Since the Reform and Opening-Up initiated by Deng Xiaoping in 1978, the Chinese economy has undergone a dramatic transformation, shifting from a centralized model to a socialist market economy. This evolution has enabled China to become the world’s second-largest economic power. However, today, the Chinese economy faces new challenges, including the consequences of COVID-19 and economic decoupling from the United States.

Economic Growth Since 1978

The Reform and Opening-Up policy launched in 1978 marked a historic turning point. The reforms began in the agricultural sector with the introduction of the household responsibility system before extending to industry and trade. Special Economic Zones (SEZs), such as Shenzhen, played a key role in attracting foreign investment.

Thanks to these reforms, China’s GDP experienced an average annual growth of nearly 10% for several decades. In 2010, China surpassed Japan to become the world’s second-largest economy. Its growth was fueled by massive exports, foreign investments, and rapid urbanization.

Recent Performance and Current Challenges

In 2024, China’s GDP growth reached 5%, aligning with government targets. This result was supported by strong exports and targeted stimulus measures.

The manufacturing sector remains a pillar of the Chinese economy, with industrial production rising by 5.8% in 2024. At the same time, the services sector has significantly contributed to growth, reflecting the economy’s gradual diversification. China is investing heavily in artificial intelligence, renewable energy, and semiconductors to reduce its reliance on technology imports.

Regarding foreign trade, China has maintained its position as the world’s leading exporter, with trade surpluses approaching $1 trillion in 2024. China is also the European Union’s (EU) top trading partner in terms of imports, accounting for 21.3% of the total, and the third-largest for exports, following the United States and the United Kingdom.

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Contemporary Economic Challenges

The COVID-19 pandemic has exposed weaknesses in the Chinese economy, particularly its dependence on exports and supply chain disruptions. Successive lockdowns led to a decline in domestic consumption and a slowdown in private investment. Companies like Evergrande and Country Garden faced liquidity crises, endangering the real estate sector, which accounts for about 30% of China’s GDP.

Another major challenge is China’s aging population. The population declined for the third consecutive year in 2024, raising concerns about public health management, the future labor force, and long-term domestic demand.

Finally, China also faces decoupling from the United States. Economic and technological competition between the two powers has intensified over the past decade. Washington has imposed restrictions on the export of sensitive technologies to China, particularly advanced semiconductors. In response, China is seeking to develop technological self-sufficiency and boost domestic consumption while diversifying its trading partners, particularly through the Belt and Road Initiative.

Conclusion

Since 1978, China’s economy has made remarkable progress, but it must overcome significant challenges to sustain its dynamism. Adapting to a more complex international environment and developing a more sustainable economic model will be essential for its future.

Source:  World Bank, Chinese Ministry of Foreign Affairs, OECD