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As Beijing’s most ambitious stimulus package since the pandemic begins to lose momentum, China faces mounting challenges in translating intervention into lasting expansion. What once sparked hopes of a robust rebound now reveals cracks in the economy’s foundation, highlighting the fragile balance between state-driven support and genuine market revival.
China has set an official GDP growth target of around 5% for 2025, a figure meant to signal confidence and stability to domestic and international observers. Yet analysts from leading banks predict a range of just 2.4% to 4.8%, with only the upper bound possible under extraordinarily favorable conditions and further stimulus.
In 2024, the discrepancy was stark: while Beijing reported growth close to 5%, independent estimates placed real GDP expansion at just 2.4% to 2.8%. This widening gap between official claims and market data has raised questions about the reliability of headline figures and the depth of underlying economic health.
In the first quarter of 2025, China rolled out its largest relief package since the height of the pandemic. Combining monetary easing, direct market support, and targeted fiscal adjustments, the program aimed to shore up factories, stimulate consumer spending, and stabilize financial markets.
Initially, the measures appeared effective: retail sales in May rose by 6.4% year-on-year—the fastest pace since 2023—driven largely by trade-in policies for appliances. Industrial output and equipment investment also outperformed expectations, offering a glimmer of hope that domestic demand might revive.
However, this temporary relief has begun to fade. By April, the official Manufacturing PMI fell to 48.2, marking the fourth straight month of contraction and reaching its lowest level in 16 months. Consumer confidence remains muted, and private sector sentiment shows limited improvement.
The property sector continues to act as a severe drag on growth. Rampant price drops and dwindling investment have left developers scrambling for liquidity and homebuyers cautious in the face of eroding equity. Without a sustainable housing turnaround, household wealth and consumer spending are unlikely to gain traction.
Core inflation in China remains subdued, and deflationary pressures are building as weak demand fails to absorb excess capacity. This environment complicates efforts to spur spending: lower price growth often encourages consumers to delay purchases in anticipation of further declines.
Historic lows in consumer sentiment reflect these dynamics. Despite promotional campaigns and subsidies, many families remain hesitant to increase discretionary outlays. With savings rates high but spending flat, the risk of a prolonged consumption slump looms large over policy planners.
China’s economic management often centers on “hitting the number,” with policymakers adjusting intervention to meet growth targets rather than allowing market forces to dictate outcomes. This approach can produce short‐term gains but risks accumulating debt and delaying necessary structural changes.
The government oscillates between consumption‐boosting measures and traditional infrastructure investment. Each shift carries implications: more debt, resource misallocation, and the persistent specter of diminishing returns. Without meaningful structural reforms, cyclical stimulus will struggle to deliver sustainable momentum.
In the face of a “double squeeze” from weak domestic demand and intensifying trade frictions, China’s path to lasting recovery demands a recalibration of priorities. Policymakers must confront the real estate crisis, liberalize sectors to foster innovation, and deepen social safety nets to rebuild consumer confidence.
Rebalancing away from overreliance on state intervention and investment‐led growth will require painful adjustments. Yet such steps are essential for unleashing private sector dynamism, diversifying export markets, and cultivating resilient domestic demand.
As the current stimulus effects wane, China stands at a crossroads. The choices made today—whether to rein in debt, empower households, and embrace market reforms—will shape not only the nation’s economic trajectory but also its global standing in an era of mounting geopolitical and trade uncertainties.
Ultimately, the fading glow of early 2025’s package is a reminder that genuine revival cannot rest on temporary fixes alone. Only by addressing deep‐seated structural challenges can China lay the groundwork for a stronger, more balanced, and sustainable future.
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