The time has come once again to change hands: the majestic dragon blowing its final fiery breath has handed over the reins to the slithering snake. What does the Year of the Snake augur for China’s economy? As the serpentine guardian prepares to shed its old skin, 2025 ushers in a year of renewal and regeneration.
At this year’s World Economic Forum Annual Meeting in Davos, Switzerland, China made its intention to transform itself loud and clear. The global economic powerhouse is diligently working away, steering several transitions simultaneously. It is shifting from basic to high-tech production, from conventional to innovative growth engines, and from carbon-intensive to sustainable development.
2024 in review
Last year saw China stepping up its efforts in healing its wounds. While the scars were visible, so were the signs of slow convalescence. During 2024, China’s GDP surged to RMB 134.91 trillion, trailing just behind the United States. This represents an annual growth rate of 5 per cent, dovetailing with Beijing’s official target and surpassing pundits’ forecast of 4.9 per cent. It was only marginally lower than the 5.2 per cent recorded in 2023 – a year marked by an uphill trajectory following a challenging three-year stretch of pandemic restrictions.
Notably, in the fourth quarter of 2024, the economy experienced a growth rate of 5.4 per cent, the most rapid expansion since the beginning of 2023. Bolstered by robust sales figures in the automotive industry, the increase recorded in the last quarter of 2024, if sustained over an entire year, would equate to an annual growth rate of 6.6 per cent.
Insights gleaned from sectoral performance indicators point to the centrality of the manufacturing and service industries in shoring up the Chinese economy. The country’s large-scale manufacturing sector, comprised of enterprises generating over RMB 20 million in annual revenue, recorded a year-on-year expansion of 6.1 per cent. In particular, there was a pronounced rise in output in the fields of industrial robots, integrated circuits, and new energy vehicles.
2025 GDP forecast
Key provinces and cities in China have announced bold GDP targets for this year, underscoring the government’s commitment to an overall national growth rate of at least 5 per cent.
Economic heavyweights, such as Beijing, Guangdong, Tianjin, and Zhejiang, aim for approximately 5-per-cent GDP growth. As major hubs lauded for their manufacturing prowess, innovation, and service sectors, these areas are actively pursuing sustainability. On the other hand, Shanghai’s target of around 5 per cent reflects an emphasis on strengthening current capabilities rather than seeking expansion, placing greater importance on sustainable growth over quick results. Leading the field with its ambitious target of over 6 per cent, Hainan, a free trade port and a testing ground for reform initiatives, is focusing on enhancing consumer spending as well as beefing up the tourism and service industries.
On another promising note, the International Monetary Fund (“IMF”) has adjusted its growth outlook for China in 2025 from 4.5 per cent to 4.6 per cent, thanks to a clutch of upcoming stimulus initiatives. As the IMF observes, the upward revision takes into consideration the carryover from the previous year, with the fiscal initiatives announced providing a counterweight to the volatility brought about by shifts in trade policy and the downturn in the property sector. Reading the runes for next year, the IMF expects growth to stabilise at 4.5 per cent as trade policy uncertainty recedes into the background, while the increase in retirement age reduces the pace of labour supply contraction.
All eyes on domestic consumption
As in the preceding year, the focus is on reviving consumer demand and transitioning to a consumption-led growth model. Amidst the recent major shifts in the global arena with growing trade protectionism, it has been established that a thriving domestic market underpins a sustainable and consistent economic upturn over time. There are opportunities aplenty to be gained by harnessing China’s vast population alongside its rising middle class, which is projected to grow by 80 million by 2030.
Almost half of China’s consumption is generated by lower-tier cities, such as Dongguan, Guilin, Wenzhou, and Zhuhai, which boast a wealth of potential that has yet to be realised. These fast-emerging markets are experiencing swift expansion particularly in the consumption of services, along with a growing inclination towards premium purchases. Additionally, online retail and e-commerce have enabled nascent brands to gain a foothold in these regions.
As yearly expenditures on services per person continue to climb, consumer behavioural patterns are shifting from prioritising functional and luxury items to valuing personal satisfaction and purchases of emotional significance. In 2025, the trend of emotional value-led consumption promoting self-fulfilment, restorative practices, and immersive participation is likely to continue gaining traction, particularly among younger demographics. In addition, consumer attitudes have moved away from a strict cost-performance focus towards a more nuanced balance between quality and price.
Despite a tepid demand for apparel, footwear, and accessories in 2024, certain niche segments, such as innovative sportswear, have made significant inroads into Chinese consumers’ preferences. In 2025, a steady resurgence in consumer confidence, coupled with cutting-edge advancements in product development, is expected to bolster the growth of the activewear market.
Consumer trade-in scheme
At the start of the year, a statement was issued to expand the consumer “old-for-new” initiative, originally rolled out in 2024, to include more appliances in a bid to stimulate demand in the household sector. Specifically, dishwashing machines, microwave ovens, rice cookers, and water purifiers were added to the list of eligible appliances. In addition, devices, including mobile phones, tablets, smartwatches and bracelets priced below RMB 6,000, may qualify for a 15-per-cent subsidy.
According to the National Bureau of Statistics, the consumer trade-in scheme contributed to an increase in year-on-year retail sales growth, with October 2024 seeing a rise of 1.48 percentage points and November 2024 a rise of 1.76 percentage points. Following a six-month spell of decline, the Consumer Confidence Index experienced its first uptick last October. During 2024, more than 37 million consumers bought over 62 million qualifying appliances, generating sales to the tune of RMB 270 billion. The majority thereof came from purchases of products with the highest energy efficiency rates. In 2025, the total subsidies are expected to double to RMB 300 billion, reflecting the policy emphasis on spurring consumer spending.
Having held off earlier on lavish purchases in anticipation of more generous government incentives, shoppers flocked to stores amidst Lunar New Year festivities, despite no change in the subsidy amount. In Shanghai, there was a 90-per-cent leap in smartphone sales from 20 to 31 January, compared to the same period in 2024. Meanwhile, tablet sales skyrocketed by a staggering 200 per cent.
Pulling out all the stops on the policy front
With 2025 being the concluding year of China’s 14th Five-Year Plan (2021-2025), Beijing, at the Central Economic Work Conference held in December, highlighted the necessity for more effective macro policies to support the upward economic momentum. These policies will serve a dual purpose: achieving the goals set forth in the 14th Five-Year Plan, while laying the groundwork for the initiation of the 15th Five-Year Plan (2026-2030).
Fiscal policy will take an expansionary direction. Policy measures will include an increase in the fiscal deficit ratio, as well as the expanded issuance of special local government bonds and ultra-long treasury bonds. In addition, more investment capital will flow into key sectors, such as education, environmental protection, healthcare, infrastructure, and public welfare. These initiatives aim to improve the efficiency and effectiveness of fiscal spending, thereby supporting sustainable economic development. Tackling fiscal challenges through targeted measures can boost consumer confidence and mitigate deflationary effects over time.
On the monetary side, policy makers have signalled a shift from “prudent” towards a “moderately loose” stance for this year – a position not taken since 2009. This approach will entail significant counter-cyclical adjustments, reflecting a higher level of intervention than what was seen in 2024. It is anticipated that the reserve requirement ratio and interest rates will be further reduced. Moreover, liquidity tools, such as reverse repurchase agreements (“reverse repos”), will be added to China’s monetary policy toolkit. In a reverse repo, the central bank purchases securities from commercial banks under an agreement that stipulates their resale in the future.
Stabilising the property sector
The over-leveraged real estate sector – once the lynchpin of China’s economy – is continuing to be deleveraged. As roughly 70 per cent of consumer wealth is tied to real estate, tackling the sticky problems beleaguering the sector head-on remains key to securing consumer confidence.
Easing of monetary policy is naturally the first port of call. Last year’s final quarter saw mortgage rates for first-time buyers drop to an all-time low of 3.1 per cent, thanks to a succession of interest rate slashes by the People’s Bank of China. On a separate front, following the launch of a 300-billion-yuan rescue package in May 2024 aimed at helping local authorities stem the housing glut, over 30 cities across China were able to either cut or curb the excess inventory.
Policymakers are pushing ahead with urban renewal endeavours, including the redevelopment of shantytowns and renovation of derelict buildings. The aim is to right the imbalance between housing supply and demand. In addition, they are focusing on optimising the use of existing land as well as commercial properties, as they work to resculpt the real estate sector to pave the way for a more sustainable development model.
In the years ahead, China’s property market must brace itself for further challenges, driven primarily by structural factors with demographic shifts being a significant contributor. Projections indicate that the need for extra housing will wane as the pace of population growth and urbanisation slows. In other words, China must contend with a double whammy of plunging house sales and sluggish population growth.
Sectors of opportunity
Automotive
In 2024, China recorded the sale of 22.9 million passenger cars, marking a 5-per-cent increase compared to 2023. New energy vehicles accounted for approximately 11 million units, equating to a penetration rate of 47.9 per cent. 2025 is slated to be a defining year for China’s automotive industry. The sector is set to build on its previous wins and shift up a gear by hitting 89.6 million units sold worldwide, rising by 1.7 per cent year on year. At home, the momentum will be bolstered by a raft of government incentives and initiatives, including the extension of trade-in schemes.
Concurrently, the automotive industry is undergoing a strategic transition, pivoting from local to international. The aim is to wean off reliance on demand at home to pursue growth further afield in global markets. In 2024, Chinese automaker BYD produced 1.76 million electric vehicles, which is just shy of Tesla’s 1.79 million, not to mention its additional production of 2.49 million hybrid models. Within a span of mere four years, China has eclipsed Germany, Japan, South Korea, and the United States, emerging as the world’s top car exporter.
Green energy
With an ambitious pledge to peak carbon emissions before 2030 and achieve carbon neutrality by 2060, China is at the forefront of powering clean energy production and constructing a new-generation energy infrastructure. Notably, China earmarked over twice as much for its green transition than any other nation in 2023.
In particular, green hydrogen is primed for blistering growth. The combination of China’s vast supply of low-cost green electricity, well-developed industrial ecosystem, and sophisticated policy framework establishes the nation as a frontrunner in the global hydrogen economy. China’s hydrogen production capabilities are currently quantified at 120,000 tons, with an additional 1.76 million tons in development. Leading the field in electrolyser production, China accounts for 60 per cent of the total capacity worldwide.
Healthcare and life sciences
Healthcare expenditure in China is forecast to climb to RMB 205 trillion by 2030. According to the World Health Organization, approximately 28 per cent of China’s population will be aged over 60 – a trend attributed to increased life expectancy and a fall in birth rates. The mounting challenges in accessing and affording healthcare are prompting the exploration of novel and inventive approaches to healthcare provision. Health-tech – incorporating state-of-the-art and emerging technologies – is revolutionising healthcare by, for instance, enhancing diagnostics and providing better patient monitoring solutions, thereby improving treatment outcomes.
In September 2024, China promulgated new rules aimed at loosening restrictions on foreign investments, leading to a significant liberalisation of the healthcare and life sciences sector. The new regulations enable foreign enterprises to engage in research and development related to human stem cells, genetic testing, and treatment technologies in designated free trade zones in major cities, such as Beijing, Guangzhou, Hainan, and Shanghai. Further, hospitals under foreign ownership can now be established in nine cities and regions across the country. In November 2024, the National Health Commission, together with three other government bodies, released the Pilot Programme for Expanding the Opening-Up of Foreign-Owned Hospitals, delineating specific criteria for foreign investments.
Contending with headwinds
With the change in American leadership heralding a return to trade protectionism, China must once again bear the brunt of hefty tariffs on its goods. On 20 January 2025, it was announced that a blanket 10-per-cent tariff would be imposed on all Chinese imports. Additionally, a 25-per-cent tariff would be slapped on all steel and aluminium imports, according to an official statement released on 10 February 2025.
Despite the turbulent waters, China is well prepared to weather another trade storm, as it had done with finesse and resilience the first time round. During the first wave of trade tariffs back in 2018, global supply chains evolved and were reconfigured, while other economies, such as ASEAN, consolidated their linkages with China and the US to mitigate the risk of an economic decoupling between the two major players. The marked increase in China’s trade with economies beyond the US also helped lessen the blow.
By diversifying trade partnerships, bolstering supply chain networks, and making strategic policy adjustments, the world’s second largest economy will be well placed to counter external pressures in this second wave. Diversification efforts, particularly through boosting trade with ASEAN, Latin America, and the Middle East, are paying dividends. Between 2018 and 2023, export markets in these areas saw compound annual growth surge by more than 10 per cent.
Concluding remarks
Looking ahead into the depths of 2025, we expect domestic consumption and high tech-driven growth to remain a mainstay of economic expansion. There is no downplaying the fact that China’s economy is still being tested by the lingering effects of a housing market downturn, the legacy of an economy fuelled primarily by infrastructural investment, and various geopolitical challenges. In response to these different pressures, policymakers have reaffirmed their commitment to harnessing the whole gamut of measures from the fiscal and monetary tool chest. At the same time, China – a key trading partner for over 150 countries and regions – will continue moving full speed ahead with high-quality opening-up, providing even more market opportunities for businesses and investors from all corners of the world.
