China’s Economy: Real Estate Crisis, Trade Tensions & Business Confidence Decline

The Chinese economy is navigating a complex landscape marked by significant internal challenges and rising external pressures. A persistent downturn in the real estate sector has dampened consumer spending, creating a ripple effect across various industries. Simultaneously, China faces increasing scrutiny and pushback from major trading partners, particularly in Europe and the United States, concerned about an influx of Chinese exports.

Domestic Economic Headwinds

At the heart of China’s economic difficulties lies the prolonged crisis in its real estate market, which has severely impacted consumer confidence and expenditure. This internal strain is compounded by a unique paradox: the very forces boosting Chinese exports are simultaneously undermining the domestic business outlook. Government initiatives, including subsidies, have encouraged substantial investment in key sectors like electric vehicles, leading to a significant imbalance where factory capacity far exceeds internal demand. This overcapacity has ignited intense price wars within China, eroding corporate profits and compelling companies to aggressively seek opportunities in international markets.

Trade Tensions and European Concerns

The aggressive push of Chinese products into global markets, driven by domestic oversupply, has raised alarms in Europe. There is a palpable fear that an influx of competitively priced Chinese imports, particularly electric vehicles, could jeopardize local industries and the jobs they support. Last year, the European Union responded to these concerns by imposing tariffs on Chinese electric vehicles, citing allegations of unfair state subsidies that distort market competition.

Jens Eskelund, president of the European Union Chamber of Commerce in China, has highlighted a prevailing sentiment that the benefits derived from bilateral trade and investment are not being distributed equitably. While acknowledging China’s efforts to stimulate domestic consumer spending, Eskelund stressed the critical need for Beijing to ensure that supply growth does not outstrip demand, a balance crucial for sustainable economic health.

Business Confidence on the Decline

The latest Business Confidence Survey for 2025, conducted by the European Union Chamber of Commerce in China, paints a challenging picture. The survey, which gathered responses from approximately 500 member companies between mid-January and mid-February, indicates a noticeable deterioration across key economic metrics. Specifically, it reported increased downward pressure on profits over the past year, with business confidence yet to show signs of reaching its lowest point. As Eskelund remarked, navigating an environment of shrinking profit margins presents considerable difficulty for businesses operating in China today.