but the structural pressures it identifies are unlikely to resolve without significant reform. How Beijing responds — and whether it can reconcile political control with economic adaptability — will be one of the defining questions for the global economy in the years ahead.