Beijing: Despite various efforts by the Chinese government to revive its economy, China continues to experience a prolonged economic downturn. A series of interventions, including interest rate cuts, increased government spending, and consumer incentives like doubling subsidies for electric vehicles, have not yielded the expected results. Instead, external challenges, such as rising tariffs on Chinese products by several countries to combat dumping, have further complicated the situation for Beijing.

On the 75th National Day of China on October 1, President Xi Jinping acknowledged the country’s struggles, warning that "the road ahead may be stormy." The Chinese economy, once famed for its double-digit growth, has slowed considerably. Growth reached 4.7% in the second quarter of 2024, down from 5.3% in the first quarter. Industrial production growth also dropped in August, and factory output, retail sales, and investment figures have consistently failed to meet expectations. Unemployment rose to a six-month high of 5.3% in August, up from 5.2% in July.

The International Monetary Fund (IMF) has projected that China’s economic growth in 2024 will be limited to 5%, with a further slowdown to 4.5% in 2025. By 2029, growth is expected to fall to just 3.3%, driven by an aging population and slowing population growth. Stephen Innes of SPI Asset Management remarked, "The drums of a deepening economic slowdown are beating louder, and it’s time for China’s leadership to decide whether to step up or risk sliding further into stagnation."

Property Sector Decline Weighs Heavily on Economy
A key factor dragging down China’s economy is the continued decline in the property sector. Real estate prices have plummeted, and investment in the sector fell by 10.2% between January and August 2024 compared to the same period last year. The housing market has struggled since pre-COVID crackdowns on excessive borrowing by developers. Many have defaulted on debts, leaving projects unfinished, with some of China's largest developers collapsing.

Evergrande, once the world’s most valuable real estate company, declared bankruptcy in the U.S. in 2023 after failing to repay over $300 billion in debt. In January 2024, a Hong Kong court ordered its liquidation. Similarly, Country Garden, China’s largest property developer, is grappling with $205 billion in debt and is undergoing liquidation analysis. The real estate sector is a critical pillar of China’s economy, supporting industries such as construction, home appliances, and materials.

Failed Economic Stimulus Efforts
In an attempt to address the crisis, the Chinese Communist Party’s politburo, following an extended meeting in July 2024, called for measures to restore market confidence. The People’s Bank of China subsequently cut key interest rates, while the government doubled subsidies for electric vehicles in a bid to boost consumption. However, these actions have not reversed the downturn. Industrial production growth fell from 5.1% in July to 4.5% in August, and retail sales growth dropped from 2.7% to 2.1% over the same period.

Western Tariffs Hit China’s EV Sector
China’s push to develop advanced technologies like electric vehicles (EVs) and renewable energy has also backfired. Overcapacity in solar panel production has squeezed manufacturers, while Western nations, concerned about subsidized Chinese goods flooding their markets, have imposed tariffs on Chinese-made EVs. In September, the U.S. raised tariffs on imported Chinese EVs to 102.5%, while the European Union imposed provisional tariffs of up to 37.6%. Canada also slapped a 100% tariff on Chinese EV imports in August 2024.

Chinese firms have faced additional challenges due to their dominance in solar panel production. China’s infrastructure struggles to handle the power generated by the vast number of solar panels installed across the country, leading authorities to withdraw price support for the sector. In March, Longi Green Energy Technology, the world’s largest solar cell manufacturer, laid off 4,000 workers as the industry faces growing pressure.

Global Response and Competition
In response to China’s growing presence in the EV sector, countries like the U.S. and Canada have stepped up efforts to boost domestic production. In September, the Biden administration announced over $3 billion in grants to U.S. companies to support EV battery and critical mineral production. Similarly, Prime Minister Justin Trudeau of Canada cited the need to counter China’s "unfair advantage" in the global marketplace, as Chinese firms receive heavy government subsidies, making it difficult for other countries to compete.

With both domestic and international pressures mounting, China’s leadership faces difficult decisions. While Beijing has implemented several measures to boost the economy, the results remain underwhelming, and many analysts are warning of the risk of long-term stagnation. As President Xi noted, the road ahead for China’s economy is far from clear.