China’s Central Economic Work Conference to conclude
The annual Central Economic Work Conference (CEWC) to set China’s economic agenda, will conclude this weekend in Beijing.
This year’s conference is especially critical as China grapples with a rapidly deteriorating economy and anticipates heightened US-China tensions with the return of a Trump administration. China’s economic challenges are systemic, encompassing a ballooning debt crisis, a collapsing property market, rising unemployment, shrinking domestic demand, and declining exports exacerbated by geopolitical pressures. Combined with unfavorable demographic shifts, these issues signal a grim economic outlook that China must contend with in the years ahead.
Recent government measures highlight the scale of the crisis. Beijing raised the local government debt ceiling by 6 trillion yuan and approved an annual 800 billion yuan bailout for five years to manage soaring local debts. Unemployment is at a 40-year high, with youth unemployment peaking at 21.3% in mid-2023 before the government stopped publishing the data. The property market continues its decline, further straining economic stability. These factors have put China in a position where bold policy changes may be necessary to mitigate immediate economic risks.
In the short term, Beijing is expected to revise its GDP growth target below the long-standing 5% threshold. New fiscal, monetary, and industrial policies are likely, including further interest rate cuts and currency depreciation to counter potential U.S. tariffs under the Trump administration. However, these measures cannot resolve the structural problems that have accumulated over decades. Without political reform, meaningful economic recovery remains unlikely. In the medium to long term, China’s economic downturn appears extremely difficult to reverse, raising the risk of instability. While it is reasonable for China’s leadership to focus inward on resolving domestic challenges, desperation could drive them to adopt aggressive postures, including potential military conflicts in the Indo-Pacific or along its borders, if they perceive a narrowing window of opportunity to act before losing the capability to do so. The globalized nature of the economy means China’s decline will have widespread repercussions, potentially triggering domestic unrest and regional conflicts worldwide.
