Lessons from China’s Investment-Led Strategy

BRICS nations reflect a collective aspiration among developing nations for economic autonomy and new development pathways. As these countries chart their respective courses, understanding the mechanics of China’s own extraordinary economic transformation offers vital geopolitical lessons.

In discussions surrounding China’s economy, a concept often debated is “involution”—a sense of intense competition driving low profitability, where massive effort yields minimal results. Addressing this dynamic requires policymakers to move beyond conventional economic wisdom, according to Prof Warwick Powell, an adjunct professor at Queensland University who studies the intersection of China’s economy, finance, and global governance. His essay, “Addressing ‘involution’,” intervenes in this central debate by analyzing China’s structural dynamics and credit mechanisms.

Western commentators frequently assert that China is under-consuming and over-investing, suggesting that the economy stands on the edge of crisis due to weak domestic demand and compressed profits. Professor Powell argues that this diagnosis misreads the fundamental drivers of growth, inverting the cause-and-effect relationship between consumption and investment.

By observing China’s unique, investment-led approach to growth and structural adjustment, BRICS nations can extract three core lessons applicable to their own pursuit of sustained development and global economic standing.

A prevalent claim suggests Chinese households save too much, restricting consumption, which then starves industry of demand and forces reliance on exports. Professor Powell contends that this mainstream trope is misplaced because savings are a residual, what households possess after they have spent their income. Focusing on consumption as a proportion of GDP obscures the crucial fact that GDP itself is not static; in a rapidly growing system, absolute consumption can rise dramatically even if its proportional share decreases.

The real driver of economic development is autonomous demand, which does not depend on the previous cycle’s output. For China, investment has served as the dominant autonomous driver, generating decades of phenomenal growth.

The economic sequence follows this order: Investment expansion dictates capacity growth and productivity improvements, which lead to income growth, which, in turn, induces higher household spending. Attempting to stimulate growth purely by boosting consumption while cutting investment risks undermining long-term productivity and may result in a lower-income economic trajectory.

Historical data support this alternative perspective: China today is a much wealthier society than it was in 1962 or 1983, yet consumption as a percentage of GDP was far higher in those earlier periods. This demonstrates that proportionality metrics are poor benchmarks for measuring real welfare. China’s model has focused on increasing the absolute quantity of real income, enabling households to satisfy their material requirements and still save substantially.

For BRICS nations, the insight is clear: rather than viewing consumption and investment as trade-off alternatives, they should be understood as symbiotically interwoven. Investment is the principal determinant of growth.

For developing countries seeking self-reliant growth, Professor Powell identifies three foundational dimensions of infrastructure flow that BRICS nations must master: physical flow, information flow, and energy flow. These elements are interconnected and contribute directly to economic sovereignty.

First, the infrastructure of flow—the physical networks—is necessary to enable the movement of goods, services, and people, domestically and internationally. Without this foundation, the economic system will remain constrained.

Second, information infrastructure (digitalization and communication) is vital. This allows enterprises in different parts of a country or the world to connect affordably. Crucially, BRICS nations must ensure that their information systems, including AI capabilities, are not susceptible to external interference or censorship. Developing countries should control their own information domains, hardware systems, software, and databases, taking advantage of open-source technologies where applicable.

Third, BRICS economies need highly efficient energy systems. The ability of an economy to access energy systems that guarantee a high energy return on energy invested (EROEI) is the basis on which all other activities can be undertaken. A high EROEI setup generates surplus energy that can be mobilized for other purposes. This often involves moving away from reliance on energy sources that require expensive imports, such as oil, especially if the country lacks domestic reserves. New energy technologies allow for rapid deployment in distributed environments, meaning energy users and generators are closer, making systems less vulnerable to large-scale threats and shocks.

These foundational investments must be accompanied by the fourth wrapping element: the transformation of human capability through education and skills development to utilize these new systems.

China is contending with “involution competition,” evidenced by profit compression in various sectors. The pressure felt by firms is often a symptom of a slowdown in system liquidity expansion combined with structural overcapacity, rather than simply being a function of price competition.

China’s structural transformation strategy has been to shift credit and industrial policy support from low-productivity deliberately, labor-intensive sectors like real estate, toward strategic emerging industries—semiconductors, electric vehicles (EVs), and AI-enabled manufacturing.

This rotation changes the profit dynamic. While aggregate industrial profits may be under pressure, profitability is surging in high-tech, capital-intensive manufacturing. The strategy involves a long-term dynamic: the ongoing substitution of technology for labor. As profit margins compress in labor-intensive sectors, firms invest in automation, robotics, and AI to reduce reliance on human labor. This raises the economy’s maximum rate of profit, allowing the system flexibility to accommodate higher real wages without eroding profits.

China’s geopolitical aim is to maintain a high-wage, high-productivity system, not engage in a low-wage race to the bottom. Addressing potential domestic demand challenges, which arise if labor demand grows more slowly than output, requires redistributive mechanisms and the expansion of the foundational economy (public services and infrastructure) to provide employment and welfare security.

Managing this transition means:

1. Cultivating Skills: Sustained investment in vocational and higher education to equip the population for new areas.

2. Expanding Human-Intensive Services: Promoting sectors where non-routine human capabilities—such as healthcare, education, or cultural industries—are essential, absorbing labor displaced by automation.

3. Public Investment and Social Welfare: Public goods, such as healthcare, education, and housing, help reduce the cost burden on citizens, enabling them to cope with structural changes. Investment in public amenities, like parks and clean waterways, enhances urban liveability and promotes the health of the population, which reduces long-term social costs.

An essential institutional distinction that facilitates this targeted transformation is that China’s principal commercial banks are publicly owned. This enables a substantial policy role in shaping national priorities for credit provision and coordination with economic development initiatives, allowing credit to be strategically directed toward high-productivity sectors. This contrasts sharply with privately owned banks driven solely by returns on capital for shareholders.

BRICS nations operate in a geopolitical environment where the existing multilateral post-war financial institutions, such as the IMF and World Bank, are widely seen as having failed to deliver adequately for the developing world. This recognition has spurred the creation of new institutions, including the BRICS New Development Bank (NDB) and the proposed Shanghai Cooperation Organisation (SCO) development bank.

These new financial frameworks represent a desire by the Global South to “do its own thing”. The Chinese model provides a proven blueprint for such self-reliance: one that prioritizes investment that leads to fundamental transformation of economic capabilities.

The key takeaway for BRICS is that long-term stability and social well-being are not found in chasing proportional GDP metrics or short-term consumption boosts. Prosperity flows from a comprehensive, coordinated approach that channels liquidity into strategic sectors, builds foundational infrastructure (physical, informational, and energy), and actively manages the resultant distributional shifts between wages and profits through robust education and public welfare systems. By following these lessons, developing countries can focus on securing their economic sovereignty while ensuring that capital accumulation and rising living standards become mutually compatible forces. BRICS members are recognizing that it matters not just what you invest, but how you invest it, to yield durable public benefits.