Asia faces economic headwind from Trump and a sluggish China
January 7, 2025
Shoppers pack the malls and the restaurants in downtown Taipei. The economy is bustling, and Taiwan's advanced semiconductor manufacturing capabilities have made it central to global supply chains.
The Taiwan Research Institute has forecast economic growth of over 3% in 2025. But like everywhere else in the region, Taipei residents are fearful of a turbulent new year.
What will 2025 bring for its rival China? What will Donald Trump's second term mean for countries dependent on trade with the US?
These are the big questions facing Asia. While the Russia-Ukraine conflict and tensions in the Middle East are important, they don't keep people in Asia awake at night in the same way.
The impact of China's sputtering growth
China's economy has struggled for momentum in 2024 largely due to a prolonged property market crisis, high local-government debt and sluggish consumption.
Data in November 2024 showed how a sustained recovery remains elusive. Industrial production rose only slightly, while retail sales growth was underwhelming.
In December, the Central Economic Work Conference, a high-level Communist Party meeting, grappled with ways to fix the economy. However, rather than address the fundamental problems, the leadership simply restated that China is on track to hit the official growth target of around 5%. There is a broad consensus that the government will set a similar goal for 2025.
"The problem is the Chinese government thinks that there is an appropriate rate of economic growth," George Magnus, a research associate at the University of Oxford's China Centre and former chief economist at UBS, said in an interview with DW.
"But 5% is probably faster than the Chinese economy can sustain without running into difficulties, whether it's to do with debt or excessive growth in exports," said Magnus. "The potential sustainable rate of growth in China in the next 10 years is probably more like 2.5% to 3%. The government should just get out of the way and just allow the economy to do what it does."
China's exports and buying at home
Exports are likely to remain weak yet crucial to the Chinese economy, despite the increased importance of the domestic market.
"In the November data you had industrial production, value-added production, growing even higher than in October, with retail sales growing at only half that of production," said Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at the French investment bank Natixis. "So, what are you going to do with all of this production? Who are you going to export to?"
The problems are probably becoming more acute because protectionism is on the rise and China is not changing its model, says Garcia-Herrero. "I think 2025 is time for change, and China needs to change very soon, or the year might end up quite badly."
Real estate woes across China
A major drag on the Chinese economy is the real estate market. Around 70% of family assets in China are held in property, and housing accounts for around 20% of the economy.
President Xi Jinping has vowed to halt the decline of the real estate market. But, so far, it's just been rhetoric rather than concrete steps.
There are tentative signs the property market could be bottoming out, but prices are still falling, and China's real estate sector may not turn around until the second half of 2025. The prices of new homes will fall another 5% in 2025, according to Fitch Ratings.
Is China's economic data reliable?
Simply assessing the state of the Chinese economy is increasingly becoming a problem.
Fu Peng, chief economist at the brokerage Northeast Securities, said China needed to get ready for a more pronounced slowdown and that the biggest problem facing China's economy was the redistribution of wealth. After Fu's views went viral, his WeChat social media account was blocked, and he was effectively removed from the public eye.
Gao Shanwen, chief economist at the state-owned SDIC Securities, told an investors' meeting in Shenzhen that he believed China's economic growth figures have been overstated. Consumption was flagging because of China's "dispirited youth" and its "disenchanted middle-aged" population. Gao's social media account was shuttered for "policy reasons."
Chinese data is increasingly inconsistent with what investors and companies on the ground are reporting. As the economy slows, data reliability in China will again become an issue, says Garcia-Herrero.
"Given the numbers for November, I would like to see whether China's leadership dares to announce the same target of 5% growth for this year. It's becoming increasingly clear that the economy is not growing at 5%," Garcia-Herrero said.
"China is becoming more dystopian on statistics and people are going to start not bothering about official data."
Unreliable data will make it harder to attract investments.
Trump will bring chaos and uncertainty
The biggest force to hit Asia in 2025 will likely be Trump's second term, which kicks off in late January. And the region will feel the full effects of this change in Washington quickly.
The president-elect has threatened 10% across-the-board tariffs for all imports and 60% on all Chinese imports. This would have a huge impact on Asian exports and a global knock-on effect.
Trump's "America First" policies could translate into efforts to cut US bilateral trade deficits, which is bad news for China, Vietnam, Japan, Taiwan, South Korea and India — countries with some of the biggest trade deficits with the US.
"I think that tariffs will be a part of Trump's economic policy when they come to fruition next year. But it's hard to know how he's going to apply them at what levels and in relation to what," said Magnus.
Asian economies that have robust domestic demand, such as Malaysia and the Philippines, are likely to be cushioned from some of the fallout.
Taiwan's output of high-end microchips, which the US needs for its own artificial intelligence expansion, should shield it from trade pressures, too. But anxiety is still in the air as Asia looks ahead.
Edited by: Tim Rooks