China’s Economic Resilience Amidst Domestic Challenges

China’s economy demonstrated a robust growth rate of 5 per cent last year, surpassing Beijing’s official target, driven largely by an impressive surge in exports. This phenomenon has helped offset the negative impacts from US tariffs and a significant slump in domestic demand.

The surge in exports has propelled China’s trade surplus to a record US$1.2 trillion, exhibiting a remarkable increase of approximately 20 per cent compared to the previous year. While industrial activity rose, consumer confidence continues to remain subdued due to a prolonged crisis in the property sector.

Retail sales saw only a 3.7 per cent increase, while property investments plummeted by 17.2 per cent. This decline reflects the ongoing challenges faced by several of the country’s largest real estate developers, leading to a growing number of bankruptcies within the sector.

Analysis by economists indicates that China is grappling with a significant macroeconomic issue characterised by excessive supply and insufficient domestic demand. As a result, lower consumer spending has put downward pressure on prices and profits within various industries.

In response to these challenges, President Xi Jinping has attempted to recalibrate economic policies to focus on manufacturing high-tech and climate-friendly products, including solar panels and electric vehicles. These goods have increasingly found their way into Western markets, which prompted protective tariff measures by the US and the European Union.

Government efforts have included targeted fiscal policies, such as a lending facility worth 1 trillion yuan for private firms and extended consumer subsidies. However, analysts caution that mere credit expansion will not be enough to stimulate growth without an uplift in household spending.