China's Economic Slowdown: Navigating Real Estate Recovery and Consumer Spending Challenges

China has set an ambitious GDP growth target of "around 5%" for 2025, maintaining the same pace as 2024 despite mounting economic headwinds. The government achieved exactly 5% growth in 2024, though economists debate whether this figure accurately reflects the economy's true health.

The first quarter of 2025 showed surprising resilience, with GDP growing 5.4% year-on-year, exceeding expectations of 5.1%. However, this momentum is largely attributed to consumer subsidies and a rush of export shipments ahead of anticipated U.S. tariffs, raising questions about sustainability.

Beijing has announced significant fiscal measures to support its growth ambitions, including raising the budget deficit target to 4% of GDP—the highest on record since 2010. The government plans to issue 1.3 trillion yuan ($178.9 billion) in ultra-long-term special treasury bonds, representing a 300 billion yuan increase from the previous year.

Real Estate Sector: A Prolonged Crisis

The Scale of the Problem

China's real estate sector, once accounting for up to 25% of the economy at its 2021 peak, has been in sharp decline since late 2020. The sector's contribution to GDP fell to approximately 19% in 2024, down from 24% in 2018, reflecting the magnitude of the downturn.

Housing starts have plummeted by more than 60% compared to pre-pandemic levels, while property investment declined by 10.6% in 2024—the steepest fall since record-keeping began in 1987. New home sales in major cities continue to struggle, dropping 11% year-on-year in recent months.

Recovery Challenges and Outlook

Despite government intervention measures, including the "whitelisting" of developers for preferential lending and various homebuyer incentives, the real estate recovery remains elusive. New home prices fell at their fastest pace in seven months during May 2025, extending a two-year stagnation period.

Goldman Sachs estimates that demand for new homes in Chinese urban areas will remain suppressed at under 5 million units annually in coming years—just one-fourth of the 20 million unit peak reached in 2017. The research firm attributes this decline to falling population growth and slowing urbanization rates.

The real estate crisis has been compounded by demographic shifts, with China's population expected to fall below 1.39 billion by 2035. This demographic headwind has contributed to the closure of nearly 36,000 kindergartens and 13,000 elementary schools between 2022 and 2024, reflecting the broader impact on housing demand.

Government Response Measures

Chinese authorities have implemented several stabilization efforts, including:

• Lowering down payment thresholds for first-time buyers
• Reducing mortgage interest rates
• Relaxing qualification criteria for first-time buyer status
• Allowing loan rollovers to the next generation
• Approving 2.23 trillion yuan in loans to "whitelisted" developers

However, analysts consider these measures insufficient given the crisis's magnitude, with the International Monetary Fund projecting that real estate investment could fall 30-60% below 2022 levels and rebound only gradually.

Consumer Spending: Confidence and Caution

Current Spending Patterns

Consumer confidence in China remains near historic lows, with the Consumer Confidence Index hovering around 87.5 points as of March 2025. This cautious sentiment reflects broader economic uncertainties and has significantly impacted spending patterns.

A record 64% of Chinese households indicated in late 2024 that they preferred saving money rather than spending or investing it, according to People's Bank of China surveys. While this figure moderated to 61.4% in the fourth quarter, it still represents a trend of excessive saving that has persisted since late 2023.

Factors Restraining Consumer Spending

Several key factors continue to dampen consumer enthusiasm:

Income Stagnation: Disposable income growth in China has halved since the pandemic, now averaging only 5% annually. Most sectors have failed to provide meaningful wage increases, with only mining, utilities, and information technology services seeing wage growth exceed GDP growth since 2020.

Job Market Anxiety: Thirty-six percent of survey respondents report experiencing "job anxiety," aligning with broader data showing 48% of urban residents view the job market as "challenging or uncertain."

Real Estate Wealth Effects: The depreciation of real estate assets—traditionally the largest household investment—has created negative wealth effects that continue to restrain consumption for those with pessimistic financial outlooks.

Consumption Trends and Adaptations

Despite overall weakness, certain consumption patterns have emerged:

• Trading Down: Consumers are increasingly choosing lower-priced products, with businesses responding through increased promotions and discounts
• Essential Spending: Food and beverage spending increased by 10% in 2024, while categories like clothing and cosmetics saw declines
• Health and Education Priority: When consumers do plan to increase spending, healthcare and education top the list
• Tourism Recovery: Domestic and outbound tourism showed strong double-digit growth, indicating selective spending in experience categories

Government Policy Response and 2025 Outlook

Shift Toward Consumption-Led Growth

For the first time, Beijing has elevated consumer spending to the top of its policy priorities for 2025, surpassing technology and industrial production. The term "consumption" appeared 31 times in Premier Li Qiang's government work report, up from 21 mentions in 2024.

This represents a significant shift from China's traditional approach of relying on infrastructure investment and manufacturing to drive growth. The government has announced a "special action plan" to vigorously boost consumption and stimulate domestic demand.

Specific Stimulus Measures

Key policy initiatives for 2025 include:

• Expansion of the trade-in subsidy program beyond electric vehicles to include more consumer goods
• 300 billion yuan in ultra-long special treasury bonds to support the equipment renewal program
• Enhanced social safety net investments in elderly care, childcare, and healthcare
• Monetary policy easing with planned interest rate cuts and reduced reserve requirements

Economic Projections and Risks

Economists remain divided on China's growth prospects for 2025. While the government maintains its 5% target, private forecasts range widely:

• Goldman Sachs projects 4.5% growth, assuming significant policy stimulus
• Some analysts predict growth could fall to 3.4-4.2% if trade tensions intensify
• The Rhodium Group estimates actual 2024 growth was only 2.4-2.8%, suggesting official figures may be overstated

International Implications and Trade Tensions

The economic slowdown occurs against the backdrop of escalating trade tensions with the United States. President Trump's administration has imposed additional tariffs on Chinese goods, with further increases threatened under his "reciprocal tariff" plan.

China's export-dependent economy faces significant headwinds, with exports contributing 70% of expected GDP growth in 2024. However, analysts expect this contribution to decline materially as U.S. tariffs take full effect, placing additional pressure on domestic demand to fill the growth gap.

Conclusion: A Challenging Transition

The real estate sector's recovery timeline remains uncertain, with most analysts not expecting meaningful improvement until 2026 at the earliest. Consumer spending, while showing signs of stabilization, faces continued headwinds from job market uncertainty and wealth effects from property depreciation.

Success in achieving the 5% growth target will likely depend on the government's willingness to implement more aggressive stimulus measures while managing the risks of increased debt and potential inflation. As China navigates these challenges, the global economy watches closely, given the significant spillover effects of Chinese economic performance on worldwide growth and trade patterns.