China economic challenges deepen as its housing market crisis and population decline dampen growth. Deflation persists amid weak consumer spending, while exports face international barriers. Experts stress reforms and urbanization as vital for recovery.
Housing Market in Decline
China’s once-thriving real estate sector is now facing a major crisis. Strict debt regulations for developers in 2021 led to a sharp downturn, cutting property values by half. Today, an estimated 81 million homes remain empty, underscoring the scale of the issue.
The country’s shrinking population compounds the problem. After peaking at 1.43 billion people in 2020, the population has decreased by 10 million. Experts forecast a drop to 767 million by 2100, further dampening housing demand and challenging long-term economic growth.
Deflation and Weak Consumer Spending
A combination of economic uncertainty and a declining population has weakened domestic consumption. Consumer prices have fallen for six consecutive quarters, signaling persistent deflation.
Despite stimulus measures and monetary easing by the government, recovery has been limited. Marcus Weyerer, a strategist at Franklin Templeton, highlights that falling property values and rising unemployment discourage consumer confidence. Without structural reforms, China risks entering a prolonged stagnation similar to Japan’s economic struggles in the 1990s.
China economic challenges: Exports Face Increasing Barriers
China has turned to exports to support its economy amid weak domestic demand, but international obstacles remain significant. The European Union has imposed tariffs on Chinese goods, and the United States continues to enforce strict trade barriers. Former President Donald Trump has proposed raising tariffs on Chinese imports to 60%, creating additional challenges for exporters.
The auto industry illustrates the difficulties. In 2024, China produced 28 million vehicles, well below its capacity of 60 million. Domestic demand is insufficient to absorb this surplus, and finding new export markets has become increasingly difficult due to rising trade restrictions.
Looking Ahead: Reform and Urbanization
China’s future economic prospects hinge on reforms and urbanization. Wang Wen from Renmin University suggests that increasing the urban population from 65% to 80% could bring 200 to 300 million people into cities, driving demand and economic growth.
However, the gap between China and the United States remains wide. In 2024, China’s GDP reached $18.2 trillion, far behind the U.S. at $27.6 trillion. To narrow this divide, China must adopt comprehensive reforms and focus on boosting domestic consumption. With the right strategies, the country could stabilize its economy and pursue sustainable growth.
