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The latest Situation of China in Terms of Macro Forces


A lot of forecasts for 2025 emphasized the challenges and risks for the whole world. At the beginning of this year, according to the BOF Fashion Report, there will be a slowdown in the future, as expected. The report highlighted the main reasons for that

High inflation triggered the customer's price sensitivity, and the accelerated climate crisis and unfortunate natural disasters worldwide, which also tremendously changed the supply chain system.


As a result of all these developments, regional differences and a negative environment will make 2025 another difficult year for the customers.

Unfortunately, since the start of the new year, the world economy, especially world trade, has faced mutual restrictions, trade wars, and tariffs.

Every region will react to these changes differently. But in this article, I would like to focus more on China, the different reasons for the slowdown of market growth, and some future prognoses, like demographic growth, etc., in China.

But if we would like to focus on the Situation for China, it would be wise to look at the general economic situation in the country.

In the 25/26 January issue of the Standard Weekend Issue, Alexander Hahn (China) made a perfect summary of the current situation of China and the Future of the Country. I would like to summarize his findings in short headlines and combine them with the fashion industry and the possible outcomes for the industry (Hahn, January 2025).


Problems with the Chinese Market and Need for Export:

Chinese President Xi Jinping’s target to stimulate the Inland consumption will be a hard dream to reach, according to Hahn (January 2025). The reason is the decrease of the GDP Growth rate each year (in the 3. Q is 4.6) shows a long trend.

GDP Growth Rate China (Red), US (Blue) India (Green)
GDP Growth Rate China (Red), US (Blue) India (Green)

Also, Statista shows the same numbers even as a forecast for 2029


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GDP Growth Rate and Forecasts for China


Reasons for the Fall of Growth:


The country was seen as a main contributor to world trade and faced several crises since 1921. Many theoreticians believe this syndrome is a Peak China, where the country reached its peak, like Japan in 1990, and started to fall again. The main reasons are as follows

-          Corono crisis:

The coronavirus crisis and the following zero-COVID policy had a huge effect on the Chinese economy. According to Gong (Gong et all 2024), a 3.9% loss has been calculated in GDP because of the implementation of the zero-COVID policy in 2022. The effects of this policy on health, unemployment, consumer spending, and labor demand were recognizable. China used, at the beginning of the outbreak, with the help of big data, a nationwide risk response system. Local officials classified their communities according to their risks and implemented containment measures accordingly. In 2021, the result of this system was positive in terms of low mortality rates and a GDP Growth rate of 8.1 in 2021. However, the new omicron variant the following year resulted in shutdowns of critical manufacturing, exporting, and finance centers like Shanghai, Shenzhen. This also leads to the problems with the zero-COVID policy (Gong et al., 2024). In November 2022, the government removed most COVID-19 restrictions. After that, many analysts pointed out the recovery of the Chinese economy. The driving force was mainly domestic consumption for both goods and services. Although the consumer confidence index is still negative, which means the reluctance of consumers to spend (Cook; Matschke, 2023).


Rebound of Chinese domestic Consumption
Rebound of Chinese domestic Consumption

Source: Cook, Matschke: Data from Chinese Bureau of Statistics (CNBS) and China Federation of Logistics and Purchasing,  Dots denote pre-pandemic averages:  https://www.kansascityfed.org/research/economic-bulletin/chinas-post-covid-recovery-implications-and-risks/.


Growing Exports after the COVID pandemic


In terms of exports, the recovery was slower but still in a positive direction, especially because of the durable consumption in the US.


Growing Exports after the COVID pandemic.
Growing Exports after the COVID pandemic.

Source: Cook, Matschke: Data from Chinese Bureau of Statistics (CNBS) and China Federation of Logistics and Purchasing, Dots denote pre-pandemic averages:  https://www.kansascityfed.org/research/economic-bulletin/chinas-post-covid-recovery-implications-and-risks/.


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China Real GDP Growth


Although at the report a more positive future GDP Growth has been estimated for China today more realistic 3.8 percent growth has been expected between 2025 and 2030 to 2.8 percent by 2040 if there will be no major reforms like more consumption lifting productivity to help the transition to high quality and green growth (Muir, et all., 2024). Another important sector is also housing, which is the most important investment for Chinese consumers, and concerns about this market make consumers more reluctant in general (Cook, Matschke, 2024).


The real estate sector 

It contributes 1/3 of the GDP, reaching its end because of the strong regulation for the construction companies, followed by the real estate crash in 2021 dropped the prices at least by half, meaning at least 81 million empty houses, followed by the declining population growth in China. Also, the declining growth and aging population will mean another decline in the workforce and a huge burden for the Chinese Economy (Myers et al., 2020).  

     

Decline of the Birth Rate

Because of the one-child policy, which was designed in the 80s to control the growth rate of the population and accelerate the economic growth with restricted sources like capital, natural resources, and consumer goods. This strategy helped the economic growth, but has also had side effects. Because of the six-pocket syndrome (where two families had only one grandchild) and the help of economic growth, hundreds of millions of people have been lifted out of poverty, sent more than 100 million young men and women to college, and inspired both young and old to follow their economic goals. Like in many countries, these social and cultural changes decreased the fertility rate in China. The government allowed a second child in 2016 to all couples, but still, the decline will continue. Another problem is the ratio between working-age population and elderly declines and the ratio of women to men is also not equal there is a surplus of men estimated between 20-40 million (Wang, Gu, Cai, 2016)


China Population Prognosis
China Population Prognosis

Source: Myers Steven Lee, Wu, Jin, Fu Claire

 

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Source:


China`s Population will shrink by half by 2100
China`s Population will shrink by half by 2100

Scientific American

The fertility rate in China was 1.18, which was very low to keep it sustainable in the long run; the average rate is 2.1 per woman. Also, the immigration rate in China was very low compared to the exit from the country, which will also cause a problem in terms of the economy to stimulate the real estate sector, which will cause an empty housing situation ( Hahn, 2025)


China Fertility Rate 1950-2025
China Fertility Rate 1950-2025

Deflation

Another big problem for the country is deflation


GDP Deflator Figure for 2025
GDP Deflator Figure for 2025

Under these circumstances, the country`s strategy to focus on boosting household spending looks difficult because the need, as the analyst mentioned a strong change in the current growth model for China that was based on investments and manufacturing exports. This year growth target is again 5%. It will be very difficult to stand for Chinese exporters. On one hand, they will deal with increased tariffs from all over the world, where they should cut their prices to stay competitive

Europe as a Target Sales Market for China:

China had its market share for the electric cars (BYD company) by 9% in 2024 in Europe, with 24.000 vehicles. There is also a huge increase in online retailers like the Temu and Shein in the German market, where both companies sixfolded their market share in just 6 years. Sure, Europe will act with new customs regulations for the packages, not for 150 Euro but for 0 Euro now and earlier than expected (Hahn, January 2025).


In order to boost the consumption 300 billion yuan ($41.4 billion) subsidy was spent on electric vehicles, appliances, and other goods, but it did not reflect much in other sectors, especially related to fashion like apparel and shoes.

 


Sales in China in Different Categories
Sales in China in Different Categories

 Also, increasing the minimum monthly pension from 20 to 143 yuan and an extra 30 yuan per person for medical subsidies, as well as a 5 yuan increase for basic healthcare services, was aimed to give more confidence to households, but whether it will be enough is still under discussion (Reuters, 2025).

Fewer people also mean less growth. First of all, people consume less because of the Real estate crisis. The result will be the falling consumer price index. Also, other problems like falling stock exchange prices. Rising unemployment rates make people less motivated to spend money. To stimulate the growth, more targeted fiscal protection, more Incentives for consumption, and constructive reforms to prevent a long-lasting stagnation of the economy like Japan in the 90s (Hahn, January 2025, p.10).


Similarities with Japan

After the big economic boom in Japan in 90`s many experts believed that the economy would be the biggest competitor of the American Economy. But the same problems as decreasing population, too big real estate, and the stock exchange crisis in 2008 brought the country stagnation that lasted more than three decades. But even the long-term state bonds of the Japanese investment are more positive than the Chinese ones. (Hahn, January 2025; Sing, 2025).


10-year government bond yield in China
10-year government bond yield in China


China vs. Japan 30-year bond yield
China vs. Japan 30-year bond yield

 

Foreign Investments in China

After the coronavirus, the foreign direct investment decreased because of the problems with the supply chain. Now, many companies will change their supply chain system. As the numbers reflect the tendency of the change in FDI foreign direct investments since the coronavirus pandemic. It fell by 8.3 USD bn in Sep 2024, compared with a drop of 14.9 USD bn in the previous quarter. The agility forces many companies to search for more regional solutions. solutions like diversification of the delivery process of the semi-finished products, even trying to use more regional suppliers, keeping the portfolio broader, and trying to keep the transportation routes as short as possible. (Hahn 2025).                    


Foreign Direct Investments in China
Foreign Direct Investments in China

Higher US Customs Restrictions

Since February, the new US Government has implemented a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China. (Fact sheet 2025).  The US is not the only Western country that imposes tariffs against China EU also does. Although the undervalued yuan still gives an advantage to China and an issue that European producers should prove themselves on global markets against China, the weak Inland consumption growth and the tariffs problems with the US and EU could be problematic for many Chinese goods like cars (Hahn, January 2025, p.11). While China is one of the biggest car exporters, the surplus looks into the negative direction in 2023.


World's top car exporter
World's top car exporter

 

Germany is still the main car exporter.


World's top vehicle exporters
World's top vehicle exporters

However, the situation will be different for electric cars, where China is the leader in this segment. But the appetite for electric cars will be declining globally. For that, China should find new export markets. Germany, the US, and Japan are exporting 2023 66% to 89% percent their car production. This number is 12% for China because of the high tariffs in the US and EU. Therefore, there is an overproduction problem right now that is not easy to cover with local demand. Although in the future the urbanization ratio in China will be predicted to increase from 64 percent to 80 percent, that means 200 to 300 million people will move to the cities and will have a direct impact on the real economy. But this still won’t be enough. They need new markets with high consumption power like Europe (Hahn, January 2025).


Electric vehicle sales around the world
Electric vehicle sales around the world

As a closing figure, we have to look at the macroeconomic data from the IMF to see the big picture.  It has been discussed whether China has reached its peak already or will achieve sustainable growth for its economy with more urbanization and GDP growth per capita


Development of the GDP per Capita in China
Development of the GDP per Capita in China

Source:



2024 figures show a positive picture for Europe, where the GDP Growth is expected as 1.6 this year and compared US 2.2 and China 4.5.



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  But if we investigate further that the GDP per capita is still lower than US and EU/

 

US

China

EU

GDP in billion USD

30.34 thousand

19.53 thousand

19.99 thousand

GDP per Capita PPP in milillon Dollars

89.68

13.87

45.24.

GDP Growth (April 2025)

1,8

4

1,2


Meanwhile after several economic problems in USA like tariffs, trade wars, recession risk and rebounding inflation like 2.4% in March 2025 economists revisited their growth forecast downward (1,6%) for USA and this will affect the global trade and economy in many ways like FED interest rates etc. (Hahn, May 2025;  Miglani 2025).


As a final word, I would like to quote the expert Journalist for world affairs and author of the most famous globalization books, like ``The World is Flat, Thomas L. Friedman. In his latest article in the NY Times, he mentioned that the ``Made in China`` future growth plan, which was announced in 2015 by  Chinese Prime Minister  Li Keqiang. According to this plan, the main question was what the world's growth engine will look like in 21. century and the role of China as part of this engine. With that vision, they invest in Chinese companies to dominate locally and globally by investing in clean energy, batteries, electric vehicles, autonomous devices, robotics, new materials, production machines, quantum physics, and AI. (Friedman,2025). According to the latest Nature index, China is a leader in chemistry, physics, and environmental scientific research articles. However, Friedman still emphasized the imbalance of the Chinese economy and underlined that they were no longer able to subsidize exporting companies while pushing down their local demand for goods and services. But still the whole world should look at their plans if they support their local demand for goods and services, also investing in the USA and the EU with equal shared Alliances for n Chinese Factories and supply chains. The world economy will be affected differently. 




Resources:

Cook, T.R., Matschke J.: China`s Post-COVID-19 Recovery: Implications and Risks, May, Federal Reserve Bank of Kansas City, retrieved 5 May 2025, from ansascityfed.org/research/economic-bulletin/chinas-post-covid-recovery-implications-and-risks/>

CEIC: China Foreign Direct Investment, retrieved March 18, 2025, from < <https://www.ceicdata.com/en/indicator/china/foreign-direct-investment>

Gong D., Shang Z., Su Y., Yan A., Zhang Q.:`` Economic Impacts of China`s zero-COVID Policies``, China Economic Review, Volume 83, February 2024, 102101, retrieved 5 May 2025, from https://www.sciencedirect.com/science/article/abs/pii/S1043951X23001864

Hahn, Alexander, January 2025. `` Immo Krise und Schrumpfende Bevölkerung``:, retrieved 6 March 2025, <https://www.derstandard.at/story/3000000251728/immokrise-und-schrumpfende-bevoelkerung-steuert-china-auf-eine-lange-stagnation-zu>. Print version: Standard Weekend, Saturday-Sunday, January 2025, page 10-11.

Hahn, Alexander, May 2025. ``Ruft Trump ein Disaster wie in den 70ern hervor? , 10-11 May 2025, Standard _Wirtschaft, p. 17.

Kent, S., Butler-Young,  S., 2024. ``The Debrief, Luxury’s Italian Sweatshops Problem``, retrieved February < https://www.businessoffashion.com/podcasts/sustainability/the-debrief-luxurys-italian-sweatshops-problem/>

Macrotrends. ``China Fertility Rate``, retrieved March 6, 2025, <https://www.macrotrends.net/global-metrics/countries/chn/china/fertility-rate>.

Myers S. L., Wu J., Fu C., January 17, 2020. `` China’s Looming Crisis: A Shrinking Population '' retrieved March 2025 from <https://www.nytimes.com/interactive/2019/01/17/world/asia/china-population-crisis.html>

Reuters: `` More words than deeds from China on consumption keep deflation in play``

Reuters: ``China says 'doing its best' to push for tariff negotiations with EU``, retrieved, 7 March 2025, < https://www.reuters.com/world/china/china-says-doing-its-best-push-tariff-negotiations-with-eu-2025-02-20/>.

Rieffel, L., Wang, X., 14 May 2024. ``China’s Population Could Shrink to Half by 2100

Is China’s future population drop a crisis or an opportunity?`` Scientific American, retrieved from <  https://www.scientificamerican.com/article/chinas-population-could-shrink-to-half-by-2100/>.

Sing, C. K., 2025. ``Bond bulls put Beijing on the horns of a dilemma``,retrived March 18, 2025 from <https://www.reuters.com/breakingviews/bond-bulls-put-beijing-horns-dilemma-2025-01-27/>.

United Nations:

Wang, F.; Gu B.; Cai Y.: ``The end of China`s one-child policy``Brookings, retrived March 6 2025, from  < https://www.brookings.edu/articles/the-end-of-chinas-one-child-policy/#:~:text=The%20one%2Dchild%20policy%20was,natural%20resources%2C%20and%20consumer%20goods.>

World Bank Data:





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