Trends
China’s Economy Falters. Housing Slows, Retail Weakens, And Looming Trump Tariffs Threaten Recovery In 2025
China’s economy is sputtering, weighed down by a sluggish housing market, weakening domestic consumption, and the looming threat of intensified U.S. trade tariffs under a second Trump administration.
These challenges are pressuring Beijing to implement more robust stimulus measures to stabilize a fragile recovery.
Mixed Economic Signals
November’s data paints a mixed picture of China’s economic health.
Industrial output grew 5.4% year-on-year, marginally higher than October’s 5.3% and beating expectations. However, retail sales, a critical gauge of domestic consumption, expanded by just 3.3%, significantly lower than the 4.8% recorded in October and falling short of analysts’ predictions of 4.6%.
This slowdown comes despite government-backed shopping promotions and trade-in programs aimed at boosting consumer spending, particularly in the automotive sector.
Fixed asset investment also faltered, growing at a 3.3% pace in the January-November period compared to a 3.4% rise in the preceding months. These figures indicate the difficulties policymakers face in revitalizing a slowing economy.
Housing Market Struggles
The housing sector, a cornerstone of China’s economy, has been facing a prolonged crisis. New home prices in November fell at the slowest pace in 17 months, declining by 0.1% month-on-month compared to a 0.5% dip in October. Year-on-year, prices fell by 5.7%, slightly improving from the 5.9% drop recorded the previous month.
While prices in major cities like Shanghai and Shenzhen showed modest month-on-month gains of 0.6% and 0.3%, respectively, Beijing experienced a 0.5% decline. Despite these efforts, consumer confidence in the property market remains fragile, with a strong recovery still some way off.
Stimulus Measures and Policy Adjustments
At the recent Central Economic Work Conference (CEWC), China’s top leaders pledged to prioritize boosting consumption, raising the budget deficit, and issuing more debt. These measures align with the Politburo’s earlier commitment to an “appropriately loose” monetary policy—a notable shift after 14 years of cautious fiscal management.
NBS spokesperson Fu Linghui emphasized the importance of sustaining economic recovery into 2025, signaling that more policy interventions may be on the horizon. However, Julian Evans-Pritchard, head of China economics at Capital Economics, cautioned that these measures might deliver only short-term gains.
“The current strength of export demand is unlikely to last once President Trump starts to put some of his tariff threats into action,” he noted.
Trade Tensions with the U.S.
Trade relations with the United States loom large over China’s economic outlook. President Trump’s second term is set to bring tariffs exceeding 60% on Chinese imports, further straining bilateral ties.
Beijing is reportedly considering allowing the yuan to weaken as a countermeasure but has reiterated its commitment to maintaining the currency’s basic stability.
Meanwhile, the U.S. government’s potential crackdown on the “de minimis” rule, which currently exempts foreign packages valued under $800 from tariffs, poses additional risks. This exemption has significantly boosted Chinese e-commerce giants like Shein and PDD Holdings.
Nomura estimates that eliminating the rule could reduce China’s GDP growth by 0.2 percentage points, with the apparel sector and blue-collar workers being among the hardest hit.
Industrial Overinvestment and Local Business Resilience
Guanyun County, home to the growing “Victoria’s Secret Town,” exemplifies the risks and opportunities in China’s industrial model.
The county’s lingerie industry, employing over 100,000 people across 1,400 firms, has flourished under the “de minimis” trade rule. Local authorities initially hesitated to support the sector due to Communist Party guidelines against “vulgar” products but eventually embraced it, investing in industrial parks and offering entrepreneurial training and funding support.
However, looming tariff changes and e-commerce restrictions threaten this industry’s viability.
Factory owners are exploring alternatives such as bulk shipping, setting up warehouses abroad, and targeting new markets in South America, the Middle East, and Central Asia. Despite these challenges, the sector has transformed local livelihoods.
Disposable income in Guanyun surged to over 21,000 yuan in 2022 from just 5,000 yuan in 2008. Workers like Zhang Lan Lan, earning up to 7,000 yuan monthly, find stability and family proximity through these jobs, illustrating the social impact of such industries.
Yet, industrial overcapacity and local governments’ short-term focus remain systemic risks. Vast, underutilized facilities like Guanyun’s high-speed rail-adjacent industrial park reflect broader inefficiencies.
As Majid Ghorbani of the China Europe International Business School observes, “Local governments only think as far as they can see,” exacerbating deflationary pressures and structural imbalances.
The Last Bit
Despite some positive signals, such as the slower decline in home prices, most analysts agree that a a strong recovery in key sectors remains elusive. With approximately 70% of household savings tied up in real estate, the property crisis continues to weigh heavily on consumer confidence and broader economic activity.
As China’s leaders prepare for 2025, they face a delicate balancing act. Stimulus measures must be carefully calibrated to address immediate challenges without exacerbating long-term structural issues. Meanwhile, the specter of escalating U.S. tariffs adds an external layer of complexity to an already fragile recovery.