The brutal awakening of the Chinese economy: Between the real estate crisis and the fall in consumption

China, which for decades has been the main engine of global growth, is now facing a significant slowdown in economic activity. Despite Beijing's numerous efforts to stimulate the economy, it continues to show signs of weakening. The latest economic data, released on Thursday, reflects this trend: economic growth is slowing, unemployment continues to rise, and the real estate sector, once a mainstay, is in decline.

The erosion of real estate assets: A significant brake on consumption

At the heart of China's economic slowdown is the property crisis. Caused by a speculative bubble and excessive borrowing by developers, this crisis has led to a loss of confidence among consumers and a fall in property prices. Faced with the depreciation of their property assets, households have reduced their spending, which has strongly impacted domestic demand.

This reduction in consumption has had a knock-on effect on the industrial sector, whose growth rate has slowed significantly. Although there are signs of recovery, industry has shown its slowest pace since March. The high unemployment rate, especially among young people, remains an obstacle to the revival of consumption.

Trade wars and geopolitical tensions

At the same time, trade tensions with the US and the European Union, characterised by high reciprocal tariffs and technological restrictions, have affected the manufacturing sector and Chinese exports.

The Covid-19 pandemic and the “zero Covid” policy have also disrupted global supply chains and weakened certain companies. According to the General Administration of Customs of China, the year 2023 was marked by a significant decline in Chinese textile and clothing exports, which fell by -8.3 percent and 7.8 percent respectively.

While the days of double-digit growth may be behind us, China continues to show positive dynamics. IMF projections indicate solid growth, albeit below previous levels. “China’s economic growth is expected to remain robust at +5 percent in 2024 and decelerate to 4.5 percent in 2025,” the IMF said in a statement earlier this year.

This article originally appeared on FashionUnited.FR. Translation via AI and edit by Rachel Douglass.