Donald Trump’s tariffs are not China’s only problem

China’s economy recovered in the final three months of last year, allowing the government to meet its 5% growth target in 2024, Beijing announced on Friday.

But it is one of the slowest growth rates in decades, as the world’s second-largest economy struggles to emerge from a prolonged housing crisis, high local government debt and youth unemployment.

The head of the country’s statistics office said China’s economic gains in 2024 were “hard-won,” after the government launched a series of stimulus measures late last year.

Beijing has rarely missed its growth targets in the past.

Experts had broadly predicted this growth rate. The World Bank said lower borrowing costs and increased exports would mean China could achieve annual growth of 4.9%.

Investors, however, are bracing: The threat of President-elect Donald Trump’s tariffs on $500 billion worth of Chinese goods looms large.

However, that’s not all that’s stopping China from achieving its growth targets next year.

Business and consumer confidence is low, and the Chinese yuan will continue to weaken as Beijing cuts interest rates in a bid to boost growth.

Here are three reasons why Xi has bigger challenges than Trump’s tariffs:

There is a growing chorus of warnings that China’s economy will slow in 2025. One major factor that fueled last year’s growth is now at risk: exports.

China has relied on manufacturing to help it out of the slowdown, so it has been exporting a record number of electric vehicles, 3D printers and industrial robots.

The United States, Canada and the European Union have accused China of making too many products and imposing tariffs on Chinese imports to protect domestic jobs and businesses.

Experts say Chinese exporters could now focus on other parts of the world. But those countries are likely to be in emerging markets, which don’t have the same levels of demand as North America and Europe.

This could affect Chinese companies hoping to expand, which in turn would affect energy and raw materials suppliers.

Xi wants to transform China from the world’s factory of cheap goods to a high-tech powerhouse by 2035, but it is unclear how manufacturing can remain such an important growth engine in the face of rising tariffs.

In China, household wealth is largely invested in the property market. Before the housing crisis, it accounted for almost a third of China’s economy and employed millions of people, from builders and developers to cement producers and interior designers.

Beijing has implemented a series of policies to stabilize the property market and financial markets watchdog the China Securities Regulatory Commission (CRVS) has said it will vigorously support the reforms.

But there are still too many empty homes and commercial properties, and that oversupply continues to force prices down.

The housing market slump is expected to bottom out this year, but Wall Street banking giant Goldman Sachs says the crisis will be a “multi-year drag” on China’s economic growth.

It has already hit spending hard: In the last three months of 2024, household consumption contributed just 29% to China’s economic activity, down from 59% before the pandemic.

That is one of the reasons Beijing has increased exports. It wants to help offset sluggish domestic spending on new cars, luxury goods and just about everything else.

The government has even introduced programs like consumer goods swapswhere people can exchange their washing machines, microwaves and rice cookers.

But experts question whether these types of measures alone are enough without addressing deeper issues of the economy.

They say people will need more money in their pockets before pre-Covid spending levels return.

“China needs to recover the animal spirit of the population and we are still far from that,” said Shuang Ding, chief economist for Greater China and North Asia at Standard Chartered Bank.

“If the private sector starts investing and innovating, that could increase incomes and job prospects, and people will have more confidence to consume.”

High public debt and unemployment have also affected savings and spending.

Official figures suggest the youth unemployment rate remains high compared to before the pandemic, and that wage increases have stagnated.

President Xi has promised to invest in cutting-edge industries that the government calls “new productive forces.”

So far, that has helped China become a leader in goods such as renewable energy products, such as solar panels and electric vehicle batteries.

Last year, China also overtook Japan as the world’s largest automobile exporter.

But the lackluster economic outlook, uncertainty over tariffs and other geopolitical uncertainties mean foreign companies’ appetite to invest in China is muted.

It’s not about foreign or domestic investment, but rather that companies don’t see a bright future, said Stephanie Leung of wealth management platform StashAway.

“They would like to see the arrival of a more diversified set of investors.”

For all these reasons, experts believe that measures to support the economy will only partially alleviate the impact of possible new US tariffs.

Beijing must take big, bold steps or accept that the economy is not going to grow as fast, Goldman Sachs chief China economist Hui Shan wrote in a recent report, adding: “We hope they choose the former.”

“China needs to stabilize property markets and create enough jobs to ensure social stability,” said Standard Chartered Bank’s Ding.

According to researcher China Dissent Monitor, There were more than 900 protests in China. between June and September 2024 led by workers and owners, 27% more than in the same period of the previous year.

These types of social tensions as a result of economic grievances and an erosion of wealth will be a concern for the Chinese Communist Party.

After all, explosive growth turned China into a global power, and the promise of greater prosperity has greatly helped its leaders keep a tight rein on dissent.