Three Issues That Could Shake China’s Vulnerable Economy in 2025

Beijing hopes its recent moves to stimulate the world’s second-largest economy will bear fruit this year. An ongoing property sector crisis, deflationary pressures exacerbated by muted consumer confidence and the specter of tariff hikes pledged by U.S. President-elect Donald Trump loom large over China’s 2025 growth prospects. The country’s economy has failed to roar back after the government dropped its strict rolling anti-pandemic lockdowns at the end of 2022. Late last year, the government began rolling out its most aggressive stimulus package since the pandemic in a bid to boost borrowing, ease pressure on consumers and encourage domestic spending. Real Estate China’s property market continues a yearslong slump that began to unfold after 2020 when overleveraged real estate giants like Evergrande faced government-imposed “three red lines” policies aimed at curbing excessive borrowing and speculation. These measures, intended to reduce systemic financial risks, inadvertently triggered a liquidity crisis, leaving developers unable to complete projects and further eroding consumer confidence. Shanghai Tower, China’s tallest skyscraper, in January 2024. Analysts say boosting consumer confidence is a must this year if Chinese policymakers are to stabilize the world’s second-largest economy. Shanghai Tower, China’s tallest skyscraper, in January 2024. Analysts say boosting consumer confidence is a must this year if Chinese policymakers are to stabilize the world’s second-largest economy. Wang Gang/Associated Press December saw home prices decline at the slowest rate in 17 months, signaling fragile stabilization. The omnibus stimulus package announced in September addressed the struggling real estate market, with People’s Bank of China Governor Pan Gongsheng pledging to cut interest rates on existing mortgage loans. This policy aims to provide 150 million homeowners with more disposable income. Around 70 percent of household wealth in China is tied to property, including unfinished apartments that many buyers have been waiting on for years. Stimulus measures are intended to ease the burden on families and restore confidence in the housing market, though the pace of recovery remains uncertain. Trade Trump has vowed to impose tariffs of up to 60 percent on Chinese imports, citing market oversaturation and threats to U.S. industries. Even 60 percent trade duties, however, would have a negligible impact on China’s growth prospects, Vincent Deluard, director of global macro strategy at financial services firm StoneX Group, told Newsweek, pointing out that the U.S. share of Chinese imports is in the single digits. “Tariffs should reduce growth slightly, but this could be partly offset by increased regional trade, with Vietnam and Southeast Asia processing Chinese exports to the U.S.,” he added. China has warned that this would disrupt global supply chains and make life harder for U.S. consumers via inflation. “China believes that the essence of Sino-U.S. economic and trade cooperation is mutual benefit and win-win. There is no winner in trade wars and tariff wars,” Liu Pengyu, spokesperson for the Chinese embassy in the U.S., told Newsweek. “The U.S. should respect international trade rules and create a good environment for Sino-U.S. cooperation. At the same time, China will firmly safeguard its sovereignty, security and development interests.” Consumer Spending Deluard emphasized that improving domestic confidence would have a far greater impact on growth. “Private consumption, at just 50 percent of GDP, is the biggest reservoir of untapped growth,” he said. “Many wealthy Chinese and exporters have been hoarding cash abroad, evidenced by the large increase in U.S. dollar deposits in Singapore, Dubai and Hong Kong. Convincing them to repatriate some of this cash could create a virtuous cycle of rising confidence and higher asset prices.” Deluard added that a clearer picture would form of the new measures’ effectiveness after the upcoming Chinese New Year holiday, the peak season for consumption and travel in China. “The immediate problem of the economy boils down to anemic growth,” Mary Gallagher, dean at the University of Notre Dame’s Keough School of Global Affairs, wrote this week for World Politics Review. “Necessary limits on investment-led expansion and the property sector have cut off traditional avenues of growth, while China’s household consumption did not make the comeback that many expected with the end of Beijing’s draconian ‘Zero COVID’ policy.” As a result, consumers felt the pinch, with declining property values eroding their net worth and the pandemic shock leaving many feeling financially insecure. This uncertainty, compounded by deteriorating trade relationships with key Chinese trade partners, caused households to tighten their belts in anticipation of tougher times ahead, Gallagher added. Growth Forecasts In his New Year’s Eve address, Chinese President Xi Jinping struck a confident tone, saying, “We get stronger through hard times” and touting the wide range of policies introduced to achieve what he calls “high-quality development,” a term referring to sustainable, innovation-driven growth in strategic industries like green energy. China has again set a GDP growth target of around 5 percent after posting 5.2 percent for 2023. Many economists, including former Premier Li Keqiang, have cast doubt on the accuracy of China’s GDP reports. While expectations that China will hit this growth target remain low, Moody’s Ratings last month revised its 2025 prediction to 4.2 percent from 4 percent, citing stimulus measures and improved credit conditions that could blunt the potential Trump administration tariff hikes.