China’s economy rebounded in the last three months of last year, enabling the government to meet its 5% growth target in 2024, Beijing said on Friday.
But it is one of the slowest growth rates in decades as the world’s second-largest economy struggles to shake off a lingering property crisis, high local government debt and youth unemployment.
The head of the National Bureau of Statistics said China’s economic achievements in 2024 were “difficult to achieve”, after the government launched a series of stimulus measures late last year.
Beijing has rarely missed its growth targets in the past.
This growth rate was largely predicted by experts. The World Bank said lower borrowing costs and increased exports would mean China could post annual growth of 4.9%.
Investors are bracing, however: the threat of President-elect Donald Trump’s tariffs on $500bn (£409bn) worth of Chinese goods looms large.
However, that is not all that stands in the way of China achieving its growth targets next year.
Business and consumer confidence are low, and the Chinese yuan will continue to weaken as Beijing cuts interest rates in an attempt to boost growth.
Here are three reasons why Xi has bigger challenges than Trump’s tariffs:
1. Tariffs are already hurting Chinese exports
There are growing warnings that China’s economy will slow in 2025. One major driver of last year’s growth is now at risk: exports.
China has relied on manufacturing to help pull itself out of the slowdown – hence exporting record numbers of electric vehicles, 3D printers and industrial robots.
The US, Canada and the European Union have accused China of producing too many goods and imposed tariffs on Chinese imports to protect domestic jobs and businesses.
Experts say Chinese exporters may now focus on other parts of the world. But those countries are likely to be in emerging markets, which do not have the same level of demand as North America and Europe.
That could affect Chinese companies hoping to expand, and in turn hit energy and raw material suppliers.
Xi wants to transform China from the world’s factory of cheap goods into a high-tech powerhouse by 2035, but it is not clear how manufacturing can continue to be such a big driver of growth despite rising tariffs.
2. People just don’t spend enough
In China, household wealth is mainly invested in the real estate market. Before the real estate crisis, it made up almost a third of China’s economy – employing millions of people, from builders and developers to cement manufacturers and interior designers.
Beijing has implemented a series of policies to stabilize the property market, and financial markets watchdog the China Securities Regulatory Commission (CSRC) has said it will vigorously support the reforms.
But there are still too many vacant homes and commercial properties, and that oversupply continues to drive down prices.
The slump in the property market is expected to bottom out this year, but Wall Street banking giant Goldman Sachs says the slump will be a “multi-year drag” on China’s economic growth.
This has already hit consumption hard – in the last three months of 2024, household spending contributed just 29% of China’s economic activity, down from 59% before the pandemic.
This is one of the reasons why Beijing has increased exports. It wants to help offset sluggish domestic spending on new cars, luxury items and just about everything else.
The government has even introduced programs like replacement of consumer goodswhere people can exchange their washing machines, microwave ovens and rice cookers.
But experts wonder if such measures are enough by themselves without solving deeper problems in the economy.
They say people will need more money in their pockets before spending levels return to pre-Covid levels.
“China needs to bring back the animal spirit of the population, and we are still a long way from that,” said Shuang Ding, chief economist for China and North Asia at Standard Chartered Bank.
“If the private sector starts investing and innovating, it could increase incomes and job prospects, and people will have more confidence to spend.”
High public debt and unemployment also affected savings and consumption.
Official data says youth unemployment rate remains high compared to before the pandemic and that wage growth has stopped.
3. Companies are not flocking to China like before
President Xi has pledged to invest in cutting-edge industries that the government calls “new productive forces.”
So far, this has helped China become a leader in products such as renewable energy products such as solar panels and batteries for electric vehicles.
Last year, China overtook Japan as the world’s largest car exporter.
But the poor economic picture, uncertainty over tariffs and other geopolitical uncertainties mean that the appetite of foreign companies to invest in China has diminished.
It’s not about foreign or domestic investment – it’s about businesses not seeing a bright future, said Stephanie Leung of wealth management platform StashAway.
“They would like to see a more diverse set of investors coming in.”
Because of all this, experts believe that measures to support the economy will only partially mitigate the impact of the potential new US tariffs.
Beijing must either take big, bold action or accept that the economy will not grow as fast, Goldman Sachs chief China economist Hui Shan wrote in a recent report, adding: “We expect them to choose the former.”
“China needs to stabilize property markets and create enough jobs to ensure social stability,” said Standard Chartered Bank’s Mr. Ding.
According to researcher China Dissent Monitor, there were more than 900 protests in China between June and September 2024, workers and property owners lead the way – 27% more than in the same period a year earlier.
This kind of social tension as a result of economic woes and erosion of wealth will be a cause for concern for the Chinese Communist Party.
After all, explosive growth has turned China into a global power, and the promise of increased prosperity has gone a long way in helping its leaders keep a firm grip on dissent.
