Since the end of the COVID-19 pandemic about two years ago, China's economy has been anything but dynamic, grappling with a series of problems. At home, Chinese consumers have been holding off on spending. A long-simmering real estate crisis has made many people poorer and deeply unsure about their future economic well-being. Meanwhile, across the Pacific, the U.S. economy braces for potential fallout from Donald Trump’s promises of higher tariffs on imports from China.
According to recent reports, China’s economy grew by 5% in 2024, driven largely by exports, which matched the Communist government’s growth target for the year, according to
DW. Volkmar Baur, a foreign exchange analyst at Germany's Commerzbank, commented, "It's definitely amusing... thinking: 'They'll never hit this target again.' And then, boom — there it is, exactly the growth rate they aimed for at the start of the year." Yet, most Chinese citizens feel little impact from this headline growth, as the real estate crisis remains unresolved, with households still struggling financially.
Interestingly, exports contributed 1.5 percentage points to the 5% growth, highlighting China's reliance on export-driven growth. Thomas Gitzel, chief economist at VP Bank, pointed out, "Domestic demand — what was consumed or invested within China — grew by only 3.5% over the year," marking the weakest domestic growth not counting the pandemic years. The country's almost $1 trillion trade surplus is also likely to exacerbate tensions with Trump, who has made it clear he wishes to reduce it.
HSBC Holdings Plc, conversely, remains optimistic about the future of Chinese stocks, particularly those listed on the Hong Kong stock exchange. The global banking giant has raised its forecast for the Hang Seng China Enterprises Index (HSCEI), predicting it will rise by 21% by year's end, reaching 8,800, up from their previous estimate of 8,610. Their rationale relies on expected boosts from favorable policy shifts and government efforts to stabilize the economy, indicating recovery prospects for mainland China.
Despite this, concerns persist about the overall economic recovery, with warnings of potential deflationary spirals similar to those faced by Japan in the 1990s. Investors are eagerly awaiting the National People's Congress scheduled for March, where the government will set growth targets and plans to bolster domestic consumption.
The comparison between Hong Kong and Shenzhen showcases the shifting dynamics within China's economy. Once seen as the powerhouse, Hong Kong's position is now challenged by Shenzhen's rapid development, particularly its advancements in technology.
Hong Kong, which ranked as the world’s fifth most competitive market in 2024 per IMD Business School, has seen its economic growth yield to Shenzhen’s burgeoning influence. Shenzhen accounts for 2.7% of China's GDP, and its rapid growth far outstrips Hong Kong's, which stood at HK$2.98 trillion in 2023. Both cities now recognize the importance of collaboration for sustainable growth moving forward.
Historically viewed as distinct, the two cities have increasingly acknowledged their interdependence. Shenzhen, now home to major tech companies, has established itself as the “Silicon Valley of China,” boasting innovations driven by its government’s tech-friendly policies. Hong Kong's role as the international financial center remains invaluable, as it forms the gateway for Shenzhen's firms aiming for global expansion.
Profoundly aware of these dynamics, experts state Hong Kong and Shenzhen's economic roles are complementary—the former offers capital and investments, whereas Shenzhen provides production and technological innovation. The synergy created by the Greater Bay Area (GBA), which includes both cities, will be key to leveraging their strengths.
Meanwhile, industrial trends are noteworthy as recent data indicates declining wages across many sectors, raising alarms about financial stability for many workers. Reports show many Chinese manufacturer’s income has fallen significantly, contributing to rising unemployment numbers and keeping consumer spending subdued.
China's export boom has triggered falling prices for goods on the global market, and wages appear to be on the decline, even within high-tech sectors. A survey indicates “entry-level salaries seem to have fallen by 8% year-over-year” among New Economy companies, which is counterintuitive to conventional economic thought, as growth typically leads to higher wages.
The overarching sentiment is one of concern as the new year begins, as challenges such as rising unemployment, unprofitable companies, and weak consumer spending threaten the stability of China's recovery. Indeed, the impact of Trump’s proposed tariff hikes and broader U.S.-China trade relations can't be overstated—it could severely impact China's trade growth and general market sentiment.
Economic analysts place great hopes on stimulus measures and economic reforms as the government seeks to rejuvenate spending and alleviate fears of recession. Anticipation is building for Beijing’s policy announcements—investors await clarity from the National People's Congress for signs of consumer-focused initiatives. The task for the government is clear: stimulate spending to balance trade surpluses before economic sentiment turns more pessimistic.