Entering the year 2025, the four major challenges that continue to impact the Chinese economy may even worsen. In 2024, almost none of China’s key economic indicators met expectations.
A recent article by “Market Watch” interviewed over a dozen Chinese workers, students, and retirees. These ordinary people felt “relieved” that 2024 was over because for them, the year continued the post-pandemic hardships: stagnant wages or unemployment, falling housing prices, and reduced spending on non-essential items.
However, they are filled with worries for 2025 as they see no hope for the future.
Even though the official unemployment rate has not dropped below 5%, more concerning is that about one-fifth of young people aged 16 to 24 are unable to find jobs.
Xu Leiyu, 42, from Chengdu, Sichuan, lost her job at a mobile phone store two months ago. She told “Market Watch”: “The government said they would help people like us in distress, but it’s been a year and I haven’t seen any support.”
Chinese leader Xi Jinping has always emphasized that the ideology of the Communist Party is above economic pragmatism, but he himself has had to publicly admit the poor performance of the Chinese economy.
“Nikkei Asia” pointed out that the impact of tariffs on China depends on the timing and scope of new tariffs on Chinese imports worth over 500 billion dollars planned by the new U.S. President, Trump.
According to estimates from the Japan Center for Economic Research, if the U.S. imposes a 60% additional tariff on Chinese goods and China does not retaliate, China’s GDP growth rate may drop from 4.7% in 2024 to 3.4% in 2025 and possibly further decrease to 1.8% by 2035.
Furthermore, if the tariffs on China are raised to 60%, Chinese exports could decrease by nearly 14%, with products such as clothing, shoes, and toys, which make up a high percentage of imports to the U.S., experiencing significant declines.
On January 6, the “Washington Post” reported that the Trump team is exploring narrowing the scope of its comprehensive tariff policy. However, Trump quickly denied this report on “Truth Social”.
The article quoted ‘unnamed sources’, which do not exist, and falsely claimed that my tariff policy would be reduced. This is incorrect, he wrote.
“Nikkei Asia” pointed out that China’s overcapacity may persist until 2025, one reason being that Beijing is trying to compensate for the lack of real estate investment through industrial investment.
As of September 2024, bank loans to the industrial sector surged by 86% to 24 trillion yuan, while the total outstanding loans in the real estate industry amounted to 53 trillion yuan, growing by only 3% compared to three years ago.
Overcapacity is eroding manufacturers’ profits and could potentially lead to more unemployment. Data shows that the proportion of ‘zombie enterprises’, businesses that have been unable to pay interest from earnings for two consecutive years, increased from 8% in 2023 to 14% in the first half of 2024.
China’s overcapacity has led to factory gate prices falling year-on-year for 24 consecutive months, with little sign of a short-term rebound.
Between 2012 and 2016, factory gate prices fell for four consecutive years, prompting the Chinese Communist Party to close unnecessary steel mills and other factories. However, this time, the CCP leader Xi Jinping seems committed to promoting growth through expanding manufacturing.
At the end of December last year, the “Wall Street Journal” cited informed sources familiar with Beijing’s decision-making, stating that Xi Jinping believes the American-style consumer-driven growth is wasteful.
China’s GDP deflator index has been negative for six consecutive quarters, the longest duration since the late 1990s.
In December 2024, the ten-year government bond yield fell below 2% for the first time in over 20 years. This further heightened concerns about China falling into long-term economic stagnation.
As falling prices erode business profits, companies may delay investment or lay off workers, leading to further reductions in consumer spending, forming a vicious cycle.
Li Zhennan, Senior Asian Economist at Bada Wealth Management, stated that with increasing job insecurity, Chinese consumers are becoming more “sensitive” to prices.
A survey by the People’s Bank of China in the first quarter of 2024 indicated that only 21% of depositors expected prices to rise in the second quarter, the lowest level since the survey began in 2003.
Last month, “Wall Street Journal” reporter Wei Lingling revealed that at the beginning of 2024, think tanks warned the top Chinese leadership that without measures, China’s economy could fall into a deflationary spiral. However, the CCP leaders turned a deaf ear, and the term deflation briefly became taboo with no one daring to discuss it.
According to data from the consultancy firm Gavekal Dragonomics, from 2018 to 2021, the total annual growth rate of Chinese household wealth was nearly 10%. But in 2022 and 2023, this growth dropped to 1% per year.
Goldman Sachs analysts estimate that the real estate value, which accounts for 70% of household wealth, could further decline by 20% to 25%, stabilizing only by the end of 2025. This means household real estate wealth could halve.
The economic downturn has further exacerbated social tensions. According to data from the “China Monitoring of Dissent” organization, there were over 900 protest events in China in the third quarter of 2024, a 27% increase year-on-year, predominantly initiated by workers and homeowners.
Research by Scott Rozelle from Stanford University and Martin Whyte from Harvard University in 2023 found that fewer Chinese people believe hard work will pay off. Only 39% of respondents said their economic situation improved over the past five years, down from over 76% in 2014.
Moreover, indiscriminate violent incidents and other social retaliation events are on the rise. In 2024, mainland Chinese media reported at least twenty cases of indiscriminate violent incidents.
Young people in China, seeing no hope, have become unwilling to work hard, while those with opportunities and resources seek to emigrate or transfer assets overseas.