China’s Deep Economic Crisis — And A Trade War It Can’t Win
Trump has forced China into a tariff war that it can neither afford nor win. The timing could not have been worse for Beijing, given its economic fragility.
China’s economy is unravelling — not through a sudden crash, but by slow, systemic suffocation. Beneath the façade of 5% growth lies mounting debt and entrenched deflation. The deeper danger isn't immediate collapse but a prolonged zombie-like stagnation that spreads risks across the global economy.
In late 2024, China announced that its economy grew by 5% for the year. At first glance, this seemed like good news. The world’s second-largest economy appeared stable and a working engine in uncertain times.
But behind the headlines, the reality is very different. Foreign investors are pulling out. Youth unemployment is rising fast. Big real estate companies are collapsing. And prices, both at factories and in shops, are steadily falling.
What’s going wrong?
A Growth Story That No Longer Adds Up
While the double-digit growth era is far gone, China’s leaders have kept their aim fixed at a 5% annual growth rate. A fair number for the size of the Chinese economy, 5% growth has become a political priority.
But the actual economic activity that people feel — in terms of wages, prices, and business earnings — tells a different story.
What is further interesting to note is that in 2024, China’s nominal GDP grew just 4.2%, as against the real GDP growth of 5%. Typically, nominal GDP grows faster than real GDP because it includes inflation.
Here, a lower nominal GDP suggests that prices are falling across the board, signalling what is known as deflation — something that economists fear much more than inflation, for it represents an utterly stagnating economy.
Further to this, independent groups like the Rhodium Group estimate that China’s real growth has likely been between 2.4% and 2.8%, far lower than the official number. And that is with significant government support behind the scenes.
In short, the headline number may look okay, but the economy underneath is slowing down and is deeply stressed.
