Can China Navigate Trade Tensions and Structural Challenges to Sustain Growth in 2025?
As China navigates a shifting global landscape, it faces trade tensions, industrial competition, and structural challenges. Fiscal policies and strategic investments will shape its trajectory, testing the resilience of its growth model in an increasingly uncertain world.
China’s economy is projected to grow at 4.5% in 2025, supported by targeted fiscal and monetary policies designed to stabilize the economy amid a range of challenges. While government measures, such as long-term interest rate cuts and property market support, aim to boost demand, structural issues persist. These include a rapidly aging population, declining birth rates, and lingering weaknesses in the housing market, which continues to cast a shadow on consumer confidence and investment. Additionally, the economy faces difficulties as it transitions away from its reliance on exports and navigates increasing competition from global players, particularly in sectors like automobiles and advanced technologies.
Trade tensions with the United States remain a significant risk, with the possibility of increased tariffs weighing on China’s economic outlook. A projected 20 percentage-point hike in US tariffs could shave 0.7% off China’s GDP, though approximately half of this loss may be offset by domestic policy adjustments. Beyond tariffs, other geopolitical uncertainties loom, including the potential for Chinese export controls on critical materials like rare earths. Such retaliatory actions could disrupt global supply chains, intensify trade disputes, and impact key sectors in both China and the global economy.
China’s role in global trade is also evolving as the country shifts from being primarily a demand driver to becoming a more formidable competitor. This dynamic particularly affects economies like Germany, which had historically benefited from strong Chinese demand for industrial exports. Meanwhile, US-China trade policies and broader geopolitical tensions are expected to influence global markets significantly in 2025, adding uncertainty to investment and economic planning.
Despite these headwinds, China’s policy tools, including fiscal stimulus and technology investment, are likely to provide some stabilization. The country’s long-term focus on innovation and its growing role in emerging industries may pave the way for more sustainable growth in the future. However, the success of these efforts depends on how effectively the government addresses structural challenges, manages geopolitical risks, and sustains investor and consumer confidence in an increasingly volatile global landscape.
Sources
- Atlantic Council (25.01.09)
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