Three reasons Trump tariffs aren’t China’s only problem

China is set to release its gross domestic product (GDP) figures for 2024, although it is still struggling to recover from a long-running wealth crisis, high local government debt and youth unemployment.

Beijing has set an annual growth target of “about 5%” and last month, President Xi Jinping said the world’s second-largest economy was on track to meet that target.

He said, “As always, we grow in the wind and rain, and we become stronger in difficult times. We must be full of confidence.”

Experts broadly agree – the World Bank says low borrowing costs and rising exports mean China can achieve annual growth of 4.9%.

However, investors are bracing themselves: the threat of President-elect Donald Trump’s tariffs on $500bn (£409bn) worth of Chinese goods looms large.

Still, all this does not stand in the way of China achieving its growth targets next year.

Business and consumer confidence is low and the Chinese yuan will continue to weaken as Beijing cuts interest rates to boost growth.

Here are three reasons why Xi faces big challenges Trump’s tariffs,

There are increasing warnings that China’s economy will slow in 2025. A key driver of last year’s growth is now at risk: exports.

China has relied on manufacturing to help it out of the recession – so, it is exporting record numbers of electric vehicles, 3D printers and industrial robots.

The US, Canada and the European Union have accused China of making too many goods and have imposed tariffs on Chinese imports to protect domestic jobs and businesses.

Experts say Chinese exporters can 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.

This could hit Chinese businesses hoping to expand, in turn impacting energy and raw material suppliers.

Xi wants to transform China from the world’s factory for cheap goods into a high-tech powerhouse by 2035, but it’s unclear how manufacturing can remain such a big growth driver despite rising tariffs.

In China, household wealth is largely invested in the property market. Before the real estate crisis, it accounted for nearly a third of China’s economy – employing millions of people, from builders and developers to cement producers and interior designers.

Beijing has implemented a number of policies to stabilize the property market and the China Securities Regulatory Commission (CSRC), the financial market watchdog, has said it will strictly support the reforms.

But there are still plenty of vacant homes and commercial properties, and prices continue to fall due to excess supply.

The property market slump is expected to reach its lowest level this year, but Wall Street banking giant Goldman Sachs says the slowdown will put pressure on China’s economic growth “for years.”

Spending has already been hit hard – in the last three months of 2024, domestic consumption contributed only 29% of China’s economic activity, down from 59% before the pandemic.

This is one reason why Beijing has increased exports. It seeks to help balance sluggish household spending on new cars, luxury items and almost everything else.

The government has also introduced programs like trade-in of consumer goodsWhere people can exchange their washing machines, microwaves and rice cookers.

But experts wonder whether these types of measures alone are enough without addressing deeper issues in the economy.

He says people will need more money in their pockets for spending to 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 Greater China and North Asia at Standard Chartered Bank.

“If the private sector starts investing and innovating, it could lead to improved income and job prospects, and people will have more confidence to consume.”

Huge public debt and unemployment have also affected savings and spending.

official figures show youth unemployment rate remain higher than before the pandemic, and wage growth has stalled.

President Xi has promised to invest in cutting-edge industries that the government calls “new productive forces.”

So far, this has helped China become a leader in goods such as solar panels and renewable energy products like electric vehicle batteries.

Last year, China overtook Japan as the world’s largest car exporter.

But the weak economic picture, uncertainty over tariffs and other geopolitical uncertainties mean the appetite of foreign businesses to invest in China has diminished.

It’s not about foreign or domestic investment — the point is that businesses don’t see a bright future, said Stephanie Leung of wealth management platform StashAway.

“They would like to see a more diverse group of investors coming in.”

For all these reasons, experts believe that measures to support the economy will only partially offset the impact of overcapacity. new us tariffs,

Hui Shan, chief China economist at Goldman Sachs, wrote in a recent report that Beijing must either take big, bold steps or accept that the economy is not going to grow that fast, adding: “We expect them to Will choose the first one.”

“China needs to stabilize property markets and create enough jobs to ensure social stability,” said Mr. Ding of Standard Chartered Bank.

According to researchers China Dissent Monitor, More than 900 protests took place in China Led by workers and property owners between June and September 2024 – up 27% compared to the same period a year earlier.

These types of social tensions resulting in economic grievances and erosion of wealth would be of concern to the Chinese Communist Party.

After all, explosive growth turned China into a global power, and the promise of increased prosperity has largely helped its leaders crack down on dissent.