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During the 2025 IADS General Assembly, which took place in Hong Kong. David Baverez, an investor and writer, shared his original understanding of the disruptions linked to the emergence of a “new world order”, influenced by the rise of the ‘New China’. From his vantage point in Hong Kong, he highlighted a $600 billion China-US trade relationship now conducted with Hong Kong functioning as neutral ground for Chinese and US American CEOs to meet without legal or political risk, a role he likened to Vienna in the 20th-century US-USSR relationship.

This text is a synthesised version of his presentation, where he characterises China’s ‘economy of war’ as well as political, economic, demographic and cultural considerations for retailers. Confidential information including the Q/A section, only available to IADS members in the meeting recap on the IADS website, has been omitted from this article. This article is based on the presentation and does not reflect the views of the IADS.

Introduction: “economy of war”

According to David Baverez, the world is in the opening stages of an “economy of war,” a fundamental shift that closes the 30-year chapter of globalisation from 1989 to 2020. He contends that this is not a cyclical change but a structural one, where the tempo of value creation is set by control over supply and manufacturing, not consumer demand. By his count, the world as just three years into this new cycle, a period still too early for credible forecasts but already reshaped by the geopolitical “fracture” signalled at the 20th Congress in Beijing. The West’s initial denial in 2023, evident at the endurance of Putin’s Russia and the direction of the Chinese economy, gave way to acknowledgement in 2024. Baverez opines that this new reality has finally been confirmed, proved by Mario Draghi’s call for radical European reform, China’s $500 billion anti-deflation stimulus, and Donald Trump’s re-election amid widespread economic frustration.

2025 marks the year the US and China engage as equals: the US as the financial hegemon and China as the manufacturing superpower. China no longer approaches the US with an ambition to converge on financial dominance; it asserts primacy in manufacturing, including critical inputs such as rare earths. This reframes negotiations: both sides recognise distinct and non-overlapping strengths, and leverage shifts accordingly to supply control, input security, and industrial capacity rather than purely market access or consumer growth.

Baverez stated that October 3rd, 2025 emerged as a historic inflexion point. The invitation of North Korean leader Kim Jong-un to China, coupled with China’s energy agreement with Russia to double gas imports signalled deliberate decoupling from the US. Complementary moves amplified the shift: China’s refusal to purchase US soybeans in favour of Brazilian suppliers, and its rejection of Nvidia chips at a 50% premium, pointed to a decisive break with the globalisation model of the past three decades. The operating model is migrating from an “economy of peace,” centred on consumer pull, to an “economy of war,” centred on supply push and manufacturing eminence.

The COVID-19 period accelerated this consolidation. China increased its global gross manufacturing share from 30% to 35%, with even higher concentration in certain value chains. That concentration reallocated value from consumers to suppliers and exposed Western firms to fragility. Baverez pointed out that for retail operators, the practical implication is that margins, availability, and time-to-shelf are now functions of supplier leverage, chokepoint materials, and logistics sovereignty rather than demand curves alone.

Drawing a parallel to the early 1990s, as it was impossible then to foresee the full impact of the internet, mobile phones, and free communication, it is equally difficult to forecast this cycle’s end-state. The agenda, therefore, is question-led rather than answer-led. Baverez addressed four questions for China’s future along political, economic, demographic, and cultural lines that will determine how supply power is institutionalised, how domestic demand is balanced against export dependence, how ageing and workforce dynamics are managed, and how cultural narratives shape internal cohesion and external alignment.

The public-private partnership model

Baverez reasons that China’s public-private partnership model sits at a crossroads. The engine that delivered a 10% compound annual GDP growth rate from 1980 to 2022 combined technocratic leadership with entrepreneurial dynamism, forging a balance between state control and private initiative that differs from US and Russian approaches. Since 2022, the stock of private capital has stagnated while all incremental growth is driven by public capital, signalling subordination of private investors to government priorities. The investment consensus that followed projected scarcity of Chinese goods, inefficient capital allocation, and declining returns, while presuming an erosion of China’s manufacturing and innovation edge.

Recent evidence complicates that view. Rather than stalling, China has advanced in green technology, automation, robotics, and pharmaceuticals. In 2024, China accounted for more than 30% of all new molecule discoveries globally and signed more than $40 billion in licensed drug deals. Funding for this surge has not come from Western-style private equity channels but through a decentralised system of public financing described in The New China Playbook by Keyu Jing, which, despite appearances of centralisation, relies on local autonomy in capital allocation. Baverez adds that, in hindsight, post-2022 pessimism about China’s innovation capacity was partially misplaced. The feared collapse of the PPP model did not destroy value. Instead, a new equilibrium is forming where innovation continues, yet overall productivity remains low.

Baverez ideates that, in this configuration, innovation does not translate into productivity gains as it generally does in Western economies. Government actors reinvest innovation dividends into additional hiring and expanded manufacturing capacity, frequently at a loss. This sustains employment and industrial output but does not systematically improve productivity. For CEOs and retail leaders, this implies that China can remain a high-velocity producer in priority sectors even as capital efficiency lags, with state-driven capacity expansion shaping pricing power, supply availability, and lead times.

The question is whether China can reinvent PPP to reconcile innovation with productivity. The challenge is not uniquely Chinese as governments and private sectors globally are redefining the boundaries of state intervention and market-driven growth.

Diverging economic priorities

Baverez implies that international observers have misread the Chinese Communist Party’s “dual circulation” policy. Designed to strengthen domestic consumption while maintaining strong export capacity, Baverez argues that this policy has enabled China to absorb the entirety of global economic growth. With the world economy expanding at approximately 2% annually and China’s manufacturing sector growing at a commensurate rate, China is capturing 100% of incremental global growth, effectively outcompeting the rest of the world.

The recent plenum that served as the working committee for the upcoming five-year plan (from 2026 to 2030), reaffirmed self-sufficiency and minimisation of external dependencies. The strategic objective is to ensure that other countries are more reliant on China than China is on them.

This orientation is reshaping domestic consumption patterns. In response to a real estate crisis estimated at twice the scale of the 2007 US subprime crisis, with more than 65 million vacant homes and real estate representing 20% of GDP, the government has shifted the adjustment burden to households. Baverez claims that unlike Western economies, where banks, insurers, and governments absorb crisis costs, Chinese households are left to bear the losses. With no social safety net and 70% of personal wealth tied to property, the projected halving of property values required to reach financial equilibrium threatens a severe erosion of household wealth leading to a contraction in household consumption that dovetails with the state’s prioritisation of supply-side capacity.

Exports, in this framing, become less a growth engine and more a strategic retaliation tool. China’s goal is to anchor every major economy in Chinese supply chains, enabling the state to cut off access when countries act against Chinese interests. The rare earths sector illustrates the tactic. Despite US rare earth imports from China totalling only $200 million annually2, the signal is unambiguous: China exercises control through low-tech, low-cost segments of global supply chains often overlooked in conventional risk assessments.

Only child consumers

China’s demographic trajectory is set for the next two decades, with the lingering effects of the 1990 one-child policy, shaping a structural decline in births. Baverez states that despite recent policy relaxation, only 8 million births occur annually versus the 20 million anticipated, anchoring a long-term projection that the population will shrink from 1.4 billion to around 1 billion over the next thirty years. The resulting society of predominantly single children raises questions about social cohesion. Single children, unexposed to communal instincts formed in larger families, may become more individualistic, with traditional community socialisation mechanisms weakened when everyone is an only child. David Baverez is adamant that the long-term societal effects remain unknown.

For retail, the near-term consumer economics are favourable. He suggests that the prime 30-45 age segment remains compelling, with the typical 30-year-old Chinese consumer often having real estate already paid off and few dependents, which translates into high discretionary spending power. Luxury categories have already captured this momentum, with jewellery and gold sales doubling. In the automobile sector, the electric vehicle market has reached saturation after selling 30 million units, and two-thirds of new cars are now priced below $25,000, indicating mass-market affordability aligning with supply-led manufacturing scale. China, therefore, offers the world’s best market for customer lifetime value. Securing loyalty from a 30-year-old consumer could yield multi-decade purchasing potential, compounded by relatively low household obligations.

Cultural shifts amplify these consumption patterns. Gen-Z behaviour, shaped by a society of single children and a pervasive digital culture of selfies, narcissism, and live streaming, is transforming commerce. Live streaming has become a dominant sales channel in China, surpassing the commercial influence of platforms like TikTok in the West. Baverez notes that US efforts to bring TikTok under American control reflect not only political considerations but also the platform’s commercial power. Mastering live-stream commerce mechanics including creator economics, conversion funnels, impulse fulfilment, and social proof loops, has become central to customer acquisition and retention in China’s urban markets.

These demographic and cultural currents extend beyond China. Baverez concludes that fertility rates are declining across the Western world, raising the prospect that consumer behaviours crystalising in China such as more individualistic decision-making, concentrated discretionary spend among child-light households, and live-stream-driven purchase journeys may proliferate elsewhere. For retail specialists, the implications are twofold: align product, pricing, and channel strategies to the high-discretionary 30-45 cohort while preparing for a long-run population contraction; build capabilities in live-stream commerce and community-led digital selling that can port to Western markets as similar demographic conditions take hold.

Rebuilding connections and the sustainability opportunity

China’s cultural reset since COVID-19 is redefining consumer values and behaviours in ways that defy conventional forecasting. While the pandemic in upper income Western countries often translated into enhanced family time, remote work, and rapid vaccine-enabled security, cities like Shanghai experienced trauma marked by inadequate access to vaccines and prolonged lockdowns that left families isolated and fearful for survival. In Baverez’s opinion, this collective shock amplifies the social disruption introduced by the one-child policy, weakening the traditional family structure that historically underpinned Chinese society and altering the foundations of trust and decision-making.

In this environment, the importance of guanxi or personal relationships intensifies as institutional trust weakens. As the population ages, reliance on personal networks for retirement and healthcare will grow, with direct implications for how consumers evaluate brands, services, and experiences. The shift from product to experience in retail and luxury is already evident, but the next evolution points toward experiences that foster human connection. Louis Vuitton’s The Louis flagship in Shanghai, conceived as an immersive, transformative retail environment, signals how leading brands are recasting stores as environments to create meaning rather than mere purchase points. Chinese Gen Z consumers are expected to invest disproportionately in technologies that recreate human connection eroded by social and familial change. BYD has surpassed German automakers in brand strength for electric vehicles, and Huawei is now considered a stronger smartphone brand than Apple in the Chinese market.

Baverez postulates that the next wave of global consumer brands is likely to emerge from China, particularly in technology, as the “economy of war” model enables subsidised exports and innovation at scale, often at a loss. This model supports rapid iteration, capacity buildouts, and long-cycle bets that prioritise strategic positioning over near-term profitability, advantaging brands that marry engineering depth with platform distribution.

Environmental branding represents a parallel opportunity where Western firms have struggled to achieve scale. Despite visible brands such as North Face and Patagonia and sporadic traction for organic labels, manufacturers have largely failed to deliver environmentally friendly products at mass-market scale. The companies that first industrialise sustainable manufacturing at scale will shape the next global retail cycle. Chinese manufacturers, with their speed, data fluency, and scaling capability, are well-positioned to lead this transformation. Shein, now a global leader in fast fashion, illustrates the power of data-driven, white-label platforms. While Shein currently produces low-quality goods, the strategic question is whether the same platform could be leveraged to deliver environmentally sustainable products at scale, signalling a potential paradigm shift where cost, speed, and sustainability are no longer mutually exclusive.

According to Baverez, these dynamics together suggest that the global economy is entering a structurally different era, in which supply control, industrial capacity, and state-enabled innovation weigh more heavily than consumer demand, financial engineering, or legacy globalisation patterns. China sits at the centre of this transition: its evolving public-private model, divergent economic priorities, and distinctive demographic and cultural trajectories position it simultaneously as a critical supplier, a laboratory for new consumption behaviours, and an emerging source of global brands.

For retailers, this emerging “economy of war” redefines the foundations of competitiveness: supply security, access to Chinese manufacturing capacity, and mastery of new commerce formats now matter as much as brand equity or store footprint. China’s high-discretionary 30-45-year-old consumers and live-stream-driven purchase journeys set new benchmarks for customer lifetime value and digital engagement. Retailers must recalibrate risk models around concentrated supply chains, invest in capabilities for data-rich, experience- and relationship-led commerce, and prepare for Chinese brands and platforms to compete directly in premium, mass, and sustainability segments alike. Those that treat China not only as a sourcing hub or growth market, but as the reference laboratory for future retail models, will be best positioned to capture the next wave of demand.

Credits: IADS (Anchita Ranka)