As the old year bids farewell and the new year begins, Japanese think tanks are taking stock of China’s economic situation in 2024 and making trend predictions for China’s economic prospects in 2025. It is widely believed that China’s economy will continue to decline, with a GDP growth rate between 3% and 4.5% in 2025. Rumors circulating online suggest that the Chinese Communist Party will levy a “wealth tax” on overseas individuals, indicating that the CCP’s finances are in dire straits with no solution in sight.
On December 20, Daiwa Institute of Research released a report highlighting the key focus areas for China’s economy in 2025, including “real estate downturn” and “Trump 2.0 imposing additional tariffs on China.”
The report predicts a 4.5% GDP growth rate for China in 2025, further down from the estimated 4.9% in 2024. Optimistically, China’s GDP growth rate in 2025 is expected to remain around 5%; pessimistically, it could drop to the 3% range. The pessimistic prediction is mainly based on the potential hefty tariffs that U.S. President-elect Trump (Trump) may impose on Chinese goods.
The report states that the probability of a 4.5% GDP growth rate in China in 2025 is 60%, with optimistic (around 5%) and pessimistic (3%) scenarios each having probabilities of around 20%.
On December 23, the Japan Institute for International Studies released a “China Economic Outlook” report for January 2025, summarizing the current economic situation in China and estimating future economic conditions. The report focuses on five key aspects:
1. Weak domestic demand in the Chinese economy, with stagnant economic recovery.
2. Future exports will decrease due to the end of the rush effect and higher U.S. tariffs, with reduced imports due to insufficient domestic demand and continued decline in foreign investment in China.
3. Overall weak personal consumption, decreased retail sales, dim hopes for the automotive sales market recovery, and subdued housing sales.
4. Slowing investment growth, sluggish growth in infrastructure investment, and a narrowing decline in real estate prices.
5. Deep-rooted economic deflation, sluggish consumer price growth, a declining exchange rate of the yuan against the U.S. dollar, and stable stock market conditions.
On December 25, Itochu Institute of Research released a study predicting that China’s economic policy in 2025 will focus on strengthening economic support to prevent a slowdown. After comprehensive analysis of various economic factors, the report forecasts a continued decline in the yuan’s exchange rate against the U.S. dollar and a 4.2% GDP growth rate for China in 2025.
Additionally, research reports from the Japan Foundation for Advanced Studies suggest that China’s GDP growth rate in 2024 was 4.8% and will decrease to 4.1% in 2025 and 3.5% in 2026. A report from the Japan External Trade Organization (JETRO) also estimates that China’s GDP growth rate in 2024 was 4.9% and will drop to 4.5% in 2025.
The credibility of China’s GDP data has long been questioned. In October 2022, a new report from the University of Chicago that used nighttime satellite imagery as an economic activity indicator indicated that the dictatorship had exaggerated GDP growth by as much as 35% in the past 20 years, suggesting that the CCP may have inflated growth figures by nearly one-third.
Data released by China’s National Bureau of Statistics on December 27, 2024, showed that profits of China’s industrial enterprises above designated size fell by 4.7% year-on-year from January to November 2024, dropping from 10.2% at the beginning of the year to -4.7% in November. During the same period, operating income also exhibited an overall downward trend, decreasing from 4.5% at the beginning of the year to 1.8%.
From January to November, investment in China’s real estate development declined by 10.4% year-on-year, showing a continuous downward trend since the beginning of the year. Total retail sales of consumer goods also displayed an overall decline, dropping from 10.1% at the beginning of the year to 3.0% in November.
From January to November, national public budget revenue in China was approximately 19.9 trillion yuan, down by 0.6% year-on-year. Among them, national tax revenue was about 16.2 trillion yuan, decreasing by 3.9% year-on-year. During the same period, total national general public budget expenditures were 24.5 trillion yuan, increasing by 2.8% year-on-year, resulting in a fiscal deficit of at least 4.6 trillion yuan.
Furthermore, from January to November, national government fund budget revenue was 4.2 trillion yuan, down by 18.4% year-on-year. Among them, local government fund budget revenue at the provincial level was 3.8 trillion yuan, down by 20.2% year-on-year; state-owned land use rights revenue was 3.3 trillion yuan, down by 22.4% year-on-year. During the same period, total national government fund budget expenditures amounted to 8.1 trillion yuan, nearly twice the revenue (4.2 trillion yuan).
Key tax revenue data released by the Treasury Department of the CCP’s Ministry of Finance on December 16, 2024, showed that from January to November 2024, 11 types of taxes including value-added tax, corporate income tax, individual income tax, import value-added tax, consumption tax, and customs duties experienced year-on-year declines ranging from 2.1% to 35.9%.
Out of the 9 different maturity periods for Chinese government bonds ranging from 1 year to 30 years, only the 20-year government bond yield exceeded 2% (2.014%), while the rest, including the 30-year government bond, were below 2%. Specifically, the 30-year government bond yield was 1.954%, lower than the 2.279% yield of Japanese government bonds of the same period, marking a historic reversal that holds significant implications in the international financial arena.
The yuan’s exchange rate against the U.S. dollar also continued to decline, falling below 7.30 yuan per dollar on December 29, 2024.
Against the backdrop of continued economic decline, a wave of business closures is sweeping through China. According to data from the Chinese Cooking Association, over 1.05 million restaurants closed in the first half of 2024, with an estimated total closure of over 2 million establishments by the end of the year. Additionally, the operating conditions of the Chinese banking sector are becoming increasingly severe, with at least 50 small and medium-sized banks dissolving in the first half of 2024.
Scholar Li Hengqing from the Washington Information and Strategy Institute of the United States told Dajiyuan that the main reason for China’s worsening economic situation is the non-market-oriented rule by man, where the party leads everything and determines supply and demand, pricing, resource allocation, among other aspects.
In October 2024, according to reports from the First Financial, rumors resurfaced that the CCP authorities intended to impose a “wealth tax” on overseas individuals. The reports mentioned that relevant regulations introduced as early as 2020 had laid the groundwork for the implementation of the “wealth tax” on overseas individuals.
According to these reports, Chinese residents, whether earning taxable income from abroad or domestically, or receiving taxable income domestically and transferring it overseas through other means, are required to pay personal income tax to the state. In March 2024, a tax reconciliation service and risk warning from the Taxation Bureau also indicated that residents must report and pay taxes on their overseas income.
In recent months, some wealthy individuals in China have been asked for self-assessments or jointly assessed by tax authorities for potential overdue tax payments in previous years. Some of these individuals own assets exceeding $10 million overseas or are listed company executives in the U.S. or Hong Kong.
Li Hengqing believes that due to the CCP’s financial woes and mounting debt, resorting to levying a “wealth tax” on overseas investments is a desperate move. However, imposing a “wealth tax” will not yield significant revenue for the CCP.
He stated, “The ‘wealth tax’ is a double-edged sword that will compel wealthy Chinese citizens to accelerate the movement of their funds out of China. They will try every means to withdraw and transfer their invested stocks, bonds, and other public assets held, either directly or indirectly, to relatives with foreign status or even change nationalities to avoid the CCP government’s double taxation.”
According to data from the State Administration of Foreign Exchange of the CCP, since Trump won the U.S. presidential election, capital outflows from China’s capital markets reached a high of $45.7 billion in November 2024, marking a record monthly outflow. Data released by the Ministry of Commerce of the CCP showed that actual foreign direct investment in China from January to November 2024 dropped to 749.7 billion yuan, down by 27.9% year-on-year.
Li Hengqing stated that this $45.7 billion is just the net outflow of capital as calculated by the bureau for one month, and the actual numbers are unknown, but the total capital flight should be significant, possibly reaching several hundred billion dollars. Currently, everyone is trying every possible means to transfer funds abroad through various channels such as corporate channels, personal channels, capital flows, foreign withdrawal of funds, underground banks, etc.
Moreover, as previously revealed by The Wall Street Journal, from the end of June 2024, the amount of funds illegally transferred overseas by Chinese individuals reached as much as $254 billion within a year, surpassing the amount of capital fleeing China in the past ten years. However, the actual amounts are believed to be even higher.
Li Hengqing mentioned that although the U.S. has tightened its investment immigration policies, Trump has indicated: if you have $3 million to invest in the U.S., you will immediately receive residency. If the CCP truly imposes a “wealth tax” on overseas wealthy individuals, many Chinese magnates may immigrate to the U.S. for investment purposes.
Li Hengqing emphasized, “With China’s economic decline, capital not only fails to generate profits in China but also faces significant political and economic risks. When various factors are combined, a trend of capital flight emerges, which is the basic trend.”