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The writer is a professor at Cornell University, Senior Fellow at Brookings and author of ‘The Future of Money”
The Chinese economy, which fought most of the last year, has stabilized for all phenomena. This is good news for the Chinese government and the global economy. But Beijing hurts again to fix his deeply rooted economic problems. This also has consequences for China and the world.
In autumn, the Chinese government hired fiscal and monetary policy incentives in autumn to support growth. The Trump tariffs seemed to ward off the economy. Remarkably, China could scratch together in the first half of 2025 5 percent growthwhat the government has set as a goal. Industrial production, broad loans and overall investments grow reasonably well for everything that the data is worth. Even better, Retail salesA representative for the consumption of the household has taken up pace.
The mood in China has shifted significantly in more detail. First, the Development of the Chinese KI company Deepseek In January 2025, an upswing in the national pride created. Second, Meeting of President Xi Jinping in February 2025 with leading entrepreneursIncluding Alibabas Jack Ma, a signal sent that high -flying private companies are back. Third, the US China trade talks in Geneva This ended with a break for US tariffs, although no meaningful concessions from China showed that Beijing had strong cards to play and that the knee would not bend to Trump.
The country’s stock exchange has strengthened the improvement of the mood and the capital outflows alleviated. The government could use this moment to gather the Chinese a plan to introduce reforms that would increase the chances of growth and per capita targets as well as the increase in self-confidence and the growth in new discontinuation. But it showed little interest in it.
The calm on the surface believes the reality that the economy remains fragile. The thrust for the growth of budget consumption of Buy incentives Maybe not, especially since unemployment is increasing. Deflationary pressure The risk is anchored and reflects the imbalance between production and consumption demand. Private business investments remain weak Due to the uncertainty about US tariffs and skepticism compared to Beijing’s change in the heart compared to the private sector.
China cannot rely on foreign markets to compensate for domestic weakness. The exports have expanded robustly In the past few months. However, the United States is no longer an inviting market, and the rest of the world, which is largely displaced with little growth, is not ready to continue to accept Chinese exports enthusiastically.
China’s economy remains with deep structural problems. The housing marketLong a main support of the economy, continues to deteriorate. Local governmentsAlready heavily indebted and under financial burden, now have the additional burden to fix problems with the apartment sector. The liberalization and reforms of the financial market, which are still essential for the detour of the massive domestic savings in productive investments, have recently developed.
The government seems to save space for the macroeconomic political maneuver in order to counteract disadvantageous domestic or external developments in the course of this year. This approach has earnings.
Nevertheless, it could use the financial space that it now has to tackle for long -term structural problems and at the same time strengthens short -term growth. Money that was spent on strengthening the net for social security, the restructuring of fiscal relationships in the provinces and the reduction in household and corporation tax burden would increase short-term demand and also contribute to long-term economic balancing. And the boost of trust from market liberalization would increase investments, employment and household income. A higher consumption would reduce the increasing dependence of the economy to exports.
The lengthy difficulties of the real estate sector underline the costs of the government’s approach to delay reforms and not to address problems directly. The costs not only multiply, but every problem infects other parts of the economy. For example, the decline in the budgetary assets associated with real estate has retained consumption growth, and many banks that have borrowed money to real estate developers are in trouble.
China’s government should not be released from what appears on the surface as a robust economy that has again successfully has dangerous waters. It is tempting to postpone the hard work of more extensive reforms and liberalization when the economy looks stable. However, the consequences could be a much greater struggle on the way to make these changes under less favorable circumstances.
