In economics, the concept of increasing returns has been in vogue since Allyn Young published his article “Increasing Returns and Economic Progress” in the Economic Journal in 1928. Paul Romer, a Nobel laureate in economic science, formalized an economic growth model based on market-driven specialization and increasing returns. Many American economists, such as Kenneth Arrow and David Aschauer, pioneered the view that infrastructure and public investment produce huge returns.  

Sadly, the United States has not benefited from the ideas of these great economists. America’s infrastructure is in disrepair. Its politicians are keener to sharply raise the war budget (the Department of Defense has been renamed the Department of War) than to raise spending on upgrading its badly run-down infrastructure.   

The 2025 Report Card for America’s Infrastructure, released by the American Society for Civil Engineers, registered an overall grade of C. It got a B and B- in two areas, C- to C+ in seven areas, and D to D+ in nine areas, which include aviation, dams, energy, levees, roads, schools, stormwater, transit, and wastewater. The ASCE noted that legislation passed by Congress since the 2021 Report Card sparked progress, and the overall C grade is the highest since it began its Report Card in 1998. 

Last year, US President Donald Trump proposed steep levies on Chinese-made ships arriving at US ports, hoping that this would help bring ship manufacturing back to the US. However, the US needs to realize that bringing shipbuilding back to America will not be easy. It has lost competitiveness because it does not have an “expansive industrial ecosystem” like China. As noted in an article from Breakwave Advisors LLC, “Beyond hull construction, China also exports a wide array of ship components, from engines to maritime electronics, reinforcing its central role in the maritime supply chain.”

This is thanks to the phenomenon of increasing returns that the country plows into investment in its infrastructure, research and development, human capital accumulation, and strategic planning. China is now reaping the rewards of increasing returns from decades of work and from the absence of disruptions due to adversarial politics. This makes China a trusted partner. Even intangibles like trust are subject to increasing returns.  

Many China watchers have noted that China’s economic growth has fallen from 10 percent or more prior to the turn of the century to about 5 percent today. Some commentators think that this suggests China has peaked. As a researcher on the Chinese economy, I can assure readers that China has not peaked. Rather, China is striving for a higher peak all the time. The Chinese always want to attain a higher peak. It is in the Chinese culture. The I Ching has taught us that we should emulate the celestial motions and work diligently to make progress.

China’s economy is resilient and its policies are not mercantilist, ... China has just reduced tariffs to zero for all African countries. Moreover, China has, in its 15th Five-Year Plan (2026-30), made boosting domestic consumption a policy priority. As an economist, I believe that in international trade, freer trade will bring increasing returns in due course to all participants

China understands the importance of infrastructure and acts to keep improving. As China builds its infrastructure, the process of learning by doing has unfailingly generated increasing returns over time.

For example, by building the Hong Kong-Zhuhai-Macao Bridge, the engineers overcame many challenges and in doing so acquired new skills and technologies. By building China’s high-speed rail networks, China has overcome many challenges and has acquired the know-how to overcome problems arising from terrain, altitude and weather. When COVID-19 suddenly spread, we managed to build new perfectly functioning hospitals within a couple of weeks. 

That China leads the world on many fronts does not happen fortuitously. With a strong will and with diligence, China today leads the world both in power storage and power transmission. China has brought water from the south to the arid north. China got rid of extreme poverty and has brought the internet to the remotest regions of the country. With a great rail and road network, many people can benefit from e-commerce.   

The apparent decline in China’s growth, in contrast to what many commentators say, is not because China’s growth has encountered limits. This simply reflects China’s preference for quality growth rather than the sheer speed of growth measured by misleading GDP statistics. Both China’s air quality and water quality have improved noticeably. The benefits are not captured in GDP statistics, which only measure the value of goods and services transacted in the market. Government spending is measured at cost without recognizing the benefits from government-provided services. The Chinese leadership is also concerned about narrowing regional disparities. In recent years, many western provinces and autonomous regions, like the Xizang and Xinjiang autonomous regions, have grown faster than coastal provinces. For example, Xizang registered 7 percent growth in 2025; Gansu province, 5.8 percent; Xinjiang, 5.5 percent; and the Ningxia Hui autonomous region, 5.3 percent — all above the national average of 5 percent.  

China’s economy is resilient and its policies are not mercantilist, as some commentators claim. China has hosted its annual China International Import Expo since 2018 and has always welcomed exporters to sell their products. China has just reduced tariffs to zero for all African countries. Moreover, China has, in its 15th Five-Year Plan (2026-30), made boosting domestic consumption a policy priority. As an economist, I believe that in international trade, freer trade will bring increasing returns in due course to all participants.

The author is an honorary research fellow at the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University, and an adjunct professor at the Academy for Applied Policy Studies and Education Futures, the Education University of Hong Kong.

The views do not necessarily reflect those of China Daily.