Beijing: Following a brief surge in October, China's stock market rally has fizzled out, casting a shadow over the country’s economic prospects for 2025. Challenges ranging from declining domestic consumption and manufacturing to a persistent real estate slump have compounded the difficulties. Adding to the uncertainty is the return of Donald Trump, whose trade policies are expected to impact China’s economic trajectory significantly.

Consumer Confidence Hits a Low
Despite recent government measures to stimulate equity markets, consumer sentiment remains subdued. JP Morgan attributes this to a "negative wealth effect" driven by falling property prices, a struggling stock market, and declining deposit interest rates. “These factors have eroded household confidence, undermining economic recovery efforts,” the bank noted.

Stimulus Measures Fall Short
The Chinese government’s recent stimulus initiatives aimed at reviving the economy have failed to stabilize the markets. Analysts, including those at Wright Research, warn that optimism surrounding these measures is based on "unrealistic expectations."

"The objectives of the stimulus remain unclear," stated Aaditya Mattoo, the World Bank’s East Asia and Pacific chief economist. He pointed to concerns over declining salaries, property incomes, and the long-term implications of an ageing population as major barriers to economic revival.

GDP Forecasts Downgraded
All major economic forecasters, including the World Bank and JP Morgan, have lowered their growth projections for China. The World Bank now expects China's GDP to grow by 4.3% in 2025, down from earlier estimates. This marks a stark contrast to the global economy, which is expected to see robust growth during the same period.

JP Morgan highlighted structural challenges, noting a decade-long decline in corporate profitability. "Earnings per share growth has lagged economic expansion, while return on equity has dropped from 15% to 11%," the bank reported.

International Pressures and the "Trump Effect"
Adding to the economic strain is the anticipated impact of Trump-era trade policies. The former U.S. president has pledged to impose tariffs of up to 60% on Chinese goods, a move analysts say could cut China’s economic growth by 0.7% even at a 20% tariff level.

“Beijing must take precautions by rolling out more measures to stabilize domestic demand,” urged Huang Yiping, a member of the People's Bank of China's Monetary Policy Committee. The apprehension among global investors is evident, with many positioning defensively against China-related assets.

Eastspring Investments portfolio manager Rong Ren Goh emphasized the market's sensitivity to potential tariffs, noting that trade restrictions remain an easily accessible policy tool for the U.S. administration.

Limited Room for Monetary Stimulus
China’s options for monetary intervention appear constrained. "We are in a typical liquidity trap," said Erik Lueth, global emerging markets economist at Legal & General Investment Management. “At this stage, additional monetary stimulus is unlikely to be effective.”

Conclusion
The combination of domestic economic challenges, a faltering stock market, and mounting international pressures paints a grim picture for China in 2025. Analysts caution that without significant reforms and robust measures to boost consumer confidence and domestic demand, the nation’s economic growth may continue to lag, leaving its recovery prospects uncertain.