2025 FORECAST: CHINA / GEOPOLITICAL FUTURES

2025 Forecast: China

For Beijing, economic malaise can take on an existential urgency.

By: Geopolitical Futures

After the 2010s – a period of exceptional economic growth – China entered a major downturn caused by the collapse of the country’s crucial real estate sector, deteriorating local government finances, a dramatic outflow of foreign direct investment, declining domestic spending and high youth unemployment. 

These issues, which persist today, have taken a toll on the morale of Chinese society, creating a marked sense of dissatisfaction and uncertainty. 

It’s important for any country to keep its people happy, but it’s especially crucial for a country as large and populous as China, whose central governments have historically been vulnerable to uprisings from the poorer, restive interior provinces. 

Making sure these provinces get a share of the wealth enjoyed by the coastal regions has always been imperative, so economic downturns such as the one Beijing is managing today tend to take on an existential urgency.

Central to the government’s ability to rebound from economic decline is its ability to maintain order and stability during the recovery. 

Chinese leaders successfully navigated previous challenges in the 1980s (high inflation), the late 1990s (the Asian financial crisis) and 2008 (the global financial crisis). 

But this time is different: China’s problems originate not from the vagaries of the international economy but from Chinese policy itself. 

The solutions, then, will have to be homegrown, too, which explains why President Xi Jinping and his allies delayed them until September 2024: At a time of such economic precarity, it’s hard to justify short-term pain, even if it eventually leads to long-term success.

Eventually, they realized that sporadic, careful reforms would not save the economy, so starting in late 2024, they enacted more aggressive policies to stimulate growth. 

The success of those policies will be measured not just in economic performance but also in social stability – and they will be implemented at a time of historic deflation and as a potential trade war with the United States looms.

Meanwhile, China has sought to divert attention from its economic problems by performing shows of force. 

Over the past year, clashes in the South China Sea have increased, especially with fellow territorial claimants like the Philippines, as have the size and frequency of military exercises and activities, especially around Taiwan. 

Along with Russia, China has expanded its footprints in the Arctic while upping its naval activities in the Indian Ocean. 

The primary objective of all this activity, of course, is to make sure that China maintains access to all the maritime trade routes on which its export-oriented economy depends, but distracting the world (and its own people) from its economic malaise is an added benefit.

Despite these military efforts, China has spent the past year trying to maintain the status quo in its relationships with other major powers. 

It increased trade and military cooperation with Russia, for example, without overtly supporting Moscow’s war efforts in Ukraine. 

It showed a willingness to reach some kind of accommodation over a border dispute with India, even as it maintains a competitive posture with its regional rival. 

It approached countries that are often wary of Chinese overtures such as Vietnam, Indonesia and Malaysia with economic openness while it plays on their fears of hostility. 

Even with the U.S., Beijing spent much of 2024 engaging in dialogue on economic and security issues, though no formal agreement was ever reached.

Beijing enters 2025 with the understanding that the need for economic stimulus outweighs the risks of short-term financial instability. 

It also enters the year with the understanding that it cannot forsake its trade and investment relationships, no matter how much it needs to boost domestic demand. 

In other words, China’s main challenge is similar to its challenge for centuries – balancing between internal stability and external relationships while maintaining its reputation as a prosperous military power.

Forecast

More social unrest means stricter monitoring of society. 

Last year, the number of minor protests – referred to as “mass group incidents” in Chinese media – increased from the previous year, most of them owing to wage issues, factory relocations and closures, and grievances with local banks. 

Expect this trend to continue, and expect Beijing to more closely monitor its citizens, especially minorities, unemployed youth and those living in poorer conditions.

More crackdowns on corruption. 

In 2024, Xi’s anti-corruption campaign – a program meant as much to sow ideological purity and dismiss political threats as to weed out lawbreakers – intensified. 

Given China’s economic problems, it is almost certain that there are people who oppose Xi’s decisions. 

All signs point to the fact that the unusually intense crackdown on top officials is bound to continue.

U.S.-China trade tensions will escalate. 

U.S. President Donald Trump has pledged to impose harsh tariffs on China, and if he does, it will hurt the Chinese economy. 

But if trade relations sour too much, it would also harm the many U.S. companies operating in China and further expose the United States’ dependence on Chinese rare earths. 

For this reason, Washington and Beijing will make sure to avoid a full-on trade war and pursue cooperation in non-problematic fields and areas of common interest.

More military modernization, but no war. 

China’s efforts to build a “world-class army” will continue this year, so expect more military drills, sometimes with allies, that demonstrate new capabilities. 

It will continue to be assertive in the region, especially as its economic problems persist, but it is unlikely to risk a military conflict, given the issues in the People's Liberation Army and the precarity of its position more broadly.