China Sends Five Warning Signals to Indonesia: Prepare for Worst-Case Scenarios
China’s economic growth projections are no longer as buoyant as before. The Chinese government has set an economic growth target of 4.5% to 5% this year, marking the lowest level since 1991 and the first downward revision since 2023.
The target was announced during the annual Two Sessions, a major political forum in China comprising meetings of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC).
During the opening session of the National People’s Congress at the Great Hall of the People in Beijing on Thursday, 5 March 2026, Prime Minister Li Qiang delivered the government work report detailing the target.
The downward revision reflects the serious pressures facing the Chinese economy. Multiple recent indicators point to a slowdown across many sectors, from an unrecovered property sector to weak household consumption, deflationary pressures, declining working-age population, and an increasingly challenging labour market. Whilst exports remain a pillar of support, they have been insufficient to offset weak domestic demand.
Five key indicators explain why China’s economic growth is projected to decelerate:
- Property Sector Remains Under Pressure
For decades, housing served as one of China’s most powerful engines of economic growth, with the property sector becoming the primary repository of household wealth.
However, in recent years, this sector has entered a period of decline. Regulatory tightening on excessive developer debt in 2020, followed by pandemic lockdowns that suppressed sales and eroded household confidence, exposed the vulnerability of a property boom built on debt.
The sector became trapped in a vicious cycle of falling demand, tightening financing, and stalled projects. According to economists’ estimates, national home prices have fallen 30% from their 2021 peak, eroding household wealth.
Prospective buyers choose to wait, fearing prices could fall further, and are reluctant to take on long-term mortgages for assets of uncertain value. Existing homeowners often cannot sell without incurring losses. Meanwhile, heavily indebted developers are burdened with unsold apartments, stalled projects, and mounting obligations, with many ultimately defaulting.
Since mid-2024, the Chinese government has attempted to support the sector through measures including cutting mortgage interest rates on existing loans, relaxing home-purchase restrictions in major cities, and reducing transaction taxes. However, these steps have provided only temporary stabilisation and have not reversed the declining trend.
At its peak, the property sector and related industries contributed up to one-quarter of GDP. This has now fallen to less than one-fifth, and is likely to continue declining as the government shifts focus towards high-tech manufacturing and green industries.
The problem is that these new sectors are more capital-intensive and create fewer jobs, making it difficult for them to replace property as a broad-based driver of economic growth.
- Household Spending Remains Subdued
The weakness in China’s property sector has spread to the broader economy. As home values fall, households feel poorer and become more cautious in their spending.
Weak demand has suppressed prices of various goods and services since 2023. To attract increasingly frugal consumers, companies cut prices to outcompete rivals, reinforcing deflationary cycles.
Prolonged deflation is a major challenge. When consumers expect prices to fall further, they tend to defer purchases. Consequently, company profit margins contract, investment weakens, and firms struggle to raise wages. Ultimately, demand weakens further and price declines become more entrenched.
The Chinese government has called excessive competition “involution” and made efforts to curb destructive price wars a top priority across sectors ranging from electric vehicles to food-delivery services.
Chinese authorities continue to seek to restore pricing power so companies can rebuild profit margins and raise wages, with hopes that consumption will recover. However, once deflation has taken hold, reversing it is not straightforward.
- Population Decline and Mounting Long-Term Challenges
China’s population of approximately 1.4 billion is now shrinking at a pace unseen for decades, representing a major shift for a country long defined by its massive population.
The number of births fell to 7.93 million in 2025, the lowest level since at least 1949, declining annually since 2016 except for a slight uptick in 2024, likely influenced by the Year of the Dragon in the Chinese calendar, traditionally considered an auspicious time for childbearing.
China’s working-age population—those aged 16 to 59—is also continuously shrinking. In 2025, this group comprised approximately 61% of the total population, down from over 70% a decade earlier. With rapid population ageing, the ratio of working-age people to those aged 65 and above, currently about four to one, is projected to halve within the next two decades.
A shrinking workforce and rapidly ageing population will impact numerous areas, from labour supply and healthcare costs to pension obligations and consumer demand, presenting formidable long-term structural challenges for sustained economic growth.