No Simple Solution to China’s Economic Slowdown

Whether looking back or looking forward, China faces two significant challenges that shaped its economy in 2025 and will continue to do so in 2026 — the US–China trade war and China’s ongoing property bust that began in 2021. China also faces a structural growth challenge as it tries to sustain high growth while being an upper-middle-income country. These challenges are likely to buffet China’s growth in 2026.

In its World Economic Outlook, the International Monetary Fund highlights challenges in China’s real estate sector as investment continues to contract. Together with infrastructure, real estate accounts for over 31 per cent of GDP. The woes of this sizeable sector have contributed to the slowing of the economy not only through investment, but also through consumption.

Property is the largest component of household wealth, accounting for 65 per cent of total assets. The slump in property prices has contributed to a negative wealth effect where Chinese households do not feel better off, dampening their confidence and consumption.

Due to weak domestic demand amid the property bust, China has relied more on trade, exporting more and importing less. Its 2025 trade surplus was a record, exceeding US$1 trillion. This occurred despite higher levels of tariffs imposed or threatened by the United States, which have added to costs and uncertainty.

The possible diversion of Chinese exports from the US market has led other countries, including those in Europe, to become concerned about a surge of cheap Chinese imports. Others have begun following the United States in imposing restrictions on Chinese trade, such as removing the tariff exemption for low-value or de minimis imports.

Source : No easy way out of China’s slowdown