The Chinese economy achieved a 5.0% growth in 2024, significantly exceeding expectations. In the third quarter of 2024, China's GDP growth had declined to 4.6%, while deflationary risks increased substantially. In last September, the top policymaking body called for "strengthening counter-cyclical adjustments", leading to the implementation of a new round of stimulus measures. These policies aimed at stabilizing the stock market, real estate sector, and overall economic growth, including an ambitious 12 trillion yuan debt swap program for local governments over the coming years. These concerted efforts successfully reversed the downward trend and contributed to economic stabilization in the fourth quarter of 2024. 

 

The global landscape in 2025 continues to be characterized by turbulence, presenting both opportunities and challenges for China's economic development.

 

The uncertainty surrounding Trump's trade policy towards China remains high.

Since assuming office, Trump's announcement of imposing 10% tariffs on Chinese imports has surpassed expectations, while he has also signaled his intention to visit China in the near future.

 

As I have previously analyzed in multiple articles, Trump's economic policies often exhibit inherent contradictions. Extreme measures, such as proposing a 60% tariff on Chinese goods, face substantial implementation challenges. For example, new US tariffs disrupt global supply chains, ultimately undermining Trump's stated policy objective of revitalizing American manufacturing. Additionally, Trump's dual policies of tariffs escalation and immigration restrictions demonstrate clear inflationary pressures, potentially leading to stagflationary effects (as examined in "The Five Contradictions of Trump's Economic Policies"). Notably, inflation has emerged as a decisive factor in the Democratic Party’s electoral setbacks and represents a critical policy challenge for the Trump administration to address.

 

To date, the Trump administration’s actions appear consistent with my earlier predictions. China and the US should capitalize on the opportunity presented by Trump's forthcoming visit to negotiate a comprehensive trade agreement and reduce the bilateral trade deficit through diplomatic channels. This would significantly contribute to stabilizing China's external economic environment.

 

However, the demands that the Trump administration may present remain unpredictable, and the trajectory of China and the US trade relations in 2025 continues to be characterized by substantial uncertainty.

 

What trajectory will China-Europe economic and trade relations follow in 2025?

Recent developments have presented significant challenges to Europe's economic growth and welfare state model, thus constraining the expansion of China-Europe economic and trade cooperation. Illustratively, despite the imposition of substantial tariffs between the US and China, China's export growth to the US reached 4.9% in dollar terms for 2024, outpacing the 3.7% growth rate recorded in exports to the European market.

 

Europe’s economic predicament stems from multiple structural factors. On one hand, the surge in energy prices following the Russia-Ukraine conflict has driven up inflation in Europe, forcing the European Central Bank to raise interest rates to curb overall demand. On the other hand, Europe's excessive focus on "political correctness" has also weakened its competitiveness. For example, the EU's strict data protection laws and "salary caps" have suppressed the development of the digital economy and financial innovation, diminishing its ability to attract top talent.

 

In addition, political turmoil in Europe has become increasingly evident. After 14 years in power, the UK Conservative Party has stepped down, the German Chancellor is facing an early election next year following a failed parliamentary confidence vote, and French President Macron suffered a significant defeat in the European Parliament elections. Given the time required to implement economic reforms, Europe’s economic outlook for 2025 remains bleak, and China-Europe trade is likely to continue its sluggish growth trajectory.

 

However, some actions by the Trump administration may create significant rifts in US-European relations, which could potentially lead to an unexpected improvement in China-Europe economic and trade relations. For example, Trump's claims of sovereignty over Greenland have already sparked a dispute between Denmark and the US. Since assuming office, Trump has also repeatedly threatened to impose tariffs on EU products. In this context, it is worth considering whether some China-Europe differences can be bridged. For instance, although the EU has decided to impose a five-year anti-subsidy duty on Chinese electric vehicles, both sides are still continuing negotiations on this issue. Additionally, the Biden administration has consistently coordinated with allies to implement a technological blockade against China, and if US-European relations worsen, China may have an opportunity to break through the blockade.

 

If China-Europe relations improve, it would not only directly benefit China's economic growth, but also help change the pessimistic outlook of some investors who believe that China will gradually decouple from Western countries, thereby boosting domestic capital market risk appetite.

 

Emerging Economies: The Next Chapter in Global Investment Dynamics

Amid the global trend of "de- sinicization", emerging markets such as Vietnam, India, and Mexico have emerged as significant beneficiaries of the restructuring of global industrial chains. However, the potential impact of Trump's anticipated new trade policies in 2025 on this trend remains uncertain.

 

Vietnam has notably enhanced its openness to foreign trade and economy in recent years, evidenced by its 16 free trade agreements with over 60 countries. Vietnam has implemented a series of measures for foreign investment, including corporate income tax reductions, preferential tax rates, land rental discounts, and loan and financing support. These initiatives have contributed to Vietnam's impressive export growth of 14.3% in 2024. India, leveraging its youthful labor force, has undertaken significant reforms to improve its investment climate. The simplification of foreign investment procedures, relaxation of industry access restrictions, and the launch of the "Make in India" initiative have collectively enhanced the country's attractiveness to foreign investors. According to India's Ministry of Commerce and Industry, foreign direct investment in India surged by 119% between 2014 and 2024 compared to the previous decade. Under the restructuring of global industrial chains, Mexico has become a major beneficiary of "nearshoring," and the implementation of the US-Mexico-Canada Agreement has enhanced Mexico's attractiveness to US investments. At the same time, as the US expands its anti-dumping measures to Southeast Asian countries, Mexico has evolved into a crucial "transit hub" for some companies' exports. China’s direct investment in Mexico grew by 76% in 2021 and again by 48% in 2022.

 

Recent data indicates a significant shift in China's export dynamics, with emerging markets accounting for a growing share of total exports. While the proportion of intermediate goods in China's export basket has shown a steady increase, which may partially reflect the trend of Chinese companies expanding overseas. In the short term, setting up factories in emerging markets may increase exports of Chinese equipment, raw materials, and components. However, in the long term, as these countries' industrial chains improve, the risk of China’s exports being replaced is also rising.

 

"Extraordinary policies" are expected to address the bottlenecks in economic recovery

The package of incremental policies implemented in September 2024 helped China’s economy reverse its downward trend in the fourth quarter of that year. However, whether the recovery can continue in 2025 depends on the specific arrangements of the extraordinary counter-cyclical adjustment policies outlined at the recent Central Economic Work Conference. If these policies can further address market concerns and eliminate the bottlenecks hindering economic recovery, the rebound of China’s economy in 2025 will be more secure.

 

The policy measures in 2025 are not weak. The author estimates that increasing the fiscal deficit ratio, issuing ultra-long-term special government bonds, and expanding the issuance and use of local government special bonds could generate more than 2 trillion yuan in incremental fiscal funds. At the same time, the monetary policy stance has shifted from "prudent" to "moderately accommodative," and further cuts in the reserve requirement ratio and interest ratesare still expected.

 

The market's concern lies in whether the details of policy implementation can remove the bottlenecks in economic recovery. Firstly, continuous policy adjustments have led to stabilization and recovery in real estate sales. Local governments purchasing land and completed housing from real estate developers using special bond funds is key to restoring normalcy in the real estate market. However, in first-tier cities, significant debate remains over the pricing and sourcing of these acquisitions. The market is concerned about whether relevant authorities will provide clear guidelines to enable local governments to act more effectively.

 

Furthermore, the introduction and implementation of major reforms in key areas, including promoting private sector growth, improving fiscal and tax systems, enhancing social security, and advancing technological innovation, would significantly boost long-term confidence in and expectations for the Chinese economy. This, in turn, would underpin the stabilization and improvement of China's economy in 2025.

 

SHEN Jianguang is the Chief Economist of JD.COM