China’s economy, the world’s second-largest, is faltering, sending ripples of concern through global markets. Beijing’s reduced transparency, with sparse data revealing declining land sales, slowing GDP growth, and rising unemployment, underscores a weakening economic engine. Despite glimmers of recovery in the property sector, structural issues and escalating trade tensions, particularly with the United States, threaten global trade, investment, and stability. Here’s what this means for the world.
A Fading Economic Powerhouse
China’s economic rise, propelled by market reforms and global trade integration after joining the World Trade Organization in 2001, once delivered double-digit GDP growth. Now, estimates for 2025 hover at 4-5%, modest for a nation with significant potential. The property sector, a growth cornerstone, remains fragile, with investments down nearly 10% in early 2025. The 2023 collapse of real estate giant Evergrande dented consumer confidence, as one in four Chinese citizens holds property-linked investments. Yet, a $38m luxury-mansion auction in Shanghai on June 1, 2025, signals potential stabilization, offering cautious optimism amid broader challenges.
Policy Missteps and Structural Hurdles
China’s slowdown reflects both structural limits and policy errors. The 2021 “Common Prosperity” campaign disrupted markets, leaving the Shanghai Composite Index flat and firms like Alibaba trading at half their 2020 peaks. Industrial policies supporting sectors like electric vehicles and semiconductors have led to inefficiencies, such as abandoned car graveyards from reckless subsidies. The Zero COVID strategy and intensifying U.S. trade disputes have further clouded China’s business climate. On June 2, 2025, China’s Ministry of Commerce rejected U.S. claims of violating a Geneva trade deal, which temporarily scaled back tariffs. New U.S. export controls on jet engine and chip technologies, announced days earlier, add pressure. A fiscal deficit projected at 8.8% of GDP in 2025 and a debt-to-GDP ratio nearing 70% strain public finances further.
Global Markets at Risk
China’s economic struggles carry global consequences. As a manufacturing titan, its reduced import demand and oversupply of cheap goods depress global prices, squeezing producers worldwide. The global trade-to-GDP ratio, exceeding 60%, underscores China’s influence. The U.S.-China trade war, reignited by President Donald Trump’s June 2, 2025, accusation of China breaching trade agreements, threatens supply chains. With U.S. tariffs on Chinese goods at 51.1% and new tech export curbs, costs could rise for global consumers. Emerging markets, particularly in Southeast Asia, face risks from reliance on Chinese demand, while developed economies may see slower growth as trade contracts.
Outlook
China’s pivot to high-tech sectors like AI, electric vehicles, and renewable energy, driven by the “Made in China 2025” initiative, offers resilience. The property market’s tentative recovery, evidenced by high-profile auctions, could bolster confidence. However, high debt, demographic decline, and youth unemployment demand bold reforms—expanding consumption, reforming pensions, and liberalizing markets. Beijing’s authoritarian stance makes these unlikely, and its defiance against U.S. pressure, as stated by the Ministry of Commerce, suggests prolonged tensions. Global markets face uncertainty, requiring diversification and resilience to weather China’s economic turbulence.
