While headlines tend to focus on the U.S.-China trade war, economists point to China’s ongoing economic imbalance.

“With the global economic situation getting worse, I think more countries may have disputes with China on the trade issue – EU, India, or even some Southeast Asian countries,” said Chen Gang, deputy director of the East Asian Institute at the National University of Singapore. “The trade imbalance is continuing and there’s no sign showing that this kind of trend is going to reverse, so I do think that China needs to consume more and also to import more.”

But China’s efforts to boost domestic consumption haven’t been successful, Gang told NPF International Trade Reporting fellows. China’s news-making September 2024 stimulus was too little, too late, with too much going to infrastructure and not enough to incomes, he said. The government is also giving mixed messages, adopting looser monetary policy in recognition of its need to boost consumer spending, while also seeing the Communist Party of China announce new austerity measures in March 2025.

“Don’t underestimate the scale and the impact of these austerity measures from the party … about 40 to 50 million people and their family members will be severely impacted by this austerity measure,” Gang said. “There will be a psychological and economic ripple effect in China. I think people all look at how the government officials behave. If they’re cutting off spending, cutting off dinners, gatherings, I think everyone else would like to follow.”

Last year, the number of restaurants that closed hit a record in “first-tier” cities, such as Beijing, Shanghai, Guangzhou, and Shenzhen. The luxury market has seen even bigger declines, with watches, for example, down 33%.

“Deflation also overshadows consumption,” Gang said. “That also has a huge impact upon the global economy as well.”

Asked by a reporter about the possibility of another Great Depression, Gang admitted that the ingredients were there: overproduction, overcapacity, and insufficient consumption.

“China has huge domestic debt problem as well these days, due to the downturn of property market and also the over-capacity of factories,” Chen Gang said.

But there’s hope. While economists describe China as having a “state capitalism” system, China says it uses a socialist market economy. Either way, Gang said continued fundamental shifts are necessary.

“This kind of economic structure has a tendency to focus on the supply side instead of the demand side, production over consumption. This problem has been there for many, many years. It’s not a new problem, but I do think that if China continues market reform, it can change this kind of structural problem to make its economic structure more balanced and to benefit its citizens more.”

This fellowship is part of an ongoing program of journalism training and awards for trade coverage sponsored by the Hinrich Foundation. The National Press Foundation is solely responsible for the content. All programs are on the record. Resources and transcripts are available to journalists worldwide.