China’s Economy Faces Severe Slowdown, Worse Than Predicted

Recent analyses indicate China’s economy is declining faster than anticipated, with GDP growth, real estate, and exports underperforming forecasts. As the world’s second-largest economy, this rapid downturn raises global concerns. This concise article examines the key factors driving the collapse, its scope, and implications, tailored for those tracking China’s economic trajectory.

The Downturn: Worse Than Expected

China’s GDP growth for Q2 2025 was 5.2%, beating estimates of 5.1% but down from Q1’s 5.4%. However, July data shows a sharper decline:

• Real Estate Crisis: New-home sales by top developers fell 24% year-over-year, the steepest drop in 10 months, with unsold inventory exceeding two years’ demand.
• Export Slump: U.S.-bound exports dropped 10.9% in 2025, worsened by 145% tariffs imposed by the U.S. in April.
• Deflation Risks: The GDP deflator fell 1.2%, signaling persistent price declines, the worst since the 2008 financial crisis.
• Consumer Weakness: Retail sales slowed to 4.8% growth in June from 6.4% in May, reflecting low consumer confidence.

UBS downgraded 2025 GDP forecasts to 3.4%, well below Beijing’s 5% target, citing trade tensions and domestic challenges.

Key Drivers

• Property Market Collapse: Real estate, 25–30% of GDP, faces a deepening crisis with a 27.6% drop in new commercial building sales since Q1 2023.
• Trade Wars: U.S. tariffs and potential new tariffs from other trade partners threaten a 10% export decline in dollar terms.
• Demographic Strain: An aging population and shrinking workforce, with deaths outnumbering births in 2023, reduce productivity.
• Debt Burden: Local government debt, estimated at $7–11 trillion, risks defaults, straining fiscal stability.

Implications

• Global Impact: A prolonged slowdown could disrupt supply chains and global trade, with deflationary pressures affecting other economies.
• Domestic Challenges: Rising youth unemployment and weak consumption may fuel social unrest if unaddressed.
• Policy Response: Beijing plans a 2% GDP stimulus and interest rate cuts, but effectiveness remains uncertain amid structural issues.

China’s economy is declining faster than forecasts, driven by a collapsing property sector, trade tensions, and demographic challenges. While stimulus may cushion the fall, deep reforms are needed to reverse the trend. The global ripple effects make this a critical issue to watch.