Narrative of 'K-shaped divergence' is one-sided reading of China's economic growth logic

For some time, "K-shaped divergence" has become a high-frequency term in online discussions and in some market analytical interpretations.

Visitors view a robotic dance show in Shenzhen, South China's Guangdong Province on September 4, 2026. Photo: VCG

Some analyses simply apply Western economic narrative frameworks, directly interpreting differences in China's economic transformation—such as industries running hot or cold, regions moving fast or slow, and individuals profiting or losing—as permanent economic polarization and an irreversible split between the strong and weak, even painting a pessimistic picture of antagonism between the old and new industries, divergence between large and small enterprises, and claim that wealth gap that is widening.

But, such views are not entirely without basis in real-world experience, as they confuse phenomenon with essence and short-term fluctuations with long-term development trends.

They often equate the phased "temperature differences" of transformation with trendy "fractures," reflecting a one-sided understanding of the logic of China's economic operation that needs to be clarified.

In terms of its conceptual origin, "K-shaped recovery" is a narrative proposed by Wall Street institutions after the outbreak of the COVID-19 pandemic, and popularized in Western public discourse. It corresponds to a scenario in which capital accelerates its concentration in the financial sector and leading enterprises while the middle class relatively shrinks.

In some Western countries, after the health crisis, large enterprises, tech giants, and high-income groups rapidly recovered along the upper arm of the "K," while small and medium-sized enterprises, traditional industries, and ordinary wage-earners continued to slide down the lower arm. Moreover, this divergence may become self-reinforcing within the rigid institutional structures of the West which could evolve into socioeconomic fractures difficult to bridge.

Using such a "Western yardstick" to measure China's economy is itself belongs to wrongful application of methodology. Over more than four decades of reform and opening-up, China's economy has achieved a historic transformation, from extensive growth based on scale and speed to intensive growth based on quality and efficiency.

At present, China's new quality productive forces are growing rapidly, some emerging industries are expanding quickly, foreign trade and exports have repeatedly hit new highs, and the role of innovation-driven growth as the major growth engine is being strengthened.

At the same time, the real estate market is undergoing deep adjustment, some labor-intensive industries are under stress, and some enterprises and groups are feeling pressure on operations and income. These structural differences—one rising and one falling, one fast and one slow, one new and one old—are essentially the pains that must be experienced in the process of transitioning from old to new growth drivers.

It conforms to economic laws and is not a signal of an overall tearing-apart of the economic structure. Using "K-shaped divergence" to describe changes in China's economy involves at least the following three deviations:

The first deviation is allowing partial perceptions to obscure the overall trend.

In assessing the macroeconomy, one cannot simply substitute the hot or cold conditions of individual industries, regions, or groups for a judgment about the overall operating situation. In terms of core indicators, China's economic fundamentals are solid: GDP grew by 4.7 percent in the first half of the year, within a reasonable range; new growth drivers represented by high-end manufacturing, the digital and smart economy, and modern services contributed more than 40 percent to economic growth, while the economy's shift toward new and higher-quality development are very distinct and the trend is accelerating; the surveyed urban unemployment rate has remained at around 5 percent, and the basic employment situation is generally stable; the bottom lines of food security, energy security, and industrial chain and supply chain security have been firmly maintained.

The International Monetary Fund raised its forecast for China's economic growth in July this year. To focus only on the "falling" side of such an overall picture is clearly an overgeneralization.

People shop at the Haikou International Duty Free Shopping Complex in Haikou, south China's Hainan Province, July 18, 2026. (Xinhua/Yang Guanyu)

The second deviation is underestimating the capacity of traditional industries to undergo thorough upgrading.

Some parties intentionally or unintentionally amplify the concept of "K-shaped divergence," and the implicit rhetoric is that the divergence "gap" will further widen, thereby affecting the expectations of some groups.

China's traditional industries are undergoing transformation and development, but this does not mean they are destined to shrink. On the contrary, because China attaches great importance to promoting digital transformation, intelligent upgrading, and green transition, a large number of traditional enterprises are reducing costs and increasing efficiency and opening up markets through technological innovation, process optimization, and business model innovation, achieving a leap from low-level expansion to high-end and high-quality growth.

The accompanying phase-out of outdated production capacity and elimination of inefficient models are positive changes that reflect industrial renewal and improvements in quality and efficiency.

Taking only a fragment of the pain of adjustment while ignoring the overall efforts at transformation and upgrading will inevitably lead to distorted judgments.

The third deviation is ignoring the strong endogenous convergence and balanced repair capacity of China's economy.

"K-shaped divergence" presupposes that the dividends of emerging industries can only settle in a few leading enterprises and a few high-end links, and that divergence will only grow larger and become permanently fixed.

Such analysis fails to see that, supported by China's complete industrial system, super-large-scale market, and unimpeded economic circulation, the dividends of new growth drivers never remain confined to emerging industries themselves. They spread through industrial-chain collaboration to vast numbers of small and medium-sized enterprises, extend along technological spillovers and talent flows to more fields, and reach lower-tier markets through the expansion of application scenarios, and ultimately manifest as general improvements in the vitality of business entities, workers' incomes, and residents' consumption capacity. In other words, the stronger the new growth drivers become, the broader the coverage of growth dividends. Objectively, such convergence requires a certain period of time, and as high-quality development continues to deepen, the "temperature differences" in transformation will surely gradually narrow.

There is a key starting point for understanding the issue of "K-shaped divergence," namely that China has institutional advantages that Western economies do not possess and places greater emphasis on the fairness and inclusiveness of development.

The starting point of economic work is to raise people's living standards, but this is not achieved by erasing reasonable industrial differences or eliminating market competition and the survival of the fittest. To avoid the "winner-takes-all" phenomenon as new growth drivers strengthen, antitrust enforcement, fair competition review, and support policies for small and medium-sized enterprises can help prevent leading enterprises from excessively squeezing supporting enterprises by virtue of their technological and capital advantages. At the same time, supported by mechanisms for normal wage growth and the expansion of social security coverage, industrial dividends can be gradually transformed into income growth for urban and rural residents. As long as we persist in implementing the people-centered development philosophy, we will certainly be able to prevent, at the source, problems such as class rigidity, industrial fragmentation, and social tearing in the Western "K-shaped" pathology.

Of course, dispelling the misconceptions about "K-shaped divergence" does not mean avoiding contradictions.

We clearly see that bottlenecks in the transition from old to new growth drivers remain, the foundation for the recovery of domestic demand is not yet solid, some small and medium-sized enterprises and micro enterprises still face operating pressures, imbalances between regions, urban and rural areas, and industries still need to be continuously addressed, and the resolution of risks in key areas still requires sustained efforts. Facing problems squarely and confronting shortcomings is the prerequisite for precise policy measures and for promoting a sustained economic recovery and improvement.

But the way out is not to import Western pessimistic narratives to amplify anxiety and exaggerate division, but to unswervingly deepen reform, expand opening-up, continuously cultivate new quality productive forces, transform and upgrade traditional industries, smooth economic circulation and optimize income distribution, so that the fruits of high-quality development benefit all the people more fairly.

The author is the executive vice dean of the China Institute for Development Planning at Tsinghua University and vice president of the China Society for the Study of the Private-Sector Economy. The article was originally published on the People's Daily.

Source: Global Times