China’s economy rebounded in the last quarter of 2024, achieving the government’s growth target of 5%, as announced by Beijing on Friday. However, this marks one of the slowest growth rates in decades, underscoring the challenges facing the world’s second-largest economy. Amid a prolonged property crisis, mounting local government debt, and persistent youth unemployment, China’s rebound remains fragile. The head of the country’s statistics bureau described China’s economic achievements as “hard won,” acknowledging the significant stimulus measures launched late last year. Historically, Beijing has been adept at meeting its growth targets, but experts are now questioning the sustainability of such measures in the face of domestic and international challenges.
The specter of President-elect Donald Trump’s proposed tariffs on $500 billion worth of Chinese goods casts a long shadow over China’s economic outlook. Yet tariffs are just one part of a larger puzzle. Business and consumer confidence is waning, and the Chinese yuan continues to weaken as the central bank lowers interest rates in a bid to stimulate growth. Here are three reasons why President Xi Jinping faces bigger challenges than Trump’s tariffs.
China’s reliance on exports has long been a cornerstone of its economic strategy, but that foundation is increasingly under threat. Last year’s growth was buoyed by record exports of electric vehicles, 3D printers, and industrial robots. However, rising tariffs imposed by the US, Canada, and the European Union to protect domestic industries are constraining China’s export-driven growth model.
Experts warn that Chinese exporters may need to pivot to emerging markets, but these regions lack the robust demand of North America and Europe. This shift could hinder Chinese businesses looking to expand and ripple through supply chains, impacting energy and raw material suppliers.
President Xi’s vision of transforming China from a manufacturing hub into a high-tech powerhouse by 2035 faces serious obstacles. Manufacturing remains a key growth driver, but rising tariffs and geopolitical tensions could undermine this sector’s contribution to the economy.
Consumer spending in China remains a significant challenge. Household wealth, traditionally tied to the property market, has been eroded by a real estate crisis that once accounted for nearly a third of China’s GDP. Despite Beijing’s efforts to stabilize the market through policy interventions, an oversupply of housing and commercial properties continues to depress prices.
The property slump has had a cascading effect on household consumption, which contributed just 29% to economic activity in the last quarter of 2024, down from 59% before the pandemic. This drop in consumer spending has forced the government to rely on exports and introduce measures like consumer goods trade-in programs. While these initiatives aim to stimulate spending, they fall short of addressing deeper economic issues such as wage stagnation, high public debt, and unemployment. China’s youth jobless rate remains elevated compared to pre-pandemic levels, further denting consumer confidence. According to Shuang Ding, Chief Economist for Greater China at Standard Chartered Bank, restoring the population’s “animal spirit” is essential. Private sector investment and innovation could boost incomes and job prospects, creating the confidence needed to revive consumption.
China’s rise as a global economic power has been fuelled by its ability to attract foreign investment. Sectors such as renewable energy and electric vehicle batteries have positioned China as a leader in cutting-edge industries. However, a bleak economic outlook, coupled with geopolitical uncertainties and the looming threat of tariffs, has tempered the enthusiasm of foreign investors.
President Xi has pledged to invest in “new productive forces,” yet businesses remain cautious. According to Stephanie Leung of wealth management platform StashAway, there is a pressing need for a more diverse set of investors. Businesses are hesitant to invest in an economy where long-term growth appears uncertain. China’s challenge lies not only in attracting foreign investment but also in fostering domestic investment. Without a clear strategy to address these concerns, the measures designed to support the economy may only provide temporary relief. As Goldman Sachs’ Chief China Economist Hui Shan observed, Beijing faces a critical decision: pursue bold reforms or accept slower growth. Experts expect the former, but significant obstacles remain.
The economic challenges facing China are not just financial—they carry significant social and political ramifications. The China Dissent Monitor recorded over 900 protests between June and September 2024, a 27% increase from the same period the previous year. Many of these protests stem from economic grievances, such as unpaid wages, property disputes, and dissatisfaction with local governance. For the Chinese Communist Party, maintaining social stability is paramount. Explosive economic growth has been the cornerstone of China’s rise as a global power and a key factor in suppressing dissent. A prolonged economic slowdown risks eroding public confidence in the government’s ability to deliver prosperity.
While Trump’s proposed tariffs on Chinese goods present a formidable challenge, they are far from the only obstacle to China’s growth. Weak consumer spending, a faltering property market, and declining foreign investment compound the difficulties facing the economy. To navigate these challenges, Beijing must enact bold reforms to stabilize the property sector, create jobs, and restore confidence among businesses and consumers. The stakes are high. China’s economic model, which has lifted hundreds of millions out of poverty, is at a crossroads. Addressing these challenges effectively will determine whether China can sustain its growth trajectory or face a prolonged period of economic stagnation. The road ahead is fraught with uncertainty, but decisive action could still reshape the narrative.
