For three decades, China's formula seemed unbeatable: invest heavily in infrastructure, manufacturing, and export capacity, and let growth take care of the rest. It worked spectacularly. China lifted hundreds of millions of people out of poverty and became the world's second-largest economy.

But as Beijing launches its 12th Five-Year Plan, there are growing signs that the investment-driven model has reached its limits — and that China may have bet too heavily on a strategy that is beginning to yield diminishing returns.

The core problem is one of overcapacity. Factories are producing more than domestic demand can absorb. High-speed rail lines connect cities that don't yet need them. Apartment towers sit empty in cities built for populations that haven't arrived. The investment that once drove growth is now creating assets that may never generate adequate returns — a classic recipe for the kind of debt-fueled stagnation that has trapped other fast-growing economies.

China's leaders are aware of the risk. The 12th Five-Year Plan explicitly calls for a rebalancing toward domestic consumption, services, and innovation. The problem is that executing that rebalancing means accepting slower growth — and slower growth means rising unemployment and potential social instability, which Chinese leadership fears above almost everything else.

The result is a tension at the heart of Chinese economic policy: a government that knows it must change its growth model but faces enormous political pressure not to. Investment continues to flow even as returns decline, because the alternative — a managed slowdown — carries its own risks.

Whether China can engineer a soft landing and transition to a more sustainable model, or whether the weight of misallocated investment eventually forces a hard correction, will be one of the defining economic questions of this decade.