When Donald Trump enters the White House for the second time on January 20, the scene in the Oval Office will be very different from what he encountered in 2017. A pandemic, war in Ukraine and a trade war with China have set off ripple effects in the United States. The global economy is still feeling it in the middle of the decade.
Beijing will be watching closely. Trump has pledged to impose tariffs of up to 60% on Chinese imports, in part to retaliate against the flow of fentanyl from China to the United States.
The specific content of Trump’s China policy has not yet been announced. Beijing has had time to prepare for higher tariffs, build trade relationships with smaller economies and shift supply chains to third countries, especially Russia. In 2024, the bilateral trade volume between China and Russia will reach a record high of 237 billion US dollars.
But none of this was enough to offset falling demand in the United States. China's economy is much more dependent on exports than in 2017 due to weak domestic demand and structural rebalancing of major industries.
China's economic growth is slower than when Trump first took office. In 2016, official GDP growth was 6.7%, which itself was considered a record slowdown. The government said the economy will grow by 5% in 2024, in line with official targets.
Long gone are the days of double-digit growth in China's economy - something to be expected as the country transitions to a more developed economy.
Economists have long argued that China's actual growth figures are much lower than official statistics. Analysts at research firm Rhodium estimated last year's actual growth figure to be as low as 2.4%. Economists polled by Reuters had an estimate closer to the official figure of 4.9%.
China's GDP growth is at least partly due to a massive export boom. Last year, China's trade surplus reached nearly US$1 trillion, a record high. The increase was fueled by a surge in exports in December, which some experts said was a sign that Chinese exporters were trying to ship before Trump took office.
Despite the trade war, China's trade surplus has increased in recent years. In 2018, that number was about one-third of what it is today. The United States remains an important market. In 2018, it was the top destination for Chinese exporters. In 2024, the United States became the second-largest market after Southeast Asia, reflecting China's growing ties with regional neighbors and the fact that many companies have moved supply chains out of China to continue trading with the United States.
This fact demonstrates the limitations of bilateral sanctions. "A lot of so-called trade with the Global South is essentially trade with the United States, structured to circumvent tariffs," said Brad Setser, a senior fellow at the Council on Foreign Relations. "Trade through Southeast Asia is just one example of how "It is very difficult to exclude a country from an integrated global economy."
Part of the reason China's economy is so reliant on exports is the government's crackdown on the real estate industry, which historically accounts for a quarter to a third of total GDP.
In August 2020, Beijing launched the "three red lines" policy to cool down the overheated real estate market. Chinese President Xi Jinping has long said that houses are for living in, not for speculation.
These regulations limit the amount of debt and liabilities that real estate developers can hold. But without easy access to financing and COVID-19-related lockdowns limiting construction activity, property developers have paused work on some 20 million pre-sale apartments. Thousands of homebuyers staged protests and repeatedly boycotted mortgages, sending ripple effects throughout the economy.
The government has since eased some restrictions to stem the industry's downward spiral. But policymakers have made clear that they intend to refocus China's economy on "new high-quality productivity" - that is, high-tech, innovative industries - rather than on the real economy. Real estate investment is still down 25% from its June 2021 peak.
In 2023, many observers expect a strong economic recovery as China emerges from a harsh zero-COVID-19 regime.
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But the expected recovery never came. Economic growth in 2023 is slightly above 5%, which is slightly higher than the official target but still lower than expected.
Experts worry about a crisis in consumer confidence. China's household expenditure accounts for less than 40% of GDP, which is far lower than the global average. The pandemic appears to have increased people's sense of uncertainty about the future. A 2024 People's Bank of China survey found that 62% of people want to increase savings rather than consume or invest, up from 44% in the same period in 2018.
The same survey found that 10% of people have a positive attitude towards China's employment situation in 2024, down from 16% in 2018.
“China’s economic slowdown is structural,” said Logan Wright, a partner at Rhodium LLP. "This reflects the end of the investment-led growth model and the inability at this stage to use the financial system or fiscal policy to effectively respond to the impact of slowing domestic demand."
Jin Keyu, an associate professor at the London School of Economics, told an event in London on Thursday that the "core dilemma" facing policymakers is "how to stimulate economic growth without reigniting a debt explosion."
One of the highlights of China's economy over the past decade has been the rapid development of green technology. Thanks to abundant natural resources and strong government support, clean energy industries such as electric vehicles, lithium batteries, and solar energy have flourished in recent years.
In 2017, China produced about 800,000 electric vehicles, according to the China Association of Automobile Manufacturers. In the first 11 months of last year, electric vehicle production reached 11.4 million units.
An analysis by the Energy and Clean Air Research Center found that investment in the "three new" industries of solar energy, batteries and electric vehicles accounted for 40% of GDP growth in 2023. A similar proportion is expected in 2024.
The Chinese government is well aware of the pressures on its economy. But it worries about bad feelings to no avail. Over the past year, all parties have made concerted efforts to combat the spread of negative remarks about the Chinese economy. Influencers and prominent commentators have been instructed not to "badmouth the economy." Veteran commentators are learning to play by the rules. Earlier this month, the Wall Street Journal reported that prominent economist Gao Shanwen was under investigation after making remarks at an event in Washington that questioned China's official growth data.