Xi’s Big Challenge Is Getting People to Spend, Spend, Spend
Mar 6, 2025
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In this engaging discussion, John Liu, Bloomberg's senior executive editor for Greater China, shares insights on China's economic challenges. He highlights the country's ambitious 5% growth target amidst a crippling property crisis and trade tensions with the U.S. Liu explores the troubling decline in consumer spending and the strategies aimed at revitalizing it, including enhancing tech innovation and job creation. The conversation sheds light on the complex dynamics of consumer reluctance, offering a compelling look at the future of China’s economy.
China's declining consumer spending, now less than 45% of GDP growth, reflects a deepening economic stagnation and uncertainty.
The government's ambitious 5% growth target faces significant challenges from external U.S. tariffs and the country's rising debt levels.
Deep dives
China's Ambitious GDP Growth Target
China's government has set a GDP growth target of around 5% for 2025, maintaining the same goal as the previous year. This figure may seem modest, but it reflects the severe economic challenges the country faces, such as a sluggish property market and weak domestic consumption. To reach this target, China plans to increase its budget deficit to approximately 4% of GDP, the highest in over three decades, signaling that the government will need to invest heavily to maintain its current growth levels. Such measures suggest a lack of optimism about the economy's ability to improve without significant financial support.
The Cycle of Decreased Consumer Spending
Consumer spending in China has declined, making up less than 45% of GDP growth last year, the lowest since 2006 even when excluding the pandemic year of 2020. This decreasing trend has resulted in a vicious cycle where reduced spending affects business revenues, leading companies to cut prices and further alleviate income for workers. Consequently, households feel uncertain about their financial futures, encouraging them to save rather than spend, perpetuating the economic stagnation. The government's challenge lies in reversing this cycle to stimulate greater consumer confidence and spending.
Challenges from Trade Relations and Local Debt
As China navigates its economic landscape, external pressures such as U.S. tariffs under President Trump pose a significant threat to its growth targets. Although officials in Beijing are attempting to assess the situation strategically, rising tariffs could undermine Chinese exports and dampen economic momentum. Additionally, local governments face heavy indebtedness stemming from past infrastructure projects, limiting their ability to invest in new initiatives and public services. The central government's strategy of transferring debt to maintain local financial stability indicates a precarious balance between growth initiatives and economic realities.
A crippling property crisis, mounting debt, weak consumer spending… and now a trade war. Despite the headwinds, China has set an ambitious economic growth goal of about 5% this year.
On today’s Big Take Asia podcast, host K. Oanh Ha speaks to Bloomberg’s John Liu about how Xi Jinping intends to meet the target, and how Trump’s tariff war might sabotage his plans.