Diplomatic Tensions Escalating Between U.S. and China
Taking a Raw Look at China's Stunted Growth
Let's dive into the murky waters of China's economic woes in 2025. As the Q1 GDP growth clocked in at 5.4%, many rejoiced, taking it as a sign of a rosy future. But, like a mirage in the desert, the implications behind this figure paint a vastly different picture.
The Nasty Nitty-Gritty of Structural Woes
Underneath the surface, China grapples with a trio of structural issues.
- The Silent Shrinking: China's workforce is dwindling at a rapid pace, predicted to drop from 59% today to 36% by 2100[1]. This labor scarcity could lead to productivity slumps and supply chain disruptions.
- The Debt-Driven Rollercoaster: China's total debt-to-GDP soars above the US levels thanks to an excessive focus on manufacturing and technology sectors[5]. This powerful cocktail courts future sectoral bubbles, similar to Japan's post-1980s deleveraging.
- The Sputtering Engines of Growth: The post-real estate bubble deleveraging has hobbled household consumption and investment, the kindling that usually sparks growth[5]. In other words, even during a crisis, China's engines struggle to purr.
Entering the Treacherous Sea of External Risks
China's situation is further threatened by external factors.
- The Tariff Tidal Wave: The recent export growth (6.9% YoY in Q1)[4] might seem promising, but it could be merely a "pre-tariff rush" seeking to cash in before the next wave of US duties[4][3].
- The Geopolitical Storm: Over half of China's employers are on edge, anticipating geopolitical disruptions, far surpassing the global average[1].
The Grey Underside: The Black Market Phenomenon
Though not explicitly mentioned in the data, the black market plays a substantial role in China's economy. Systemic issues like debt-driven overcapacity[5] and weak domestic demand[5] might cause businesses to seek workarounds to skirt regulatory barriers and gain access to the US market. These schemes involve goods being imported as North American via Canada and Mexico, products being repackaged and shipped to the US through third countries, and undervaluing permitting entry under the $800 limit, reducing duties[4]. Weak control makes these schemes highly effective.
In summary, China’s growth model navigates a dual storm: external trade risks and structural imbalances, which demand careful rebalancing to ward off prolonged stagnation[1][4][5]. Intriguingly, systemic pressures might motivate the rise of the black market to evade regulatory burdens.
- The ongoing trade dispute between the US and China, marked by tariffs, could have significant countermeasures in the near future, causing instability in the global financial markets and potentially slowing down investments in business sectors.
- In the wake of the ongoing war-and-conflicts and policy-and-legislation shifts around the world, China's employers are particularly concerned about geopolitical instability, which could trigger major disruptions in their businesses.
- The average workforce in China is projected to drastically decline over the centuries, leading to potential productivity slumps and supply chain disruptions, demanding urgent attention from policymakers.
- The excessive debt accrued by China in its manufacturing and technology sectors, as well as the shrinking workforce, have led to a debt-driven rollercoaster that courts future sectoral bubbles, similar to Japan's post-1980s deleveraging.
- General news outlets have reported that China's household consumption and investment have been negatively affected by the post-real estate bubble deleveraging, impairing their engines of growth even during a crisis.
- Crime-and-justice concerns arise as businesses in China turn to the black market to evade regulatory burdens and gain access to the US market, with schemes involving third countries and undervaluing imports to reduce duties.
- Economists suggest that to foster stability and continued growth, China must address both its structural woes and external risks, carefully rebalancing its economy to avoid prolonged stagnation and mitigate the influence of the black market.
