The Looming Economic Crises in China and the United States: A Tale of Two Inequalities

This article is a continuation of The collapsing worlds – both the US and China.

Let’s explore further the economic challenges facing China and the United States, focusing on inequality, structural flaws, and the potential for collapse, while incorporating key numerical comparisons into tables for clarity.

The Looming Economic Crises in China and the United States: A Tale of Two Inequalities

In a world shaped by globalization, China and the United States—two economic titans—stand at a precipice. Despite their vastly different systems, both nations are plagued by deepening inequality that threatens their stability.

China’s investment- and export-driven model has enriched elites while leaving most citizens with a shrinking share of prosperity.

Meanwhile, the United States’ consumption-based economy, propped up by debt and an addiction to cheap imports, masks severe structural weaknesses.

This article examines how these divergent paths are driving both countries toward economic disaster, exacerbated by America’s indulgence in cheap goods over the past 35 years and the complexities of the trade war. Through a detailed analysis of economic trends, wealth distribution, and global dynamics, we reveal the shared vulnerabilities imperiling their middle classes and future generations.

I. Introduction

China and the United States epitomize contrasting economic paradigms. China’s growth stems from investment, exports, and state control, while the US relies on robust consumer spending. Yet, beneath these differences lies a common challenge: inequality.

In China, consumer spending accounts for just 39% of GDP, reflecting a system that prioritizes state and elite interests over the masses.

In the US, consumer spending exceeds 68% of GDP, but this strength is illusory, sustained by debt, cheap imports, and short-term policies. Central to the US’s plight is its addiction to cheap consumable goods, which, over the past 35 years—especially the last 25—has become one of the primary drivers of generational financial destruction.  

This seemingly benevolent consumerism is actually a significant force behind two major economic problems the US as a nation faces:

(1) the out-of-control national debt; and

(2) the generation-degradatiing asset price inflation.

As the Chinese proverb warns, “贪小便宜吃大亏” (being greedy for small gains leads to big losses), both nations are on unsustainable trajectories that could unravel into economic and societal collapse unless radical reforms are enacted. 

II. China’s Economic Situation

A. Xi Jinping’s Leadership and Its Impact

Since taking power in 2012, Xi Jinping has doubled down on China’s state-driven economic model. Ambitious projects like the Belt and Road Initiative and Made in China 2025 have propelled GDP growth averaging over 6% during his tenure, funneling resources into infrastructure and high-tech industries. This has undeniably strengthened China’s global standing, but the benefits have largely accrued to public images, state-owned enterprises (SOEs), and politically connected elites. Crackdowns on private firms like Alibaba signal a retreat from entrepreneurship, further concentrating wealth. While this model once lifted millions out of poverty, it now increasingly leaves ordinary citizens with a diminishing share of prosperity.

B. The Paradox of Infrastructure Investment

China’s investment in public infrastructure—think sprawling highways, high-speed rail networks, and modern airports—stands as a testament to its economic might. Over the past few decades, this focus has created millions of jobs, spurred growth, and modernized the nation, benefits that should, in theory, uplift the general public. Yet, herein lies a paradox: while these investments have built a strong nation, they have not made the Chinese people as prosperous as they could be. The issue isn’t that individuals are worse off than before—living standards have improved—but that the model prioritizes national strength over individual well-being, resulting in systemic economic flaws.

The root of this problem lies in the nature of China’s investment strategy. Much of the spending on infrastructure and manufacturing is driven by political objectives rather than market demand. For instance, the government might construct a gleaming high-speed rail line to a remote region to showcase technological prowess, even if passenger demand doesn’t justify the cost. This leads to overcapacity—think “ghost cities” or underused transportation hubs and facilities —and wasted resources. China’s debt-to-GDP ratio, now exceeding 300%, reflects the scale of this overinvestment, a figure higher than many developed nations and a warning sign of inefficiency.

Moreover, this fixation on infrastructure and manufacturing has sidelined other critical sectors, like the social safety net, services, and domestic consumption. The economy remains heavily dependent on exports and investment, rather than the spending power of its own people. This imbalance is compounded by a weak social safety net. Unlike in developed countries, where robust healthcare, pension, and unemployment systems provide security, Chinese citizens must save heavily for emergencies, retirement, and medical costs. This reduces their disposable income, curtails consumption, and keeps consumer spending at just 39% of GDP, far below the US’s 68%. High income inequality further exacerbates this: the rich amass wealth, often tied to political connections, while the average person struggles to build financial security.

This isn’t just individual hardships; it’s a systemic economic flaw. When people are financially insecure (especially for lack of a social safety net), lack disposable income, domestic demand weakens, leaving the economy vulnerable to external shocks, like declining export markets or global recessions. Overreliance on investment also fuels debt and overcapacity, risking a financial crisis if growth slows. The lack of a safety net and suppressed consumption thus undermine the very foundation of sustainable prosperity, creating a nation that’s strong on paper but fragile in practice.

C. Uneven Wealth Distribution

China’s economic engine runs on a cycle of investment, exports (coupled with almost absolute foreign currency exchange control), and reinvestment, inherently limiting how wealth is distributed. The so-called “policy inclination” (preferential policies) plays a fundamental role before even market forces come into play. In addition, the hukou system, which denies rural migrants equal access to urban benefits, locks millions into economic disadvantage. This skewed distribution, paired with the infrastructure-driven model, stifles the middle class and domestic consumption, amplifying the systemic risks.

D. Risks of Collapse

The cracks in China’s model are widening. The real estate sector, accounting for nearly 30% of GDP, teeters under massive debt (Evergrande’s $300 billion default is a stark example). Youth unemployment remains high and is skyrocketing in recent years, and a shrinking workforce, projected to decline by at least 50 million by 2050, looms as a demographic time bomb.

The absence of a strong social safety net heightens these vulnerabilities, as high savings rates signal insecurity, not confidence. Without pivoting to a consumption-driven economy, China risks stagnation or collapse. The Chinese Communist Party’s legitimacy rests on delivering economic success; if the people don’t feel prosperous, social unrest could erupt, destabilizing the system.

III. The US Economic Situation

A. A Façade of Prosperity

The US economy, driven by consumer spending, appears robust, but this is a “fake” boom. Post-2008, the Federal Reserve’s trillions in quantitative easing and low interest rates inflated asset prices, while stimulus checks provided fleeting relief. Central to this illusion is America’s 35-year addiction to cheap consumable goods, particularly in the last 25 years. This indulgence has pacified the masses with affordable products and near-free digital content, masking a devastating reality: the financial destruction of the middle class and future generations.

B. The Numbers Tell the Story

From 1990 to 2025, the average US worker’s income grew 2.75 times without inflation adjustment and 1.5 times with official inflation figures. Yet, essential costs have surged far beyond:

• Housing prices: 6x
• Higher education: 6x
• Medical costs: 5x
• Car insurance: 5x

In real terms, young Americans today are twice as poor (or half as rich) as their 1990 counterparts regarding essential expenses. In California, housing prices have risen 10-fold, while young people’s incomes have only doubled. Thirty-five years ago, a $30,000 annual income (then average) could buy a good home in Southern California; today, a comparable home requires $300,000, a top 5% income. This erosion of affordability epitomizes the deteriorating American dream.

C. The Trade Deficit’s Role

The trade deficit, especially with China, is a key culprit. It has two effects:

• Direct Impact: Surplus dollars from countries like China are funneled into US assets such as stocks and housing, rather than goods or services, driving uneven inflation. Foreign buyers lack the proximity to invest in productive US businesses, amplifying asset price spikes.
• Indirect Impact: Excess dollars purchase US Treasury notes, enabling cheap government borrowing. This has fostered a debt addiction, dubbed the “Detrimental Dollar Dominance (DDD) Syndrome,” weakening fiscal discipline.

As asset markets outpace the real economy, capital flows into speculation rather than production, creating a parasitic financial system too entrenched to dismantle.

D. Inequality and Debt Addiction

Wealth inequality has soared, with the top 1% holding 32% of US wealth and the bottom 50% just 2%. The middle class’s share dropped from 32% in 1983 to 17% in 2016. Wages stagnated—median household income grew only 0.5% annually (inflation-adjusted) from 1990 to 2020—while essential costs ballooned. National debt exceeds $34 trillion (123% of GDP), and 2022 inflation hit 9.1%. This vicious cycle—richer elites, poorer youth, and a debt-addicted nation—stems from unearned benefits, where easy gains breed indulgence and destruction.

IV. Comparative Analysis

A. Long-Term Trends (30 Years)

Indicator	China	US
GDP increase	30x	3x
Average income increase	15x	~2.5x (nominal)
Housing price increase	8x	4x

Interpretations from the Data:

1. GDP Benefit Ratio:

Country	Benefit per GDP Unit
China	0.5 units
United States	~0.85 units

Although China outpaces the US in sheer GDP growth, Americans derive greater relative benefits from economic expansion.

2. Housing Affordability:

Country	Housing price increase per income unit (1.0 being neutral)
China	0.55 units (smaller than 1)
United States	1.6 units (greater than 1)

The numbers don’t lie: Despite popular perceptions, housing affordability in China actually improved over the last 30 years compared to the US, where affordability has drastically worsened. (No, this does not mean that housing is now affordable in China, or is more affordable in China than in the US; the opposite is true. It just means that 30 years ago, housing affordability in China was even worse than today. Despite the hyped housing bubble, housing construction was so massive that it has more than compensated for the house and price inflation.)

On the other hand, China’s GDP grew 30-fold, but average incomes rose only half as much.  This multifaceted nature of the Chinese economic development is the source of misunderstanding by many of the Chinese economy.

In comparison, the US saw slower growth but distributed more to its people. 

From the above simple data, carefully consider the key points: housing affordability in China, the GDP benefit ratios, the housing price-to-income ratios, and their implications for the middle class and future generations. 

These need to be elaborated upon to reflect their significance in telling the “fundamental social-economic story” of China and the United States.  These elements highlight the structural differences and long-term trends between the two nations.

The above simple data leads to three critical conclusions about the economic situations in China and the United States, namely (1) housing affordability, (2) the distribution of economic benefits, and (3) their societal impacts.  The data reveal the deeper, structural stories beneath the surface-level data.

Housing Affordability: A Counterintuitive Reality in China

One of the most striking insights highlighted above is that, despite the widespread perception of China’s housing prices “skyrocketing,” housing affordability in China has actually increased over time. This challenges the narrative often peddled by media and casual observers, who point to China’s real estate bubble as evidence of an out-of-control market.  

The Chinese housing market is indeed out of control in terms of price inflation, but what’s important is that even with such out-of-control inflation, housing affordability in China has actually increased over time.

To understand this, consider the long-term trends: over the past 30 years, China’s GDP has surged 30-fold, average incomes have risen 15-fold, and housing prices have increased 8-fold. Simple math reveals the ratio: for every unit of income increase, housing prices have risen by only half a unit (8 ÷ 15 = 0.55). This means that, relative to income growth, housing has become more affordable for the average Chinese citizen over time.

This is a remarkable contrast to the United States, where the opposite trend holds. Over the same period, U.S. GDP tripled, average incomes increased 2.5 times, and housing prices quadrupled (but in some areas such as Southern California and Washington state, nearly 10-fold).

Here, the ratio is starkly different: for every unit of income increase, housing prices have risen by 1.6 times faster than income (4 ÷ 2.5 = 1.6). In places like California, housing prices have risen by more than 44 times faster than income (10 ÷ 2.5 = 4). This indicates that housing affordability in the U.S. has worsened significantly, as costs have outpaced income growth at twice the rate. Far from the stable, healthy market often portrayed, the U.S. housing sector reveals a structurally unsustainable trend that undermines long-term economic health.

Why does this matter? The media often highlights China’s real estate volatility—bubbles, developer debts like Evergrande’s $300 billion default, and speculative overbuilding—while framing the U.S. market as a bedrock of stability. But these superficial snapshots mislead. The fundamental ratio of housing price growth to income growth tells a deeper story: China’s system, for all its flaws, has actually managed to lower the ratio between the housing costs and incomes, because although both have risen fast, the income rose faster. In comparison, the U.S. has seen that ratio spiral out of reach of most people. This structural difference has profound implications for the middle class and future generations, as we’ll explore later.

Benefit from GDP Growth: Who Really Wins?

Nevertheless, the above simple data reveals even deeper nuance: even though average Chinese income outpaced the housing price increase, it is lagging behind the overall GDP growth significantly.  This reflects a deep structural flaw in the Chinese economic model.  The flaw is now emerging as a damaging effect on China’s economy.

This relates to the distribution of economic benefits from GDP growth, encapsulated in the following Conclusion:

For every unit of GDP increase, Chinese people enjoy an average benefit of half a unit in income, while Americans enjoy two-thirds of a unit. Let’s break this down with the data. In China, a 30-fold GDP increase over 30 years yielded a 15-fold rise in average incomes (15 ÷ 30 = 0.5).

In comparison, in the U.S., a 3-fold GDP increase resulted in a 2.5-fold income rise (2.5 ÷ 3 ≈ 0.85).

At first glance, China’s massive GDP growth seems enviable—30x versus 3x is a headline-grabbing disparity. But the ratio reveals an important nuance: Americans capture a larger share of their economy’s growth (0.85 vs. 0.5), suggesting a healthier distribution mechanism.

This ratio is extremely important in the long term, because it reflects the structural quality of an economic system beyond flashy GDP figures. China’s model—driven by state-led investment, exports, and infrastructure—generates impressive national growth but funnels much of it to state-owned enterprises and elites, leaving ordinary citizens with a smaller slice.

The U.S., despite slower overall growth, has historically spread its gains more broadly, thanks to a consumption-driven economy and less centralized control. People often fixate on China’s GDP success, but this surface metric obscures the reality: the U.S. economy, in this aspect, is structurally healthier because it delivers more of its growth to its people.

However, this isn’t a blanket endorsement of the U.S. system.  Even though the average US income has a fair share of the GDP growth relative to that of China, it is significantly outpaced by the asset price increase, especially the housing price and stock price.  You usually don’t hear complaints about this, because most people who have a voice, especially through the media, celebrate it rather than worry about it. They are the beneficiaries. They would tell you that housing price and stock price appreciation lead to wealth. But such a view is selfish and overlooks the systemic effect on the economy in the long term.

To put it simply, the US economy model, despite its fair share of consumer income, has also managed to destroy the middle class and the future generation.

The “healthier” distribution still coexists with soaring inequality—the top 1% hold 32% of wealth and the bottom 50% hold nearly 2.5% of wealth —and the benefits increasingly fail to reach the middle and lower classes, as stagnant wages and rising costs erode gains.

China’s lower ratio, meanwhile, reflects not just inefficiency but a deliberate prioritization of national strength over individual prosperity, a trade-off that sustains high savings rates and weak domestic consumption (just 39% of GDP vs. the U.S.’s 68%).

Both systems have fundamental flaws.

The Fundamental Story: Structural Health vs. Superficial Metrics

Together, these ratios—housing price-to-income and GDP-to-income—tell the fundamental social-economic story of two different nations. They cut through the noise of temporary fluctuations and media hype to reveal long-term trends:

• China: High GDP growth (30x) paints a rosy picture, but the half-unit benefit ratio (0.5) shows that much of this wealth isn’t reaching the people’s personal well-being.   This duality—growth without widespread benefit, yet improved affordability—highlights a state-centric model that builds national power but sacrifices equitable prosperity. Paradoxically, however, the half-unit housing price increase per income unit suggests a system that, intentionally or not, has somehow improved housing affordability despite the rapid rise in housing prices, thanks to the rapid income rise and massive construction.  This does look good retrospectively, but it is a result of unusually high speed of GDP and income growth, not that of a healthier structure.  As the GDP and income growth rate decrease, this temporary advantage disappears.  In fact, it has already disappeared.  The data for the next five or 10 years will certainly reflect this.
• U.S.: Modest GDP growth (3x) seems underwhelming, but the much higher benefit ratio (0.85 vs. 0.55 of China) indicates a system better at sharing gains, historically, at least. Yet, the near two-unit average housing price surge per unit of income increase exposes a critical failure: an economy where essential costs, especially housing, have detached from income realities, signaling deep structural unsustainability.  The major culprit behind this problem is the trade deficit (The American addiction and the trade war)  and the dollar dominance (The DDD (Detrimental Dollar Dominance) Syndrome).

The U.S. economy appears “far healthier” in terms of benefit distribution, but its housing trend contradicts the notion of overall stability. China, conversely, lags in distributing growth but manages housing costs better relative to incomes. These ratios flip the script on common perceptions—China’s “crazy” housing market isn’t as unaffordable as assumed, and the U.S.’s “stable” market is far less healthy than it seems. Focusing only on surface numbers like GDP growth or nominal housing prices misleads; the structural parameters reveal the true long-term trajectories.

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B. US Cost Increases vs. Income (1990-2025)

Item	Increase
Income (no inflation)	2.75x
Income (with inflation)	1.5x
Housing prices	6x
Higher education	6x
Medical costs	5x
Car insurance	5x

California-Specific:

Item	Increase
Housing prices	10x
Young people’s income	2x

These tables further highlight the US’s core issue: income growth lags far behind essential costs, hollowing out the middle class.

In practical terms, today’s younger Americans are effectively half as wealthy as their counterparts from 1990. Housing affordability has significantly deteriorated; for instance, in California, housing costs have risen tenfold compared to only a twofold increase in average income.

Americans have not revolted largely because inexpensive consumer goods and easy access to digital distractions have pacified them, masking deeper structural inequalities.

Structural Causes: Uneven Inflation

Why have essential living costs skyrocketed faster than general inflation? Primarily due to excessive money entering the economy unevenly, driven significantly by America’s persistent trade deficits.

The trade deficit directly and indirectly injects money into asset markets:

• Directly: Trade surplus countries like China invest heavily in US assets such as real estate and stocks, rather than productive businesses.
• Indirectly: These surplus countries invest remaining dollars in US Treasury securities, encouraging government reliance on debt and fueling unsustainable fiscal practices.

This process inflates asset markets, disconnecting them further from real economic productivity, creating a vicious cycle of financial dependency and speculative growth.

Vicious Cycle Effects

This cycle produces profound socioeconomic impacts:

• Rich top 20%, impoverished bottom 80%; older generations wealthier, younger and future generations poorer.
• Deepening debt addiction: government, businesses, and households increasingly dependent on debt.

Both outcomes originate from easily accessible unearned benefits that encourage short-term indulgence at significant long-term costs.

C.  Destroying the Middle Class and Future Generations: Different Paths, Same Outcome

The following conclusion ties these insights together: both the U.S. and China are destroying the life of the middle class and particularly the future generation, albeit using different methods.

This is where the rubber meets the road—economic systems aren’t just numbers; they shape societies.

• China’s Method: The state-driven model prioritizes infrastructure and exports over domestic consumption, leaving the middle class with limited disposable income and a weak safety net. For every unit of GDP growth, the half-unit benefit means less trickles down, while high savings rates (to cover healthcare, retirement, etc.) stifle spending. Housing affordability has improved, yes, but this is cold comfort when overall prosperity is curtailed by inequality and systemic risks like real estate debt and youth unemployment. Future generations face a shrinking workforce and an economy that may stagnate without a consumption shift, a challenge that the authoritarian system is ill-equipped to address.
• U.S.’s Method: The consumption-driven, debt-fueled model has hollowed out the middle class through different means. The much higher income benefit from GDP growth is overshadowed by essentials outpacing incomes: housing (6x), education (6x), and healthcare (5x) have surged against a 1.5x real income rise since 1990. The two-unit housing price increase per unit of income increase has made homeownership a distant dream, especially in places like California (where housing is up 10x, income is up 2.5x). Add a $37 trillion national debt and a trade deficit propped up by cheap imports, and the result is a system that burdens young people with unaffordable costs and eroded opportunities. Future generations inherit this mess, compounded by wealth concentration (top 1% hold 32% of wealth).

Both nations, then, are eroding their societal foundations: China by underinvesting in its people’s well-being, while the U.S. by overindulging in debt and consumption without securing industries and consumer affordability.

The result is the same: The middle class shrinks, and the young bear the brunt, whether through China’s structural neglect or America’s structural excess.

These conclusions aren’t just data points; they demand we rethink how we assess economic success. China’s GDP growth is a siren song—impressive but deceptive if the people don’t thrive. The U.S.’s consumption strength is a house of cards, collapsing under unaffordable essentials. The housing affordability paradox—China’s improvement vs. the U.S.’s decline—challenges narratives and underscores the need for policies that align costs with incomes. The GDP benefit disparity warns that growth without distribution is hollow, while the U.S.’s edge here is squandered by inequality and debt.

For China, reform means boosting consumption and safety nets, a tall order under centralized control.

For the U.S., it’s curbing debt, addressing cost spirals, and redistributing gains—equally daunting amid political gridlock. Without change, both risk not just economic crises but social unraveling, as middle-class erosion and generational burdens fuel discontent.

In China, state favoritism shrinks the middle class. In the US, debt and cheap goods enrich the top 20% while impoverishing the majority, especially the young. Both systems fail to deliver equitable prosperity, burdening future generations.

V. Conclusion

China and the US face economic crises rooted in inequality and flawed systems. China’s state-led model risks collapse without consumer growth, unlikely under authoritarianism. The US, tethered to democracy’s short-termism, sustains a false prosperity via debt and cheap goods, devastating its middle class. Over 35 years, America’s indulgence has enriched the few, impoverished the young, and indebted the future. The trade war, while necessary, is no panacea without addressing these deeper issues. Both nations must reform—China by empowering its people, the US by curbing indulgence —but entrenched interests obstruct change. Without drastic action, the Devil’s destructive scissors will sever economic and social fabrics in both societies, leaving a legacy of destruction.