China's Economic Miracle: Will It Continue (or) Fade Away?

China’s Economic Miracle: Will it continue or fade away? Well, it is not that easy to answer. Despite many may rule out completely of its miracle, some wonderment will not fade away so easily and China’s growth is one among that.

Is the Chinese economy facing a downturn? Will China’s Economic miracle continue or Fade away? In this article, we will have a look at China’s Economic Miracle and challenges for the Chinese economy in 2025 and will end with a conclusion that will try to answer these questions. Let us get started.

China’s Economic Problems/Woes

The Chinese economy was already facing serious difficulties even before the start of the most recent US-China trade war. With the onset of yet another round of that trade war, it is even more difficult for China, and doubtful that it will soon be able to overcome its economic problems.

For China’s Asian trading partners in particular as well as the global economy in general, a further slowdown in the Chinese economy might have dire consequences. After all, China’s economy is the second largest in the world (with a worth close to 20% of global GDP in nominal USD) and was the primary driver of global economic expansion until recently.  

At present, China is facing an ageing population, weak consumption and a flight of individual wealth with other factors combined put China on a dangerous path.

China’s population of those aged 60 and over is roughly around 330 million—a figure approximately the total population of the United States. According to the World Bank data – the Population ages 65 and above (% of total population) is 14% (as of 12.02.2025). The percentage of the population of old age is expected to increase to 40% by 2035.

Why is the Chinese economy in trouble?

With its “zero Covid” policies, China had a difficult time recovering from the Pandemic. The “zero Covid” policy lasted for three years, which put health and security over economic growth.

What surprised economists or policymakers is, that they expected that when those policies were eased almost two years ago, the pent-up demand was freed, but this did not take place. Rather, growth has remained weak, and most of the indicators were treading in the wrong direction.

Even according to official numbers, China’s economic growth has declined from the level of 7% to 8% to just 5% during last year.

Source:  The World Bank

According to official data issued by the National Bureau of Statistics on 9^th February 2025 (Sunday), China’s consumer price index increased by 0.5% in January when compared to the same period the previous year.

The CPI grew at the fastest rate since August, an acceleration from December, when it increased by just 0.1% year over year. Core CPI (excluding food and energy prices) increased to 0.6% compared to the same period the previous year.

A measure of factory gate inflation, producer prices declined by 2.3% for the 28^th straight month.

China as it fights to escape a deflationary spiral worsened by and contributes to the country’s other economic woes; this inflation has come as a welcome relief.

Even youth unemployment has increased to a socially alarming level of 18.8%, despite a dubious change to the methodology used to calculate it.

There is also a pushback against China’s successful manufacturing boom. The dramatic rise in Chinese exports in recent months has heightened economic tensions between China and the global economies.

The European Union and the United States are concerned that China is supporting these industries through unfair trade practices, like providing large state subsidies, which could harm other country’s industries and jobs by flooding Chinese goods into the global market, including steel, solar panels, and electric cars.

China’s Economic Miracle: Will it continue or fade away?

According to World Bank “Since China began to open up and reform its economy in 1978, GDP growth has averaged over 9 percent a year, and almost 800 million people have lifted themselves out of poverty. There have also been significant improvements in access to health, education, and other services over the same period.”

Investment and export-oriented manufacturing have been the main drivers of China’s rapid growth. However, this has now reached its limits and resulted in economic, social, and environmental imbalances.

To lessen these disparities/imbalances, China must replace high-value services with manufacturing, investment with consumption, and carbon intensity must shift from high to low.

Among the challenges confronting China, are a growing elderly population, competition from the U.S., EU, and South Korea in trade and technology, decelerating growth, and changing global supply chain dynamics.

Furthermore, China’s recent economic slowdown is also attributable to other structural factors like reduced investment returns and weak productivity growth.

To maintain or to continue the Economic growth miracle China need to find new growth engines while tackling the environmental and social effects of China’s past economic trajectory is the biggest challenge that needs attention for the future.

Challenges for China’s Economy in 2025

The following are some important factors to keep an eye on for China’s economy in 2025:

1.  Tariff Hike and Impact on China’s Economy:

Though the U.S. has imposed a Tariff on China’s goods, the impact of this will not be apparent until next year (i.e. in 2026). In retaliation to the U.S. tariff hike, China also imposed a Tariff on U.S. goods. How the future unfolds on this tariff war lies in both the political and economic ties of both countries. The effects, if any, will probably be apparent during the fourth quarter of 2025. 

2. Policy Support to Exporters:

To tackle the U.S. tariff hikes China may extend or expand its policy support to the exporters. By doing so, China’s exports will still drive its GDP growth in 2025. As China is well known for giving subsidies for its exports; therefore, it will be not a surprise if it extends the policy support to tackle external shock. 

3. Need to Boost Consumer Sentiment/ Domestic Demand

It is expected that China will take policy measures to boost its domestic demand. There are measures taken to improve consumption capacity, support to increase residents’ income, reasonable wage growth, and broaden channels for property income.

China Daily stated, “According to the report, the country plans to further boost consumption among urban residents. Data show that the median nominal per capita disposable income of urban residents grew 4.65 percent on a five-year compound average basis from 2020 to 2024.”

A meeting in July 2024 delivered a signal that China’s economic policy priorities have changed to aiding people’s livelihoods and encouraging consumption, said China Daily.

It further stated, “Recently, the government has pre-delivered 81 billion yuan ($11.09 billion) of funds for consumer goods trade-in in 2025 to support local governments in the continuous implementation of the policy.”

4. Devaluation to Increase Exports

China may devalue its currency to keep its exports intact. However, there is a problem in doing so, it will support the exporters but the import of foreign products and raw materials will be expensive. This will squeeze consumers and industries dependent on imports.

5. Stimulus and fiscal Deficit:

There is a possibility, given the circumstances, that the Government may go for stimulus measures to revive growth. By pouring more money into the economy, there is always a danger of crushing the value of its currency (renminbi here). It may also lead to inflation and a high fiscal deficit. As China has an ageing population problem, the pension and support of residents’ income may be an additional burden already for the fiscal side.

There is a high possibility that China may opt for Stimulus, as there is enough fiscal space, thanks to the recent decline in long-term government bond yields, the path has to be walked carefully.

Despite, these challenges one cannot write off China so easily.

My Perception/ Conclusion

For any economy, the normal way to stabilise is to provide extensive policy-mix support. It is important to handle both fiscal and monetary policy with care and to complement each other’s goals. However, the present situation available to China is a little complicated.

The Chinese economy has problems of overcapacity in certain industries, a real-estate bubble and debt-driven growth. To solve these things China have to go for more structural reforms, which should be more inclusive.

China will not innovate its way out of this, because its economic model is mainly focused on manufacturing volume, and cheaply replicating existing technologies with no long-term research.  This may result in the devaluation of currency (i.e. renminbi) which will affect its value and lead to other economic problems like inflation, fiscal deficit etc…

China is heavily dependent on South Korea for semiconductors. According to Foreign Policy, “They buy South Korean semiconductors because they need them. This is not going to change anytime soon: Chinese chipmakers are at least two or three generations behind their South Korean, Taiwanese, and U.S. competitors. And due to U.S. sanctions that prevent the export of the most advanced chips to China or their manufacturing there, Chinese firms are unlikely to catch up with South Korean firms anytime soon.”

Therefore, it is left to China to find a new path of growth where it repairs the social, economic and environmental imbalances caused by its previous path of economic development.

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