Economic Outline

Economic Indicators

China is the second-largest global economy, the largest exporter and has the largest exchange reserves in the world. After a 5.3% increase in 2023, China’s economic growth remained robust at 4.8% in 2024, despite facing multiple challenges. However, growth has moderated since the second quarter of the year, primarily due to subdued domestic demand and a prolonged downturn in the property sector. The government has introduced policy stimulus aimed at balancing short-term support for domestic demand with longer-term financial stability objectives. Manufacturing and infrastructure investment have remained robust, partially offsetting the contraction in real estate investment. Robust net exports, driven by strong external demand, supported economic activity, contributing 2 percentage points to overall growth. China’s GDP growth is projected to slow to 4.5% in 2025. Slower household income growth and the negative wealth effect from lower home prices are expected to weigh on consumption. Policy support for the property sector may provide a modest boost to housing demand and help reduce high inventory levels, though a full recovery in the sector is not expected until late 2025. Elevated uncertainty and reduced profitability will likely dampen manufacturing investment, while public spending will support infrastructure investment (World Bank).

Concerning public finances, China's fiscal revenue in 2024 grew 1.3% year-on-year, a sharp slowdown from the 6.4% increase in 2023, as a prolonged property market slump and slowing domestic demand weighed on the economy. Total fiscal revenues in 2024 amounted to CNY 21.97 trillion (USD 3.03 trillion), including CNY 17.497 trillion in tax receipts and CNY 4.473 trillion in non-tax income. Tax revenue fell 3.4%, while non-tax revenue surged 25.4%. Revenue from land sales by local governments dropped 16%, reflecting the deep property downturn. Such revenues have historically driven local economic growth, and the sharp decline has significantly impacted overall business activity. Fiscal expenditure grew 3.6% in 2024, slowing from 5.4% in 2023. Overall, the consolidated fiscal deficit was estimated at 7% in 2024, from 6.3% in the previous year, and is expected to increase to 7.4% in 2025 (IMF). Meanwhile, the debt-to-GDP ratio rose to 90.1%, up from 84.4% in 2023. The IMF expects the debt ratio to rise to 97.7% by 2026. In November 2024, China unveiled a CNY 10 trillion (USD 1.4 trillion) debt package to ease local government financing strains and stabilize economic growth. The special bond quota for local governments was increased by CNY 6 trillion (USD 836 billion) over the next three years, raising it to CNY 35.52 trillion and the overall debt ceiling to CNY 52.79 trillion. By the end of 2023, local government debt under official quotas stood at CNY 40.74 trillion. The new funds will help repay debt accumulated via local government financing vehicles (LGFVs), which Beijing classifies as "hidden debt." Local governments will also be allowed to use CNY 800 billion annually for the next five years for debt issuance already approved by Beijing to repay LGFV loans, bonds, and shadow credits. Over 2024, consumer price inflation has remained very low due to sluggish domestic demand (at 0.4%). The rate is expected to increase this year, to 1.7% (IMF).

According to the Ministry of Human Resources and Social Security, the low unemployment rate of these past years is largely due to the new digital economy and entrepreneurship. Many analysts say, however, that the government figure is an unreliable indicator of national employment levels, as it takes into account only employment in urban areas and does not measure the millions of migrant workers that arrive in the country every year. Despite the global context, the unemployment rate stood at 5.1% last year and should remain stable over the forecast horizon (IMF). Between 2010 and 2021, China's middle class grew rapidly, rising from 9.8% to 32.1% of the population, the fastest increase globally. While urban areas saw the most upward mobility, the secure middle class in rural areas rose from 13.7% to 26.2%, indicating broader prosperity. However, a significant portion of the population remains economically insecure: 17% live on less than USD 6.85/day, and 38.2% belong to the vulnerable middle class, at risk of falling back below the poverty line (World Bank).

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