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VietnamChina, the world’s second-largest economy, is classified as an upper-middle-income nation by the World Bank. Since initiating market reforms and opening its economy in 1978, China has experienced remarkable economic expansion, with its gross domestic product (GDP) growing at an annual average rate of over 9% for several decades.
In recent years, however, China’s economic growth has decelerated due to structural challenges such as slowing productivity, diminishing returns on investment, a declining labour force, and the impacts of the Covid-19 pandemic.
In 2020, the pandemic triggered China’s lowest annual growth in 45 years, with GDP expanding by just 2.2%. By 2021, China’s economy rebounded sharply, achieving 8.1% GDP growth to reach $18 tn, up from $15.42 tn in 2020, a rate far surpassing the government’s 6% target.
China GDP Full Year Growth Rate (in %)
Growth slowed in 2022, with real GDP expanding by 3% amid renewed lockdowns and a softening global economy. Economic growth rebounded to 5.2% in 2023, driven by government stimulus and recovery in key sectors. However, as per the latest October 2024 International Monetary Fund (IMF) World Economic Outlook, China’s GDP growth is expected to slow further, with forecasts of 4.8% for 2024 and 4.5% for 2025.
China Unemployment Rate (in %)
Urban unemployment in China averaged 5.3% through the first three quarters of 2023, with a slight decrease in September, reaching 5%, which continued into October. In 2023, the labor market saw a record influx of new college graduates, totaling 11.58 million—an increase of 820,000 compared to the previous year, adding to the challenges of job creation amid slower growth.
Currency and Central Bank
China’s currency, the renminbi (RMB), means ‘people’s currency’. It is officially abbreviated as CNY (yuan) in international markets and is one of the most actively traded currencies globally. The currency has been central to China’s strategy of internationalizing its economy.
As of 2024, the RMB ranks as the fifth most-used currency in global payments and the third-largest component of the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket, according to the Swift Business Intelligence’s RMB Tracker.
China Inflation (in %)
The People’s Bank of China (PBoC), China’s central bank, manages the renminbi within a tightly controlled floating exchange rate system. In recent years, the PBoC has sought to stabilize the currency amid slowing growth and external pressures, such as capital outflows and trade tensions. The central bank has also increasingly leveraged tools like the reserve requirement ratio (RRR) and medium-term lending facilities to manage liquidity and credit conditions in response to domestic economic challenges.
In 2024, the PBoC maintained a relatively accommodative policy stance to support growth, although it has been cautious to avoid excessive liquidity that could destabilize financial markets.
Digital currency development has remained a top priority for the PBoC. Its digital currency electronic payment (DCEP) project, often referred to as the digital yuan or e-CNY, continues to expand through pilot programs across several cities, with an eventual goal of creating a digital alternative to cash and enhancing financial inclusion.
Industry and Trade
China’s industrial sector is a major driver of its economy, contributing about 37.5% of GDP as of 2023, according to Statista. Key industries include manufacturing, mining, and construction, with advanced manufacturing and high-tech sectors, such as electronics and electric vehicles, playing an increasingly important role.
China is the world’s largest manufacturer, producing nearly 30% of global manufacturing output. The country is also a significant player in green technology, with leading positions in solar energy, electric vehicle production, and battery manufacturing.
The services sector has expanded rapidly over the past two decades and now contributes about 53% of GDP, reflecting China’s transition towards a more consumption-driven economy. Key service industries include retail, finance, logistics, and e-commerce, with China’s e-commerce market being the largest globally by transaction volume.
However, the IMF recently noted that China is not exploiting the service sector enough. “Reallocating resources to services has helped boost productivity over the past two decades. And it can continue doing so in the years ahead if supportive reforms are implemented,” a staff report in August 2024 said.
“Expanding the service sector can also help put more people to work—especially young people, who are disproportionately employed in service sectors like technology and education. Moreover, since emissions are lower in services, expanding the sector would help China reach its climate goals more efficiently,” IMF added.
On the trade front, China is the world’s largest exporter and the second-largest importer. In 2023, China’s exports reached approximately $3.6 tn, driven by products like electronics, machinery, and consumer goods. Imports totaled around $2.7 tn, with major imports including semiconductors, crude oil, and integrated circuits to support its manufacturing and technology sectors. China’s top trading partners include the United States, the European Union, and ASEAN countries.
China Balance of Trade
However, China is facing headwinds due to shifting trade policies. Exports have slowed compared to previous years, largely due to weaker global demand and tensions with major trading partners, especially the United States. This might escalate further under the Trump 2.0 administration.
In response, China has sought to deepen trade relationships within Asia and has also accelerated its efforts under the Belt and Road Initiative, strengthening trade and investment ties with emerging economies.
Stock Exchanges and Capital Markets
China’s capital markets have grown significantly in recent years, with its main stock exchanges—the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE)—now ranking among the largest globally by market capitalization. As of 2024, the combined market cap of these exchanges exceeds $12 tn.
The Hong Kong Stock Exchange (HKEX) also plays a critical role as a gateway for foreign investment into China, especially through the Stock Connect programs that link the HKEX with mainland exchanges.
China’s efforts to liberalize its capital markets continue, with increased foreign participation and recent initiatives to attract high-tech and innovative companies to list domestically through the STAR Market on the SSE and ChiNext on the SZSE.
Bond Market
China’s bond market is the world’s second-largest, valued at approximately $21 tn in 2024. The market includes a broad array of instruments, from government and municipal bonds to corporate bonds issued by state-owned enterprises and private companies.
The People’s Bank of China and Ministry of Finance issue government and policy bank bonds, which are widely held by domestic investors and increasingly by international investors through programs such as Bond Connect.
Recent years have seen a rise in defaults, especially in the real estate and private enterprise sectors, prompting regulatory reforms aimed at improving transparency and risk assessment.
China’s bond market remains a critical part of its financial system, offering domestic and global investors access to yields amid evolving market conditions.
Real Estate Market
The real estate market has long been a cornerstone of China’s economy, contributing approximately 25% to 30% of GDP when factoring in related industries. However, the sector has experienced significant challenges in recent years, marked by slowing demand, regulatory tightening, and financial strain on major property developers.
In 2023, property sales and new construction declined, with housing prices under pressure in many cities as economic growth slowed and household confidence waned.
Since 2020, the Chinese government has implemented regulatory measures to curb excessive debt within the sector, including the “three red lines” policy that limits developers’ leverage ratios. These policies led to financial distress for several large developers, including Evergrande and Country Garden, raising concerns about potential spillover effects on the broader economy.
In 2024, the government began taking steps to stabilize the sector, easing some restrictions and introducing targeted support measures, such as lowering mortgage rates for first-time buyers and encouraging banks to offer more favorable financing terms. Despite these efforts, the recovery has been gradual, with the market still facing oversupply issues in smaller cities and an overall cautious buyer sentiment.
The rental market has seen some resilience, according to Knight Frank, with rising demand in urban areas as more individuals opt for renting amid affordability concerns and uncertain property price trends. The expansion of rental housing is also part of China’s long-term strategy to shift the sector toward sustainable growth.
China Housing Index (in %)
Editorial Note:
This article was written with the assistance of AI. A human editor reviewed and refined the text for accuracy and quality before publication.
Source of charts: tradingeconomics.com
