An Assessment Of China’s Economy In 2025 – Analysis
There are two prevailing views on China’s economy this year: pessimistic and optimistic. Optimists believe that with the government’s intensive rollout of policies in the fourth quarter and the frequent release of central government meeting directives, China’s economy will continue to improve in 2025. This view believes that the supporting conditions and fundamental trends for the country’s long-term growth have not changed. Li Daokui, Academic Center for Chinese Economic Practice and Thinking at Tsinghua University, echoed this sentiment, stating that 2025 is a year to look forward to for economic and financial development. It is expected that China’s economic growth in 2025 will likely be slightly higher than in 2024.
In response, ANBOUND’s founder Kung Chan adopts a pragmatic approach, stating that if the situation is highly optimistic, a more optimistic outlook would be adopted; conversely, if the situation is more pessimistic, a more cautious stance would be taken. From the perspective of GDP, he noted that, in the past, there has been a consistent emphasis on avoiding an exclusive focus on GDP growth rates. This means not to place excessive importance on GDP alone. However, in the coming years, starting from 2025, it appears that the government will place significant emphasis on GDP growth rates.
The realization of China’s second centenary goal is highly dependent on GDP growth. To achieve this goal, China needs to reach a per capita GDP level comparable to that of moderately developed countries by 2035, and a level comparable to that of developed economies by the middle of this century. This implies that between 2020 and 2035, China’s per capita real GDP needs to double, and between 2035 and 2050, per capita real GDP needs to double again. Based on these calculations, the average annual real GDP growth rate over the next 30 years must be around 4.6%. However, after the global financial crisis of 2008, China’s economic growth, after an initial rebound, began to show a sustained decline. In 2019, China’s GDP growth rate fell to 6.0%, and in 2020, due to the impact of the COVID-19 pandemic, it further dropped to 2.3%. In 2023, the annual GDP growth rate was 5.2%.
Therefore, if China’s economic growth rate falls below 5%, it is likely that the second centenary goal will be unattainable. In fact, the Chinese Academy of Social Sciences (CASS) has unusually projected a lower GDP growth rate for 2025. Recently, the CASS held a session in Beijing on China’s economic situation in 2025, predicting that the country’s GDP growth for the year would be around 4.9%, with the Consumer Price Index (CPI) increasing by approximately 0.5%. After comprehensively analyzing both short-term and medium-to-long-term factors, the research team forecasted that China’s real GDP growth in 2025 would be around 4.7%.
On relying on GDP, Kung Chan believes that this issue must be viewed from a holistic, trend-based, and societal development perspective. Currently, there are many shortcomings in China’s economic development, such as demographic challenges and poverty alleviation issues, all of which need to be addressed. From a trend perspective, on the one hand, China’s GDP growth rate has decreased from a past rate of 12% to the current 5%, and the previous high-growth economic environment inevitably led to issues like inventory accumulation, debt, and inflation. The key now lies in how to address these challenges. On the other hand, during this economic downturn, the country has also been faced with numerous additional factors, such as decoupling and supply chain disruptions, the failure of U.S.-China trade negotiations, sanctions and counter-sanctions, and so on. As a result, there is a significant difference between the conditions of the Chinese market and that in foreign ones.
China’s economic growth is driven by two engines: one is the land economy, specifically real estate, and the other is foreign trade, including imports and exports.
From the perspective of the former, the current Chinese real estate market is widely acknowledged to be persistently weak. According to data from the China Index Academy, in the first eleven months of this year, the total sales of the top 100 real estate companies amounted to RMB 3.85 trillion, a year-on-year decline of 32.9%, though the rate of decline narrowed by 1.8 percentage points compared to October. In November, sales of the top 100 real estate companies decreased by 9.46% year-on-year and by 18.62% month-on-month. Despite the continuous implementation of incremental policies aimed at stimulating the market, the real estate sector showed little signs of recovery in November. Data from the National Bureau of Statistics (NBS) reveals that, based on sales in 40 key cities, the year-on-year decline in both the sales area and sales value of newly constructed commercial housing from January to November was narrower by 1.8 and 2.1 percentage points, respectively, compared to the first ten months of the year. If the real estate sector continues to develop in the same extensive manner as in the past, it will lead to massive debt and could even trigger a financial crisis. Moreover, demographic factors do not support the rapid development of the real estate market as in previous years. Data from the NBS shows that, by the end of 2023, the population aged 60 and above in China exceeded 296 million, with a large elderly population and a rapidly aging society.
From the latter perspective, the instability of the world economy has increased due to the intense impact of geopolitics. In addition, we also see international political uncertainties, the intensification of global trade protectionism, and the escalation of the suppression and containment by some countries against China. As things stand, China faces significant challenges and pressure from the external environment, such as the Russia-Ukraine conflict, the Red Sea crisis, the Israel-Hamas war, and the U.S.-China trade war. In fact, the country’s Central Economic Work Conference this year also reflects this growing external pressure. The 2023 Central Economic Work Conference stated that “the complexity, severity, and uncertainty of the external environment have increased”, while the 2024 one clearly pointed out that “the adverse impacts of changes in the external environment have deepened”. With this in mind, China’s future import and export trade will inevitably be greatly affected. According to data released by the General Administration of Customs, in U.S. dollar terms, the export value of goods trade in November 2024 increased by 6.7% year-on-year, which is a decrease of 6 percentage points compared to the year-on-year increase of 12.7% in October. Meanwhile, the import value of goods trade in November decreased by 3.9% year-on-year, with the decline widening further by 2.3% compared to October’s year-on-year decline.
Both of China’s economic engines are currently facing a state of stalling. Since this is related to the realization of the country’s second centenary goal, the next few years there will be more significant emphasis on its GDP growth, which means it is crucial for China to achieve the target of 5% economic growth.
If China’s economic situation were to be represented by a curve, one end would represent the production side, including the land economy and import-export trade, while the other end would represent the consumption side. Currently, consumption in China mainly relies on savings, meaning it is spending past money, which remains relatively stable. As a result, economic growth is heavily dependent on the production side. Government measures, such as supply-side reforms and the development of new productive forces, focus on enhancing the efficiency of the production side to drive economic growth. However, in numerical terms, the pace of economic growth is expected to slow significantly. The key to addressing this issue lies in whether Chinese enterprises can successfully expand internationally.
From the experience of Japan, in the past, Japanese companies expanding overseas aimed to create a “second Japan” in international markets. In this process, the money earned by Japanese companies abroad would flow back into Japan to be used for purchasing national debt. According to data from the Japanese Ministry of Finance, domestic holders account for 87% of Japan’s national debt, while overseas holders only account for 13%. The Japanese government increases fiscal revenue by issuing national bonds, which are used to fund social welfare, basic security, and other areas, ensuring the smooth operation of the national economy. After Chinese companies expand overseas, whether the money they earn can flow back into China largely depends on the mechanisms in place within the country, and whether a positive cycle can be established, similar to what Japanese companies have achieved.
In conclusion, if the reform measures proposed at the 20th Party Congress’ Third Plenary Session are successfully implemented, China’s economy will undergo an upgrade and iteration. Otherwise, it will require a long period of accumulation, similar to Japan’s experience of facing decades of stagnation.
Final analysis conclusion:
This assessment of China’s economy in 2025 from a GDP perspective reveals two key points. First, from 2025 onward, the government will prioritize GDP growth to meet the second centenary goal. Second, it will not solely focus on GDP growth, as the country faces challenges such as demographic issues and geopolitical conflicts. Both economic engines, namely land economy and import-export, are currently stalling, and achieving the 5% GDP growth target will depend on whether Chinese enterprises can establish a positive cycle abroad, similar to Japan’s model.