China’s Economic Slowdown: No Path in Sight toward Full Recovery

Editorial

17:03 JST, January 26, 2025

There are still no prospects of a full recovery for the Chinese economy, which has continued to stagnate. If the new U.S. president, Donald Trump, implements a wave of high tariffs, China could become a risk factor for the global economy.

China’s gross domestic product in 2024 grew by 5% year on year in real terms. Although the economy slowed from the previous year’s 5.2% growth, the figure was still just enough to achieve the target of around 5% set by the Chinese government.

In autumn last year, it was uncertain whether the target would be achieved. The Chinese government introduced various measures that included monetary easing and promoting the purchase of new cars and home appliances. These measures appear to have had some effect.

However, in truth, the situation does not allow for optimism. China’s real estate industry and related sectors — which account for a quarter of the country’s GDP — have been in a long slump.

Investment in property development such as for apartment blocks suffered a 10.6% drop in 2024 from a year earlier, falling for the third consecutive year. Sales of newly built properties, in terms of floor area, also declined by more than 10%.

In China, real estate accounts for a large proportion of household assets, so a slump in the property market will affect consumption. However, the Chinese government has been reluctant to take drastic action to deal with problems in the real estate industry, as this could cause short-term pain.

With China aging rapidly and its birth rate remaining low, there has been a growing view that China has become more like Japan, in that it has suffered a long-term economic slump amid a deflationary trend that is due to a lack of demand at home. The unemployment rate has been high, especially among young people, and there is also a widespread tendency among the public to save money.

The sense of stagnation caused by tighter controls on speech and other measures by the administration of Chinese President Xi Jinping is also thought to have had a negative impact on the economy.

Since Chinese market trends have a major impact on the global economy, Japan should be exercising more caution.

However, the Chinese government is trying to overcome these challenges by increasing its exports overseas.

State-owned companies have a significant presence in China, and many financial institutions are also strongly influenced by the central government. There is persistent criticism that support through government measures, including massive and unfair subsidies, has undermined fair competition.

The Chinese government has been particularly focused on fostering industries related to decarbonization, such as the electric vehicle and solar panel industries, and has exported products that the country has overproduced. China’s trade surplus hit a record high of about ¥150 trillion in 2024. Under such circumstances, Beijing’s friction with other countries will only worsen.

Trump has taken the issue of U.S. trade deficits seriously and said he will impose high tariffs on China and other countries. If he does impose tariffs, it will inevitably have a serious impact on the economies of these countries. For China, the situation could be described as having troubles at home and facing external pressure.

To develop sustainably, China will likely need to end its overreliance on investment and exports, and shift to an economy led by consumption and domestic demand.

(From The Yomiuri Shimbun, Jan. 26, 2025)