China’s real growth in 2025 slipped below leadership targets (projections around ~4–4.6% instead of ~5%).
The traditional growth engine — real estate and related investment — is in deep crisis (major bankruptcies, ripple effects on banks and local governments).
Long-term structural issues (rapid aging, shrinking workforce, diminishing returns from infrastructure) overlap with short-term shocks (weak consumption, slower exports, local financial stress).
1) The Big Picture and Recent Data
By mid-to-late 2025, China’s economic indicators showed clear weakening: official and private estimates put annual growth in the ~4–4.6% range, below the leadership’s “around 5%” target. Industrial output, retail sales, and production all underperformed in recent months (e.g., August 2025 readings were weaker than expected).
2) The Property Crisis: A Growth Engine Stalls
For years, real estate was central to China’s growth — through construction, land sales, and connected supply chains. Since 2020, the sector has faced a painful correction: massive developer debts, buyer mistrust, delayed project deliveries, and collapsing valuations. The case of Evergrande epitomizes this, with huge liabilities, court actions, and potential liquidation/delisting, sending shockwaves across developers, lenders, and investors. Property investment fell sharply, hitting provincial government revenues that relied heavily on land sales.
Material consequences: declining property investment reduces demand for building materials, labor, and credit, while pressuring banks, local government financing vehicles (LGFVs), and provincial budgets.
3) Financial Pressures: Debt Overhang and Limited Policy Space
Financial risks are concentrated in multiple channels: developer debts, LGFVs, and high levels of bank lending. Credit aggregates (such as total social financing) have been growing faster than nominal GDP, raising vulnerability. At the same time, rising government and quasi-government debt burdens limit Beijing’s ability to roll out massive stimulus without worsening future solvency risks.
4) Weak Domestic Demand and a Strained Labor Market
Although Beijing has shifted its rhetoric toward “consumption-driven growth,” household spending remains muted. Retail sales growth slowed (August 2025 posted the weakest pace in months), and consumer confidence is subdued. Meanwhile, the labor market is strained: youth unemployment (ages 16–24) remained high and volatile, often in the 16–18% range in 2025, weighing on household income expectations and spending.
5) Long-Term Demographic Challenge
China’s population is now shrinking: by late 2024, the population had declined for the third consecutive year, with very low birth rates and rapidly aging demographics. This translates into future labor shortages, heavier social welfare burdens, and reduced long-run productive capacity — a simultaneous supply-side drag and fiscal pressure.
6) External Pressures: Trade, Technology, and Geopolitics
Rising trade tensions, protectionist measures, and technology export restrictions (especially in advanced sectors) have hurt China’s export engine and investment climate. Multinational firms are diversifying supply chains, further weakening China’s export-driven model.
7) Government Response: Supportive but Constrained
Beijing rolled out measures to stimulate consumption and services (e.g., incentives for tourism, credit easing, special bond programs for local projects), and launched schemes to restructure or refinance local debt. Yet the effectiveness is limited:
Authorities fear inflating new credit bubbles.
Short-term boosts do not fix deep-rooted structural issues in real estate and demographics.
8) Implications: Domestic and Global
Domestically: a prolonged slowdown pressures jobs, local revenues, and property markets for years.
Globally: weaker Chinese growth lowers demand for commodities and capital goods, impacting exporters, while reshaping global supply chains. At the same time, Chinese financial markets could attract foreign capital if credible structural reforms are launched.
9) Policy Recommendations
Property sector restructuring: orderly debt workouts for key developers while protecting retail investors; transparent rescheduling of LGFV obligations.
Strengthen social safety nets: more investment in healthcare, elderly care, and child support to ease household concerns and encourage higher birth rates — a long-term boost to consumption.
Reform local debt governance: shift opaque liabilities into centralized restructuring frameworks with clear oversight.
Smarter consumption stimulus: temporary measures (support for durable goods purchases, wage subsidies) targeting middle- and lower-income groups, instead of broad credit expansion.
Invest in innovation and productivity: redirect incentives from “quantity of investment” to “quality of investment” (technology, healthcare, education) to secure sustainable, less credit-heavy growth.
China’s 2025 slowdown is the product of short-term shocks (property crisis, weak consumption, export slowdown) colliding with long-term structural headwinds (aging demographics, debt overhang, diminishing infrastructure returns). The key test lies in whether Beijing can successfully pivot toward a growth model anchored in consumption, innovation, and transparent fiscal management. The policy moves announced in September 2025 show attempts to balance demand support with financial stability — but lasting stability will require deeper structural reforms and political patience. Will Turkey Become the "China of Europe" and a Supply Chain Alternative?