China Gives 5 Danger Signals: Prepare for the Worst Conditions
Expectations for China’s economic growth are no longer as optimistic as before. The Chinese government has set this year’s Gross Domestic Product (GDP) growth target at around 4.5% to 5%, marking the lowest level since 1991. This figure also signals the first downward revision in economic growth projections since 2023.
The target was announced during the annual Two Sessions, an important political forum in China that includes meetings of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), a few moments ago.
During the opening session of the National People’s Congress at the Great Hall of the People in Beijing in March 2026, Premier Li Qiang directly delivered the government’s work report containing that target.
The decline in the growth target reflects that China’s economy is indeed facing considerable pressure.
Recent indicators show that this slowdown is occurring across many sectors, from the property sector that has yet to recover, weak household consumption, deflationary pressures, a shrinking working-age population, to an increasingly challenging labour market.
Amid these conditions, exports remain a pillar, but they have not fully compensated for the weakness in domestic demand.
So, what is the latest picture of China’s economy? Here are five main indicators explaining why the pace of the country’s economy is projected to slow.
- Property Sector Still Under Pressure
For decades, housing has been one of China’s strongest engines of economic growth. The property sector has even been the primary repository of household wealth.
However, in recent years, this sector has entered a period of decline.
The tightening of rules on excessive developer debt in 2020, followed by pandemic lockdowns that suppressed sales and damaged household confidence, exposed the weaknesses of the property boom that had long been supported by debt.
After that, the sector became trapped in a vicious cycle of declining demand, tightening financing, and unfinished projects.
According to economists’ estimates, national house prices have fallen 30% from their 2021 peak. This situation erodes household wealth.
Prospective buyers are choosing to wait due to fears that prices could fall further and reluctance to take on long-term debt for an asset whose value may not recover.
Existing homeowners often cannot sell without incurring losses. At the same time, debt-laden developers are burdened with unsold apartments, stalled projects, and mounting obligations, leading many to default.
Since mid-2024, the Chinese government has sought to support this sector. Measures taken include cutting interest rates on existing home loans, easing property purchase restrictions in major cities, and lowering transaction taxes. However, these steps have only provided temporary stabilisation and have not been able to reverse the downward trend.
At its peak, the property sector and related industries contributed up to a quarter of gross domestic product, according to Bloomberg.
Now, its contribution has fallen to less than one-fifth, and it is likely to continue declining as the Chinese government shifts focus to high-tech manufacturing and green industries.
The problem is that these new sectors are more capital-intensive and create fewer jobs, making it difficult to replace property as a broad driver of economic growth.
- Citizens’ Spending Still Restrained
The slump in China’s property sector is spilling over into the broader economy. When house values fall, households feel poorer and become more cautious in spending money.
Weak demand has pressured prices of various goods and services since 2023. To attract increasingly frugal consumers, companies are cutting prices to outcompete rivals. This condition instead strengthens the deflationary cycle.
Prolonged deflation poses a major challenge. When consumers expect prices to fall further, they tend to delay purchases. As a result, corporate profit margins are squeezed, investment weakens, and companies find it harder to raise wages. Ultimately, demand weakens further and price declines become more entrenched.
The Chinese government describes excessive competition as “involution” and has made curbing destructive price wars a top priority in various sectors, from electric vehicles to food delivery services.
Chinese authorities continue to strive to restore pricing power so that companies can rebuild profit margins and raise wages, in the hope that consumption will recover. However, once deflation has set in, reversing it is no easy task.
- Shrinking Population, Long-Term Challenges Grow
China’s population of around 1.4 billion is now shrinking at a speed not seen in decades. This is a major change for a country long known for its large population.
The number of births fell to 7.93 million in 2025, the lowest level at least since 1949. This figure has declined every year since 2016, except for a slight increase in 2024, possibly influenced by the Year of the Dragon in the Chinese calendar, which is traditionally considered a good time to have children.
China’s working-age population, the 16-to-59 age group, is also continuously shrinking. In 2025, this group accounts for around 61% of the total population, down from more than 70% a decade earlier. With a rapidly ageing population, the ratio of working-age people to those over 65, currently around four to one, is estimated to halve in the next two decades.
A shrinking workforce and rapidly ageing population will impact