Navigating Economic Struggles Amid Hopes for Recovery
In a recent analysis, The Economist painted a gloomy forecast for China's economy in 2025, stressing the need for decisive action to boost domestic demand and overcome economic challenges.According to the study, written following China's Central Economic Conference, the country is experiencing a deepening economic slowdown due to new threats of US tariffs of up to 60%
Existing and future challenges
In November 2024, retail sales increased by only 3% over the previous year, with inflation confined to 0.2%.According to the Economist, these percentages reflect Chinese consumers' persistent skepticism, which has persisted since the Covid-19 incident in 2022.
With US President-elect Donald Trump proposing to slap extra tariffs on Chinese goods, Citigroup predicts that these measures will lower China's economic growth by 2.4 percentage points.
Previous stimuli have a limited effect.
Despite prior stimulus measures like as interest rate decreases and bank reserve requirements, loan demand has remained low, according to the research. As of the end of November, only 15% of the 300 billion yuan ($42 billion) in discounted loans offered by the government had been taken up.
The current issues are attributable in part to previous over-stimulus, which resulted in high debt and an overheated real estate market. China implemented structural reform initiatives in 2012 with the goal of lowering industrial surpluses and corporate debt, but these policies have reduced financial flexibility during the current slump.
Despite prior stimulus measures like as interest rate decreases and bank reserve requirements, loan demand has remained low, according to the research. As of the end of November, only 15% of the 300 billion yuan ($42 billion) in discounted loans offered by the government had been taken up.
The current issues are attributable in part to previous over-stimulus, which resulted in high debt and an overheated real estate market. China implemented structural reform initiatives in 2012 with the goal of lowering industrial surpluses and corporate debt, but these policies have reduced financial flexibility during the current slump.
New data suggests a shift in Chinese policies. The Ministry of Finance stated last November that it will issue an additional 10 trillion yuan ($1.4 trillion) in bonds to help local governments decrease expenditures.
Approximately 1.2 trillion yuan ($168 billion) is scheduled to be disbursed in 2025 to assist economic growth. The economic work conference also focused on increasing domestic consumption, which went beyond Xi Jinping's primary goal of upgrading manufacturing.
Approximately 1.2 trillion yuan ($168 billion) is scheduled to be disbursed in 2025 to assist economic growth. The economic work conference also focused on increasing domestic consumption, which went beyond Xi Jinping's primary goal of upgrading manufacturing.
Measures to increase consumption
The stimulus programs have had some beneficial effects on the real estate market, as new residential property sales increased in November for the first time in three years.
The government is anticipated to maintain its programs to encourage the replacement of household appliances, which helped boost sales by 22% in November.
In addition, the government intends to enhance pensions and provide health insurance to encourage residents to save less and spend more, according to the newspaper.