China’s economy faces significant domestic and foreign challenges as the Year of the Snake begins, with sluggish consumer spending, a real estate crisis, and reliance on export-driven growth posing major concerns.
As the Year of the Snake begins in China, the nation’s economy is facing significant domestic and foreign challenges. The Chinese associate snakes with ‘introspection and resilience,’ but can these qualities help weather a perfect storm?
China has experienced rapid economic growth, transforming it into a global powerhouse.
With a GDP of over $14 trillion, it surpassed the US in 2020 to become the world's largest economy.
The country is driven by manufacturing, with major exports including electronics, textiles, and machinery.
China also boasts a rich cultural heritage, with ancient civilizations like the Qin and Han dynasties leaving behind a legacy of history and architecture.
China’s economy has been sluggish since the end of the COVID-19 pandemic about two years ago. At home, Chinese consumers have been holding off on spending, while a long-simmering real estate crisis has made many people poorer and uncertain about their future economic well-being.
China’s economy grew by 5% in 2024, driven largely by exports. However, this growth comes with a price. The country’s reliance on external demand is at its highest since the 1990s, with exports contributing 1.5 percentage points to the 5% growth rate. Domestic demand, what was consumed or invested within China, grew by only 3.5% over the year.
China’s almost $1 trillion trade surplus with the world in 2024 won’t go down well with ‘Donald Trump,’ who has vowed to curb China’s trade surplus with the US. The record surplus is a problem, as it shows domestic consumption remained weak, corporate profitability continued to decline, and Beijing‘s efforts to stimulate the economy were focused on production rather than boosting consumer spending.
Reports frequently surface in Chinese media about workers going months without pay, forcing them to rely on their savings. The true extent of unpaid wages is hard to verify, but overall, wages appear to be declining rather than rising. A survey on entry-level salaries in China’s ‘New Economy’ companies supports this downward trend.
An increasing number of unprofitable companies, falling wages, rising unemployment, and weak consumer spending are just some of the challenges facing China’s leadership at the beginning of 2025. How long China can continue ‘exporting its way out’ of the crisis depends largely on how tightly US President ‘Donald Trump’ turns the screws on bilateral trade.
China seems set to be hurt enormously by the impact of ‘Trump’s proposed 10% tariff hike’ on Chinese goods. Additional measures against online retailers like Temu, Shein, and AliExpress in the US could further stifle growth. The effects would be significant if Trump eliminates the exemption for goods shipments from abroad worth up to $800, which are currently duty-free in the US.
China’s economic challenges in the Year of the Snake are complex and multifaceted. While ‘introspection and resilience’ may help weather a perfect storm, it remains to be seen how long China can continue ‘exporting its way out’ of the crisis. The impact of Trump’s proposed tariff hike on Chinese goods could have far-reaching consequences for China’s economy, making it even more challenging for the nation to overcome its domestic and foreign challenges.
